You may have heard the term “house hacking,” which is a trendy concept in the investment world. So what is it, exactly?
Basically, it refers to buying a property as your primary residence and rehabbing it. Then you either turn around and rent the property, or flip it after a year.
The idea is that you can use the FHA 203k program to buy something as a primary residence for as little as 3.5 percent down. For an investor, that’s like nothing.
House hacking with a 203k is a great way to get into investing, especially if you’re young and just starting out. The minimal down payment, combined with the flexibility that a 203k allows, and the fact that you can go into it with a credit score as low as 600, makes it an ideal strategy when you want to start building a portfolio of properties.
You can buy a single family, a duplex, a triplex or a quad. As long as you’re living in one of the units, investment considerations aside, you’re still technically living in a primary residence.
The rule of thumb is being able to demonstrate that you bought the property with the intent of making it your primary residence. So after a year, you want to be able to either:
- Refinance out of the FHA 203k, perhaps to a simple, conventional loan, or …
- Flip the property.
As long as your intent was to buy it as a primary residence, you can do whatever you want after a year. And what better way to start your financial future? You buy a property, create instant equity by buying something under-market, then turn around and get your next property.
So if you’re interested in real estate investing, definitely look into the hard-to-beat combination of the 203k and the house hack. It’s a way to get on the right track early with very little money.