House Hacking 101: Top Tips and Advice

A young couple doing up their hallway in the old house they have bought .
sturti / Getty Images

Homeownership can be a path to financial security, but it can be hard to get your foot in the door as homes continue to get more expensive. Enter house hacking, the latest trend in real estate.

What Is House Hacking?

The idea behind house hacking is to buy a property and make one part of it your residence while renting a part of it out. For example, you could buy a multi-unit property and live in one unit. Any profit you’re able to make from the other tenants covers some or all of your expenses while you live there, allowing you to live for free or as close to free as possible.

While you’re living for less and your tenants are essentially paying for you to own and live in the property, you can save your income. When you’re ready, you can move on to your next home but keep the rental property as an investment.

Providing Affordable Housing During an Ongoing Crisis

It doesn’t take much real estate research to understand that the housing market is increasingly competitive. Over the last several decades, housing prices have been rising — for both homeowners and renters — as housing policy has struggled to keep pace.

Make Your Money Work for You

According to the U.S. Census, the median value of owner-occupied housing units is $217,500 and in 2020, 61% of new home purchases were for amounts of $300,000 or higher. Renters are feeling the squeeze, too.

According to Harvard’s Joint Center for Housing Studies, nearly 25% of renter households spend more than half their incomes on rent each month. In the fourth quarter of 2020, the median asking rent for vacant rental units was $1,190.

In stark contrast to these housing statistics, median household income sits at $62,843.

House Hacking: A Workaround for Motivated Investors

For some, house hacking is an equalizer. It creates homeownership opportunities for people who might not otherwise afford to make the leap. It also offers the potential of being able to live for less now and the long-term hope of creating a wealth-building asset to hang onto for later in life.

It’s not for everyone and it’s not a guaranteed path to free rent wealth-building, but it’s an option that’s increasingly in favor with aspiring homeowners who are willing to be creative and think outside the housing box.

Ground Rules for House Hacking

The ABCs of house hacking: If you’re looking to house hack, here are a few key ground rules around property hunting and financial planning.

Many Types of Rentals Will Work

You can purchase a duplex, triplex, fourplex, single-family home, or a more creative alternative such as basement apartments, garage apartments, in-law suites, mobile homes, or tiny homes. The key is to have a space of some kind that can reasonably be rented out to someone else.

You’ll Be Eligible For Optimum Loan Terms

As an owner-occupant, you will be privy to lower interest rates and better terms than if you were to simply buy a rental property as an investor. These favorable conditions help you both in the short- and long-term, especially if you decide to hang onto the property once you’ve moved elsewhere.

You May Not Need 20% Down

You can look into utilizing a loan program, like the VA or FHA, to avoid putting the standard 20% or more toward a down payment on the property you choose. There’s a chance that you could buy a property with very little or no money down, allowing you to keep your savings in place as a buffer.

Make Your Money Work for You

Your Tenants Pay While You Save

Let’s say, for example, that each unit in a tri-plex you purchase needs to rent for $1,000 for you to break even on the property’s monthly mortgage. If the local housing market supports a rent price of $1,500 per unit, you can set that as the rent price for the other two tenants. That way, they’re paying your rent and allowing you to save the monthly funds that you would normally allocate toward rent.

Who Is House Hacking a Good Fit For?

Anyone can learn how to house hack. However, it’s an especially good fit for young people with an eye on building wealth and establishing additional revenue streams for their retirement years.

Why Should You Consider House Hacking?

You’ll Learn a Lot About Real Estate

Most of us don’t grow up learning about real estate, so as adults we often have a lot to learn. We find that there are many layers to finding a place we can call home, from location to school zoning, neighborhood characteristics, and more.

You’ll Learn the True Cost of a Property

Owning a home isn’t just about paying the mortgage. It’s also about the maintenance required to keep the property up. This involves everything from the water heater to the roof, lawn, appliances, flooring, security system and more.

