House hacking is taking the world by storm. I do it, and my two friends who retired in their 30s also do it because it is an incredibly powerful tool for saving money, wealth creation and achieving financial independence.
To explain further, we all know it costs money to live, with housing the biggest expense for most. Your rent, mortgage, property taxes and home maintenance all take huge chunks out of your pay cheque. In the US, the average cost of housing is between 18-30 per cent of people's take home pay, and there are many who spend much more. I don't know the typical percentages for the cost of housing in the UAE, but residents can easily pay up to Dh10,000 per month or more.
What if I said you could reduce this big-ticket cost considerably or even wipe it out completely. Some talented people even make their housing pay then, turning it from an expense into a source of income.
I started taking house hacking seriously when I went to visit a couple of friends. They lived in shared villas near the beach in Jumeirah. They had cool houses, giant bedrooms, huge kitchens, lovely gardens and interesting housemates. That got me over the fear of the concept, because I thought such a situation would be oppressive, with tiny rooms and no privacy.
The first friend was sharing a room with his wife and living a great life paying around Dh40,000 a year in rent in a great neighbourhood by the beach in Dubai. The other friend rented out the whole house and sublet to other people, which made him a small profit, completely eliminating the rental cost in his budget because he had taken the initiative to advertise and manage the other tenants.
My job as a teacher offers a decent housing allowance and my employer gives me that amount whether I pay more in rent that year or less than what I’m given. For the last two years, I'd lived in a serviced apartment, which cost slightly more than my housing allowance, putting me about Dh8,000 out of pocket each year. I liked my neighbourhood and the service that came with the hotel apartment, so I was pretty happy.
However, when my lease was up in May, I thought it might be time to try my hand at house hacking. I used dubizzle to find a great big room in a villa that is both 10 minutes from my job (cutting my commute by two thirds), that only cost me Dh4,000 a month. This left me with a surplus of over Dh20,000 from my housing allowance, which went straight into investments. I view it as a Dh1,500 per month raise for doing nothing but living in a mansion.
It is a little weird living with people again, but my housemates seem very nice and welcoming and the kitchen has plenty of space for my pots and pans.
Simply downsizing to reduce your rent is one method of house hacking. If you receive a housing allowance, use it to find a place that costs less and pocket the difference. It could be a shared villa, a smaller pad, a different location or choosing to move in with a good friend.
Another house hack tip is the "live-and-flip". For this, buy a property that needs some work, but not so much you can't live in the part that you're not remodeling. This is great if you're the handy type who knows their way around a tool box. As you fix up the property, you increase its value, so that at the end, the profit you make from the now more valuable house more than covers your living expenses. Some people turn this into a full-time job, moving from house to house, fixing them up then moving on once the house is great and expensive again.
I don't have those skills hence choosing the sharing option, which even works if you have a family. There is a family living in the detached, more private part of the villa where I'm living. If you're living in a place with duplexes or triplexes, that have multiple independent apartments in the same building, you can buy the building, live in one flat and rent out the rest. Others rent out an extra room on Airbnb to defray the cost of their mortgage.
Any way you cut it, there is a house hack for you. Sometimes it takes a little creativity, effort or sacrifice, but the benefits can be huge. Imagine what you could do with the money you're spending on rent if you could spend it somewhere else.
Dubai schoolteacher Zach Holz (@HappiestTeach) documents his journey towards financial independence on his personal finance blog The Happiest Teacher