GEOFF WILLIAMS, APRIL 10, 2024
Trying to make money from your home without actually selling it is an idea that has been around for about as long as there have been homes – but in recent years, a new term for the idea has come about: house hacking.
For years, bankers have suggested you do what they consider the ultimate house hack – refinancing or taking out a home equity loan. But in both of those cases, while you are getting money from your home, you’re really just borrowing money. If you can use your home as a tool to earn income, without taking out a loan or selling it and moving (the way most people make money from their home), you’ll be reaching house hack nirvana.
What are some classic examples of house hacking? There are probably more than you think. Unfortunately, they’re all easier said than done. Still, if you’re looking for ways to turn your home into a money-making venture, one of these ideas might appeal to you.
House Hack #1: Rent Out Space in Your Home
You could rent out space in your home in a variety of ways, including…
- Taking in a boarder, as in renting out a room.
- Finding a roommate.
- Turning your home into a duplex.
- Renting out your home as an occasional vacation home, perhaps when you go on vacation yourself.
What to consider: How practical it would be to rent out space depends on your situation. If you’re unmarried, a roommate may be a smart and simple way to bring down your costs. If you have a family, bringing in a boarder to mingle with your kids at the breakfast table may have less appeal.
As for turning your home into a vacation destination, you need to have a luxury setting in a desirable location. Most people don’t have the amenities that will draw travelers, so consider whether home improvement projects will pay off in the long run.
If your home would attract visitors, you need to consider things like upping your homeowners insurance, says Brian Mollo, a real estate agent and CEO of Trusted House Buyers, a real estate investing firm in San Diego.
Mollo tells a cautionary tale about a friend who rented out a home to vacationers on a regular basis, which went really well until some visitors trashed it to the tune of $8,000.
The vacationers, Mollo says, “overloaded the dishwasher, causing major water damage, and broke two upper-level windows that needed to be replaced, stained carpets in two bedrooms and burned cabinets. No one is sure how they burned the cabinets, but there was burn damage on the bottom of hanging cabinets in the kitchen.”
Meanwhile, a duplex is a big undertaking. Home improvement website HomeAdvisor.com says you can expect to spend $80,000, on average, to turn a single-family home into a duplex. That’s because you might need to hire professionals such as an architect and engineer to plan for an additional kitchen and perhaps another bathroom or two.
You might also be able to rent out part of your home or property, such as land for parking an RV or garage or barn space to store vintage cars or boats for the winter. Check your local zoning regulations or HOA rules to see what’s allowed.
House Hack #2: Build an Accessory Dwelling Unit
An accessory dwelling unit, or an ADU, is a buzzword for a separate home on your property; think of a mother-in-law suite or a guest home. As the name suggests, it can be used by the homeowner’s parents or family members, allowing multiple generations to live on the same property while maintaining privacy and separate spaces.
Lindsey Harn, a real estate agent with Christie’s International Real Estate in San Luis Obispo, California, says it’s a common scenario.
“I have seen it go so far as an owner renting out Tuff Sheds as guest houses, without any plumbing, in terms of ways to generate income,” Harn says.
Not all municipalities allow homeowners to build ADUs. In places where they are legal, homeowners still need to follow the rules regarding where these dwellings can be built, how they can be used and the maximum allowed square footage. These rules can be found in the local zoning code.
ADUs also need to be hooked up to the home’s existing sewer, water and power lines. You can contact your city’s planning office to ask about the process and the type of permits you will need.
What to consider: If you’ve purchased a home with an ADU, you could rent it without spending a fortune to build one. Finding a tenant may not be difficult, and it may be an excellent way to bring in extra money. If you have adult children or in-laws in need of a place, and especially if they’re willing to pay rent, or you simply want to be a landlord without driving somewhere, having a revenue-generating ADU on your property may be the way to go.
If you’re going to build an ADU and then rent it out, similar to turning your home into a duplex, it will take a while to make back that investment. According to the home improvement site Angi, on average, most homeowners pay between $60,000 and $225,000 to install an ADU. Still, unlike a duplex, you’re only losing yard space, not any of your living space.
