Blog

By: Eric Beise | Realtor

In House Hacking Part 1, we uncovered some of the ways you can integrate house hacking into your lifestyle. As we start digging deeper, one concept stands out as being the most effective way to think about house hacking. It’s the linchpin of the strategy, and the more you buy into it the more impactful house hacking will be for you. That concept is something called ‘hedonic adaptation’. How does this fancy term relate to using your house to cater more to your lifestyle goals? 

Hedonic Adaptation

Hedonic Adaptation refers to things providing limited enjoyment before one grows accustomed to them. It highlights how happiness is relative to our perceptions and our perceptions are incredibly adaptable. We initially love getting a shiny new thing, but within a few weeks the newness fades and the thing gets put aside as our attention shifts to the next. 

This concept most commonly hinders us from pursuing our highest priorities and leaves us chasing things that don’t enrich our lives sustainably. However, there’s an empowering side this concept – one that house hackers can majorly capitalize on. 

Price Point vs. Happiness 

Hedonistic adaptation is seen in real-time when we adapt to a perceived “downgrade”; losing no lasting joy and saving resources (usually financial – and less directly, time) to deploy on things more valuable. This is most notable when we go from “the best” to “good” products. Vehicles are a good example. 

There are certainly some benefits a person might have in driving a Range Rover over a Honda Pilot, but what are those benefits actually worth?

Let’s break it down a bit.

Even within the two different models of vehicles, the premium packages are dramatically more money than their base package counterparts. Does a premium Range Rover really increase the long term happiness by nearly 100% compared to the base? What about the more reasonable increase of roughly 55% for the Honda Pilot? 

In both the base and premium cases, the Range Rover is about 3X more expensive than the Pilot. Expressed as a percentage, that’s 300%. Has anyone ever charged you 300% more for something than you know it is functionally worth? What was your reaction? I hope it was an outrage! 

On a smaller scale, a craft beer in Minneapolis in 2019 will cost you between $6-9. How would you feel if when you got your tab your bill was actually $18-27? You would never return, and likely tell all your friends how much your experience sucked. Yet we unknowingly make this decision often, with much more at stake. 

Even though there are advantages that the Range Rover clearly has over the Pilot, the fact is that after driving this high-end luxury SUV for about a month, you will adapt to it as your “normal” vehicle. You will have become accustomed to its features and they will become your baseline. Is one month of excitement really worth a 300% increase in cost? 

When we chose the lower-cost “good” option, we sacrifice very little in performance and make massive savings financially and allows for us to focus more on things we know are valuable for our long term joy. 

How does this relate to house hacking?

While it might be most ideal to own a bigger than average single-family house that only you and your immediate family use, with the fancy finishes and rooms designated for very particular activities (think extra bedroom for guests, a workout room for when you are too lazy to go to the gym you are a member at, a theater room, etc.) the cost of such a property just in a mortgage and property tax payments, not to mention home maintenance costs, dramatically outweighs the few times a year that those things are helpful. Even if we were to assume you used each of those rooms several days a month, that would still be less than 10% usage. Let’s generously assume you can find a property like this in the Twin Cities for $500k. Most people end up financing the majority of a home purchase and for our situation, we will assume 5% as a down payment. That leaves a monthly payment of around $3,225. 

Compare that to house hacking a duplex without those extra rooms and more moderate finishes for $350k. With less money down (3.5%), the monthly payment would be roughly $2,115. That alone is a substantial saving, but we haven’t added back the rent generated from the other unit of the duplex! 

Conservatively, let’s say we can rent out the other side for $1,115 per month. That means functionally you now only pay $1,000 per month to live in a place that could potentially have even nicer finishes than the big single-family house. Are those rooms that you might use 10% of the time really worth $2,225 per month? That’s $26,700 in savings a year! 

When you factor in that saving $1 is on average worth about $1.33 in earned money due to paying taxes, you would need to make an additional $35,511 per year to justify that extra space. You could buy that base level Honda Pilot in one year AND still have $4k to spend on vacation with friends or family. 

The average income of a Minneapolis resident is $32,232 a year. By house hacking in this way, you could functionally save more money per year than the average person makes. Your housing would function as an entire second person’s worth of income. It frees you to do things you’d otherwise not had the time to do or to take risks that others can’t afford to take. It buys freedom during the best hours of your day, and the best years of your life. It allows for choice. That is the power of Hedonic Adaptation in the form of house hacking.