House Hacking 101: How To Rent To a Roommate?



House hacking is by far one of the more powerful real estate investment strategies; however, navigating how to rent to a tenant that would also be your roommate can offer many challenges.


As a house hacker, it's important to understand that you are still a landlord, and you should be taking all of the necessary precautions if you are not living in the property with your tenants.


This blog post was created to help navigate some of the common pitfalls house hacking landlords make when renting to their tenants.


What is House Hacking


House hacking is a strategy in which the property owner rents out a portion of their primary residence to generate rental income to offset their mortgage and other expenses within the property.


This strategy is typically done with a multi-family unit but can also be done in a single-family home by renting out extra rooms. Since you will be living in the property, you will be able to obtain an owner-occupied loan for the investment property. With this loan, you may qualify for a down payment on the property anywhere from 3.5% - 10% of the purchase price.


All Roommates Must Sign A Lease Agreement


The most important thing you should consider when you plan to rent to a roommate is to create a lease agreement upon which all of your roommates must sign.


The agreement you create should encompass “joint liability,” meaning that all roommates within the property are responsible if the lease agreement is violated. Since everyone lives under the same roof, it is hard to identify when one individual violates the agreement.


Therefore with this approach, the landlord can ensure all roommates hold each other accountable for their actions because all parties will be held responsible. Having a lease agreement with your roommates that encompass joint liability also helps protect your investment in the long run.


Lastly, all of your roommates must sign a lease, regardless of whether you are staying with family members or friends. You need to make sure everyone signs a lease if you plan on renting to them as an official landlord.


Many new landlords make a mistake and do not think they need a lease agreement with their tenants if they are house hacking. Not having a lease agreement can be risky, especially if legal action is necessary for the future.


I think it is always best practice to protect your investment first and get a lease agreement.


Screen Your Tenants Thoroughly


Another common pitfall that many landlords make is that they don't properly screen their tenants before they move in as the roommate.


It is such a common mistake because many landlords that house hack thinks they will have the ability to mitigate issues in their property since they live in it.


This overconfidence usually leads to disagreements with roommates and places the landlord at risk. Regardless of who the tenant is, whether it's a friend or family member, make sure you take the necessary screening precautions as if you did not know the individual.


Don't relax your screening standards for any tenant because you will never know what you could find out about someone from a reliable background check or credit report.


In Summary


Being a landlord can be a difficult job, especially when you have to live with your tenants. Even though house hacking can be a powerful investment strategy, it has its hurdles like every other real estate investment strategy.


You can relieve some of the pressure of being a house hacking landlord by ensuring all of your tenants sign a lease agreement detailing their responsibilities and that you properly screen every tenant thoroughly.


These are only a few things you should consider if you are a landlord house hacking a property. If you want to know more about best practices for renting to a roommate, check out this amazing blog post here.