House Hacking 101: What It Is and How to Get Started

  • House hacking refers to ways to generate income from your home. It’s the single most powerful way to increase wealth, and anyone can do it! Buying a four-bedroom home and renting out the three rooms while living in the fourth is considered house hacking. Buying a duplex and living in one unit while renting out the other is also considered house hacking.

You can do this with any type of property, including condos, townhomes, multifamily properties, accessory dwelling units (ADU), and more. The average American household spends almost 33% of its income on housing. What if you could keep some or all of that money instead—or better yet—turn a profit? House hacking experts always do it, and you can, too. However, it’s important to consider the timeline for buying a house and make sure you’re making informed decisions that align with your financial goals.

In this guide, we’ll cover all the house hacking basics to get you started, including:

Let’s get started…

Page reviewed by Craig Curelop – house hacking expert, real estate agent, investor, author of The House Hacking Strategy book, and founder of the FI Team.

What is House Hacking?

House hacking is a real estate investment strategy where you earn rental income by renting out your main residence. Most often, house hacking means renting a portion or one unit of your residence while living in the other. The income received usually goes towards monthly mortgage payments, property taxes, and other housing costs. It’s the simplest way to become a real estate investor and an easy way to improve your monthly cash flow.

Even if you’re not making money every month from your property, you’re still benefiting from reducing your housing costs, which is likely your biggest monthly expense. You’ll save money on taxes by deducting a portion of your housing expenses and reaping the benefits of depreciation. As an added bonus, your home’s property value will also appreciate over time while you’re building equity.

Why should you House Hack?

Financially, house hacking just makes sense—and there’s no time like the present to start! Your rental income will cover some or all of your mortgage payments and other expenses. Even if you’re still paying the rest, you’ll enjoy fewer living expenses while paying down your loan. 

For example, let’s say Brandon and his two best friends decide to move in together. Brandon buys a three-bedroom condo and pays $1,500 a month in total housing expenses. If his friends each pay $750, Brandon lives there for free while also building equity. 

Here are a few more house hacking benefits:

You’ll Qualify for Owner-Occupancy Financing

Since your property is also your primary residence, you’ll qualify for lower interest rates and better financing terms. As an added bonus, you get to keep your owner-occupied loan even after you move out, if you decide to convert your home into a long-term rental. Just note that when you obtain an owner-occupied loan, you will be required to live in the home for one year.

Your Down Payment Requirement May be Smaller

Investment property loans usually require you to put 20-25% down. However, since this is your primary residence, you may qualify for an owner-occupied loan (as little as 3% down) or a VA loan (as little as 0% down).

You’ll Enjoy a More Flexible Lifestyle

House hacking is perfect for your ever-evolving lifestyle. For example, let’s say Ashley buys a duplex and rents out her other unit. She’ll still make passive income from her tenants’ rent if she gets fired. Ashley could use that money to help get her started somewhere new if she moves. If she decides to start a family, she can convert the duplex into a single-family home as her family grows.  

It’s an Easy Way to Become a Real Estate Investor

House hacking is considered a hybrid of an investment property and a residence. You’ll learn the do’s and don’ts of investing while living there. While this has its downsides, it’s much easier to learn lessons and recover from your mistakes when you’re living on-site and personally impacted by the property in your everyday routine.

It’s a Smooth Transition to Rental Property Ownership 

When you live in a unit, you’ll get to know the property—and the types of tenants it attracts—well. When you’re ready to move out, you’ll be more comfortable as an off-site landlord than if you didn’t have that experience. Then, when you rent out the unit you lived in, you’ll enjoy the additional cash flow. 

House Hacking Works Great for First-Time Home Buyers

Are you worried about house hacking as a first-time home buyer? You shouldn’t be! 

First-time home buyers can purchase property with very little down with a conventional or an FHA loan. You’ll save money and live cheaply because your tenants will pay for some or all of your housing costs. Also, you’ll learn a lot about the landlord-tenant relationship while you’re there. Then, if you decide to house hack again, you’ll have more funds to do so.

House Hacking Strategies: Different Ways to House Hack

Anyone can successfully execute a house hacking strategy. It all depends on what strategy best suits you.

