Personal Development

A New Way to Look at the Concept of “House Hacking”

Expertise: Mortgages & Creative Financing, Personal Development, Real Estate News & Commentary, Real Estate Investing Basics
46 Articles Written

Here on BiggerPockets, "house hacking" has been talked about quite often. The idea of housing hacking is that you can purchase a property in which to live while you rent out certain parts of it. For example, it could be that you are buying a two bedroom house and renting out the other bedroom. Or it could be that you are buying a fourplex and living in one of the units yourself. You are basically having other people pay for your housing expenses, while you work hard on (hopefully) accumulating more real estate.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

To be honest, prior to investing in real estate, I hadn’t really thought about my housing expenses that much. My mother once asked me, prior to having read Rich Dad Poor Dad, whether my house was an asset or a liability. My initial answer, of course, was that it was an asset. She, of course, then smugly told me that I was wrong and that it was a liability. Well, it isn’t that the house is a liability; it’s that you need to account for the expenses and opportunity costs associated with how you live and where you live.

Spending Money on Housing

People do tend to forget that aspect of it, I think. After all, why would some houses be called “starter houses?” There is already an implication that you are supposed to trade for a bigger house later. You are supposed to spend more and more of your money on your own housing. Meanwhile, an investor would think the opposite. They would think, well, why should I spend more and more of my own money on my own housing, when I can use the money to buy more houses to rent them out?

Thus, housing hacking is a great idea in the sense that you are trying to minimize your own housing expenses and use the money you save to acquire properties, or real assets in Rich Dad Poor Dad terms, to generate wealth instead. Let’s face it, you are not going to earn more money just because you live in an expensive house. And I’ve talked about this before in my previous article about how you shouldn’t have to buy your house first before investing, especially if you live in expensive areas like San Francisco or New York.

Related: How to “Hack” Your Housing and Get Paid to Live for Free

But I am going to take this housing hacking concept to a slightly different level. When most people talk about house hacking, it usually does involve living in one of the units of that newly purchased fourplex you just acquired. But if that area is not where you’d really want to live, why would you have to live there?

Why don’t you just go rent a place somewhere else and then rent out the property that you would have been “forced” to live in?

The Importance of Housing to Quality of Life

What I am saying is that house hacking shouldn’t necessarily restrict you to live in the place you purchased to invest. Instead of doing that, why not just go out there and rent a place, say, closer to your workplace?

I have family right now living in Boston, working hard to get a down payment for a house in Boston. Meanwhile, they rave about how excited they are to be living in the place they’re renting right now because the location is ideal and they scored a great deal on the rent. However, to try to buy something similar to that in the same location requires a lot more money than they are comfortable with.

Related: The Simple Action No One Does That Will Make You A Millionaire

So in that situation, why do they have to buy the place that they are living in? Why pay the higher prices, when they are comfortable with where they are? Instead, they should just go use that money to buy an investment property they can get a great return on. Hey, it may not be in the center of Boston, but they don’t have to move over there! They can be living happily where they are now, even if it means they have to pay rent.


All I’m saying is: next time, before you invest in real estate, start thinking about your own housing expense first. Maybe you can lower your own housing expense by renting a smaller place. Or you can reduce your commute by moving closer. Or you can move somewhere else if your workplace does happen to change. By renting, you can have flexibility in trying to get in and get out.

On the other hand, many people fall into the trap of having to sell their home because their job changed or they had to move out of state. You have that flexibility. Then, use the capital you would’ve spent on your own housing to buy properties that yield you a great return. Even if you have to move, you can keep those properties there!

So folks, that’s my version of “house hacking.” What do you think?

Leave me a comment below!

