I think house hacking is a great strategy for a lot of people. That’s why I wrote a book with Simon & Schuster teaching people how to do it.
But, I also understand that it isn’t for everyone. In this article, I will cover 7 reasons why you shouldn’t house hack.
When it comes to investing, I’m a big believer in SWAN – Sleeping Well At Night.
This doesn’t mean I don’t believe in risky investments, because I do, but only if you can sleep well at night. I believe in them for the right person.
Penny stocks are generally considered a very risky investment, but some people can sleep well at night knowing they own them. Great. That’s fine for them.
For many other people, they couldn’t sleep well at knowing they own them. For those people, I think it’s a bad decision to own them.
Now, don’t get me wrong, I don’t personally think house hacking is anywhere near as risky as penny stocks. I used penny stocks as an example to illustrate my point because the relationship with risk is the same for house hacking as it is with penny stocks.
Despite house hacking not being as risky as penny stocks, it still may be too risky for you, if you’re too risk-averse, if you can’t sleep well at night knowing you’re house hacking, then that’s a good reason why you shouldn’t house hack.
Short-Term Thinker or Situation
In the fine print of most mortgage documents, it states that you must live in the home for at least 12 months after purchasing it. That rule applies when house hacking, too.
Generally, house hacking is something you must commit to. If you’re thinking in days, weeks, or even months, rather than years, then you shouldn’t house hack.
Also, if your situation in life calls for you to move in the short term, whether it’s for work, school, or something else, that’s a reason why you shouldn’t house hack.
Not Wanting to be a Landlord
We’ve all heard it.
“I don’t want to own real estate because I don’t want calls from tenants at 2 am for a broken toilet.”
I’d argue that shouldn’t be a major concern for people and that it’s an inaccurate assumption accepted by many people, but if that’s a concern of yours, you shouldn’t house hack.
Other than just fixing toilets at 2 am, there are many other responsibilities that come along with being a landlord. You are responsible for someone else’s living situation and their choices.
You are responsible for giving someone else a safe, clean, reliable place to live, and you have to deal with the choices they make while living there.
If these are things you’re not okay with for the potential financial gain you might get from house hacking, you shouldn’t house hack.
House hacking is usually done by younger people and those who are a bit earlier on in their real estate journeys. Not always, but often.
It also often doesn’t require a massive down payment.
Given that, you may not have huge opportunity costs, and house hacking might be the right choice for you. But, it’s at least worth considering your opportunity costs.
If you’re not a numbers person, it can be a bit harder for you to do this, but you should consider what else you could do with the money you’d use for a down payment on a house hack.
What are you not using that money on now because you’re using it to house hack? Which return is better? The other thing you could use the money for, or the house hack?
You don’t always have to choose the one that provides the best return, but you should at least consider the opportunity cost so you can make a fully informed decision.
In the case that the opportunity cost is too high, that may be a reason not to house hack.
Don’t Have Any Money
One of the benefits of house hacking is that it can allow you to get started in real estate investing with less money than most other strategies.
With a house hack, you can often put just 3.5-5% down for a down payment. In other real estate investing strategies, you need upwards of 20-30%+ for a down payment.
Using a $400,000 property as an example, that’s the difference between needing $20,000 (5%) versus needing $120,000 (30%) – a $100,000 difference. That’s huge.
That said, if you have no capital at all, or just barely enough for the down payment, it likely isn’t smart to house hack yet.
Murphy’s Law says anything that can go wrong will go wrong. While you might get lucky, it’s smart to have enough money for reserves to cover unexpected repairs and expenses, in addition to the down payment amount.
Can’t Find the Right Deal
The right deal can be defined in a lot of ways, but the two main ways here are from a financial perspective and from a property perspective. Both are necessary.
You might be able to find a property that is a homerun deal with the numbers, but it’s in a location you don’t want to live in or is a property type you don’t want.
The opposite can be true as well. You could find the perfect property type in the perfect location, but the numbers could be awful.
You shouldn’t house hack in both of these situations.
It’s not wise to buy a real estate deal just to buy a deal. I’ve seen it time and time again. People are looking for tax savings, given that real estate can give great tax benefits, they buy a bad deal, just for the tax benefits.
The same goes for house hacking. There are tax benefits when house hacking.
But, if you can’t find the right property that makes sense for your situation, you shouldn’t house hack. Don’t buy a deal, just to buy a deal.
Partner Isn’t on Board
The final reason why you shouldn’t house hack that I’ll cover in this article is that your partner or interested party isn’t on board – isn’t willing to house hack.
This could be someone you’re buying the property with, living with, dating, married to, or something else.
I’ve been in this situation. I’ve had an interested party not willing to house hack. Even though I was, they weren’t, so I couldn’t do it at the time.
To help them learn, you can show them this site and explain all the benefits to them, but if they’re not willing to budge or make the sacrifices needed to house hack, then you’re out of luck.
If this is you, take a look at all of the different ways that you can house hack. There are some that are intrusive to your living situation, and some that you can’t even tell you’re house hacking. Maybe the person blocking your desire to house hack would be open to a situation where they don’t have to sacrifice as much. Maybe they’re only thinking about living with roommates.
Frequently Asked Questions About Why You Shouldn’t House Hack
The downsides of house hacking are that you may be stuck paying the entire mortgage if your tenants don’t pay rent, your tenants may trash your unit(s), you may have to manage the property and tenants, and you may have to live next to, or with, someone else.
The pitfalls of house hacking are that you may need to manage the tenants, deal with non-payment of rent, potentially deal with trashed unit(s) from bad tenants, and may have to live with/next to someone else.