House Hacking vs Rent Hacking

14 Replies


I'm starting out in real estate and have been considering doing a house hack in a multi-family unit. However, the more I learn about real estate the worse this idea seems. My understanding is that the golden standard for a real estate deal is to "brrrr" a property, but at least where I live this is very hard to do with a house hack. 

An alternative that appears to be way more attractive is to "Rent Hack" - rent a house bigger than you need and sublet the rooms out. This way, you can still reap the benefits of living for free, and use the money you have saved to "brrrr" a non-owner occupied property. 

The pros and cons of each strategy as I see it.


Pros: Get experience as a landlord, 5% downpayment with owner-occupied financing, Live for free (or very cheap), Rent paid to you builds equity in the property, ability to sell after two years for tax-free gains, can live in a different unit from roommates with a multi-family building. 

Cons: Difficult to "brrrr" a property this way (at least where I live), limited in terms of where you can invest due to needing to be close to work, etc...


Pros: Live for free (or very cheap), Frees up capital to invest in a non-owner occupied property, Ability to invest in a market with better returns than the one you live in, possibly more flexibility in where you can live depending on the availability of rental units in your area. 

Cons: May be difficult to find a landlord who allows this (I've found at least one so far), Need to put at least 25% down on a non-owner occupied rental property, have to live in the same unit as roommates (some may see this as a pro - I don't...).

What do you think? Have you chosen to pursue a particular strategy and why? 

Account Closed I like the idea of a duplex. live in one half and rent the other. You can also research while you are living in one unit and renting out a room of the unit you live in for additional income.

May I ask why is it so difficult in your area to house hack?

You are missing a huge component of the house hacking strategy. Depending on your lender you can get in for as low as 3-3.5% down. Also, with certain loans your sellers can legally pay almost all of your closing costs (depending on market and local regulations). When you are an owner occupant, you get MUCH better interest rates and longer loan terms. (under 4% interest rate on a 30 year mortgage vs a 6-8% interest rate on a 15 year mortgage.) Again, this all depends on the loan product and lender though.

So the strategy is to get into these house hacking properties for as little as you possibly can, live for free (or make money while living there!) while your tenants/roommates are paying down your loan for you. THEN when you move out, you get to keep your super low loan rates and have even more instant cashflow. Also, it's easier to save your money to BRRR when you are living for free. If you can make it work, there is no reason to not house hack first. You will be building your own wealth instead of someone else's. My advice is to rent hack your house hack while saving for a BRRR.

*Edit: don't discount single family houses or townhouses for house hacking. It's not as desirable of a house hack as a multi-family, but it is still a viable option. Especially if it's hard to find cash flowing multi-family properties in your area. That's how I started out (3/2/2 SFH with a roommate or 2 at times) and now my former primary residence is my best cash-flowing rental.

Account Closed Disclosure: I am currently house hacking a duplex so my response will be bias toward that lifestyle.

A couple things you didn't address: Pro for house hacking - appreciation and potentially mortgage interest tax benefit (we'll see come March 2019 if this is still a benefit).

Also, if I understood you correctly, your rent hacking strategy was to find someone else with a rental property that will rent to you and allow you to sublet part of the property, so why would you need 25% down if you aren't purchasing it?

Additionally, while you can BRRR a house hack property, that doesn't mean you have to. I recently bought a duplex that needed minimal work. It currently reduced my rent/mortgage and when I move out and rent the portion I'm living in now will cashflow just fine. If you're comfortable living with roommates you could also do a house hack and rent out any spare bedrooms on the side you're living in to further reduce your mortgage.

@Kevin S. Above I was trying to say that if I were to rent hack, I would use the money I have saved now to make a 25% downpayment on a non-owner occupied property I can "brrrr".

@Cassi Justiz . I included the 5% downpayment as a pro above. In the "rent-hacking" scenario I would also be living for free. I currently have enough money to put money down for a non-owner occupied "brrrr".

@Alex Deacon . its not difficult to house-hack, its difficult to brrrr a house hack. 

Account Closed, yes you will be living for free if you rent hack. But you are missing out on the benefits of building your own wealth. Your roommates will be paying down another landlord's mortgage instead of your own.  