By Leon Y.
Leon Yang is an active real estate investor in Las Vegas. He is a buy and hold guy who also likes to flip from time to time. His main passion is to traveling to the less traveled places and inspiring others to become financially independent through real estate.
    Scott Trench President of BiggerPockets from Denver, CO
    Replied over 6 years ago
    Very awesome article Leon. I agree completely with your line of thinking. That said, I believe that the house hacking strategy still makes a lot of sense for me. The best initial investments, in my opinion, reduce monthly cash outflows. That’s a much higher return than a true investment property in a lot of ways in my opinion. For example, here’s what I’ve done: I bought a Duplex within 4 miles (very comfortable biking distance) of my workplace. This is huge because it reduces my commuting expense vs purchasing a property farther away that might have slightly better cashflow specs. I am “fix and renting” half of it in the next two months, and then going to town on the other half as an owner-occupier. This strategy will allow a tenant plus a roommate to pay for the cost of living, put me in a location close to work, and allow me to get my feet wet in a relatively simple investment. It didn’t make sense to continue renting, and purchase a property that cash flowed slightly better many miles away, because for me, that total return would have been much lower.
    Joshuam Rivera Investor from Orlando, FL
    Replied almost 5 years ago
    Greetings Scott , I have a question about that. Do hard money lenders or private lenders all required for you to not live on one of the units lets say like your situation. Or some do not mind at all. also if they do require for you not to live in one of the units due to funding, would apply for hardmoney under an LLc seperate that. Meaning buy the property under the llc, get hardmoney funding, and rent it to your self or your spouse. thanks
    Brandon Monaghan from Mount Pleasant, South Carolina
    Replied almost 6 years ago
    Hi Scott, What if you want to move to a different state?
    Scott Trench President of BiggerPockets from Denver, CO
    Replied almost 6 years ago
    Brandon, this is a good point. As an owner occupier, I have committed to living in my property for 1 full year, else I am subject to a $10,000 penalty. I have no intention of breaking that promise, but should I have a pressing need to move before that, I believe there are several ways to get around that fee. I’d have to look them up though. Bottom line is, I’m confident that this city is where I want to spend the next couple of years and build the foundation of my real estate portfolio. IF I did want to move away, I could simply do so after one year, get a new tenant to rent out my half of the duplex, and have a property manager manage the property for me. Luckily, I’ve spent considerable time on BiggerPockets and working with investors and property managers here in Denver, and I feel confident that I could hire an excellent property manager should I wish to move, or make my real estate holdings more passive.
    Replied over 6 years ago
    I met a girl one time and as it turned out she owned rental RE. That wasn’t my real interest with her at that moment but; what can you do? She had originally rented a house for herself and then rented out the other bedrooms in a house-share arrangement – maybe going to college; I forget the genesis now. Later she rented another house and arranged a house-share even though she didn’t actually live there herself at all. I don’t know how many rented houses she “house-shared” this way but eventually she began to buy the houses and then “house shared” them. I forget the actual numbers now (and I wasn’t really as RE focussed as I might have been if she had been less attractive ) but I remember being very impressed with the returns. I guess the whiz-kids here can run some current numbers for the sake of precision but I imagine that the concept is still valid. Hey! Maybe it’s counts as one of the often elusive ‘no money down’ concepts. stephen ————-
    Allan Sabo Real Estate Investor from Scottsdale, AZ
    Replied over 3 years ago
    Good article Leon! You asked: “So folks, that’s my version of “house hacking.” What do you think?” My take (since you asked): House sharing is my primary method of house hacking – I’ve been doing it for over 8 years now. When I started, yes, I took the risk of being evicted as there was no sublet clause in my lease. But, I moved from a one bedroom 780 sq.ft. apartment (rent of $830 plus utilities and cable) to a three bedroom with 1,300 sq.ft. ($1,300 a month rent plus utilities). The stars aligned in such a way I could upgrade – I had 2 established professional friends looking to “save some money”. The first was a bit younger, he was doing well as a restaurant manager and he got burned on his last apartment /roommate situation. I pitched him on renting a room with me in a three bedroom. The second was traveling salesman, he often spends 3 to 7 days in town, and would be gone again for 3 to 10 days. In total, he was spending well over $1,000 a month on hotels. My one “roomie” paid me $750 a month for the larger unfurnished guest bedroom and the salesman paid me $850 a month for a fully furnished room. This left me with $300 extra to put toward utilities and cable – I basically lived in that apartment for free (reducing my cash outflow to nearly zero). Because they were friends, I had almost no worry about being discovered and evicted. From there, I went and rented a four bedroom home, (I chose to rent as I was still building my cash saving war chest) both roomies came with me, so I only needed to find one more renter. My 4 bedroom 2,300 sq.ft. home cost me $1,700 a month in rent (plus utilities and cable). I got $750 for two rooms and $850 for the third. I was generating a surplus of $650 a month, more than enough to cover utilities and cable. Again, I was living in a much bigger house, almost as nice as the apartment for next to nothing. When I went house shopping, the first thing I required was a sublet rights in the lease agreement – if they would not give it to me, I walked! Needless to say, I kissed a lot of frogs (maybe 10 to 12) to find my princess… Now, I don’t want to paint a rosy picture here, I was doing all this with someone else’s rental property – there were troubles, finding good tenants, filling rooms during the low volume off-peak season of summer (I live in Scottsdale AZ). However, I planned for the tough times and worked to leverage the asset in peak times (such as using Air BnB). This has been a solid strategy to help me build my cash reserves, and I’m now gearing up to hopefully take on TWO properties, one I’ll finally own and another rental hack as I’ve done above. To me, there are two critical keys to success. 