House Hacking How to Save Money and Build Wealth with a Multi-Unit Property
webadmin • December 4, 2023
Save Money and Build Wealth with a Multi-Unit Property
On average, Americans who are able to build significant wealth do so through creative use of real estate investments. In the long run, owning a home will always be better than renting for life. However, if you’re willing to “house hack,” purchasing your own home could catapult your net worth even faster.
Broadly speaking, house hacking is the practice of owning a property and having your tenants pay your mortgage for you. This can be done by renting out a spare bedroom or basement, building an accessory dwelling unit (ADU) on the property, or buying a multi-unit property (duplex, triplex, or fourplex) and renting out the units you are not living in.
House hacking is a smart way to reduce or completely offset your monthly mortgage payments while being able to own 100% of the equity in the property and benefit from appreciation. Whether you are a seasoned real estate investor or a first-time homebuyer, house hacking can be a powerful path to financial freedom.
Investment properties can require down payments as high as 25 to 30 percent, but you can purchase a primary residence with as little as 5 percent down. FHA loans have down payments as low as 3.5 percent and can be used to purchase properties of one to four units. Veterans can even use VA loans to purchase primary residences with no money down!
House hacking also allows you to take advantage of the tax benefits associated with home ownership, while saving on taxes by deducting rental-related expenses and accounting for depreciation. Hacking allows people with modest incomes to live in nicer areas, pay off other expenses, or to make repairs they might otherwise need to defer.
By adopting a house hacking strategy, you get to significantly reduce or even eliminate your monthly mortgage payments. The rental income generated can cover a large portion, if not all, of your mortgage, taxes, and insurance. Over time, as you build equity in your property, the financial benefits can extend beyond just covering your living expenses.
Remember, rent prices increase while your monthly mortgage payment remains fixed over the life of your loan!
With the increased rent amount, the net monthly payment in each scenario is reduced, illustrating how higher rental income can further offset your monthly mortgage payment in a house hacking setup.
SOURCE: JVM Lending
When it comes to house hacking, the best way to earn the maximum amount of financial benefit is to go big by investing in properties with two, three, or four units. This allows you to own multiple completely separate units, have your privacy in one of them, and get top dollar in rental income without having to invest even more money into finishing a basement or building an ADU on your property.
In the past, purchasing a multi-unit property meant shelling out 15-25% for down payment. However, new conventional loan guidelines allow you to buy a two-to-four-unit property with only 5% down.
With this new program, you will be able to save money on your home purchase and start building wealth in more ways than one:
This new program offers a fantastic chance to generate rental income and/or ease the burden of mortgage payments with only modest upfront costs. And to make things even easier, you will be able to use the projected rents from the other units as income to help with qualification.
House hacking is a smart way to reduce or completely offset your monthly mortgage payments while being able to own 100% of the equity in the property and benefit from appreciation. Whether you are a seasoned real estate investor or a first-time homebuyer, house hacking can be a powerful path to financial freedom.
Benefits of House Hacking
The greatest benefit of house hacking is that because you will actually be living in the property, you have access to residential mortgage programs that come with lower interest rates and lower down payment requirements than most investment property loans.Investment properties can require down payments as high as 25 to 30 percent, but you can purchase a primary residence with as little as 5 percent down. FHA loans have down payments as low as 3.5 percent and can be used to purchase properties of one to four units. Veterans can even use VA loans to purchase primary residences with no money down!
House hacking also allows you to take advantage of the tax benefits associated with home ownership, while saving on taxes by deducting rental-related expenses and accounting for depreciation. Hacking allows people with modest incomes to live in nicer areas, pay off other expenses, or to make repairs they might otherwise need to defer.
By adopting a house hacking strategy, you get to significantly reduce or even eliminate your monthly mortgage payments. The rental income generated can cover a large portion, if not all, of your mortgage, taxes, and insurance. Over time, as you build equity in your property, the financial benefits can extend beyond just covering your living expenses.
Remember, rent prices increase while your monthly mortgage payment remains fixed over the life of your loan!
House Hacking Cost Scenarios
NOTE: The scenarios shared below are purely illustrative and may not reflect the actual financial dynamics in different parts of the U.S., where rent costs and property values vary widely.Scenario 1: Purchasing a Duplex for $450,000
- Down Payment: 3.5% of $450,000 = $15,750
- Loan Amount: $450,000 – $15,750 = $434,250
- Monthly Mortgage Payment (at 7% interest rate over 30 years): ≈ $2,888
- Rental Income (assuming $1,600 rent from the other unit): $1,600
- Net Monthly Payment: $2,888 – $1,600 = $1,288
Scenario 2: Purchasing a Triplex for $750,000
- Down Payment: 3.5% of $750,000 = $26,250
- Loan Amount: $750,000 – $26,250 = $723,750
- Monthly Mortgage Payment (at 7% interest rate over 30 years): ≈ $4,819
- Rental Income (assuming $1,600 rent from each of the other two units): $1,600 * 2 = $3,200
- Net Monthly Payment: $4,819 – $3,200 = $1,619
Scenario 3: Purchasing a Fourplex for $1,100,000
- Down Payment: 3.5% of $1,100,000 = $38,500
- Loan Amount: $1,100,000 – $38,500 = $1,061,500
- Monthly Mortgage Payment (at 7% interest rate over 30 years): ≈ $7,069
- Rental Income (assuming $1,600 rent from each of the other three units): $1,600 * 3 = $4,800
- Net Monthly Payment: $7,069 – $4,800 = $2,269
With the increased rent amount, the net monthly payment in each scenario is reduced, illustrating how higher rental income can further offset your monthly mortgage payment in a house hacking setup.