Good To Know

As a house hacker, you may have some maintenance fees that are specific to multi-unit properties but you’ll be able to get at least a partial sense of how often home repairs are needed and how much each one costs. It’s an advantage to be able to learn about the full cost of a property when you have other tenants helping you pay rent rather than trying to take it all on yourself.

You’ll Get the Landlord Experience

Knowing how to be a good landlord can come in handy — not only in the short-term but the long as well. Becoming a landlord can help you create the financial leeway to own your own home later. Once you reach that point, if you ever need additional income, you’ll have the confidence of knowing that you can rent out a room or an area in your home, giving you a financial advantage that can be a boon in hard times.

You’ll Become an Expert Repair Person

It’s practically a guarantee that the dishwasher will break, the HVAC system will need replacement at some point, and the roof will leak. As a house hacker, you will also be the landlord, making it your job to handle needed repairs.

If you choose to hire repair professionals to get them done, you’ll quickly learn how much they cost. If you opt to tackle these jobs yourself, you’ll be put through multiple fix-it scenarios and come away with a complete education in home repairs — invaluable knowledge that you’ll take with you.

How To House Hack: Getting Started

Are you interested in house hacking, but not sure where to start? Here are some basic rules to follow.

Research and Network

To be a successful house hacker, do your homework on all fronts. You’ll need to know:

  • Personal plans: What your personal plans are over the next five years — for example, do you plan on having children? Major life decisions could derail your willingness to stay involved in a house hack, so consider this carefully.
  • Neighborhood: Which neighborhood makes the most sense for your price point and needs.
  • Contractors: Which contractors you’ll call for common repairs.
  • Network of landlords: Whether there’s a local network for landlords that you can participate in.
  • Rental contracts: How to draft rental policies and contracts.
  • Eviction: How to handle tenant eviction, if needed.

Prepare Yourself Financially

The point of house hacking is to create a financial opportunity for yourself, so you need to start with a strong grasp on money. Ask yourself:

  • Down payment: Do you have enough saved to make the needed down payment?
  • Slush fund: Is there a slush fund in place for needed repairs, as they arise?
  • Gaps: Could you cover your own rent for a while if one or more of your tenants moved out and you had a period of vacancy?
  • Remodels: Will there be remodeling needed on the property and if so, do you have the funds for that?
  • Tax deductions: Do you understand the tax deductions that landlords are allowed or have access to an accountant who can help you navigate that? Do you have a tracking and itemizing process in place?

Watch Your Mortgage Terms

For starters, a fair mortgage is the foundation for any successful house hacker. You’re looking for:

Outline Your Tenant Selection Process

Before you hand anyone the keys to your property, you’ll want to be as sure as you can about how they’ll fit in, especially because you plan to live on-site, too. Have a plan for:

  • Accepting tenant applications
  • Conducting interviews with potential tenants
  • Screening, including background checks and reference checks

Final Take: If Not Now, Later?

If the idea of house hacking seems overwhelming right now, take the time you need to do your research. It’s just one of many investment strategies available to you once you’re ready to commit to real estate.

There’s no harm in saving your money, learning what you need to learn, and keeping an open mind. Successful house hackers tend to start with the end in mind anyway, so it’s wise to proceed with caution and fine-tune your strategy over time.

GOBankingRates’ Homebuying Guides

Our in-house research team and on-site financial experts work together to create content that’s accurate, impartial and up to date. We fact-check every single statistic, quote and fact using trusted primary resources to make sure the information we provide is correct. You can learn more about GOBankingRates’ processes and standards in our editorial policy.

About the Author

Kelli Francis is a writer and content strategist. She started her career with a degree in journalism from the University of Oregon and went on to work in some of the industry’s busiest newsrooms, from The Seattle Times to MSN.com, WebMD and Yahoo. In nearly a decade at Yahoo, she worked as an assistant managing editor at Yahoo Finance, specializing in personal finance content; a producer for Yahoo News; and a managing editor on Yahoo’s home page team. A perennial seeker, Kelli is currently expanding her knowledge of all things finance as a student at The American College of Financial Services. She is also the very proud mom of a wonderful and unstoppable 7-year-old with Autism Spectrum Disorder.  

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