Interested in Learning How to Get Started Flipping Houses?
Interested in Learning How to Get Started Flipping Houses?

House Hacking: A Beginner’s Guide

Written by Paul Esajian

House hacking is a creative real estate strategy that involves purchasing a property, living in part of it, and renting out the rest. It’s an attractive option for first-time homebuyers and investors, offering a way to reduce or even eliminate your living expenses. If you’re intrigued by the idea of making your home work for you, this guide will introduce you to the concept of house hacking, its benefits, how to get started, and the various ways you can implement it.

What Is House Hacking?

At its core, house hacking is about buying a property, living in part of it, and renting out the other parts. This strategy can significantly lower or completely cover your mortgage payments and other housing costs. It’s a savvy way to start in real estate investing, allowing you to build wealth and reduce your living expenses simultaneously. House hacking can also provide valuable experience in property management and real estate investing.

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what is house hacking

Why You Should House Hack

According to the Consumer Expenditure Survey conducted by the U.S. Bureau of Labor Statistics, the average American household currently spends close to $20,000 (or 33%) of their annual income on housing-related costs. Imagine what you could do if you could get your housing expenses covered and increase your disposable income by a third. Here are some other benefits to consider:

  • Reduce or eliminate your housing cost: When done correctly, house hacking can help reduce your housing expense or even eliminate it. Although a multi-unit property will have a higher upfront cost, renting out the other units means someone else can pay your mortgage for you. According to Edith Reads, a professional investment writer, stock trader, and personal finance coach, “For one, it’s a great way to live rent-free or for very cheap. Additionally, it forces you to be resourceful and learn valuable skills like home repairs and gardening”.

  • Gain flexibility: House hacking provides flexibility for those with an evolving lifestyle. For instance, if your company suddenly transfers you to a new city, you can rent out your unit and continue earning your rental income. You even have the option of converting the property into a single-family home for when your family grows.

  • Ease into your rental property career: When living on-site and near tenants, you will learn how to be a landlord quickly. Your personal involvement in the living community will provide you with the valuable skills needed to manage properties and perform regular maintenance. Get acquainted with the various tax benefits available to rental property owners, such as depreciation benefits or business-related tax deductions.

  • Grow your wealth through passive income: The extra cash flow earned through house hacking gives you the option to pay down your mortgage quickly and save up toward your next investment property. Learn more about how you can pursue both of these options using the debt snowball method.

  • Mitigate Risk: According to Daniel Sperling-Horowitz, the CEO of OfferMarket, house hacking is a great way to mitigate risk. “House hacking de-risks the home purchase because you subsidize your monthly costs of homeownership (principal, interest, taxes, and insurance (aka PITI) and maintenance). This is not only a great way to build equity instead of spending money on rent, it’s also a great way to dramatically reduce your overall housing costs, which allows increased savings and investment,” according to Sperling-Horowitz.

House Hack Strategies

Renting Out Rooms

Renting out individual rooms in your primary residence is perhaps the most straightforward method of house hacking. This approach can be particularly attractive if you own a larger home with spare bedrooms. By renting these rooms out, you can generate a steady income stream that helps cover your mortgage and other housing expenses. This type of house hacking often requires the least amount of initial capital and can be an excellent option for those new to real estate investing.

However, this method also means sharing your living space, including common areas like the kitchen and living room, with your tenants. This can impact your privacy and may lead to potential conflicts if not managed well. Setting clear boundaries and house rules is crucial when renting out rooms in your home to ensure a harmonious living environment for everyone.

Multi-Unit Properties

Investing in a multi-unit property, such as a duplex, triplex, or fourplex, allows you to live in one unit while renting out the others. This approach offers more privacy compared to renting out individual rooms since each unit typically has its own entrance, kitchen, and living spaces. It can also provide a higher rental income, as you’re renting out entire units instead of just rooms. Multi-unit properties can be particularly appealing if you’re looking for a more significant investment and are comfortable with the responsibilities of being a landlord to multiple tenants.

The main challenge with this approach is the higher initial investment required to purchase a multi-unit property. Additionally, managing multiple units can be more time-consuming and complex, especially if you’re new to being a landlord. It’s important to consider the additional responsibilities and upfront costs when deciding if this type of house hacking is right for you.

