“Our budget for a starter home was between $600,000 to $700,000, but when we toured homes in that price range in D.C. or Northern Virginia, we found out that most of them weren’t up to the quality of the townhouse we’re renting,” said Yam, a nurse practitioner at George Washington University Hospital in D.C. “We were preapproved for a loan of more than $1 million, but we want to be careful with our spending.”
With a plan to bring in a tenant, they upped their budget and purchased a single-family home in Michigan Park in Northeast D.C. for $865,000.
Chan and Yam are part of a growing group of buyers who hope to make homeownership more affordable through house hacking. In a recent survey by Zillow, 55 percent of millennial home buyers and 51 percent of Gen Z home buyers said they think house hacking is a good path for homeownership. More than half of both age cohorts hope to transition the home into an investment property when they’re ready to move up.
Finding the right configuration for house hacking
House hacking can refer to any arrangement that includes a tenant, such as a housemate renting a bedroom, basement or apartment over a garage, or, on a bigger scale, leasing a second, third or fourth unit in a duplex or small apartment building.
While some home buyers are fine with sharing living space with their tenants, others prefer to rent a section of their home that has a separate entrance.
Villy Iranpur, a real estate agent with RLAH @properties in Chevy Chase, Md. and a board member of the Greater Capital Area Association of Realtors, owned a two-bedroom condo in Rockville where she rented a room to a tenant and shared the kitchen and living space.
“Now I own a single-family home in Brightwood specifically because it has a separate basement that I rent to a tenant,” Iranpur said. “That way I have more privacy.”
When Thai Hung Nguyen, a real estate agent with Better Homes and Gardens Real Estate Premier in Falls Church, Va., and his wife purchased their first home, a three-level townhouse, they thought they would rent the lower level.
“The lower level had a bedroom and full bathroom, but we didn’t think ahead about the fact that it wasn’t closed off from the rest of the house,” Nguyen said.
They decided they didn’t want to live with a stranger in their home. In addition, as with many older homes, the laundry room was on the lower level.
Yam and Chan, a tech sales consultant who works in Tysons Corner, Va., looked in Northern Virginia and D.C. for a townhouse or single-family home with a separate entrance to a basement.
“A friend of ours bought a rowhouse in D.C. that had space like that to rent for extra income through ‘Furnished Finders,’ which is primarily used by traveling health heal workers for short-term rentals,” Yam said. “We wanted a location where we want to live most of all, but secondarily we thought about a location where people might want to rent our space, too.”
Their new house is 2,100 square feet with four bedrooms and three full bathrooms.
“We have family in the area and plan to stay here, so we’re happy to have a single-family home that we can grow into,” Chan said.
In the meantime, Chan said, they plan to add a kitchen counter with an induction cooktop to the wet bar in the basement, which already has a small refrigerator for tenants.
One issue they haven’t solved yet is laundry. Their washer and dryer are in the basement, which would be inconvenient when a tenant is in place, especially a long-term renter. They may add a second laundry set upstairs in the future.
“One of my clients bought a house in Herndon with a walkout basement with a separate entrance, a bedroom, a full bathroom to rent to a tenant,” Nguyen said. “That house has two sets of laundry machines. They had to bid up to buy it, but they found a tenant right after the closing to subsidize their mortgage.”
Depending on the property, buying a home with a space to rent to a tenant is likely to cost more than one without rentable space. If you’re thinking of house hacking, start with a consultation with a lender and a preapproval for a loan to find out how much cash you need and to get an estimate of your monthly payments.
As long as you live in the home you’re buying or in one of the units if you’re buying a property…
Read More: House hacking helps some buyers overcome financial challenges