What Is House Hacking?

House hacking is owner-occupied real estate investing. You purchase a property, live in part of it, and rent out the remaining space—bedrooms, an accessory dwelling unit (ADU), or separate units in a duplex/triplex/fourplex. The rental income covers some or all of your mortgage and expenses, allowing you to live for less while building equity.

Why House Hack: Key Benefits

Popular Strategies

• Rent-by-the-room in a single-family home: Highest income per square foot; requires clear house rules.
• Duplex/Triplex/Fourplex (“small multifamily”): Separate entrances and meters simplify living with tenants.
• ADU/Garage apartment/Basement suite: Private space for you or your tenant; check zoning and egress requirements.
• Short-term/mid-term rentals: Potentially higher gross income; more turnover and local rules to follow.
• Live-in flip + rooms: Improve the property while collecting rent; mind permit and resale timelines.

Financing Options (U.S.)

• FHA (3.5% down): Allows 1–4 units; mortgage insurance applies. Some lenders count projected rental income toward qualifying.
• Conventional (as low as 3–5% down for owner-occupied): Competitive rates; private mortgage insurance can drop later.
• VA (0% down for eligible borrowers): Powerful option for 1–4 units if you’ll occupy one unit.
• FHA 203(k) or conventional renovation loans: Finance purchase plus rehab into one loan; helpful for adding bedrooms/ADU.

Important: Owner-occupied loans generally require you to move in within a set period and live there ~12 months. Always confirm your lender’s occupancy rules before closing.

The Numbers: A Simple Example

Assume you buy a $420,000 triplex with 5% down at a 6.5% interest rate, 30-year fixed. Taxes/insurance: $6,000/yr. Estimated maintenance/capex reserve: 8% of rents.

Result: You live for under $400/month while building equity. If you later move out and rent your unit for $1,450, the property may turn cash-flow positive while you keep the original financing.

Finding the Right Property

• Layout: Separate entrances, split bedrooms, or easy ADU potential.
• Zoning & permits: Confirm legality of ADUs, duplex use, parking requirements, and egress for bedrooms.
• Mechanical systems: Separate utilities are ideal; if shared, add a utility reimbursement system.
• Neighborhood demand: Near transit, hospitals, universities, or job centers for reliable tenants.
• Condition: Target properties where low-cost improvements add rentable bedrooms/baths.

Operations: Tenants, Leases, House Rules

Risk Management and Reserves

• Cash reserves: Target 3–6 months of expenses including mortgage.
• Insurance: Ensure correct policy type for owner-occupied rental; add liability coverage.
• Vacancy plan: Keep a waitlist; advertise proactively 30–60 days before move-outs.
• Interest rate risk: Favor fixed-rate financing; avoid over-leverage.
• CapEx roadmap: Roof, major systems, and appliances—budget their remaining life.

Taxes and Compliance

• Deductions: You may deduct expenses attributable to the rented portion (and depreciate it). Track square footage and direct vs. shared costs.
• Primary residence benefits: Potential mortgage interest deduction; possible capital gains exclusion when you sell if you meet IRS use tests.
• Local rules: Some cities regulate rooming houses, ADUs, and short-term rentals; register if required.
• Records: Keep separate bookkeeping for the rental portion from day one.

Not tax, legal, or lending advice. Consult a qualified pro in your state before you buy or list rooms.

Exit Plans and Scaling Up

• Stay-put cash flow: Keep living in the property and bank the savings.
• Move-out convert: After meeting occupancy requirements, rent your former unit and keep the loan.
• Live-in flip: Sell after upgrades if market conditions favor it.
• BRRRR-lite: Refinance after forced appreciation to reduce payment or fund the next down payment.
• Stacking: Repeat every 12–24 months to build a small portfolio of 1–4 unit properties.

Ways to Boost Income

• Lease by the bedroom with individual leases and locks.
• Add value: in-unit laundry, fenced yard, off-street parking, furnished rooms.
• Charge for storage, pet rent, premium Wi‑Fi, or a cleaning fee where permitted.
• Mid-term rentals for traveling professionals (furnished, 30–90 day stays).
• Install separate meters or sub-meters where feasible to normalize utility costs.

Quick Checklist

• Clarify goals: live cheapest, maximize cash flow, or add value?
• Get preapproved and confirm owner-occupancy rules in writing.
• Underwrite deals with conservative rents and a vacancy factor.
• Verify zoning, permits, parking, and local rental licensing.
• Budget a renovation plan focused on rentable beds/baths.
• Create screening criteria, leases, and house rules before listing.
• Set up bookkeeping and separate accounts for the rental portion.
• Maintain 3–6 months of reserves and a CapEx schedule.

FAQs

How much down payment do I need? Many owner-occupied loans allow 3–5% down; VA is 0% for eligible borrowers. Closing costs still apply.

Do I have to live in the property? Yes, for owner-occupied financing you typically must move in within a set period and stay about 12 months. Confirm with your lender.

Is rent-by-the-room legal? It depends on local occupancy limits, licensing, and zoning. Check city and state rules and any HOA/condo restrictions.

What if tenants don’t pay? Follow your state’s notice and eviction process. Good screening and clear leases are your first defense; keep reserves.

Can I start with a single-family home? Absolutely. Many beginners start by renting spare bedrooms or finishing a basement with proper egress and permits.