I first heard of house hacking while attending an investment seminar. During the workshop, one of the presenters recommended buying a house and taking in a roommate. The other option was to buy a home with a rental basement suite to offset housing costs (also called house hacking). All of a sudden, I thought – hey! Here’s a way I can buy a house and have someone else help me pay my mortgage – I can make this work!
It wasn’t until I moved to Fort McMurray and made a decent income during the oil boom and housing shortage that I seriously considered buying a property. It wasn’t easy getting a mortgage. The bank wanted me to have zero debts, only assets, and didn’t seem to think my 40K in RRSPs were all that much of a down payment. They kept asking me if I had any more money stashed away somewhere. They assumed I had a hidden inheritance or a rich uncle who would hand over a few hundred thousand at the drop of a hat. I didn’t. Added to that, I hadn’t yet been in my new position for an entire year. The banks weren’t very encouraging.
I chose not to listen to them and forged ahead.
When I moved to Fort McMurray, every other person I talked to followed the same house hacking formula. A friend and fellow house hacker explained it to me this way;
Buy a 5-bedroom, 2.5-bathroom house + garage to one family – rent the whole property, charge $2200- $2500. Or suite the property, which meant each unit would have a separate entrance, separate kitchens, and laundry. Charge $2200 for the upstairs suite and $1200 for the downstairs suite and rent out the detached garage. The garage could bring in an additional $200- $500 depending on the property’s size, area, and condition.
I looked at the numbers and saw $2200 for the whole house or potentially $3900 for a suited property with a garage. The difference of $1700 seemed to tip the scales in favour of a suited property.
I jumped in and made an offer on a duplex built in the 1980s for Suncor employees. After the offer was accepted, I started making the downstairs more attractive and decided to rent out one or two of the additional bedrooms upstairs. I lost some privacy (well, a lot of privacy, actually) and realized I was in for a steep learning curve managing properties and people, but at the time, it was worth it financially.
You might be asking, “if it’s so great, why do more people not suite their properties?” Here are reasons why:
Before adding a secondary suite, you need to check with your municipality to see if you can legally add one. Or if one exists, if you can legalize it. If you can, you need to apply and pay for all the permits required to pass inspection.
Depending on your municipality, the cost of retrofitting an existing suite or building a new suite to meet the building and safety codes can be either very reasonable (as they were in Calgary) or prohibitive (as they are in Fort McMurray).
If there is an existing illegal suite, you could be in for additional hidden costs and construction when you start renovating.
If you have rented your illegal suite and someone reports you, now you have a few hoops to jump through and additional costs to incur to mollify the city. Your tenant may or may not be amenable to staying put during the process.
I legalized the Calgary suite over a few months to minimize the disruption for our tenant. He was really good with everything except the smoke alarms. Installing and testing the wired smoke alarms drove him crazy. Two alarms malfunctioned on separate occasions, and we failed two out of three of the safety inspection tests; however, the third time was a charm. So, in total, there ended up being five visits, three from the electrician and two from the inspectors = five separate times the alarms got tested. Our poor tenant would sequester himself in his car with his fingers jammed in his ears. Karmically, I viewed it as a bit of cosmic payback. My office is above his practice space, and he’s been practicing the same couple of guitar songs for hours a day, weeks a month, for four years. Like I said, Karma.
You have to be a good matchmaker
Even if your tenants have separate entrances, they will still be living in the same house and be bumping into each other or hearing each other’s noise or cooking aromas. If you’ve got a single person downstairs who sleeps days and works nights, they wouldn’t be able to tolerate a couple with two little kids running around the house or pets chewing on their squeezy toys over top of their bedroom.
Higher turnover of tenants
If the tenants don’t get along, sometimes one will move out, sometimes they’ll all move out. You may also have to act as a mediator to help them keep the peace. Typically, there is a higher turnover with suited properties. Or not. Our Calgary downstairs tenant (the redundant musician) has lived with us for five years and has no plans to move.
Some homes are difficult to soundproof because of how the venting is constructed, even following building codes, your suite may never be 100% soundproof between floors.
I bought my first suited house when I was single. Because I rented the rooms upstairs where I lived and the suite downstairs, none of us had much privacy. Sometimes I lived with roommates who were fun and helpful. Other times my roommate situation was entirely too much drama. Especially at the end of a long workday in a demanding job, it was a handful. I also realized that no matter how well I got along with and liked my roommates or tenants, they’re roommates and tenants at the end of the day; they will move on if/when they find a better situation or need to leave. After seven years, I grew tired of living with people who didn’t care about me. I was also in a long-distance relationship and ready to leave my roommates behind for a new chapter in a new city with my new husband.
On the plus side, house hacking gave me peace of mind that I wouldn’t have any issues paying the mortgage if I lost my job. During the process, I learned heaps of landlord/tenant laws and how to deal (and how not to deal) with all kinds of tenant situations. I learned how and where to advertise, write ads to attract and screen tenants, process applications, run credit checks, and how to pay attention to warning signs. Part of my education involved getting crystal clear on who I can comfortably live/work with in my house. House hacking also gave me an education in finding, working with, and firing trades/renovation contractors. But that’s another story.
Beyond the learning curve and day-to-day issues, house hacking helped me realize my dream of buying my own house, something I didn’t think would ever be possible until it was.
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Nelda Schulte is a property investor who is passionate about helping investors who self-manage have profitable investment properties through resources and education. If you struggle with the wrong landlord forms, or worse yet, no landlord forms check out Nelda’s 10 Essential Editable Landlord Forms that help you separate the good tenants from the bad and increase your property’s profitability.
Did you house hack your first property? I’d love to hear about it firstname.lastname@example.org