Many households in the US spend a huge portion of their yearly income on housing whether through mortgage payments or on the monthly rent. However, imagine if you could live without paying off your mortgage from your pocket. How much money could you save up? Though this may sound far-fetched, it’s actually possible. You can live for free through house hacking with Airbnb. The basic idea of house hacking is to use the rental income you receive from other people to cover your own housing expenses or even make a profit.
House hacking with Airbnb is one of the best ways to get into real estate. It involves buying a multi family home, living in one of the units, and renting out the other units on Airbnb. The rental income from the other units should offset most or all of your housing costs. You should, however, be ready to sacrifice your comfort for a period of time. Though it may not be easy to pull off, it is a great investment strategy for first-time real estate investors. When done right, you can use this strategy to build wealth in the long run. If you are wondering how to live rent free with Airbnb house hacking, this blog is for you.
To learn how to become an Airbnb host from scratch, read our beginner’s guide.
How Can House Hacking with Airbnb Be Done Successfully?
It is possible to start house hacking with Airbnb by renting out a spare room or rooms in a single family home. However, multi family homes are best for Airbnb house hacking. This is because you will be able to charge a higher rental rate when renting out a unit rather than a room. You could consider buying a duplex, a triplex, or a fourplex. Since multi family homes can be very expensive upfront, buying a duplex would be the best option for beginners. A triplex or a fourplex may be more expensive upfront and harder to find depending on where you start your search.
In order for you to successfully hack your house, there are some things that must come together in harmony. Generally, Airbnb house hacking will rely on the following things:
- A good location for Airbnb investment
- An affordable or below market value income property
- A mortgage with affordable down payment and low interest rates
- A high rental income that can cover the housing costs
Based on these Airbnb house hacking basics, here are the three steps to house hacking with Airbnb.
3 Steps to House Hacking with Airbnb
1. Explore Your Investment Property Financing Options
To be successful in house hacking with Airbnb, you should go for mortgages with an affordable down payment and low interest rates. However, before you begin exploring your options, make sure you meet the basic requirements of mortgage lenders. Generally, to get approved for a mortgage, you will need to have a good credit score, a low debt-to-income ratio, a good cash reserve, and enough money saved up for a down payment. For conventional loans, a down payment for rental property is usually a minimum of 20%.
For beginner real estate investors, raising enough money for a down payment can be hard. Therefore, knowing how to buy a multi family property with no money would be crucial. Since you will be living in one of the units, it’s best to take advantage of owner-occupied financing due to the low down payment and low interest rate requirements. Some of the best loan types for Airbnb house hacking include FHA loans and VA loans. An FHA loan is the most popular mortgage used when buying an owner-occupied property. It has a low down payment of 3.5% and does not require a high credit score.
2. Find a Good Location for Airbnb
Location plays a big role in real estate investing. It is even more critical when it comes to Airbnb house hacking because it will determine the investment property price, the Airbnb occupancy rate, and the Airbnb rental income. The housing market should be a magnet for tourists for you to have a good Airbnb occupancy rate. You should study the Airbnb laws of an area to make sure that they are favorable for Airbnb investing. Some cities in the US have strict Airbnb regulations. For instance, there may be restrictions on the number of guests you are allowed to host or you may need to obtain a license first. In some cities, renting out a non-owner occupied property on Airbnb is illegal and in others, renting out on Airbnb is banned altogether. Make sure you oblige with the Airbnb laws of the city to avoid any penalties.
To find a good investment location, you need to do a thorough real estate market analysis. You can find the best cities for the Airbnb investment strategy by checking for Airbnb city data on Mashvisor’s real estate blog.
You can easily find a profitable neighborhood for Airbnb investment using Mashvisor’s real estate heatmap. The heatmap tool will show you the best performing neighborhoods in your city of choice based on metrics like listing price, Airbnb rental income, Airbnb cash on cash return, and Airbnb occupancy rate. Just set the filters and the heatmap tool will highlight the neighborhoods based on performance using different colors.
3. Find a Profitable Multi Family Investment Property
After finding a high-performing neighborhood for Airbnb investment, the next step is to find a profitable multi family home. If you want to succeed in house hacking with Airbnb, you shouldn’t go for expensive or luxury properties. You should look for a below market value property or at least one you can afford. Consider properties with motivated sellers such as short sales and foreclosures. You can find these investment properties for sale using Mashvisor’s Property Marketplace.
The investment property should also produce enough income to offset your housing expenses. With our Airbnb profit calculator, you will be able to accurately analyze Airbnb investment properties in your neighborhood of choice. The calculator uses Airbnb data and Airbnb analytics to calculate the potential return on investment (ROI) of an Airbnb investment property. Remember to adjust the values of the occupancy rate and rental income to account for the fact that you will be living in one of the units. You should also set your mortgage information and other housing costs. This way, you can ensure that the Airbnb rental income covers all your housing expenses so that you’re living rent free. If the cash flow is positive, it means that you are making some extra cash. However, negative cash flow shows that the rental property is not suitable for house hacking with Airbnb.
The Bottom Line
When done right, house hacking with Airbnb can bring your dream of living for free to reality. While living rent free is a great idea, real estate investors can also use Airbnb house hacking to gain more. This strategy can be used to make money in real estate and build wealth. After building enough equity, you can refinance and acquire a second investment property.
If you are looking to start house hacking with Airbnb and live rent free, following these steps and using Mashvisor’s tools will increase your chances of success!
To start looking for and analyzing the best Airbnb investment properties for house hacking, click here.