Landlording & Rental Properties

6 Different Ways to Hack Your Housing (Find One That Works for You!)

Expertise: Personal Finance, Personal Development, Real Estate Investing Basics, Landlording & Rental Properties
58 Articles Written
Hand with house key in foreground, living room with light wood floors, white couch and white shelves in background

By now, most of us have heard of the term that Brandon Turner infamously coined called “house hacking." For those of you who have not heard, it is when you purchase a property, live in part of it, and rent out the rest. That way, your roommates and/or tenants are paying a significant portion (or all) of your mortgage.

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There is no question that house hacking is the single best way to generate wealth for those of you who are in the beginning stages of your journey towards financial independence. Here is why:

  1. It either dramatically reduces or eliminates one of your largest expenses—your living expense.
  2. You build equity for free as your tenants pay down your mortgage while the property (in many cases) appreciates.
  3. You save in taxes, as you are able to deduct a portion of your house expenses as well as account for depreciation.
  4. You can get into a house hack for very little down if you're a first-time home buyer. With such little money down, it will be tough to find cash-on-cash returns higher on any other type of investment.

Now that you can see how powerful house hacking is—and before you start making excuses as to why you can’t do it—read this article.

I truly believe that one of these forms of house hacking can work for almost anyone—families, those who live in expensive areas, etc. You just need to get creative. I have, and so have many of my friends.

This article is going to outline the different types of house hacking that I have seen. I hope that a variation of one of these house hacking strategies can work for you.

1. The Traditional House Hack

Definitely the most popular and the one that almost everyone has heard of is the traditional house hack. This is when you purchase a two- to four-unit property with a low down payment residential loan. The 3.5% down FHA is popular here, but there are others, especially if you are a first-time home buyer.

You live in one unit (perhaps with a roommate) and rent out the other unit(s). The rent from your roommate plus your other units should either cover the mortgage or come darn close to covering the mortgage. That way, when you move out, the property cash flows nicely.

This strategy works in most lower-priced markets, but it is almost impossible to find a deal that works in the higher-priced markets, where rents will usually not be enough to cover the mortgage.

2. Calling the Living Room Home & Renting Out the Rest (Seriously)

They call it a “living” room for a reason, right? I did this. I live in Denver, Colorado, a city where price points are relatively high. It is increasingly difficult to find a property where a traditional house hack works. So I had to get creative.

Related: Why I’m Not House Hacking (& the Strategy That Will Cover More of My Rent)

With this strategy, I rent out the upstairs unit like a traditional rental. However, this was not enough to fully cover my mortgage. So I decided I would put up a room divider and a curtain and section off a portion of the living room and call it my bedroom. That’s where I rest my head, and 95 percent of the time, I am good with it.

Since I am not occupying my bedroom, I can now rent it out on Airbnb. This works extremely nicely, allowing me to cash flow anywhere between $250 and $750 per month (after reserves), depending on the seasonality of Airbnb.

3. Renting by the Room

This is a strategy one of my good friends has deployed, and it is working magnificently. The idea is to purchase a large single family home that has at least four beds and two baths and live in one bedroom while renting out the others. You can typically get significantly more in rent when you rent by the room.

Purchasing a single family home (especially as a first-time home buyer) opens up a lot of potential financing options. At the time of this article, I know they have 1 percent, 3 percent, 3.5 percent, and 5 percent down loan options on single family homes. The low down payment with the increased rents really boosts your cash-on-cash returns.

We haven't even gotten to appreciation yet. Single family homes are known to appreciate more quickly than multifamily ones. This is the case because both investors and non-investors are interested. With more demand comes higher prices, not to mention that non-investors will typically pay a premium given they are looking for a home—not a deal.

4. Living in a Trailer/RV & Renting Out Your Primary Residence

My friend, neighbor, and colleague has taken house hacking to the next level! He purchased a stationary RV for $1,500. He puts that in his parking space and lives in that while fully renting out his one-bedroom apartment on Airbnb. This strategy is for the hustler who is clearly willing to do what it takes to achieve early financial independence.

In Denver, where the price point is relatively high, this makes a lot of sense for the young, single folks looking to eliminate their housing expense.

5. Renting Out an Additional Dwelling Unit

Ben Leybovich, an active user here on BiggerPockets and a good friend of Brandon Turner, calls this “luxury house hacking.” This is on the opposite end of the spectrum as the trailer and works well if you have a family.

You either purchase a property with an additional dwelling unit or build one yourself. It’s helpful if the unit can have at least a small kitchenette, an operative bathroom, and a comfortable bed to sleep in.

Then, you guessed it—rent it out! You could rent it full-time or on Airbnb.

This way, you and your family can have your own personal space in the main house while your guests enjoy their own space in the guest house.

Small comfortable living room with minimalist furniture

6. The Live-in Flip

Queen of the forums, Mindy Jensen, is notorious for the live-in flip strategy. She has done this nine times! This is where you purchase a property that needs some TLC, ideally with a low percentage down loan. You live in the property for at least two years, and while living there, you fix it up. Once it is all fixed up and after the two-year timeline, you sell it and pay no capital gains on the first $250K of net proceeds ($500K if you’re married).

You may be wondering, why two years?! For every other strategy, it is just one. Well, to avoid paying a significant amount of capital gains tax, you are required to live there for two years.

The live-in flip strategy is nice because it could be combined with the other strategies (with exception to the trailer/RV) to create a compounding effect. When combined, you will significantly increase the value of the property while also garnering more rental income.

