If you are at all familiar with the BiggerPockets podcast or BiggerPockets blog, I am sure you have heard of house hacking. But for those of you who haven’t, here’s the gist: house hacking is when you buy a single family home with a low down payment loan, live in a portion of it, and rent out the other part. The goal of house hacking is to reduce—or even eliminate—your housing cost. By doing this, you can increase the amount of money you’re saving and create a solid financial foundation in order to tackle your other investment priorities. So, now that you are no longer living under a rock (which might be the ultimate house hack), let’s delve a little deeper. Essentially, there are three levels to the house hacking concept: Level 1: Tenants’ rent covers a portion of your monthly payment Level 2: Tenants’ rent covers all of your monthly payment Level 3: Tenants’ rent generates positive cash flow on top of covering your monthly payment For your reference, here’s a quick definition of what’s meant by “monthly payment.” Monthly Payment = Mortgage (Principal + Interest) + Insurance, Taxes, and Maintenance (meaning money set aside for repairs/upkeep) Want more articles like this? Create an account today to get BiggerPocket's best blog articles delivered to your inbox Sign up for free Let’s take a closer look at each level, and talk about the ways in which they can be achieved. Level 1: Tenants’ Rent Covers a Portion of Your Monthly Payment For most Americans who purchase property, having a mortgage payment due each month is just a way of life. Fewer and fewer people stay in a house long enough to pay it off. It’s a lifestyle that’s all too similar to renting. Every month you’re writing a check, whether it’s to a landlord or a bank. But what if all of a sudden instead of shelling out $1,000/month for housing, only $500 of it was coming out of your pocket? Obviously, you’d be financially better off. And that’s the main goal of house hacking: to reduce or eliminate your housing expense! For some, it can be as simple as moving all those dusty weights and the treadmill you never use out of your spare bedroom and into storage. Then, rent out that bedroom to a friend or relative and boom! You’ve become a house hacker! Even by decreasing your monthly housing payment by 25 to 50%, you would be doing so much better than most of your peers. Related: House Hacking? Consider These Factors First Level 2: Tenants’ Rent Covers All of Your Monthly Payment Getting to Level 1 is pretty easy for most people. But Level 2 requires a little more intention and planning. If your monthly payment is usually $1,000, you need to find a way to bring in $1,000 of rent to level up. One common way to do this is to buy a house with more than one extra bedroom. For example, you could purchase a three-bedroom home and rent out both of the extra bedrooms. Or maybe you currently own a home with a finished basement. Do you even use it? Renting out your basement on Airbnb is a great way to make enough money to completely cover your housing cost. I can attest to it! I have personally achieved this level. I bought a 2 bed/2.5 bath townhouse in Denver. By adding a third bedroom in the unfinished basement, in addition to renting out the extra bedroom upstairs, my tenants’ rent is completely covering the cost of my housing payment. If I can do it in Denver—a very expensive market—it can theoretically be done anywhere! You just have to be intentional and willing to make a few sacrifices when it comes to your living situation. Related: 3 House Hacking Mistakes I Made (& How I Could’ve Prevented Them) Level 3: Tenants’ Rent Generates Positive Cash Flow on Top of Covering Your Monthly Payment You may be thinking, “There’s no way it’s possible to eliminate my housing cost and generate cash flow from my house. Mortgage payments are way too much!” Well, guess what? I’m here to tell you, you are wrong and I have proof! By using a low down payment conventional loan to purchase a duplex, triplex, or quadplex; living in one of the units; and renting out the other units, it is completely possible to generate enough income to cover your mortgage, insurance, taxes, and maintenance—plus a few hundred dollars extra each month. BiggerPockets’ own Scott Trench and Craig Curelop are two house hackers who have achieved as much. Scott bought a duplex, lived in half with a roommate, and rented out the other half. Craig purchased a five-bedroom house and rented out the four additional rooms. There are a number of ways to reach Level 3, but all require an increased level of creativity and sacrifice. House hacking is a very powerful tool, and I encourage everyone to try it on some level. It can positively impact your financial situation in ways you might’ve never known were possible. Do you have experience house hacking? To what degree? Do you aspire to achieve a higher level? Leave a comment below.