Also consider that for the BRRR method, it's more difficult to pull all of your money out if you are not buying it outright in cash. Lenders are weird about loaning on a property that needs work. Some will, but a lot of them are weird about it and will end up charging you more or making you do repairs prior to closing. Also, consider your points, increasing interest rate, etc in your re-fi. I was in a similar position last year and decided to keep renting while purchasing rental properties. The re-fi cost ended up being a lot more than we were planning for. We ended up not doing a re-fi at all and our money is now sitting in equity. Just make sure you have all of that info before you make your decision.

Account Closed Okay that makes sense, sorry for the misunderstanding about what the "25%" represented. However, you can't really call that a con, as there's no requirement for you to buy a non-owner occupied rental if you are rent-hacking.

@Cassi Justiz I have a lender who will do 30% down rehab loans for investors. Although I agree that it seems hard to brrrr unless you can buy the property with cash.

@Kevin S. I understand your point, but if I don’t buy any property than I’m not getting started in investing which misses the whole point. I’m trying to compare the two scenarios with the goal of investing in real estate in mind.

I'm an advocate of keep living wherever you are (especially if it's almost free, like with your parents or several friends) and just make your first investment a rental property.

It's not advice I followed, but wish I would have.

After you get the mindset of buying to rent out to others first, you'll probably make a lesser mistake of "overbuying" your first house you live in.

Originally posted by Account Closed:

@Dan D. could you please elaborate more? 

Many people go through this progression.

1.  Grow up with their parents.

2.  Go to college, live in dorms or apartments. Graduate. (some skip this step and go to step 3).

3.  Get Job

4.  Move out / find a place to rent / live.

5.  Decide to buy a house and live in it.

Instead of doing step 4, I suggest you keep living at home for a year or two, (or in some other very low cost arrangement renting a room for a few hundred bucks) and do number 4A instead:

4A.  Buy a place you can rent out to someone else for a few years in a nice neighborhood and keep living at home (or with your buddy).

Look at buying your first property from an investment standpoint, and not necessarily from a "will me and my significant other like living here".  If you buy it from an investment standpoint, you might be more likely to buy something that you can create value in versus buying something move in ready for your first home.

Instead, buy something that cashflows a bit and might appreciate a bit over a couple years.  Suddenly, buying your permanent house with one rental under your belt becomes plausible because you have a job, some rental income, and you might have thousands of dollars of equity from that first property.  If you can keep your own living expenses to a minimum for just those first 2-3 years before you have kids and need to move in with the significant other, you're on a far better plan.

Your options to live below your means decrease as you have a friend / fiance / spouse as well as you add kids into the mix.  (a lot more normal for a single guy aged 24-27 to live with his buddy for a couple years or to live at home for a few years, than a 30 year old with a fiance or wife).

@Dan D. hmmmm

Maybe there is some confusion here. I’m trying to choose between buying a multi family property where I would live in one unit and rent out the others, and renting a large apartment and subletting the rooms to roommates. 

I’m either case I’m buying with the intention of keeping my expenses low and investing as much money as possible.

I don’t have a significant other or children and have no plans in the near future to have either.

Originally posted by Account Closed:

@Dan D. hmmmm

Maybe there is some confusion here. I’m trying to choose between buying a multi family property where I would live in one unit and rent out the others, and renting a large apartment and subletting the rooms to roommates. 

I’m either case I’m buying with the intention of keeping my expenses low and investing as much money as possible.

I don’t have a significant other or children and have no plans in the near future to have either.

Where are you living now?  Apartment?

Account Closed

So what I'm recommending is keep renting your apartment for whatever you are paying.

Buy a duplex (or tri-plex) and rent out both or all three units and keep living in your apartment.

If you buy a duplex, you get two rental incomes.

If you buy a tri-plex, you have three rental incomes.

If the rental incomes are higher than what you are paying in rent, you're coming out ahead on that additional unit.

Say you are paying rent for $500 a month right now.

Maybe you get a duplex you can rent both sides out for $700.

Rather than collect $700 and live in the other half of the duplex, rent both out for $700 and $700 and keep paying your $500 to share your current place with the roommate.  In this scenario you'd then have two units renting out instead of one, and you wouldn't have a large sum of money wrapped up in your own living quarters which is essentially a dead asset.

Or just buy a single family home in good shape within 40 minutes from where you currently live and just rent that out for $1500 a month while you continue to rent your apartment. 

Just food for thought.