Introduction
Do you want to own a home but feel worried about having a big monthly payment? House hacking could help you spend less. With house hacking, you get rent from people who live in part of the home where you stay, and this can cut your costs a lot. Sometimes, the rent can cover most or even all the money you need to pay each month for the house. Here, you will learn what house hacking is and how it works for you. It will show you how to start, so you can begin to make money and grow your wealth with real estate.
Highlights:
- House hacking uses rental income from your home to reduce living costs.
- Rent can help cover mortgage, taxes, and insurance expenses.
- You gain property management experience and build equity.
- Options include renting spare rooms, small multifamily homes, or ADUs.
- Rental income speeds financial independence and wealth growth.
- A practical entry point into real estate investing.
What Is House Hacking?
House hacking is when you live in a place you own and rent out part of it. You stay in one space, and you let someone else live in the other part. You use the rent you get to pay for some or all of your monthly bills like your mortgage, taxes, insurance, and maybe also the utilities. This way, you turn a big cost into something that helps you get some money back each month, while you also build equity in your property.
How House Hacking Works in the U.S.
One way people do this is to buy a duplex, triplex, or fourplex. You live in one part and rent out the other units. The rent from these units can help pay the mortgage. Sometimes, you will even get more money than you need to cover the costs. When you live at the property, you learn how to take care of your place. You collect the rent from tenants, handle repairs, and keep an eye on daily operations. Local rules are important. Zoning, short-term rental regulations, and HOA bylaws can stop or limit rentals. Be sure to learn about the property, the neighborhood, and all the rules before you decide to rent or buy.
Why House Hacking Is Popular Today
With costs going up, many people look for ways to save money on a place to live. House hacking is one way. It lets you use space you already have to make money, lower what you pay each month, and put your savings to work for you. If you are new to this, you may like that it is easy to start and that you learn good skills as you go, like how to find tenants, plan for repairs, and keep track of money coming in and out. These skills help if you want to do even more of this in the future.
Benefits of House Hacking for Beginners
Saving Money on Housing Expenses
Getting rent from tenants or housemates can lower the amount you pay each month for your home. In some cases, this can cover most or even all of your mortgage and other bills that come with it. Example figure referenced in media: buying a $400,000 duplex with an estimated $2,022 monthly mortgage and renting one side for $2,500 would more than cover principal and interest, with remaining funds available for taxes, insurance, and repairs.
Building Wealth Through Real Estate
Tenant payments help pay off your loan. You get more money if your property goes up in value. This way, you grow what you own and can see your total wealth go up over time.
Lifestyle Flexibility and Financial Freedom
Lower housing costs let people use their money for other things, such as travel, saving, or additional investments. With more income left over, you feel less money stress. You also get to pick from more career and life options.
Common House Hacking Strategies:
- Renting Out Spare Rooms: Rent spare bedrooms to long-term housemates. Use leases or agreements and set clear rules.
- Multifamily Property: Live in one unit of a duplex, triplex, or fourplex, and rent out the rest for more privacy and rental income.
- Short-Term Rentals: Platforms like Airbnb or VRBO allow higher income but require active management and compliance with local laws.
- Accessory Dwelling Units (ADUs): Convert garages or basements, or add small cottages for rental opportunities. Confirm zoning and permits.
- Live-In Flips: Buy a fixer-upper, live in it during renovations, and sell for profit while benefiting from potential tax breaks.
Creative House Hacking Ideas for 2024:
- Renting Out Parking or Storage: Lease unused garages, basements, or driveways with clear written agreements.
- Hosting Foreign Exchange Students: Earn room and board stipends during academic terms while learning cultural exchange.
- Renting to Traveling Professionals: Offer furnished mid-term rentals to nurses or consultants, balancing higher rates with fewer turnovers.
Choosing the Best Strategy for You
Assess Finances and Goals
Make sure you know what you want. Decide if you aim to reduce part of your housing costs or cover all of them. Think about comfort levels with shared spaces and whether this is short-term savings or a long-term investment plan.
Evaluate Property Types and Local Demand
Check renter demand in your area, such as proximity to universities or family neighborhoods. Compare market rents for accurate estimates of income potential.
Legal and Zoning Considerations
| Legal Area | What to Check |
|---|---|
| Zoning Laws | Multifamily use, ADU allowances, and room-rental permissions for the parcel. |
| HOA Rules | Restrictions on long- or short-term rentals and necessary approvals. |
| Rental Regulations | Lease requirements, habitability standards, deposit limits, and remedies. |
| Short-Term Rental Ordinances | Registration, tax collection, stay limits, and platform-specific compliance. |
Always review property-specific restrictions before purchasing or converting units.
How to Start House Hacking
What You Need:
- Finances: Save for down payment, closing costs, repairs, and vacancies. Secure pre-approval.
- Knowledge: Learn landlord-tenant laws, market rents, and cash-flow basics.
- Team: Build relationships with an agent, lender, and real estate attorney.
Steps:
- Identify goals and set a budget with reserves.
- Research properties with layouts suited for rentals.
- Compare financing options, including FHA, VA, and rehab loans.
- Analyze potential income against costs, including capex and vacancies.
- Prepare the property for tenants and ensure compliance with codes.
- Advertise, screen, and lease to tenants responsibly.
- Track expenses, maintain the property, and manage tenants consistently.
Pitfalls and Mistakes to Avoid
- Underestimating Costs: Budget for taxes, insurance, utilities, maintenance, and major replacements.
- Failing to Screen Tenants: Skipping proper checks can lead to late payments or conflicts.
- Overlooking Local Laws: Violations of zoning, occupancy, or STR rules can bring fines and legal issues.
Financing Options for House Hackers
- FHA and Low Down Payment Options: Buy up to four units with 3.5% down, with mortgage insurance required.
- VA and USDA Loans: For eligible buyers, zero down with favorable rates and no monthly mortgage insurance.
- Renovation and Rehab Loans: FHA 203(k) and VA Renovation loans combine purchase and repair funds.
Maximizing Returns and Long-Term Success
- Manage Tenants Effectively: Use detailed leases, document all interactions, and resolve issues quickly.
- Increase Property Value: Upgrade kitchens, bathrooms, and curb appeal while keeping up with maintenance.
- Scale Thoughtfully: Transition your first property into a full rental and repeat the process with new purchases.
Final Thoughts
House hacking helps reduce housing costs while building equity and developing investing skills. Choosing the right strategy, following local rules, and budgeting wisely make it a reliable path to financial freedom. With proper planning and consistent management, house hacking can be a strong first step into real estate investing.
Frequently Asked Questions
Is house hacking allowed everywhere in the United States?
No. The law changes from city to city and state to state. Check zoning, rental regulations, and HOA rules before starting.
How much money can I save by house hacking?
Savings depend on rent prices and expenses. Rent may cover mortgage, taxes, and utilities, but results vary with market conditions, vacancies, and repair costs.
What are the biggest challenges for first-time house hackers?
Challenges include securing financing, screening tenants, handling repairs, following laws, and managing unexpected costs.
Can I house hack with little money or poor credit?
Some programs allow low down payments, and there are strategies to reduce upfront costs. However, credit and savings remain important for approval and long-term success.
Updated by Albert Fang