Been looking at house hacking opportunities to afford buying a first house while single and renting other rooms. What are the main things to figure out before buying? How should I do the math to figure out if buying a 1M house (just as an example) with 3-4 rooms is a good idea in some cheap area? I can think of property tax, mortgage, HOA, insurance, depreciation, maintenance, rental income tax, Airbnb tax. What else one should consider? Anyone has done this and could share some resources? TC: 190k. YOE: 10 #investments #personalfinance
I did this about a decade ago and it worked out great (with tenants, not Airbnb). Biggest thing will be qualifying for the mortgage, as you won’t be able to claim rental income until you have 24 months of receipts (from my experience) - maybe a good loan officer could find some loopholes The tax benefits are great tho. Say you have 4 bedrooms and rent out 3, you can claim 75% of your mortgage interest, property taxes, insurance, utilities, internet/cable, and depreciation as an expense… which means you most likely won’t pay any taxes on your rental income and your tenants are paying most of your principal
Thanks. I think, I have enough equity and decent TC to qualify for a mortgage plus excellent credit score, and no debts. Is tenants better than Airbnb? How does regular salary affect the tax benefits from rental income?
Tenants are more reliable and less work. For example - you don’t have to worry about leaving town or taking a vacation which you might for Airbnb guests if they will be using your primary house You’ll need to file a schedule E and separate your rental income from normal income. Unfortunately even if you are operating at a loss, you can’t deduct that from your regular income. I’ve been operating at a loss for years but have been cash flow positive due to depreciation expense
Claiming depreciation isn't free money, you lower your cost basis every year you claim it.
True, I’ll have to pay deprecation recapture tax when I sell the house, but it basically acts as a zero interest loan that I only need to payback when I sell the house, which is great for building wealth
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Local laws sometimes have restrictions on airbnbs. So definitely look into that first.