Short-Term Rentals

Leveraging part of your home for short-term rentals, such as Airbnb or VRBO, can be a lucrative house hacking strategy. This option is especially viable in tourist-friendly locations or during peak seasons. Short-term rentals often command higher nightly rates compared to traditional leases, potentially increasing your income. They also offer flexibility, allowing you to block off dates for personal use or adjust pricing based on demand.

However, managing short-term rentals requires active involvement, from listing the property and communicating with guests to cleaning and maintenance between stays. Additionally, you’ll need to navigate and comply with local regulations regarding short-term rentals, which can vary significantly from place to place. This type of house hacking can be rewarding but demands a hands-on approach and a commitment to providing a quality guest experience.

Accessory Dwelling Units (ADUs)

ADUs, such as granny flats or in-law suites, offer a unique house hacking opportunity by providing tenants with their own separate living space. These units can be attached to your main house or standalone structures on your property. ADUs are particularly appealing in areas where space is limited or zoning laws favor such developments. They attract tenants who desire the feel of a single-family home and value privacy.

Creating an ADU often involves a significant upfront investment and navigating local building codes. Despite these initial challenges, ADUs can add considerable value to your property and generate a steady income once operational. They cater to a specific tenant demographic, offering a balance between earning rental income and maintaining personal privacy. If you’re willing to invest time and resources upfront, ADUs can be a rewarding long-term house hacking strategy.

How To House Hack

If you’re convinced that house hacking is the right strategy for you, you’ll want to know how to get started. Before thinking about finding tenants or how much you want to charge for rent, the first order of business is knowing how to find the right property. The following steps will be expanded upon in the sections below:

  1. Determine your funding source.

  2. Conduct market research to find properties.

  3. Always run your numbers to find the best deal.

1. Figure Out The Financing

Because of your status as an owner-occupant, not only will you have access to conventional loans, you may also have access to homebuyer-assistance programs. As long as you live in one of your property’s units, you may qualify for a loan that offers attractive terms and low down payment options.

For example, the Federal Housing Administration (FHA) loan allows multifamily properties with up to four units. It requires a down payment that is as low as 3.5 percent of the purchase price. The FHA 203K loan is great for investors who want to improve units before renting them out. Find out if you qualify for any of these twelve homeownership programs and grants.

Others may opt for the BRRR method, which stands for buy, rehab, rent, and refinance. Visit this resource on how to employ the BRRR strategy for house hacking, which involves the use of short-term funds to initially rehab and rent out your property, followed by long-term mortgage refinancing.

2. Find The Best Property

When purchasing a multifamily property, you’ll want to have a rental property business owner’s mindset. This means that location is a critically important factor to consider, as it will determine your purchase price, rent price, and desirability. In addition, population growth, job growth, and the availability of local amenities are all factors that help indicate the stability and growth of a rental market. As a beginner, work with a real estate agent who specializes in multi-unit properties and can give you an idea of purchase prices and rental rates in each market.

There are other aspects of a property you can look out for on your search for a house hacking opportunity. In addition to multifamily properties, also take note of the following features:

  • Finished basements: Some single-family homes have finished basements that have been converted into living spaces. It is common for homeowners to even include kitchenettes, bedrooms, and even full bathrooms. This allows the homeowner to live in this added space while renting out the main portion of the property. The owner can have “free” housing while paying off their mortgage and building equity.

  • Additional dwelling units: ADUs are usually separated, permitted structures added to the property. These additions usually have electricity, plumbing, and other necessities for living. ADUs are commonly referred to as guest houses or in-law units. If these spaces are permitted to be rented, the property will be a great investment opportunity.

  • Multiple bedrooms: If you can’t find a multifamily property, single-family homes with multiple bedrooms also present worthwhile house hacking opportunities. The more bedrooms a property has, the more spaces can be rented out. While a property may be large in square footage, what matters most is the number of bedrooms.

  • Easily converted areas: Even if a property doesn’t have multiple bedrooms at first, convertible areas you can make into bedrooms is the next best thing. Lofts, dining rooms, and bonus rooms can all be converted into bedrooms. Adding bedrooms will not only add value to the property, but it will allow for more rentable space.

  • Properties near public transportation: While multiple, rentable spaces is important, it is not the only factor you should consider. You may have space, but you will run into problems if you’re in an area undesirable to renters. Try and find properties in the most desirable parts of the area first, then select the best property for your needs.

  • Areas without restrictions: It is common for HOA’s to not allow non-owner occupancy. Similarly, several areas do not allow for short-term rentals, like VRBO or Airbnb.

