With mortgage rates and home prices rising, many are turning to "house hacking," or the practice of renting out their property while living in it, in order to earn extra income to pay for a home.
Nearly 40% of buyers who purchased their homes in 2023 said they found it "very" or "extremely" important to be able to rent out part of their home while living in it, according to Zillow's 2023 Consumer Housing Trends Report. That is up 8% from the previous year.
While house hacking can be lucrative and can help homeowners pay for their mortgage and other housing costs, it can also come with risks that could rack up expenses.
If you're considering house hacking, here are some common pitfalls you should know.
1. It involves a lot of work.
House hacking is essentially a small business, with you as the landlord. Some of your responsibilities as a landlord include filling a vacancy, marketing any available unit, and screening tenants to ensure they will pay their rent on time and they will be good roommates.
In addition, being a landlord also means maintaining your home. This means scheduling repairs where needed and doing upgrades where necessary.
2. There are laws to follow.
When you house hack, you are required to follow national and state housing and business laws to avoid facing legal penalties. Some states have very specific zoning restrictions and laws on tenant safety, permit compliance, and anti-discrimination standards. If you're renting out space in your condo, you would also need to comply with rules from the homeowner's association.
3. You will lose privacy.
With house hacking, you will be required to give up a portion of your house. Whether you're renting out an extra bedroom, the attic, or the basement, these areas will no longer be accessible to you. You would also have less privacy as your tenants are a wall away.
4. You may face high turnover.
As a landlord, you need to find tenants for your property to generate income. If you are unable to find anyone to fill open space or if you are experiencing a high tenant turnover, your monthly cash flow will be affected. If you are unprepared for this situation, you may have difficulties paying for your mortgage and other housing costs. As such, it is important to have a solid investment plan in place.
READ MORE: What Is House Hacking and How Can You Make Money From It?