Related: 3 House Hacking Mistakes I Made (& How I Could’ve Prevented Them)

In a traditional house hack and the living room strategy, you can live in one unit and fix it up while renting the other. Then switch!

If you choose to rent by the room in a large single family home, maybe you add a couple extra bedrooms, redo the basement, etc. This is obviously easiest because you have access to the entire property all the time.

On the ADU, you can build your own ADU or turn the shed in the back into one. Either way, you’ll be able to rent it out, and this will increase the value of your property.

Conclusion

There are a lot of different investing strategies out there. I strongly believe that house hacking is the best possible strategy if you are looking to have the greatest odds at earning the highest possible return on your investment.

I talk to fellow house hackers regularly, and cash-on-cash returns are typically between 30 percent and 60 percent. This doesn’t even include the equity build up or tax savings!

The question then becomes not whether you should house hack but what strategy you should deploy. Well, it obviously depends on your situation, what you can afford, and how you are willing to live. There’s typically a tradeoff with luxury and returns. If I had to order these from best to worst in terms of return, I would say trailer/RV, living room, rent by the room, traditional, then luxury (and the opposite in terms of luxury).

I don’t include the live-in flip because it’s a different beast.

So what strategy are you going to do?

Leave a comment below!

Craig Curelop, aka thefiguy, is the author of The House Hacking Strategy and a driven pursuer of financial independence. Sta...
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    Ezichi Oha Wholesaler from North Hollywood, California
    Replied about 2 years ago
    no 3. renting by the room
    Johnny Wolff Rental Property Investor from Kansas City, KS
    Replied about 2 years ago
    Dude – house hacking is the best! I’m about to close on my 7th house hack next week. Such amazing cash on cash when you put down 3-5%. Also – since renting out by the room is kinda a niche strategy with limited resources on bigger pockets I’ve started a facebook group for folks who utilize this strategy to share knowledge/tips/tricks. If you read this and are a real estate investor who rents by the room – send me a DM and I’ll invite you to the group!
    Trevor Hatchard Rental Property Investor from Newport Beach, CA
    Replied about 2 years ago
    Awesome article, does anyone know if you can get a 1% loan on a multi family (2-4 units) property? Looking for my first house hack and have determined I want a multi family, but quickly coming up with 45,000$ is the next hurdle, and is about the norm in my expensive market (southern California)
    Laura Verderber Rental Property Investor from Fairhope, AL
    Replied about 2 years ago
    Bought my first house at 23, back in the day. I wanted to buy a duplex but couldn’t aford it. 2007 was at the peak of the market. So I got a 2/1 single family home and turned the dining room into a third bedroom. The kitchen was big enough to have a breakfast table in there. The cash flow was large and sweet but living with strangers (mostly college kids) was kind of annoying. The worst part was having to share the bathroom. (It was kept clean. You just had to wait for people to get out of the shower.) Back then I thought of it as having room mates. Now it’s called house hacking. Oh, I had one friend rent from me. It was great fun while he was paying rent. We fought when he stopped. Keep that in mind. I definitely recommend this method is you’re young and single.
    Dan Sheeks Rental Property Investor from Denver, CO
    Replied about 2 years ago
    Hey Craig! Hope your summer is going well. Great article! My wife and I are moving into a 3 level SF house (one bedroom and one bathroom on each level) next month and will be doing a slightly different house hack. It’s not a strategy that will get us all our mortgage back so I guess I would call it a 3-part pseudo-house hack to help supplement our mortgage. First, we will Airbnb out our finished basement while we are at the house. Second – my wife and I spend a lot of time in the mountains (especially in the summer since we are both teachers) and often leave town to visit family. So whenever we will be out of town, we will Airbnb out the entire house (minus the upstairs which only has the master suite). Third – we will put our house on Airbnb for “big” weekends for a high price (July 4th, Labor Day, Memorial Day, Thanksgiving, etc) and if it gets rented, we will stay at my sister’s place nearby. House hacking has no limits!!!
    Ricardo Baker Flipper/Rehabber from San Antonio, TX
    Replied almost 2 years ago
    Very interesting, I personally haven’t heard of house hacking. But I definitely see how this can work to build wealth. I wonder if I can work this into my wholesaling business.
    Ajay Kumar Investor from Dallas, Texas
    Replied almost 2 years ago
    Hey guys, has anyone been able to get a 5% down mortgage to buy a 2-4 unit (and live in one of the units)? I have a few SFR’s and the big banks are requiring 25% down for a duplex even if I were to live on one side! Thanks, Ajay
    Bruno Ferreira from Porto , Porto
    Replied about 1 year ago
    Living Room hack advice : I'm not comfortable with having a curtin to act as a wall of my "bedroom". So,keeping the entire living room just for myself,I'm thinking of buying a flat that has a huge kitchen, big enough for a simple 3 seat sofa. I put up a flat TV in front of it, and bang, there's a kitchenette! What you guys think?
    Evan Brookman from Nashville
    Replied about 1 year ago
    Good options! Thanks for sharing
    Kevin Smith from Colorado
    Replied 5 months ago
    I just completed my first house hack where I rented out the other rooms. It was great - had 3 roommates and lived for essentially free. Now I've been able to save up enough to do it again only a year later. Definitely the best strategy to get into real estate investing in my opinion. I've learned a ton along the way and will do even better next time. Thanks for leading the way, Craig.