May 14th 2021
For those that are new to this concept house hacking can be defined simply as: ” a strategy that involves renting out portions of your primary residence to generate income that is used to offset the cost of your mortgage and other expenses associated with owning a home.”
My house is not big, but even this tiny house has done a lot for my personal finances. When buying this property the two things I focused on most where as follows:
- No.1 – Limit Downside Risk (good area, long-term job prospects, good transport links, starter-home etc.)
- No.2 – Look for ways to reduce cost (thus further limiting risk).
It is the number two that can really have a drastic effect over the long-term. In the UK, we have a scheme called “rent a room”. This allows you to rent a room in your house up to a total of £7500 per annum tax free. That’s a remarkable amount. Tax free £7500 is equivalent to being paid between £10,000 and £14000 depending on your tax bracket.
More people simply don’t want to sacrifice their extra space. But when you put it like that it seems hard to argue against.
Furthermore, the £400 I get paid from my spare room each month covers the interest part of my mortgage. Which means all the money I personally pay to the bank is going into my monthly net worth increases.
Now imagine you had more than one room. Or a duplex where you do not even have to live with the other person. It is easy to see how quickly the money can stack up, as your expenses can be lowered to close to 0.
If you invest all your income, or a high percentage of it, the path to wealth is simple.
Would you ever try house hacking? I’d love to hear your thoughts!