1) Life Design – I am not married and have no kids, so I can sacrifice some degree of comfort. 2) Finding the right asset to work with. Often times there needs to be a compromise between the two keys above while always managing against downside risk that yields a great house hack. I see “house hacking” as something incredibly personal, there almost never exists a one-size fits all approach, but instead, a deeply personal methodology that others can weigh their current circumstances with their achievable vision and the available housing stock to arrive at a personalized next best step for them. So there’s my 2 cents since you asked. 😉 ~Allan
    Trevor Rutherford Wholesaler from Dayton, Ohio
    Replied over 6 years ago
    Hope she doesn’t get evicted for sub-letting
    Replied over 6 years ago
    For those of us with kids in college, you can house-hack for your kids too. I was looking at $10,000 per year for her to live in the dorm at her college, and decided to buy a 3 bedroom house instead. Bought the foreclosure house for $36,000 and remodeled the bathroom and installed new flooring with the other $4000. Now, the house appraises for over $60,000 and she lives for free and gets enough money from her two roommates to pay for her share of utilities, food, and all maintenance and expenses for the house. Instead of throwing away $40,000, I will make $20,000. Another daughter chose a university where you are required to live on campus, so I used her $40,000 to pay cash for a house 5 minutes from my house and use the rent to pay for her expenses. Same end result!
    Frankie Woods Investor from Arlington, Virginia
    Replied over 6 years ago
    Nice article! I really liked the out-of-the-box thinking. It does make sense to rent vs. buy in some cases, especially considering your individual living situation (e.g., you have a family and don’t want the stress of living with other people). However, I would venture to say that it’s almost always better to find a “good deal” in an expensive area and rent out extra rooms rather than settle on renting. In that way, you can take advantage of owner-occupied financing (e.g., VA, NACA, FHA) with low down payments, the possibility of appreciation, and the equity acquired by buying right. This is because in most places with high price-to-rent areas, the areas are highly coveted, depreciation is unlikely, and rents will continue to rise. Just my $.02, but really, great stuff!
    Ror M. from Atlanta, GA
    Replied over 6 years ago
    Seems to me that there are differing degrees as to how one can hack their housing. Depending you your age, life situation and appetite for sacrifice. This is open to interpretation depending on your own situation but after college I tried to do the following steps: 1. Be someone else’s roommate – the ultimate hack. That’s the cheapest housing you will ever have. 2. after saving by being a roommate, buy your own place and get your own roommates – now they can pay your mortgage. 3. Significant other moves in – they can pay for food and cable or whatever you decide. Make it a win win. 4. Now start cracking into other options – a. multi-family, b. moving out of first house and buying a second with the savings from the hacking c. and so on…
    Replied over 6 years ago
    Good article. One area that most don’t consider is a commercial building house hack. We’re currently renovating an upper level to live in while having 3 businesses downstairs to pay for a good chunk of the mortgage. In the end we’ll have a completely remodeled 2800 sq ft loft for less than $700 a month ( including taxes, ins) for 15 years. It’s not completely covering our mortgage but the space is exactly what we wanted. There are plenty of opportunities out there to ” house hack” without sacrificing quality of living. Reply Report comment
    Replied over 6 years ago
    Good article. One area that most don’t consider is a commercial building house hack. We’re currently renovating an upper level to live in while having 3 businesses downstairs to pay for a good chunk of the mortgage. In the end we’ll have a completely remodeled 2800 sq ft loft for less than $700 a month ( including taxes, ins) for 15 years. It’s not completely covering our mortgage but the space is exactly what we wanted. There are plenty of opportunities out there to ” house hack” without sacrificing quality of living.
    Kenny Layton Investor from Fort Collins, Colorado
    Replied over 6 years ago
    Good article and point. To me the primary benefit or “hack” by living in a 2-4 unit property is the opportunity to purchase the property with owner-occupied financing requiring a lower down payment and slightly better interest rate. It allows you to get in the game much sooner than if you had to save up a 20 or 25% down payment. Once you take those benefits out of the picture, I don’t think personally it’s as attractive to me to live in the same building.
    Dave Visaya Audio Engineer and Investor from Cebu City, Cebu
    Replied about 6 years ago