SOURCE: JVM Lending
You Can Now Purchase a Multi-Unit Property with Only 5% Down!
In the past, purchasing a multi-unit property meant shelling out 15-25% for down payment. However, new conventional loan guidelines allow you to buy a two-to-four-unit property with only 5% down.
With this new program, you will be able to save money on your home purchase and start building wealth in more ways than one:
- Own multiple income-generating properties without having to save 15-25%.
- Generate rental income to help cover your new mortgage payment.
- Use projected rents as income to help you qualify.
- Start building equity right away.
- Have some extra cash to tackle high-interest debt and save even more money every month.
This new program offers a fantastic chance to generate rental income and/or ease the burden of mortgage payments with only modest upfront costs. And to make things even easier, you will be able to use the projected rents from the other units as income to help with qualification.
The Bottom Line
As housing has become increasingly less affordable, purchasing a multi-unit property to live in and renting out the other units is a great way to own a home without breaking the bank – and now, this strategy is a lot more affordable! If you’d like to explore your options for buying a multi-unit property with minimal cash investment, fill out the form below to request a consultation with a mortgage advisor.
Here at Luminate Home Loans, we’re always looking for ways to offer more value to our clients and partners. That’s why we’re thrilled to announce that we’re now a wholly owned subsidiary of Luminate Bank®—and soon, we’ll officially transition under the Luminate Bank® name.
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Luminate Bank® Welcomes Josh Eifert as Chief Financial Officer, Honoring Legacy of Dave Turk [Minneapolis, Minn.] – [2/4/2025] – Luminate Bank® is proud to announce the appointment of Josh Eifert as its new Chief Financial Officer, succeeding Dave Turk, who has played a pivotal role in shaping the company's strong financial foundation. Josh brings a wealth of experience and strategic vision to Luminate Bank, with 26 years in the banking industry. Most recently, Josh served as CFO at Tradition Capital Bank in Edina, Minnesota, where he led the financial strategy during its remarkable growth from $300 million to more than $2.5 billion in total assets. Before his tenure as CFO, Josh contributed to Tradition Capital Bank in other key financial roles. He began his career with Norwest and Wells Fargo Banks, gaining extensive expertise in financial and operational capacities. Luminate Bank's leadership transition reflects the company's thoughtful succession planning, ensuring its financial strategies remain robust and forward focused. Under the leadership of Dave Turk, Luminate Bank has built an exceptional financial infrastructure, delivering consistent results and creating a foundation that positions the company for continued success. Luminate Bank's CEO, Marc Campbell, shared his confidence in the appointment: "Josh not only brings exceptional financial acumen and strategic insight to Luminate Bank, but he also embodies the principles that define our organization: integrity, innovation, and a steadfast commitment to excellence," Luminate Bank's CEO, Marc Campbell, shared with confidence. "His leadership will ensure our financial strategies succeed and inspire confidence across all who depend on us." "I am honored to join Luminate Bank at such an exciting time. The company's remarkable history of financial excellence and its forward-thinking approach align perfectly with my values and vision," stated Josh Eifert. "I look forward to collaborating with the talented leadership team to build on this strong foundation and drive continued success for our customers, employees, and stakeholders." Josh graduated from the University of Minnesota with a degree in finance and completed the Graduate School of Banking at Colorado. CEO Marc Campbell expressed gratitude for retiring CFO Dave Turk's contributions, saying, "Dave has been instrumental in positioning Luminate as a financial leader. His dedication, insight, and stewardship will always be a part of our company's legacy." Josh Eifert will officially assume his role on February 18, 2025. About Luminate Bank® At Luminate Bank, We Open Doors—empowering individuals and families to achieve their financial dreams through personalized service and innovative digital solutions. As a nationwide bank headquartered in Minneapolis, Minnesota, we are committed to helping our clients meet their financial goals with a blend of modern technology, traditional values, and the trusted guidance of experienced professionals. Known for our exceptional commitment to customers, we take pride in delivering a seamless, supportive experience for every step of the journey. Our dedicated mortgage division has branches and a team of loan originators across the US, making expert home financing solutions accessible to communities nationwide. Luminate Bank is committed to safeguarding your money and accounts with FDIC insurance coverage up to applicable limits. Learn more about how we can open doors for you at www.luminate.bank , follow us on Instagram, LinkedIn, and Facebook, or call (952) 939-7200. For media inquiries, please contact: Debbie Schwake, CMO debbie.schwake@luminate.bank
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