Single-Family Rental

The easiest entry point into house hacking is purchasing a large single-family house. You can live in one room while renting out the rest, but make sure there are enough bathrooms and common area space for everyone to live comfortably.  

Single-family rentals make for a great wealth-building strategy for recent college graduates or anyone who loves having roommates.

Multifamily Property

Multi-unit properties include duplexes, triplexes, and fourplexes. Here, you live in one unit while renting out the rest. People commonly take out FHA loans for multifamily properties, especially first-time home buyers. 

This is a house hacking strategy for lower-priced markets, but they’re harder to profit from an expensive housing market where rents aren’t usually enough to cover the mortgage. 


Also known as the “luxury house hack,” renting an ADU works well if you have a family or value your privacy. You can either purchase a property with an already built ADU, or build one yourself in the backyard. 

Short-Term Rental

As long as your HOA and county laws allow it, you can use any property type as a short-term rental. Simply list your property on platforms like Airbnb or VRBO, and rent them out as often as you’d like. For best results, use ADUs or multifamily properties as short-term rentals, so your guests can enjoy more privacy and an entire space to themselves. 

House hacking with short-term rentals can really score you a positive ROI, especially if you live in a high traffic area. You’ll have to put more effort into furnishing the rooms or properties beforehand and managing guest turnover, but it’s usually worth it.

Can I House Hack Without Living There?

Yes, you can house hack without living there. While traditional house hacking involves renting out a portion of your primary residence while you live in another part, there are alternative methods such as short-term rentals to generate income without residing in the property.

Consider a partnerships or joint ventures where you invest in a property with others and share the rental income. This allows you to participate in house hacking without being the primary resident.

It’s important to note that house hacking without living in the property requires careful planning, research, and consideration of local laws and regulations. Consulting with real estate professionals and financial advisors can provide valuable guidance in determining the feasibility and suitability of this strategy based on your goals and circumstances.

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How to Get Started House Hacking

Anyone can become a successful house hacker, but you need to be fully committed to the idea to achieve that success. 

Is house hacking for you? It can take a lot of work, especially when you’re just starting out. Talk to your partner or spouse and take their opinions to heart before moving forward if you’re in a relationship.

If you’re ready to take the proverbial plunge, here’s how to get started:

Organize your finances

Before you buy the first fixer-upper you see, you need to know how much home you can afford. To do this, you should consult with a mortgage lender. Streamline this process by gathering every financial document you can think of, including bank statements, tax records, pay stubs, your stock portfolio, and more. Once they have all the information they need, they can tell you how much you’re pre-approved for. 

You should also set aside money for renovations, just in case. How much you’ll need depends on the condition of the property you choose to buy and how much work you’ll have to put into it. 

How much money do you need to start house hacking?

The amount of money you need to start house hacking will depend on the type of property you want to purchase, the location, and your financing options. Generally speaking, a 15-20% down payment is required to buy an investment property. Lenders may require a higher down payment depending on your market and your credit score. Additionally, closing costs and other associated costs should be taken into consideration when calculating the total amount of money you need to start house hacking.

Find a House Hack Property

There are plenty of ways to find house-hacking deals. You just have to know where to look:

  • Multiple Listing Service (MLS): Realtors use the MLS to post houses on the market, and it’s home to many amazing house-hacking deals. Work with an investor-friendly real estate agent to set up the proper parameters for your price point and market. Typically, only other real estate agents have access to view the house in person, so working with one is important. 
  • Real estate sites: Sites like Zillow, Redfin, and Trulia all get their syndicated data from the MLS, so plenty of other real estate investors may also be viewing properties this way. As a result, these properties can become highly competitive. 
  • Networking and marketing: Sometimes, you can find house hacking deals through networking events, meetups, or Driving for Dollars. They can also be found on sites like Facebook Marketplace and Craigslist. Anson Young’s book, Finding and Funding Great Deals, covers these options well. 
  • Auctions: We don’t recommend auctions for your first investment property, but you can find some house hack opportunities this way. Many of these homes are under foreclosure, need an abundance of repairs, and may even require you to evict the current tenants. To learn more about foreclosed properties and house auctions, check out Bidding to Buy by Aaron Amuchastegui and David Osborn.

