- Keallah Smith didn’t buy his first home with the intention of renting it out, but eventually did.
- This helped her get a much lower interest rate and down payment than she would have as an investor.
- This is sometimes called “house hacking” and helps people with less money become homeowners.
Keallah Smith did not originally plan to own. Her parents owned rental property when she was growing up, but she and her husband had both graduated with a combined college debt of $100,000 and they had three young sons to support.
Smith told Insider she bought a $135,000 home just outside of Atlanta in 2019, and after living there for a while, she realized she could relocate her family. in her parents’ house in Covington, GA and renting out that house, which she ended up doing.
Since then, she’s acquired two more properties in Central Florida — an Airbnb just outside of Disney World and a recently acquired beach house in Daytona Beach that she plans to use as a long-term rental.
When asked how she was able to move so quickly despite her debts, Smith replied, “If you’re looking for an inexpensive way to get in, I’d say buy a house as your main mortgage.”
What is Home Hacking?
“It’s a concept that a lot of early investors or new investors use — home hacking,” Smith said. “When you buy a house as a landlord, you get a lower interest rate and better terms.”
“Real estate hacking” is sometimes defined a little differently and can also include buyers who rent out a room in the house they live in so they can pay off the mortgage on the property faster.
Some critics of the practice claim that “house hacking” is exploitation, but proponents of the practice say it’s simply a more accessible way to build wealth for those who don’t already have a lot of assets. .
For Smith, buying the suburban Atlanta home as primary owner meant she only needed a 3.5% down payment and was able to lock in an interest rate. 3.75% interest for his mortgage. If she had bought the house as an investor, she probably would have had to pay a much larger down payment and would have had a higher interest rate.
“If you come into the game as an investor, they’re going to ask for a 20% down payment, which can be a barrier for a lot of people — I know it’s for me,” Smith said.
That said, closing a real estate deal with less than 20% of the total purchase price, even as the primary owner, means the buyer will have a higher monthly payment because less money has been paid up front. Additionally, those who take out an unconventional mortgage will likely have to shell out additional money each month for private mortgage insurance.
The second property Smith purchased, the Airbnb home near Disney World, was purchased as an investment property. Due to the fact that she was buying it at the start of the COVID-19 pandemic, she got a very good deal and only had to deposit 10% and got an interest rate of 2.75 %.
“Today I’m sure I would have needed 20%,” Smith said.
She used the house-hacking tactic a second time to buy her third property, the beach house in Daytona. Smith said that once again she only had to deposit 3.5% and lock in a 3.875% interest rate on the property.
She suggested this tactic also works great for investors who buy multi-family homes and live in one unit while renting the other. That said, she also added that, “those are a little hard to come by now, because investors are snapping them up. Multi-family homes are very, very valuable.”
Starting with less money sometimes means more work, though.
When she first became a homeowner with her husband, Smith said they were “really new”.
“I created my own lease online and we took our own staging photos to list the property entirely on our own,” Smith said, adding that they also opted to manage their own properties instead. to hire a property manager.
“When we crunched the numbers, it was so expensive to have a property manager that we really weren’t going to make any money,” Smith said. “So we decided to deal with it.”
This route saves her money, but the flip side means she has to spend more time and energy on her rental properties than some other landlords.
“When the toilet stops, we get the phone call,” Smith said.