House Hack #3: Start a Home-based Business
Starting a business in your home won’t work for everybody, and you are limited in what kind of business you could have. Zoning laws will probably prevent you from opening a restaurant in your house, for instance. But Korey Gregory, a reconstruction manager at ASAP Restoration LLC, says the home contracting company in Tempe, Arizona, has done a lot of remodeling to help small business owners launch businesses.
“We moved a pony wall out of a customer’s living room and that gave her the room to set up a textile loom in the space instead of a television and couches,” Gregory says. “She made extremely high-end fabrics and rugs with intricate and gorgeous designs on them, and her living room ended up being a moneymaker for her.”
Gregory says he also once helped a homeowner turn a garage into a photography studio.
What to consider: You do need, as Gregory says, “the talent” to start a home business like the one he described – and not everybody is cut out to be their own boss. If you invest in your home to give you more space for a business, you’d better be sure your business will make money. However, plenty of businesses are started on computer screens or in garages and basements and don’t require expensive home improvements.
House Hack #4: Start a Farm
Gregory says ASAP Restoration has had clients reach out to increase their garden space so that they can do small-scale or organic farming to supply community restaurants. “We don’t do this type of work, but it is common here in the desert, with constant sunshine, to use as a means of income,” Gregory says.
What to consider: You may need a fair amount of land, and depending on what type of farming you choose, your costs may be significant. For instance, are you growing some vegetables to take to the farmers market? Or are you raising chickens? The latter could mean investing in possibly several thousand dollars, at least, in a chicken coop, buying chickens and food, providing water and erecting fencing or another method to keep predators away from your flock.
You also have to think about your own skills and work ethic. Some people should start farms; they know what they’re doing. Others are probably better suited to be the people who shop at the farmers market.
House Hack #5: Put Solar Panels On Your Roof
How are solar panels on a roof a house hack? You’re certainly not going to get rich from this, but when your solar panels generate extra power that you don’t need, that extra energy goes back into the grid, and you end up “selling” it to your utility company.
This billing mechanism, net metering, is not a high revenue-producing endeavor. It serves to reduce your energy use and therefore your utility bills. Still, if you’re getting no or low bills from your utility company thanks to your solar panels, your house will be making you some money.
You may also earn some income via a federal tax credit or regional grants and credits, and in some states, by selling solar renewable energy certificates.
What to consider: It’s great for the environment, and solar panels are popular in certain parts of the country where it’s sunny most of the year. But there can be a little rain on the solar panel idea.
“I caution all homebuyers and owners to get educated on the ins and outs of what solar panel ownership entails, including whether you own the panels on the roof to begin with,” says Melissa Dierks, a managing partner at RE/MAX Fine Properties who is based in Peoria, Arizona, a suburb of Phoenix. Buying solar panels is an investment.
“The presence of solar panels on a home may give a buyer or homeowner the false impression they belong to whoever lives at the property, but that is not always the case,” Dierks says.
According to Dierks, you may end up leasing the panels directly from the company, so you’re spending less money on your electricity, but you’re not really earning money. The bottom line: Solar panels can be a good house hack and a sustainable choice, but do your research and be realistic about the payout.
House Hack #6: Buy Your Retirement House Now
Living and working in retirement-friendly Phoenix, Dierks has seen homebuyers purchasing homes where they plan to eventually retire.
“They have purchased property ahead of time due to the market being favorable,” Dierks says. “These clients will then rent the home until they make the move permanently. I have clients in Virginia, Singapore and Chicago currently doing so.”
This mean purchasing your future dream home while you have more income – because you’re still working – and earning rent that can go toward paying down the mortgage.
What to consider: Buying a second home requires the funds for the purchase and upkeep, even if you do plan to have tenants help cover those costs. Taking on today’s high interest rates is also a deterrent for some people. If you will be a landlord from a distance, you may need to hire a property manager.
Article originally published by U.S. News & World Report.