    I enjoy reading this. Indeed, you have to make sure yo are comfortable first since you also have some priorities and needs to be met.
    Jesse T. from Herndon, Virginia
    Replied about 6 years ago
    I think renting while owning rental properties can be a good option. A lot of higher-end residential areas have very low rent to value ratios. Supply of rentals can be limited. However cash flow on the current value is rarely the focus of landlords. Generally they either bought when prices were much lower and a long-term landlords. The other major source of landlords is those who have a long temporary relocation. Depending on their living arrangement, they may not even need to cover their mortgage. However be a little bit negative monthly will outweigh the combination of carrying and transaction costs in selling and buying a couple years later.
    Stephen S. Wholesaler from Holiday, Florida
    Replied about 6 years ago
    This wouldn’t work for most couples, and maybe no one would be willing to even do it now, but my brother started out in Texas by first renting a small house with a garage from an out-of-state owner. Then he casually revamped the garage for him to live in and rented the house out to someone else. I forget now but I think he arranged to shower at a friend’s house – or maybe where he was working at the time. That was when he right out of the Army and was really broke. A year or so after that he bought a house with a garage and did the same deal – lived in the re-worked garage, rented the house to tenants, while he worked on finding the next house to buy. For a while he had a friend who would buy houses, live in an RV on the property while rehabbing, and then stay in the RV after the house was rented. I wouldn’t do it now but I think if I was young and broke I might still give it a try. I’m sure there are laws against all or parts of it but even getting caught would likely only result in being told to stop doing it. On at least one of them he also rented the garage out to someone to live in after he had moved on. Until recently I had a friend who lived in a dirt floor brick garage in Philadelphia. He belonged to a nearby gym and used the toilets and showers there. My kids now would be Horrified at these ideas but when I was a kid I knew what being dead broke really was. Earlier today I was talking to my brother about ‘the good old days’ and that reminded me of the above. stephen ————-
    Mark Shaffar Real Estate Agent from Madison, Wisconsin
    Replied almost 6 years ago
    Good stuff, I’m always amazed at the number of ways to make money in real estate.
    Brandon Shealy New to Real Estate from Glendale, California
    Replied over 5 years ago
    Great article. The only issue for some people might be if they are trying to get certain loans that require them to reside in that property for a year or more. If someone is trying to finance a multi-unit investment with a VA or FHA loan, then renting somewhere outside of the property wouldn’t be an option for them (at least for a while). Other than that, I understand your point.
    Ben Staples Investor from Chicago IL
    Replied over 5 years ago
    For me, I’ve thought about this a bit. I really like the place I rent now, and am looking for my first investment property (also in Boston). However my main challenge is leverage. My buying power is significantly reduced once I start consider non owner occupied financing (conventional). Any guidance for developing buying criteria in this kind of situation?
    Ivan Stoyanov from Eau Claire, Wisconsin
    Replied over 4 years ago
    Ivan Stoyanov from Eau Claire, Wisconsin replied 12 minutes ago I was also interested in house hacking until I talked with local banks. The loan officer (who btw was a real estate investor himself) explained that if I buy a foreplex and decide to owner occupy it, I may hope to get approved of putting only 20% down but I should really plan for 25% down. When buying an owner occupied duplex, I may hope to get approved of putting only 15% down, but I should really plan for 20/25% down. Buying a non-owner occupied duplex/triplex/fourplex requires 25% down. According to the loan officer these are federal regulations and guidelines and it is not up to the bank to decide what % down to put. The only way to buy an owner occupied investment property with only 5% down (as described in some real estate books as the main benefit of house hacking) is get an FHA loan. This requires an initial fee and a PMI for entire duration of the loan, which greatly reduces the cash flow and overall return on investment. The only way to get out of the PMI on an FHA loan is to refinance, once you have 25% equity or more, but of course you have no guarantee of what interest rates will be at that time (you may have to refinance 4% 30yr fixed with 6% 30yr fixed for example). Given these numbers house hacking does not really makes sense in my area. I would not move from my single family home to a fourplex or a duplex just so that I am “potentially” able to pay 5% less in down payment for an investment property.
    Julie Marquez Investor from Seattle, WA
    Replied almost 4 years ago
    I love living in the heart of Seattle, but I don’t want to own anything in Seattle. It’s way to expensive for me to acquire the property in my desired location. So I rented a cute little place and bought my first investment property 60 miles away in an affordable area. If we ever move back to Seattle, we will rent and continue to grown our investments outside of Seattle. I don’t think people need to buy a primary house if it is going to cost too much, renting is okay.
    Autumn Allen Investor from Renton, Washington
    Replied over 3 years ago
    Hey guys, I know this is an old article but I didn’t see anything about house hacking a fixer upper single family house. Has anyone crunched numbers on this type of situation before? I know its not as lucrative but sometimes you cant or dont want to get involved with multi family. Thanks