How to Hack Your Housing Costs and Climb the Housing Ladder

Worried that the housing ladder is broken?

Whether you’re afraid for yourself or for what this means for your friends and community, this issue is growing in importance in the following years. In many urban centers across North America, it’s becoming increasingly hard for folks to afford living space. I see this with my tenants in the rental market, but it is also true for would-be home-buyers. Big cities in Canada—like Vancouver and Toronto—are now similar to places like LA, New York and Miami. Folks are doubling up in rental-units or opting for smaller and smaller units as housing costs rise.

I’m excited to share some creative solutions to this problem. Whether you’re a student, a young professional or anyone looking to navigate the tricky waters of housing costs, read on! 

Why Rising Housing Costs Are Such a Bad Thing…

Housing costs are a significant portion of people’s expenses. Our agency assesses tenant applications based on a 30%-50% rule. Rent should eat no more than 50% of a person’s income, but it is ideal for the ratio to be closer to 33%. Banks use the same type of rule when evaluating mortgage debt ratios. 

In urban centers, as housing costs rise, it’s harder for many to manage their finances, let alone dream of becoming home-owners. In areas like Canada, where about half of our income goes to taxes, the burden is even greater. Most of us pay our housing expenses with what’s left after taxes, which is 50-cents on the dollar. The financial squeeze is real! This situation limits not only your lifestyle choices but also your ability to save or invest for the future.

Short of inheriting property or downpayment money, it’s going be a bigger and bigger challenge to get onto the bottom rung of the housing ladder! 

The Hack: House Hacking

Enter house-hacking as a solution. For those who are willing to adopt creative solutions, the prize will ultimately be realzing the dream of home-ownership.

House-hacking is a strategy that involves reducing your housing expenses to free up your budget for other investments. It can range from renting out rooms in your residence to investing in a property specifically for this purpose. The idea is to make housing costs more manageable or even profitable, by turning an expense into an income source.

Starting Small: Rent a Room

The journey into real estate doesn’t have to start with a big purchase. It can be as simple as choosing to rent a room instead of an entire apartment. This decision can more than halve your living expenses, freeing up capital for savings or investment. As a student, I began my Real Estate journey in this way. My first experience living away from home was in an existing hacked-house. I gained experience living with roommates and saved money in the process!

Making this type of decision to live frugally highlights how such choices can significantly impact your financial health and investment potential.

Moving Up: Control the Living Space

Once you’re comfortable with the idea of shared living spaces, the next step could be to rent an entire house or apartment and sublet rooms. Imagine: you can harness the power of Real Estate with no mortgage or downpayment! This move allows you to control your living environment and potentially live rent-free, as the rent from subletting rooms can cover your share of the lease. It can be a strategic move towards financial freedom and a stepping stone to property investment. 

There are two bonus aspects to this choice. (1) You will learn valuable property management skills in a low-risk environment with manageable over-head costs. This is how my journey as a property manager began! And (2), you will be able to get ahead financially without the burden of assuming mortgage debt or the outlay of a huge down payment. 

Advanced House Hacking: Owning and Renting Out

The ultimate house hack involves purchasing a property to live in while renting out parts of it to cover the mortgage or even turn a profit. Whether it’s a duplex where you live in one unit and rent out the other, or a single-family home with rooms for rent, this strategy can significantly offset your living costs and contribute to your investment portfolio.

The exit strategy can be “taking over” the home bit-by-bit for your family. When I purchased my current (and first) single-family home after ten years as an investor, this is the strategy I used. 

When I bought our house, the big mortgage payments were a stretch for me, especially as a single mom with a baby on the way. My solution was to take on a roommate and then to Airbnb a section of the basement until I was comfortable enough financially to make this additional income unnecessary. 

My family currently enjoys the full use of our single-family home in a pricey market because I was able to “scale down” that first step onto the housing ladder—by renting out space—thereby decreasing the size of the financial burden of the monthly mortgage payments at the time of purchase. 

Legal and Financial Considerations

House hacking comes with its share of challenges, including legal and financial considerations. It’s crucial to understand the zoning laws, insurance implications, and rental regulations in your area. Conducting due diligence on potential tenants and being transparent with your landlord (if you’re renting) or the city officials and insurers (if you own the property) are key steps to ensuring your house hacking experience is successful and stress-free.

Make sure you do your homework for your local market before jumping on the bandwagon!

Making It Work: The Personal Touch

Living with roommates or tenants requires clear communication and setting boundaries. Establishing house rules, cleanliness standards, and quiet hours can help create a harmonious living environment. It’s about finding the right people who share your lifestyle preferences and being upfront about expectations from the start.

Want to hear me talk more about this topic? 

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