Landlording & Rental Properties

House Hacking: 3 Ways to Cut Down (or Eliminate) Your Mortgage Payment

Expertise: Landlording & Rental Properties, Real Estate News & Commentary, Real Estate Investing Basics
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Calm asian student girl sitting at desk resting after studying

A new client of mine sent me an article about house hacking with a note that said, I guess what I’m trying to do has a name and that’s house hacking. Her edification on this point surprised me as I hear the term so often, I thought everyone knew what it was. She’s financially savvy though and had not/did not know exactly what it is… so that makes me think there’s room to help others understand as well. And that, in a nut shell, is what this blog post is about. 

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1. What Is House Hacking?

House hacking generally means cutting down your mortgage by renting out parts of your property either long-term or short-term to someone else. Typically, the person house hacking is the owner of the property and lives at the property—but is using other people to reduce their monthly mortgage.

2. How Do You House Hack?

There are a couple of ways to house hack, and I’ll explain the three most popular models here.

vacation-rental

Related: The 5 BEST House Hacking Methods

Airbnb and Other Short-Term Rental Platforms

House hacking can be done with Airbnb and other short-term rental platforms easily and is a common model. This means you live in the property but utilize Airbnb to find people to rent out a space in your home while you are there and/or while you are away.

The advantages of house hacking with Airbnb are that you can charge a higher nightly rate, the guests are temporary, and you control how often you have renters.

The disadvantages of using Airbnb are that it requires more communication with the guests, and you have rotating strangers in your place.

This model is the most popular model with my clients, because it’s easy to find renters and they have a lot of control over who is coming and going and for how long.

Rent by the Room

In this scenario, you live and furnish the property but rent out spare rooms to different long-term renters (30 or more days). In most cases, you provide a queen-sized bed and a television in every room, furniture for common areas, and pay for the shared utilities (wifi, cable, electric, trash, etc.). Typically the way to charge for these rooms is to charge 70 to 75 percent of what a studio would cost in your area.

I have a client doing this right now who is buying (for the third time) a 5-bedroom/4-bath home. He will occupy one of the rooms, while renting out the other four rooms. His closing is still two weeks away, and he already has two different rooms rented out for $800/room on leases of three months or longer. In other words, he already knows that he’ll be paying at least $1,600 less for the first three months of his mortgage.

The advantages of this model are that finding individuals who need rentals is easier than finding groups, and also you can charge a lot more under this model. Assuming my client gets $800 for four rooms, he’ll make $3,200/month in rents, whereas the average 5-bedroom in that area rents for $1,700/month.

nicely decorated bedroom with big windows and open curtains

The disadvantage to this model is… well, people. You are going to see them in your kitchen, in your living room, and also have to have conversations with them.

Rent the Basement Out

A basement with a separate entrance is a beautiful thing. I know because I’m in the middle of buying this kind of property for this exact reason. Again, you’re responsible for paying for utilities and furniture, but you have the luxury of choosing whether or not you want to rent short-term (Airbnb), medium-term (30 to 100 days), or long-term six-month-plus stays.

The advantage of this model is that with a separate entry, you can really live separate lives without running into each other, and because it’s your primary residence, you have the flexibility to decide what kind of model you’d like to do.

The disadvantages to this model are that you may have to share the laundry and the kitchen with these renters and/or accept less rent and not share your laundry or kitchen with them (that’s what I do because… people).

Related: The ROI on the First Year of My House Hack: 82%

3. Where Can You Find Tenants for House Hacking?

So, there are the obvious places to find tenants for house hacking and those are: Airbnb, VRBO, Booking.com. A lot of people think that these platforms are limited to short-term renters, but you can also find a lot of long-term renters on them, as well. Roomster is also a good option, as is SpareRoom, for finding renters.

House hacking is extremely popular with our clients. To begin with, it allows them to live in a nicer home while paying the mortgage of a less nice home. And second, it is a good first step to investing. Since investing can seem daunting or risky, house hacking is a great way to educate yourself on having someone else pay your mortgage without feeling that you took a huge financial risk. 

Would you like more info on house hacking (particularly in Denver or Colorado Springs)?

Leave a comment below!

Erin Spradlin co-owns James Carlson Real Estate. She loves working with first-time home buyers or sellers because it is fun to help people real...
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    Jacob James from San Antonio, TX
    Replied 10 months ago
    This post is something I have been looking for! Lots of good information that I plan on using in the future when I purchase my first home. Really appreciate it thank you!
    Erin Spradlin Real Estate Agent from Denver, CO
    Replied 10 months ago
    @jacob james - Thanks! And I hope you have a lot of luck with house hacking. It's a fantastic option.
    Wenda Kennedy JD from Nikiski, Alaska
    Replied 10 months ago
    Not be droll -- You could make the full mortgage payment and use the extra income from you House Hacking to pay down the principal on the mortgage...
    Erin Spradlin Real Estate Agent from Denver, CO
    Replied 10 months ago
    @whitney kennedy - haha. I think, droll or not, that is an excellent point and was somehow missed in my article. My clients certainly utilize it in that way a lot, and it is how I directly utilize it as well.
    Marcia Melendez
    Replied 10 months ago
    This is a great idea if your local authorities allow it....here in New York City many small landlords have been "stuck" with bad tenants who they had a hard time removing because they lived in unregulated rooms and basements. Do your due diligence first to make sure that you are compliant with local laws and ordinances. Incidentally, as an immigrant originally from Jamaica, and then here to NY from London, England...this is the way most immigrants mange to purchase their properties... without the fancy term "house hacking" !
    Deanna Opgenort Rental Property Investor from San Diego, CA
    Replied 10 months ago
    I'm doing a sort of tangental house-hack. I've lived in the same rental over 20 years (in San Diego, with 5 roommates). The $ I save by this arrangement have allowed my to acquire 2 rentals of my own in rural Northern CA, while living in a safe, quiet neighborhood. I'm the only one on the lease -- everyone else is listed as an "occupant", so I could evict them if needed (never had to do that, thankfully).
    Erin Spradlin Real Estate Agent from Denver, CO
    Replied 10 months ago
    Deanna- that's a great strategy. I hear people sometimes say they want to save money but they don't want roommates. I 100% understand why they would feel that way (bc I don't want roommmates either!) but if you can do it, it is a very smart financial move that can help you acquire new properties (as you've proven.)
    Pat Tobin Investor from Salt Lake City
    Replied 10 months ago
    Currently hacking in Salt Lake City. Purchased a more expensive home in a nice area, 3 yo construction, with the plan to house hack to the fullest. It's near impossible to find homes needing little work that will cash flow well in SLC so I felt good knowing the house I purchased will need little maitnenance and I can charge top dollar for rooms for rent. I have 5 tenants in the house each paying 750 - 800 a month and I am cash flowing with the 4 person. I't was scary at first living with other people but so far so good, I'm learning to become a landlord. House hacking seemed like the safest way for me to jump into REI without it becoming a second job. Stashing the cash flow in an emergency fund for the house and using my salary to save up for the next down payment. In the next 2 years, the plan is to move into another home (possibly another nice home) and rent out the master in the old home for even greater cash flow. Rinse and repeat, maybe try investing out of state.
    Erin Spradlin Real Estate Agent from Denver, CO
    Replied 10 months ago
    Hey Pat- lots of clients I have share your mentality. I think it's a great option to help get into nicer homes and/or to reduce your monthly payments. I like the latter as it helps you have more financial freedom in general.