How to Buy Insurance / Coverage Cat's Guide to Insurance for House Hacks
House hacking can be the perfect way to increase your income and get closer to financial independence, but it makes buying insurance trickier.
Written by: Jazzmin Lu Reviewed by: Max Cho, Licensed Insurance Broker NPN 20377411
House hacking refers to a variety of strategies to generate additional income from your primary residence. This includes buying a duplex and living in one half while renting out the other, renting out a spare room in your single-family house, renting out a separate structure such as detached garage or accessory dwelling unit (ADU), or even renting a part of your property, such as a basement or driveway, for storage.
House hacking always involves the use of your primary residence. Therefore, when you’re purchasing property, you qualify for a wider variety of financing such as FHA or VA loans, which typically have lower interest rates. For new real-estate investors, it can also be easier to manage rental properties when you’re close by or starting with a smaller challenge like renting a room or driveway. Finally, the “hack” you’re executing has a lot to do with the fact that your income increases with less effort relative to traditional real estate investing. You need housing anyway, and finding ways to lower your housing costs or increase your return on your investment are all benefits of a house hack. It’s no wonder then, that the practice is particularly popular in Financial Independence (FI) or FIRE groups, to optimize their incomes and investments!
Unlike car insurance, homeowners and landlord insurance aren’t required in any state. So why bother with insuring your property if you’re trying to increase your ROI? The simplest answer is that you still might be required to carry insurance by a mortgage lender, to protect their investment. But, even if you’re not, it’s important to protect your own investment if you couldn’t afford to rebuild from scratch or pay out a massive lawsuit if someone slipped and fell on your property. A house hack can also convert your home into a rental property, meaning that your insurance needs get more complex!
Looking for more tools? We recommend Walletburst’s House Hacking Calculator for FIRE enthusiasts and, of course, using Coverage Cat to optimize your insurance.
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