Housing, whether rented or owned can take a large chunk of your monthly budget. That's why if you want to keep your household budget in check and get ahead in the real estate market in Vancouver, there are a few alternatives you can explore and one of which is house hacking.
While it may sound Greek, house hacking isn't rocket science. Ever heard of Vancouver mortgage helpers? They can help cover property expenses so long as they meet qualifications.
What is House Hacking?
House hacking, as the name implies, is a type of measure to living cheaply or for free. So if you have a duplex property, you have on one side and have the other side rented out. Aside from a duplex, you can house hack your property if it's a triplex, a fourplex, or even a single house.
Mobile homes and garage apartments can also pass off for house hacking. The best thing about house hacking is that it can help you pay if not all of the housing costs. If you decide to move out in the future, your property can be converted into a long-term rental investment. Now that’s financially savvy.
Vancouver mortgage helpers and house hacking
For first-time homebuyers, purchasing a property can be taxing considering Canada's rising housing costs. Having alternative money-strategies handy can help you survive the real estate market.
With Vancouver mortgage helpers, you'll be able to gain peace of mind because they can keep your decisions in check especially when it comes to house hacking.
A mortgage helper refers to a rental suite in which your income is used to pursue a mortgage application. Its primary purpose is to give consumers an option to lessen the burden of repaying mortgages.
Another purpose of a mortgage helper is to help those who are in dire need of extra income to purchase a house in a more expensive location. In applying for a mortgage, you have to secure two year's worth of rental data to analyse the average rental price in your location if you're looking to buy a secondary suite.
Secondary Vancouver homes with suites
A Vancouver rental suite can become a mortgage helper if it complies with local rules and regulations. The suite needs to be self-contained within your property and should have its own living areas, kitchen, bathroom, and separate entrance.
Vancouver mortgage helpers also have proper sound-proofing and ventilation and they are zoned to give way for secondary rental suites. You can't declare the income you'll collect from your main property and secondary suite unless they meet these requirements.
In Vancouver, not all municipalities and cities allow for secondary rental suites, so before you consider it, be sure to research your area.
Buying A Duplex With A Mortgage Helper
Owning a secondary suite is beneficial to both the homeowner and the tenant. However, while it has been considered as a mortgage helper, there are areas in Vancouver where duplexes are prohibited so you might need to check laws in Vancouver before exploring this option.
Duplexes unlike single-family homes have a competitive advantage. They are known as strata properties because there are some portions of the property that you can share with more than one owner.
For secondary Vancouver homes with suites to be considered legal, it needs to undergo inspection to determine whether or not it complies with the BC Building Code and City Bylaws.
So if you consider having a secondary suite as a mortgage helper, be sure that you are aware of its implications. Once you have a secondary rental suite, it may decrease the availability of street parking because as the number of residents increases, there will be more cars in the area as well.
If you have a small neighborhood, adding street parking can pose a risk to safety. Also, there are tenants who don't think about the welfare of their neighborhood leaving the community poorly maintained.
Reasons to House Hack
A report from the U.S. Bureau of Labor Statistics in 2015 showed that a whopping 19.2% of the U.S household's expenses were allocated to housing. This means that families spend $895 per month or $10,742 per year on household expenses.
In Canada, the average housing costs per year is $17,509 or $1,459 per month. Keep in mind that these figures will increase depending on your location. Consider these numbers, you'll come to realize how important house hacking is.
1. It gives you a flexible choice
There will come a time when you need to make a tough decision such as moving out of town because of family issues or changes in your job assignment. In this case, your property is often at stake.
The expenses associated with buying a new property can be stressful, but with house hacking, you can cut all these expenses by renting out part of your existing property.
2. Lower risk source of passive income
Another reason why you should give house hacking a go is because it has a lower risk compared to other types of passive income. While it doesn't mean that you're completely spared from other risks like managing your property and dealing with expenses, you can still prevent serious issues because you're living on the same property.
You can immediately catch small problems before they snowball into bigger ones
3. Reap tax benefits
House hacking isn't only helping you reduce your household expenses as it can also provide you with numerous tax benefits. Some of the benefits you'll enjoy from considering house hacking include:
- Appliance replacement
- Property Tax Deductions
- House maintenance cost
- Rental-related services costs
- Utilities
- Deductions from the interest tax of your income
How to house hack with a mortgage helper?
Know your funding source
Since you're an owner-occupant, you get to have the privilege to apply for a mortgage or any type of homebuyer-assistance program. Keep in mind though, that to qualify for a mortgage, you have to live in one of the units of your property.
Not only will you have attractive terms but low down payment options as well.
Search for the best property
If you are looking into buying a multifamily property, be sure to have a rental property business owner's mindset. This means that you should give importance to your property's location as this will be a critical marketing factor.
A good location enables you to get the right purchase price. Other factors to take into consideration are the job growth, population growth, and of course, availability of local amenities.
Do the number crunching
Once you've found properties that fit the bill, the next step is to run the numbers so you will know whether or not you're making a wise investment. When running an analysis, you need to get the Net Operating Income which is an estimation of your property expenses and rental income.
The factors you have to include in the calculation are as follows:
- Vacancy reserve
- Insurance
- Rental income
- Property taxes
- Maintenance and repairs
- Utilities
- Operating expenses
You'll need to calculate your monthly mortgage payment, which includes the estimated down payment amount and the purchase price. Once you have determined what your monthly payment is, you have to subtract it from Net Operating Income so you can get your monthly cash flow, which refers to the total rental income left after paying your property expenses.
If you have a positive cash flow, it means that you are benefiting from your property by living for free with leftover from your income. Even if you have a negative cash flow, you still have reduced personal living expenses.
Be sure, by the end of the day, that the numbers suit your financial goals. It is necessary that you run an accurate deal analysis to ensure you make the right decision. You'll also need to check some additional resources especially if you're investing for the first time.
Mistakes to avoid when house hacking
Now that you're ready to house hack, you'll need to safeguard your property so it can turn into a good investment. While house hacking isn't foolproof, you can spare yourself from future headaches by avoiding these major pitfalls.
Choosing an undesirable location
Location can be a deal-breaker if it doesn't allow you to charge profitable rates. If you want to attract quality tenants, be sure that you consider a desirable neighborhood.
Not giving importance to local ordinances
Yes, they're just as equally important as other aforementioned factors. If you're planning to undertake a renovation project to your existing property, you have to check the local zoning ordinances to avoid legal consequences that may impact the value of your property.
Not setting aside money for repairs
An experienced landlord would agree that preparing a budget for repairs is a must. While house hacking is a long-term investment, it doesn't mean that your property is damage-proof.
There will come a time when your roof will collapse or appliances will break at once. These situations, if you're unprepared, can hurt your finances.
You can protect yourself and your investment by setting aside a percentage of your rental income for emergencies, vacancies, and repairs.
Not taking landlording seriously
Just because you're the landlord doesn't mean that you can easily shirk responsibilities associated with your role. A large part of the success in house hacking your property involves taking your duties seriously.
Failure to screen tenants can be detrimental to your investment, especially if they keep on missing payments. Aside from screening, you should also be responsible for collecting rent, evicting tenants, if necessary and responding to repair and maintenance issues.
Not setting boundaries
Though you're living on the same property, it doesn't mean you shouldn't enforce boundaries. You're still the property owner and it's only imperative that you set expectations to avoid miscommunication.
Bottom Line
You can pay off your mortgage over a short period of time once you perform house hacking correctly with a mortgage helper such as a Vancouver home with suites. Not only will you reinvest your cash flow, but you'll also expand your portfolio with this method and eventually gain financial freedom.
