4 Things to Consider before Home Hacking

The most frequently asked questions we receive are about home hacking and whether it’s worth it (or even possible!) to pursue. Before committing to the home hacking journey, here are the top four things we think people should consider.

1. You have to get clear about your goals.

One misconception we hear a lot is that the primary goal of home hacking is to live for free. While living for free is a great aspiration, we prefer to define home hacking as making intentional lifestyle and financial decisions that aim to lower your cost of living. This definition means home hacking isn’t some lofty goal but attainable for many people. For example, if you decide to have a roommate to save on rent, you’re home hacking!

It’s important to consider what version of home hacking is financially achievable and what you are willing to sacrifice from a lifestyle perspective. For example, if you aren’t in a position to buy, are you ready to lease a place with a roommate to cut down on costs? Or, if you already own a condo, are you willing to have Airbnb guests stay in your second bedroom?

We fall on the farther end of the home hacking spectrum. While we have the privilege (which we don’t take lightly) of being able to purchase a two-flat, it also comes with the responsibility of becoming a landlord.

Our goal was never to live for free, but we did set three goals upfront and stuck to them at every point of the decision-making process:

• Upgrade from one to two bedrooms so that we can live and work comfortably

• Stay close to the Chicago neighborhood we already know and love

• Significantly lower monthly living expenses while building equity to provide more short and long-term financial freedom

We suggest creating a similar list to keep you grounded in your goals and sharing it with your support team. If you are home hacking with a partner, family member, friend, or anyone else, it’s crucial to be aligned on these goals and re-visit them regularly.

2. Research is everything.

Before we even started looking in-depth at the real estate market in Chicago, we did hours of general research about home hacking. Before building our team, we wanted to understand the home hacking and multi-family investing community deeply. We have found a lot of value in listening to podcasts, watching YouTube videos like the millennial-friendly Lilli Thompson, and joining the local Bigger Pockets forum.

Once we understood the various home hacking models and felt confident that we had the skills and knowledge to pursue it ourselves, we began getting hyperlocal. Knowing we wanted to buy a multi-family home, we attended 2-3 open houses each weekend and did block-by-block research online and on foot.

We sought to understand the tenant pool, how much other two-flats and multi-families were charging for rent, how much comparable homes sold for, and how quickly they went off the market. We also looked into which school districts were best for long-term valuation and how different buildings were zoned.

We spent at least four months soaking everything in and getting more specific about what we were looking for. After each open house, we practiced running the numbers to see if the property was a “good hack.” Many were not, but we got excited about the few that were. We used this home hacking calculator from Straight Up Chicago Investor.

3. Building the right team is essential.

If you are buying a property, building a real estate team as soon as possible is essential. Things move quickly, so having everything lined up in advance will make it more likely you’ll be successful in closing the deal.

This is the pre-closing home hacking team we built:

• Real estate agent - We recommend finding someone who specializes in multi-families or real estate investing. If this is their niche, they’ll have better leads and help you matter-of-factly run the numbers. It’s a bonus if they own their investment properties and have done it themselves.

• Lender - It’s important to shop for the best deal and get a pre-approval to understand what you can genuinely afford. If you put more than 20% down, you can talk to any traditional lender. If you put down less than 20%, you’ll likely need to find a local lending partner.

• Inspector - If your real estate agent specializes in investing, they’ll have a good inspector who regularly inspects investment properties.

• Lawyer - Again, if your real estate agent specializes in investing, they should have strong recommendations. It’s best to work with a responsive, detail-oriented lawyer who can quickly adapt to potential changes.

4. Patience is key.

It took us about a year from the time we got interested in home hacking to closing on our two-flat. And, even now, we are still renovating, finding more contractors to join our team, and securing tenants.

The biggest thing we’ve learned throughout our home hacking journey is to be patient with the process. The perfect home never presents itself immediately, but when you eventually find it, the stars will align and you’ll know all of the hard work and effort was 100% worth it.