'House Hacking' DC Real Estate Investment Strategy
Breaking down house hacking in the District of Columbia
The Hack That Started It All
Section: Investor Intel
Author: Susan Isaacs, Washington DC Real Estate Strategist
How can I not only afford a Washington DC home, but profit from it?
That was the question every DC home buyer was asking themselves as prices for real estate in the District escalated year after year, decade after decade, until homes seemed nearly unaffordable. The answer? The English basement rental.
Back in the 1990s through the aughts, there were few restrictions on basement rentals and even less regulation enforcement. The rental basement became a wildly popular house hack in Washington DC.
The freewheeling days of unregulated house hacking are now over, but the practice still remains a key DC real estate investment and affordability strategy.
About House Hacking
What Is it?
In simple terms, âhouse hackingâ is finding ways to earn money from the residence(s) you own.
Possibilities include creating an income stream by renting out the entire residence, renting a portion of it while living in another portion, or renting an attached or unattached accessory dwelling, either long or short term.
Why Do It?
House Hacking income can be very useful in off-setting mortgage payments, property taxes, maintenance and insurance costs, or simply padding your monthly cash flow if you own the residence outright or can rent at a profit. It also offers flexibility in case you decide to relocate, or upsize.
House hacking is often a first step for aspiring real estate investors.
Even if the rental income intake doesnât cover fully overhead, house hackers benefit from reducing housing costs, building equity in the property, and saving interest by shortening the term of a mortgage if proceeds are used to pay off a portion of principal monthly. House hacking can also be a tax saver if the owner takes expense and depreciation deductions. Finally, house hackers can borrow against increased equity when they decide to invest in their next property.
House Hack Financing Advantages
House Hacking is a form of investment that allows buyers to obtain owner-occupant financing in lieu of higher interest rate investor loans. It also offers down payment advantages. While real estate nvestment loans typically require larger down payments, primary residence owner-occupants may see downpays as low as 0% for VA and HPAP, 2.5% for FHA, or other conventional loans from 5% to 10%.
What type of properties can I House Hack in DC?
Ranked from the least to the most advantageous:
Condos | Co-Ops
Because of common restrictions against short term rentals, rental caps and leasing term regulations by most DC condo and co-op associations, these home types are the worst candidates for house hacking, unless you are house sharing on a 6 month or longer lease. âRoommateâ house-hacking is typically allowed by associations, with provisions set by individual communities.
Keep in mind that if you own a unit and rent out a room, youâll still be considered a landlord in the District of Columbia and will need to be licensed and insured as such.
Find DC rental housing business rules & regulations here.
Single Family
House Hack single family homes by sharing the space (roommate), or renting a basement, attic or an accessory unit (aka ADU), long or short term. If you plan an STR business, do read my posts on STR rental restrictions in the District.
Since youâll be a DC landlord, youâll need a license and possibly a certificate of occupancy. Read the rules here.
Plan to build or convert property for an Accessory Dwelling Unit in Washington DC? Download the SmarterGrowth.net manual here.
Multifamily
Multifamily dwellings are designed for house hacking!
The RAAP (Residential Accessory Apartments Program) was est. for FY 2022 and FY 2023 budgets, providing over $2.5M in funding for the establishment of an ADU pilot program. This initiative is intended to support the creation of residential accessory apartments at existing residential properties throughout the District.
According to AI, the RAAP program is still available in 2024 âfor DC residents who want to construct or renovate an accessory dwelling unit (ADU).â Qualifications include:
Have homeowners insurance
Be current on federal and District taxes
Have proof of mortgage payments for the past year
Renovation or construction budget of $120k or less
Other Types Of Investment Properties In DC
House Hacking
Buy And Hold (can be a house hack)
BRRRR (a type of Buy And Hold)
Fix And Flip
Multifamily
The DC Real Estate Investment Compass
Zuzu Notes:
Timing and planning your house hack often involves scaling. Many property owners initially begin with a basement rental in the home they occupy, later lease the upper floor, then expand to other methods. Or simply repeat!
Start With The Basics
Whether youâre investing in DC real estate as a side hustle or full-time business, understanding the local real estate market and fundamentals is key.
How I Help
Guidance and education
Off-market opportunities
Skill, experience and resources
Assembling A Team
Having a team of professionals in place will ease acquisition and management of your investment portfolio.
Your Realtor, lenders, property manager, contractors and vendors functioning as a team can identify opportunities, speed transitions, address issues, and increase profitability.