There’s a lot going on out there right now as the visible signs of spring begin to emerge. While the birds sing with the morning sun and longer hours of sunshine brighten everyone’s outlook – the whistle of mortar shells continues to echo throughout Ukraine and the painful ka-ching of high gas prices keeps us groaning at the pump.
But there are good things happening too: the return of Major League Baseball and the decline of the pandemic worldwide, for starters.
Something good we’re pretty happy about over here at Sacramento Tax Resolution is that there are only 2 more weeks left of this crazy tax season. While the home stretch means our heads are all wrapped up in paperwork, we’re also looking forward to slowing down and smelling the fresh-cut grass after April 18th.
Wrapping the 2021 taxes doesn’t mean our work stops. Getting a handle on 2022 and making tax planning moves for the year ahead will be our big priority. If you want to talk tax maneuvers that’ll yield some positive effects on your tax filing next year, grab a time with us:
Lastly, did you know the first all-private astronaut team from Axiom Space in Houston is set to move into the International Space Station this week? They’ll share gravityless working space with seven regular ISS crew members. And I saw that and thought to myself: if they can share those tight quarters in the name of space advancement, you can certainly consider how to share your United States home space for financial advancement.
Is that an awkward segue? Probably, yes. But here’s a little guide on house hacking to get you started …
House Hacking Guide for United States Homeowners
“Some people get a kick out of Taylor Hicks being their landlord.” – Taylor Hicks
As prices of goods and services continue to rise across the country, people everywhere are finding creative ways to make some extra income to compensate. One option? Become a landlord.
Could paying rent be a one-way ticket out for your money? Starting to wonder what it’d be like to be on the receiving end of that cash every month – but worried about all the headaches you’ve heard can come from being a landlord?
Turns out there might be a way to ease into that role (or just ease your monthly home costs with a stream of passive income) using real estate assets that you already have: It’s called “house hacking,” and it can be as simple or complicated as you want to make it.
The time might be right
You’re probably more familiar with house hacking than you realize. It’s simply a new take on the old formula of renting out a room or a floor in your house –living in one part of a property while generating income with another part. That income can pay your mortgage while you build equity maintaining the property.
Is this a good time for you to take the leap? Well, being any kind of landlord is a lot easier when you have many potential tenants to choose from – and residential property is in demand right now. Last year, home values were up so far that the average appreciation was greater than the average annual salary for many professionals in some parts of the country.
The truth is that the average American spends a full third of their annual income on housing-related costs. And those still paying rent reported that saving for their own home was getting tougher (sure sounds like a group you’d do well to get out of).
Let’s say you can rent a side or floor of your house and that you have a 30-year mortgage with an average interest rate after you paid 20% down once upon a time. Today, you could conceivably make enough to cover your mortgage payment plus some leftover for other housing costs like taxes, insurance, and so on. Meanwhile, your home will be appreciating at today’s big rate, and you’ll pocket a nice chunk of change if/when you eventually sell.
Your house hacking options are pretty wide open, subject to your local zoning laws or rules from your homeowner’s association (if you have one). Other than that, get brainstorming.
Your skills and circumstances are among the first considerations. If you’re good with tools (or have access to people who are, who can work for you), add a living area to your basement with a kitchenette and bath (some landlords even live in those, renting out the rest of the house for bigger bucks).
Maybe you already have an extra wing of your house. Maybe a barn or garage? Even just one empty room? Rentable, especially by offering up a spare room on a short-term rental platform like Airbnb – though keeping up with revolving listings can become a serious and unexpected time commitment. The income can also be spotty, and as usually happens when a household (so to speak) name helps out the little guy, the little guy can wind up clearing less money.
Word of advice here on finding tenants. Check for credit ratings and on-time payments and employment. Also, check out comparable rents in your area to balance between an attractive price and a figure that’ll make you a profit.
How to get financing
Your friendly United States bank will of course be happy to sign you up for a loan – with the typical rates. These lenders will run your credit score, your debt-to-income ratio (just what it sounds like …), and your realistic vacancy rate (how long you think the place will sit empty and make nothing).
But being an owner-occupant can open sesame for homebuyer and homeowner assistance programs, too. These can have more attractive terms than conventional loans and lower down payment options.
The Federal Housing Administration’s Limited 203(k) program, for instance, can get you thirty-five grand to use on your home, including repairs and improvements or to get it ready to sell. Requirements can be strict, though.
Local governments also offer thousands of programs to help with your down payment on a property, not to mention the feds’ Homeowner Assistance Program to help with utilities, mortgages, insurance, and more (again, if you qualify).
No moneymaking venture is complete without the IRS.
Beyond that, there are a multiplicity of credits and deductions available to real estate businesses, brokerages, property exchanges, etc. Those would be a subject for an entirely different piece … furthermore, every person’s situation will be different – and consequently, we’d want to avoid making blanket advice.
The BEST thing you can do is to get ahead of the game and let us plan ahead with you on your behalf.
In your corner,