Multiple generations are working to reach financial independence by earning passive income.
Passive income is an income source requiring little to no effort to achieve it. One popular passive income option is investing in real estate, and money expert Dave Ramsey’s website Ramsey Solutions cites house hacking as one way you can make extra money with your property.
Money Expert Jaspreet Singh: Get Rich Through These 3 Investments
Discover: 3 Things You Must Do When Your Savings Reach $50,000
Here are the pros and cons of house hacking as a real estate income strategy.
House Hacking: Pros and Cons
According to Ramsey Solutions, house hacking is using your home to generate passive, or active, real estate income. Homeowners with several extra unoccupied bedrooms in their home can participate in house hacking by renting these rooms to working professionals or students.
There are several benefits to house hacking. One of the biggest pros is generating extra income because owners are charging tenants rent. This money can be put toward your mortgage or other property expenses and gives homeowners the chance to build equity faster. House hacking also allows you to gain experience as a landlord, which can gradually prime you for success as a real estate investor.
While it’s a plus that you won’t have to search for your tenant when rent is due (since you live under the same roof), the Ramsey Solutions post pointed out that tenants also know where to find their landlords when something goes wrong. And it’s not a question of if something goes wrong, but when.
Whether it’s a Wi-Fi outage or a clogged toilet, something will go wrong and it will be up to you, the owner, to fix it. So that’s a clear con of house hacking.
I’m a Self-Made Millionaire: These Are Investments Everyone Should Avoid During an Economic Downturn
Other Ways To Earn Passive Income From Real Estate
You still have options if you find house hacking isn’t a fit for you. Ramsey Solutions shares even more ways you can earn passive income from real estate.
This is a low-risk real estate investment option for buyers who have cash to purchase land. A ground lease is a long-term agreement between a landowner and a tenant who constructs a building on the property.
“With a ground lease you own the land underneath a building you don’t own or manage, and you lease the land to the building owner,” the post on Ramsey Solutions reads.
Short-Term Vacation Rentals
Another way you can earn passive income from real estate is by renting out a property on a short-term basis.
While the pro of this passive income strategy is the ability to make more money, especially if the property is by the beach or another vacation spot popular with tourists, Ramsey Solutions said to consider what happens to the rental property during off-peak seasons. The recommendation from Ramsey Solutions is not to buy any type of investment property unless you pay for it with cash upfront.
If you don’t want to house hack under the same roof, you can purchase a single-family home, duplex or condo and rent the spaces out on a monthly or year-long basis.
Whether you choose a house, condo or duplex, it is recommended that you pay for it upfront. “Never buy a rental unless you’re completely out of debt with a fully funded emergency fund and can pay cash for it,” reads the post on Ramsey Solutions.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Dave Ramsey on House Hacking: Pros and Cons of This Real Estate Income Strategy