If you are looking to get into real estate investments, or even just get yourself a home at low cost, house hacking is a great way to go. The general idea is to buy a house and then rent out rooms to tenants to cover the cost of your mortgage. While the plan is a simple one, there are several things that you need to be aware of. Failure to take note of these items could land you in some pretty hot water.
Maintaining Tenant Relationships
Since you will be living with tenants and relying on them for your mortgage payments, it is important that you stay on good terms with your tenants. A good way to make sure that you will get along with your tenants is to screen them beforehand. Make sure that you meet and interview them before accepting their rental application. You can avoid a lot of problems by clearly communicating the living standards of the house during your interview. You can make these standards binding by including them in a clause of your rental agreement.
As the landlord for your tenants, you’re going to have several legal responsibilities. In general, you have a responsibility to maintain a safe living environment. If due to your negligence, a tenant is injured on your property, you could be held liable in a lawsuit. Another important legal obligation is the legal obligation to pay your mortgage. If you are having trouble with tenants not paying or you have vacancies, you have to cover the cost of the mortgage. Speaking of tenant payments, you can’t just hike up the price however you want. You always need to follow a few rules before raising rent.
To protect yourself, it is usually a good idea to set up an LLC and have the home listed as an asset of the LLC. That way, if you do end up defaulting on your mortgage, or if you are held liable in a lawsuit, you are protected. The bank and a lawsuit can take any money or property in the LLC, but they can’t touch any of your personal belongings.
Homes can come with fairly significant maintenance costs. Be sure that you select a home that is in good repair. You don’t want to get stuck with a broken water heater or furnace. Other hefty repairs can include roof replacements. Aside from these large repairs, you’ll probably need to budget for smaller items like repairing leaky faucets, sealing caulking around toilets, tubs, and windows, and much more.
If you are aware and prepared for all of these things, you shouldn’t need to fear. Make sure that you keep a good amount of money saved up to cover the mortgage and repairs in case things go wrong. If all goes well, you will be able to enjoy having others pay for your home.
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