Run the Property Through Your Filter

Before pursuing a deal, house hackers should vet properties by asking themselves these questions:

  • Do I want to live on this property?
  • Do I want to live in this neighborhood?
  • Would someone else want to live here? 
  • Is parking easy? 
  • Is this neighborhood on the path of progress for this city?
  • Is public transit nearby for easy downtown access?
  • Are the individual rooms livable, with closets and space for at least a queen-sized bed?
  • Are there any HOA or county laws that restrict long-term or short-term rental properties in any way?
  • Is the neighborhood zoned for ADUs if I want to build one in the backyard?
  • Can I close off a finished basement and add a separate entrance to it?
  • Are there any large common spaces that I can turn into a bedroom that won’t be as utilized?
  • Are the bedrooms and bathrooms aligned in a way that makes sense to have roommates who may not know one another?
  • What are rental rates for different options (room, unit, Airbnb, long-term, etc.)

Financing Your House Hack

With owner-occupied financing, there are two main ways to finance your house hack: with a conventional mortgage or an FHA loan. 

Conventional Mortgage

Conventional loans are secured loans that follow the guidelines set by Fannie Mae and Freddie Mac. Fannie and Freddie are the ones purchasing lenders’ real estate notes, so conventional banks and credit unions always follow their guidelines.

To qualify for a conventional loan, you typically need a credit score of at least 620, a debt-to-income (DTI) ratio under 43%, and a down payment. To get the best rates, try to get your credit score above 740. 

FHA Loans

FHA loans are government-backed home loans issued by the Federal Housing Association (the “FHA” of FHA loans). FHA loans have a lower barrier to entry. If you have a low DTI and a credit score above 580, you can secure an FHA loan with a down payment as low as 3.5%. If your credit score is between 500-579, you’ll likely need to put 10% down. 

For down payments of 10% or less, you’ll have to pay a mortgage insurance premium (MIP) for the life of the loan, regardless of how much equity you have. We recommend refinancing your FHA loan after living in the property for a year, assuming the rates make it advantageous to do so. 

Learn more about the benefits of house hacking in Brandon Turner and David Greene’s House Hacking workshop:

How to Run Your House Hacking Numbers

Now that you’ve found a property you know you can afford and meets your (temporary) living criteria, you have to figure out if it’s worth investing in. To do so, you have to calculate your net operating income (NOI).

Your NOI is how much money your rental property will generate before you pay your mortgage and income taxes. This number will tell you how much of your monthly mortgage payment will be covered by your tenants. 

Here’s an example:

Monthly Gross Rental Income
– Property Taxes
– Homeowners Insurance
– Maintenance and Repairs
– Common Utilities (Gas, Electric, Internet, and Water)
– Operating Expenses
– Capital Expenditures
– Reserves for Vacancies
= Net Operating Income

Angela is thinking about buying a triplex and renting out the other two units for $1,200 each. She’s budgeting $100 a month in operating expenses, and $150 capital expenditures. She also assumes each unit may be vacant for one month a year. 

$2,400 = Monthly Gross Rental Income
– $300/mo Property Taxes
– $100/mo Homeowners Insurance
– $100/mo Maintenance and Repairs
– $300/mo Common Utilities (Gas, Electric, Internet, and Water)
– $100/mo Operating Expenses
– $150/mo Capital Expenditures
$200/mo Reserves for Vacancies
$1,150 = Net Operating Income

Next, calculate your monthly mortgage payment, which you can do by calculating your purchase price and estimated down payment amount. To make your life easier, use our mortgage and home loan calculator:

Let’s assume Angela has a 30 year loan for $240,000 at an interest rate of 4%. Her total monthly payment is: $1,145.79.

House Hacking Cash Flow
$1,150 = Net Operating Income
– $1,145.79 = Monthly Mortgage Payment
$4.21 = Cash Flow

In this example, Angela is essentially breaking even while living in her unit. Not only does that mean she’s saving $1,150 every month, she’s also building equity, learning about real estate investing, and reaping the tax benefits.