  • Comfortable living spaces: While bedrooms are important, you will also want living spaces where your tenants can live comfortably. This includes family rooms, living rooms, dining rooms, and lofts. More areas for your tenants means additional rent and the likelihood your tenants will stay for a longer period.

3. Run The Numbers

Once you’ve identified one or more properties that fit your criteria, the next step is running a deal analysis to determine whether an investment is worthwhile. To run your analysis, you will need to make some calculations. First, estimate your rental income and property expenses to arrive at your Net Operating Income (NOI). Here are some example line items to include in your calculation:

  • Rental income

  • Property taxes

  • Insurance

  • Maintenance & repairs

  • Utilities

  • Operating expenses

  • Vacancy reserve

Next, calculate your monthly mortgage payment, which will require the purchase price and estimated down payment amount. Mortgage Calculator makes it very easy to calculate your mortgage payments online. Your monthly payment is then subtracted from the NOI to arrive at your monthly cash flow. This number indicates how much rental income you have left over after paying all property expenses—including your mortgage.

A positive cash flow means that you live at your property for free, with some income left over. On the other hand, if you have a negative cash flow, it can still mean that your personal living expense has been reduced significantly.

Riley Adams offers his own story of qualifying for a loan for his multifamily unit: “When purchasing the home, since we would be owner-occupants, we were allowed to use a traditional 30-year mortgage to purchase and finance the property. We needed to meet standard credit requirements, income needs, and other applicable standards for receiving a loan. However, we also were able to include the expected rental income in our income total used to qualify for the loan. Doing this helped to some extent offer favorable terms on our loan.”

At the end of the day, you’ll want to make sure that the numbers work for you and your financial goals. Running an accurate deal analysis is paramount in making sure you make the best investment decision possible. Be sure to check out this additional resource on real estate basics for first-time investors.

how to house hack

House Hacking Mistakes To Avoid

Once you’ve identified and purchased a great property following the steps above, you’ll want to safeguard your investment. You will want to avoid some major pitfalls at all costs. Here are some common mistakes that your house hacking predecessors have made and how to avoid them:

  • Picking an undesirable neighborhood: By picking the right neighborhood, you can charge profitable rental rates and attract quality tenants. If you wouldn’t want to live there, most likely, your tenants wouldn’t want to either.

  • Ignoring local ordinances: If you plan to make changes or additions to existing property (such as house hacking a duplex to add a third unit), be sure to check your local zoning ordinances. Not following the law can result in legal action and impact your property value.

  • Forgetting to budget for repairs: Experienced landlords will tell you that the best way to safeguard your investment is to set aside a budget for repairs and other capital expenditures. If you are not financially prepared when the roof collapses or multiple appliances break at once, you can easily derail your finances. A great way to protect yourself is to set aside a percentage of your rental income each month to spread out the cost of repairs, emergencies, and vacancies.

  • Not taking landlord duties seriously: You may develop close relationships with your tenants when you live near them, but you should always take landlording seriously. This includes responsibilities such as screening and evicting tenants, collecting rent, and responding to maintenance issues. Not taking your duties seriously could result in a detrimental financial impact and legal action.

  • Not setting tenant boundaries: Living on the same property as your tenants also calls for setting clear, enforceable boundaries early on. If you don’t want tenants to knock on your door in the middle of the night, you should communicate your expectations and correct actions when necessary.

House Hacking Without Owning A Home

House hacking is an appealing strategy — but unfortunately there is not a way to approach it without owning a property. Instead, renters can search for different strategies that allow them to save money on housing expenses and put those savings towards purchasing a place in the future. For example, taking on a position as a property manager or building manager in exchange for housing or decreased rent is one option. The responsibilities can likely be managed outside of your day job, and allow you to keep more of what you earn.

Another option is to look for jobs that provide housing, whether through relocating or another option. This may not be aligned with everyone’s career path but it is an option available. For example, many college campuses provide housing to student building advisors. You can also look into house-sitting options to make extra money on the side. While this is not the same as earning rent, it is an easy way to earn extra funds while you are still renting.


When done correctly, house hacking is a great way to quickly pay off your mortgage, allowing you to reinvest your cash flow and expand your portfolio. Using the method purely as a means to reduce your housing costs is also perfectly reasonable. However, you may come to realize that earning passive income is an incredibly effective method for growing your wealth, serving as your pathway to financial freedom.

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