Simplified Guide to House Hacking in Colorado

Discover how house hacking in Colorado can be your key to entering the real estate market. Perfect for beginners and seasoned investors alike, this article breaks down the essentials of house hacking in an easy-to-understand way.

What is House Hacking?

At its core, house hacking in Colorado is about purchasing a property, living in it, and then renting it out. This method allows you to begin your real estate journey with a smaller initial investment, making it an ideal strategy for those new to the market. Buying a property as a primary residence allows you to put down 3.5% with an FHA loan or 5% with a conventional loan. On the other hand, buying an investment property usually requires a 20% percent downpayment.

Improving Your Property

In Colorado, upgrading or remodeling your house hack property can significantly increase its value and rental appeal.

Here are some key improvements that tend to offer a good return on investment:

1. Painting: A fresh coat of paint, especially in neutral colors, can transform a space, making it brighter and more inviting. This is one of the most cost-effective ways to refresh a home’s appearance.
2. Landscaping: Curb appeal is crucial. Simple landscaping, like planting flowers, adding mulch, and keeping the lawn well-maintained, can make a big difference.
3. Updating Fixtures: Replacing outdated light fixtures, door handles, and cabinet knobs can modernize a home without a major renovation.
4. Energy Efficiency Upgrades: Installing energy-efficient windows, LED lighting, and energy-efficient appliances can appeal to environmentally conscious tenants and those looking to save on utility bills.
5. Kitchen and Bathroom Refresh: These areas often offer the best return on investment. Even small changes like re-grouting tile, updating faucets, or painting cabinets can significantly enhance these spaces.
6. Flooring: Replacing old, worn-out carpets with hardwood or laminate flooring can improve the look and feel of a home. If hardwood floors are already present, refinishing them can be a great alternative.
7. Smart Home Features: Adding smart thermostats, smart locks, and security systems can increase a home’s appeal.
8. Adding Storage: Built-in shelves or closet organizers can make a home more functional and appealing, as they offer additional storage solutions.

Transition to Renting the First Property

After living in your Colorado property for a while, usually about after a year or two, you can start looking for your next primary home and then rent out your first property.

Move On to Your Next Home

House hacking in Colorado means you’re not just stopping at one property. Keep in mind that FHA does not allow a borrower to have more than one FHA loan at a time with a few exceptions. This said, you most likely will have to go with a conventional loan on your subsequent properties.

Repeat and Grow Your Portfolio

The beauty of house hacking in Colorado is that you can do it over and over. You can repeat this process every two years until you’ve accumulated a real estate portfolio that you’re happy with.

Cash-out Refinance

A cash-out refinance can be a useful tool in the strategy of house hacking, especially when you want to invest in more properties. It allows you to obtain a new mortgage that is larger than your existing mortgage, and you receive the difference in cash.
Example: Let’s say your home is valued at $300,000, and you owe $200,000 on your current mortgage. You could refinance for a higher amount, like $250,000. After paying off the $200,000 you owe on your original mortgage, the remaining $50,000 (minus any fees or closing costs) is given to you in cash. Know that doing this increases the total amount you owe on your home so you always have to run your numbers. Only do it a cash-out refi if it makes sense.

To sum it up

House hacking is a practical and continuous strategy for growing your wealth in Colorado’s real estate market. It’s an approach that’s both accessible for beginners and beneficial for experienced investors in Colorado.

For more insights and tips on real estate investment in Colorado, don’t forget to like and share. If you need help looking for properties that have great potential for ROI, click here.