House-Hacking at 22:
7 Tips Before House Hacking
When I was 22, my then-fiancé and I purchased our first house. It was a small, raised bungalow style house – about 600 square feet per floor, and it had two apartments in it.
The upper apartment was a one bedroom, living room, big kitchen and full bathroom. The lower unit was a one bedroom with an entry way living room, kitchen, full bath and bedroom.
The house was a great price for us back then. We had to put down 5% and the bank financed the rest. In Ontario, anything financed for more than 80% value requires high ratio insurance, which means the bank is insured if we were to default. We paid for that, of course, and lawyer’s fees as well as land transfer tax, which is a government tax that buyers pay when purchasing land. It’s a percentage calculation based on the value of the property.
So we bought this little house with a great big backyard, and the bottom rental unit was occupied by the seller’s son’s friend. We decided to assume the tenant (meaning, we kept him on).
Here’s some of the tips I learned about buying your first home that you plan to house-hack.
(house-hack: when you purchase a house with intention to rent out or subsidize the costs through tenants while you reside there.)
- Assuming tenants that are friends of the seller isn’t always the best bet. Whatever deal they had with the landlord previously does not necessarily continue – like payment arrangements. We had to chase down a few rental payments, which put our payments in jeopardy if we relied on that money.
You also do not have the opportunity to do background checks or credit checks as easily when assuming a tenant, as they already live there and have already “been approved” by the seller. Beware accepting anything sight unseen.
- Inspections on the house are only visual-deep. If you have tenants, be sure to ask what the issues are before the inspection. We did not know that there had been water damage in the basement prior to ownership, and as it was well hidden behind drywall not made for a bathroom, it crumbled on us one unsuspecting day.
Tenants are notorious for waiting until the house changes hands and then having a multitude of requests for upgrades and repairs, as the previous landlord and seller may have checked out – aka didn’t care anymore.
- Always plan to have enough money to pay the bills, even if your tenants don’t. Especially with property values skyrocketing in most places, you should never buy a property that is above your needs and means. For us, we made sure that we could afford the house without the tenant, but having a tenant meant we were mortgage free.
- Check your heating and air conditioning. If it’s all one system, and it’s in the basement, you will need to advise the tenant you need access if there’s ever an issue. Same goes for the electrical panel. Have a saucy tenant? They could turn off your hydro at any time!
- The other part of having only one heating system is that what goes in must come out. If one party smokes and the other doesn’t, it will still cycle throughout the house. Even if you have a smoke-free policy, it is very hard to enforce and you may find your part of the house filled with some interesting smells, and that also includes cooking, and anything else that is released into the air, like candles or incense.
- Who has access to the backyard? Who has access to the front yard? Our home had a huge backyard that we fenced in for our dog. Some tenants might find that a deal-breaker and want access. Make sure that you check with your tenant before you make major changes.
- Designate parking. Even though you own the property, your tenant or roommate might not agree that it entitles you to the main parking spot. That goes for single drives – be sure you can get your car out of the driveway when you need to!
These tips might seem straightforward, but be sure to think about them before you jump into house-hacking. We were young, and it was sometimes a disadvantage when we were looking for tenants because there wasn’t the same amount of respect for a young landlord.
Check into home insurance for renter coverage. Some may require a different insurance when you have tenants under your roof, and some may require that your tenants have their own content insurance, should anything happen.
Also, remember that there are people who count on you to provide them with the roof over their head. That means if anything breaks down (like a furnace or roof), it’s up to you to fix it promptly and safely. Even if they don’t pay rent on time (or at all), it’s a different situation when the necessities of life are being threatened. Be sure you can afford your house and all the bills, plus any repairs.
Lastly, no one cares for your home the way you do. Try to bank that extra money for a while until you have a good nest egg for any surprises that come your way. You’ll be amazed at how much better you can sleep at night when you are ready for anything!
Good luck and happy house hacking!
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