If you want to increase your net operating income, here are three quick ways to do so. 

Considering house hacking but not confident in your numbers? Download our FREE Calculator to analyze performance potential for house hacking vs. renting vs. buying in your market.

How to Find the Right Tenants

If you’re purchasing a fixer-upper, you’ll need to make some repairs and renovations. After you do, it’s time to find and screen tenants. 

Since you’ll be living there, you’ll want to be more selective when screening tenants, especially if they’re renting rooms in your house and not just moving into the unit next door. Here are the steps you’ll need to follow to get great tenants:

First, select the criteria you expect each tenant to meet. Some guidelines could be:

  • Minimum income-to-rent ratio
  • Minimum credit score
  • Positive references
  • Clean background check
  • Do they smoke?
  • Do they have a pet?

Write all of your guidelines down. These will protect you against any discrimination claims, and also hold you accountable for when it comes time to choose a tenant. 

Once you have your criteria selected, it’s time for pre-screening. If you get a lot of tenant inquiries, do a little research on each interested party. Find them on social media for a cursory review and to check for potential red flags.

If everything checks out, ask them to chat on Zoom or over the phone for five to ten minutes. Doing this will help you get to know your potential tenant, and build your credibility with them. If you both get along, there’s a higher likelihood that they’ll show up to tour your property and even choose your place over someone else’s. 

Next comes the in-person screening process. Try to set up group showings within a timeframe for prospective tenants to tour your property. Group showings allow you to show more people the property in less time, and also create a sense of urgency between potential tenants. If someone really likes your place, they may be compelled to quickly fill out an application in fear of losing it. 

Once you receive applications, verify all the information to make sure it’s true. The credit and background check will come from a third party, but it’ll be up to you to call their references, contact previous landlords, and confirm their employment. If everything checks out and the prospective tenant passes your screening process, accept them and plan the move-in date. 

Congrats! You’re now a landlord.

House Hacking Mistakes to Avoid

Unfortunately, not every house hacking experience is worth the time and money you put into it. To increase your chances of success, avoid these common mistakes made by real estate investors:

  1. Not screening your tenants: If you don’t screen your tenants properly, your next roommate could become a nightmare to live with. You don’t want someone who fails to make rent payments or invites unwanted drama into your home. 
  2. Failure to set boundaries: Your format application should have a list of enforceable boundaries and rules about what’s allowed in your home and what isn’t. For example, if you fail to include how many nights a guest can stay in your home, you could find yourself living with your tenants and their live-in boyfriend. 
  3. Ignoring local laws: If you’re rehabbing an existing property or setting up for short-term rentals, check your local zoning or county rules first. You don’t want to find out that you can’t add an extra bedroom or rent your property Airbnb before it’s too late. 
  4. Forgetting to budget for repairs: Create a separate account for repairs, renovations, and other capital expenditures. You never know when multiple appliances will break all at once, or when something happens that isn’t covered by your homeowner’s insurance. 
  5. Failure to be a landlord: As a landlord, you may develop friendships with your tenants, and that’s great! However, you’re still their landlord. You still have to collect rent and respond to maintenance requests in a timely fashion. 
  6. Picking an undesirable neighborhood or property: Your triplex may be cheap, but if no one wants to live in it, it could be vacant for months. Make sure you pick places where you’d want to live. Chances are, other people will also want to live there.

Put Your House to Work

Discover why so many successful investors use the house hacking strategy—and learn from a frugality expert who has “hacked” his way toward financial freedom. Serial house hacker Craig Curelop lays out the in-depth details to make your first (or next) house hack a huge success.

How to Plan Your Exit Strategy and Next Steps

The easiest way to exit from a house hack is to refinance (if you purchased the property with an FHA loan) and then move out.

Most house hackers use an FHA loan. After living in the property for a year and gaining at least 20% equity, we recommend refinancing to a conventional loan. This will remove the monthly premium (which increases your monthly cash flow) and will also free up the FHA loan so you can purchase another rental property.

Then, not only will you generate passive income from your new home, you’ll also get it from your previous home(s)! By repeating this process over and over again, you’ll enjoy the snowball effect as your passive income and equity continue to grow. 

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