House Hacking in New Jersey: A Smart Way to Own a Home AND Build Wealth! - 4/11/24

House hacking is a real estate strategy that allows you to live in a property while renting out part of it to cover your living expenses. It’s an ideal way to enter the real estate market in New Jersey, especially in areas where property prices and taxes can be high. Here’s a quick overview of how house hacking works and why it makes sense in New Jersey.

What is House Hacking?

House hacking involves purchasing a property, living in part of it, and renting out the rest. For example, you might buy a two-family home, live in one unit, and rent out the other to help cover your mortgage and other expenses. You can also rent out extra bedrooms, basements, or even turn a garage into an accessory dwelling unit (ADU) for additional rental income (town permitted).

Why House Hack in New Jersey?

High Demand for Rentals

• New Jersey’s rental market is strong, especially in areas near New York City or major transportation hubs. The proximity to the city makes New Jersey attractive to renters who are looking for more affordable housing options with easy access to work or school.

Offset High Costs of Living

• New Jersey has some of the highest property taxes in the country. House hacking helps reduce the burden of these costs by generating rental income that can cover your mortgage, property taxes, and maintenance expenses.

Build Equity and Wealth

• With rental income covering your expenses, you can build equity in your home much faster. This can open doors to future investments or allow you to sell at a profit later.

Popular House Hacking Strategies

Rent Out Extra Rooms

• If you buy a single-family home with extra bedrooms or a finished basement, you can rent out space to help cover costs. (check with your local ordinance for occupancy rules for renting!)

Multi-Family Homes

• Two- to four-family homes are perfect for house hacking. You live in one unit and rent out the others. This strategy works particularly well in suburban areas or near transit stations.

Accessory Dwelling Units (ADUs)

• Many New Jersey municipalities now allow homeowners to create ADUs, such as basement apartments or converted garages. These spaces can be rented out for additional income.

Things to Consider

Local Zoning Laws

• Before house hacking, make sure you’re familiar with local zoning laws and rental regulations in your area. Some municipalities have specific rules on rentals, occupancy limits, or ADU conversions.

Primary Residence Financing

• Multi-family investment (secondary) properties may require a higher down payment, typically 20% - 25% and additional financial qualifications. But, as a primary residence, you can qualify for lower down payment loan options such as FHA loans for first-time buyers and even the newly-implemented 5% conventional loan on 2-4 unit residence.

Property Management

• As a house hacker, you’ll be responsible for managing tenants. Ensure you’re ready to handle tenant screening, maintenance, and rent collection, or hire a property manager to help.

Is House Hacking Right for You?

House hacking is a great way to reduce living costs and build wealth through real estate in New Jersey. Whether you're purchasing a multi-family property or renting out extra space, it offers an opportunity to generate passive income while owning your home.

If you're interested in learning more or exploring properties that could work for house hacking, reach out!