The acronym “FIRE” stands for Financial Independence Retire Early. This movement is all about replacing your job with passive income streams so that you don’t have to work from 8am to 5pm five days a week until old age.
If early freedom is a goal that you have, then you might want to consider using your home to accelerate this process through a principle called “house hacking”.
But, what is house hacking exactly? And, how could it help you to live a financially free life?
8 House Hacking Strategies for Passive Income
Read on to learn eight tactical ways that you can use house hacking strategies to create passive income streams, immediately.
1. Rent Out a Bedroom in Your Home
Do you have a bedroom that has been sitting empty because you labelled it as a guest room, but never end up having any guests over? Many people do.
Stop wasting that bedroom and start leveraging it as a financial freedom tool. It’s easy to rent out one-off rooms like these to someone who needs a clean and inexpensive space to call home.
Many a renter will be grateful to pay you for a place to stay and you can use the extra cash to pay off your mortgage faster, so you can retire sooner.
Of course, make sure to do a proper credit and background check before letting a stranger into your home. You will also want to collect a security deposit and sign a lease, even if the terms are month-to-month. This will protect you if you get into a messy renter situation where someone refuses to pay.
Do your due diligence and you’ll find a suitable renter who will happily help you pocket a nice monthly rental check. You can use sites like Craiglist or Facebook to find a good match.
2. Rent Out Your Home, While Living in One Room
If you are wondering how to live mortgage-free, or how to pay down your mortgage faster than ever, then renting your entire home out is another way to go.
This tip is the exact opposite of the one above.
Instead of renting out a single a room in your home and living in the rest of the space, with this approach, you stay in a single room and rent out the entirety of your house.
Why is this advantageous? The simple answer is that folks are more likely to pay a premium to rent an entire house (minus one room) than they are to rent out a single room.
For example, in the greater DC area where I live, a single room might rent for $700 to 800 per month. In contrast, the entire house minus one room could easily rent for $1500 to $ 2500 per month, depending on the size and location of the property.
Sound uncomfortable? It doesn’t have to be. You can often find friends or family who would be happy to enter into this living arrangement if you give them a 15 or 20% discount off the going rental rates.
With that approach, the deal suddenly becomes a win-win for everyone involved.
3. Rent Out Storage Space
Perhaps you aren’t interested in having strangers traipsing around your home, because you have little ones or you are an introvert who needs their space. That’s totally understandable.
Thankfully, that doesn’t mean that the glories of house hacking are beyond you.
Do you have a storage space, an unused basement, or an empty garage available? Instead of using it to store years of accumulated stuff, you could rent it out to contribute to your early retirement goals.
This rental fee could either be applied to paying down your mortgage at an accelerated rate or to buying cash flow producing investments. Both will improve your monthly cash flow situation, which is the goal, right?
So, think creatively. What are some spaces that you are not using to their max capacity?
Using the website Neighbor.com, you can rent out either physical storage space or vehicle storage space. Both are great options!
4. Rent Out a Parking Space
Do you live in a neighborhood where people are always searching for parking spots and you have a home but no car? Or, do you have a multi-car garage but only need one space? If so, there are now easy ways to rent out parking spots to make monthly cash flow.
Of course, you can always list your parking spot on Craigslist.com or simply post to Facebook that you have a spot available.
But, if you go the do-it-yourself approach with Craiglist or Facebook, make sure you sign formal legal paperwork stating what will happen if the renter defaults, as well as who will be liable if any type of damage occurs to the vehicle during storage.
5. Move-out and Make It a Rental
Most mortgage companies (your lender) have a minimum amount of time that you need to live in the property before you can rent it out.
Typically, your lender will require you to live in the home as your primary home for at least 12 months before converting it to a rental property. It is important to follow your ethics here, because after you close on your new home, the lender will not have any way to tell if you follow-through with this or not.
Why do so many people take this approach?
It is because you can buy a primary residence with a substantially smaller down payment than a rental property.
For example, you can buy a primary residence with as little as 3.5% down using an FHA loan or 0% down using a VA loan or USDA loan.
You will also secure a lower interest rate on mortgage for a primary residence than you will on a rental property, usually between 1 to 1.5 points (%) lower. Over the course of a 30-year fixed rate mortgage, this difference can be worth tens of thousands of dollars.
In contrast, when you buy a rental property, your mortgage company will nearly always require you to put a full 20% down, which for many people, makings buying rental properties a difficult endeavor.
To use this house hacking approach, you simply buy a property as a primary residence, live in it for the minimum amount of time that the lender requires, and then turn it into a rental.
Rinse and repeat! This is an extremely popular and well-known house hacking strategy.
6. Rent Out a Duplex, Triplex, or Quadplex
Many people think only of renting out houses or apartments when house hacking. But they might be forgetting the most important piece of the puzzle.
You can also rent out duplexes, triplexes, and quadplexes.
When you acquire a residential property that has four units or less, you can still get a primary resident loan with as little as 3.5% down (FHA loan) or no money down (VA Loan or USDA loan).
This means you won’t need much money upfront.
The best thing about it is that you can stay in one of the units, while you rent out the others. The rent from the other units should more than cover your mortgage and any other expenses you might have on the total investment.
7. List It on AirBnB or VRBO
If you have the possibility of moving out of your home and into a living situation with a significant other, parents, or friends, then you could consider putting your place on Airbnb or VRBO (Vacation Rentals by Owner).
Even though these websites can be quite strict about certain criteria, like cleanliness, communication with the guest, and more, once you get the hang of it, it can be a phenomenal source of income.
Remember that some states and apartment buildings do not allow Airbnb or short-term rentals, so you will need to do your research beforehand. You don’t want to get into legal trouble as you try to become financially free.
With this hack, you will have to ensure that you create an attractive and inviting space for your guests. Otherwise, you will end up with an empty space and no guests.
Airbnb and VRBO are highly competitive, so you can’t just plop a futon into a bedroom and call it a day. Use your interior decorating skills to create a haven that attracts people to rent it.
8. Buy an RV and Rent It Out
With this approach, you put your attention on acquiring a less expensive type of temporary home, such as a recreational vehicle (RV).
Typically, a new RV costs between $30,000 to $100,000. Used RVs are often much cheaper and can be priced as low as $15,000 or $20,000.
Plus, most RV vendors have lots of financing options available, which means that you can acquire them for a small down payment while making loan payments over time.
After acquiring an RV, you then rent it out on one of these popular sites:
As long as the monthly cash flow that you are making from renting out your RV exceeds your costs to acquire and maintain it, this can be an inexpensive way to get started on your house hacking journey.
What Is House Hacking, Exactly?
Now that you know what house hacking is, it’s time for you to apply these tips to your own home or living quarters. Think about all the spaces in your home that are sitting idly. Don’t waste their earning potential.
If you take action on these tips, you could kick-start your path toward financial freedom and become financially free years, maybe decades, before your friends, family, and acquaintances.
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