What Is House Hacking and How Does It Work?

Written by Ashley Sutphin Posted On Tuesday, 06 June 2023 00:00

If you haven't heard the term house hacking, it's essentially a reference to ways that you can generate income from your home. When it's done properly, you can increase your wealth with house hacking. You can also use a few different approaches in this investment strategy.

The Basics of House Hacking

With house hacking, you set yourself up to earn rental income by renting a portion of your main home.

Typically, you'll rent out part of your house or a unit while you live in the other. You put your income towards your mortgage payments and other housing expenses.

Even if you don't make a profit from your property every month, the benefit can come from the fact that you're reducing your expenses related to it. If you're like most people, your housing costs are probably your biggest expense. You can not only cover the costs with your rental income, but you may be able to deduct part of your housing expenses and use depreciation, saving on taxes.


As an owner, you're also building equity while keeping a property.

How to House Hack

Some of the ways you can house hack and develop a stream of income include:

  • Buying a multifamily property. For example, you could buy a duplex or triplex. Then, you can live in one unit while renting out the others.
  • If you don't have a multifamily property or can't find one to buy, you can also rent a room in your home as a short-term rental.
  • If you own the house, getting roommates is a version of house hacking. You can not only get a monthly rent payment, but you might also be able to split other expenses, like utilities.
  • You can add an accessory dwelling unit to your property or an ADU, also known as an in-law suite. You'll have a separate living unit that you can make available, in addition to a sleeping area.
  • If you have a larger property, you can rent part of it for something less conventional, like letting someone park an RV on it.

The Benefits of This Real Estate Investment Strategy

Many people start their real estate investment careers with some variation of house hacking. Benefits include:

  • You earn income from an investment that will grow in value over time, and you can also potentially live for free while you build equity.
  • Your property will be your primary residence, so you'll qualify for owner-occupancy financing, which comes with better terms and lower interest rates.
  • You could get away with a smaller down payment. When buying an investment property, you put down anywhere from 20 to 25% at least. Since you're buying a property to be your primary residence, you can qualify for a loan with as little as 3% down. You might not have to put any money down if you meet the qualifications for a VA loan.
  • House hacking gives you the chance to have a more flexible lifestyle.
  • Using a house hacking approach is a good way to learn about being a real estate investor, and then you can transition to rental property ownership when you're ready.


Even if you're a first-time buyer, house hacking can be a viable option. You can buy a property with minimal money down and live cheaply, plus you'll learn about the complexities of being a landlord and the relationship you'll have with your tenants.

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