House Hack [How To Live For Free In Your Own Home]

by | May 21, 2021 | Real Estate, Real Estate Investing | 0 comments

Have you been struggling to save money and feel like you can’t get ahead financially? Is your rent or your mortgage your largest monthly expense? If so, you can utilize a house hack to drastically reduce your living expenses.

Let’s dig a little deeper to learn more about what a house hack is and what is involved when house hacking.


What Is House Hacking

House hacking involves renting out spare rooms or space to help cover your mortgage. It’s the best way to cut into your living expenses and save money. There are many tactics you can leverage when implementing a house hack. Let’s take a quick look at a rent by the room example.

Example Single Family House Hack
3 Bedroom 2 Bathroom Single Family Home

You own this 3 bedroom, 2 bathroom home with a monthly mortgage of $1500. From doing a little research online, you find that you can rent both of your extra rooms for $600 a month. By house hacking and renting the extra rooms, you drop your out-of-pocket cost from $1500 to $300 every month!

$1500 monthly mortgage
-$600 room 1 rent
-600 room 2 rent
$300 left in costs to you

The best house hackers have the ability to purchase properties in high-demand areas and live for free! Read on to find out how you can become a house hack ninja.

Why You Should Consider A House Hack

  1. Living For Free Or Reducing Housing Costs – By house hacking, you can potentially live in your own property for free, drastically reduce your housing costs, or even get paid to live in your own home. Yes, this really does happen!
  2. Financial Freedom – Reducing your living costs will help you save money and possibly give you the option to leave your job. This can allow you to spend more time with friends and family.
  3. Getting Started With Real Estate Investing – Using a house hack is an awesome way to get started with real estate investing and purchasing rentals. You can purchase a new house every year and scale your house hacking to build up a rental portfolio.

House Hack Ideas

There are many ways you can go about implementing a house hack. The following house hack ideas are a few of the most popular ways to get started.

Single Family Home

Purchase a single-family home and rent out the spare rooms just like the example provided earlier in this article. If you already own your home, you can immediately start house hacking! Get your spare rooms cleaned up and listed for rent online.

If you are looking to purchase a home to house hack, consider the areas where you can charge a higher amount for rent. You might lower your costs by purchasing a more expensive home that will allow you to charge a higher rent amount.

Try to find homes with finished basements or mother-in-law suites to raise the amount of rent you can charge. Also, purchasing homes with multiple bedrooms with help cover your mortgage.

Small Multifamily 1-4 Units

Did you know that you can purchase a duplex, triplex, or quadruplex with as little as 3.5% down? These types of properties can be financed with FHA or conventional loans. They are fantastic for getting started with a house hack!

You can purchase a small multifamily property, live in one unit, and rent out all of the other units. You might end up managing multiple tenants but the profits can be considerable. Let’s take a look at an example small multifamily house hack.

In this example, you’ve purchases a 4 unit property for $450000 with an FHA loan at 3.8% interest. You use $20000 to cover the down payment and closing costs to buy the property.

4 Unit Multifamily Property

$2663 – mortgage, insurance, property taxes, and PMI.
$3300 – Each of the 3 units rents for $1100 a month while you live in the fourth unit.
$600 – You save 20% of the monthly rents for vacancies, maintenance, and repairs.
$2640 – This means that you only have to pay $23 a month to live in the fourth unit.

in this example, the homeowner’s monthly amount is only $23! That’s cheaper than dinner at most restaurants where I live. If you wanted to purchase another property and move out you could rent the fourth unit and cash flow over $1000 a month.

Townhome / Condo / Apartment

House hacking is still a great option even if you have a smaller home. By applying the rent by the room strategy, you will still be able to reduce your housing costs.

Be sure to check the rules in your HOA (Home Owners Association) to find out if you can legally rent by the room. If an HOA doesn’t allow this, continue searching for different properties to find an HOA that works for you.

Vacation Rental

A vacation rental is another fantastic way to save money with a house hack! Instead of renting your extra rooms to full-time tenants, you can list them on Airbnb and VRBO as short-term rentals. This might be a more lucrative option if you live in a market that has high tourism. We live in the Denver area recently decided to turn our rental property into an Airbnb.

For instance, you may be able to rent out a spare room to a full-time tenant for $700 a month, but you could double that and earn $1400 by turning the same space into a vacation rental.

There are a few downsides to operating a vacation rental. Either you will have to manage and clean the unit or you will have to hire those tasks out. Try doing it all yourself for a few months to see if it’s worth hiring out the cleaning and managing to free up your time.

ADU (Accessory Dwelling Unit)

An ADU is a smaller individual unit that is on your property. This might be a tiny house, carriage house, or apartment over a garage. ADU’s can be a great income source provider!

Finding a home that has an ADU might take a bit more time and research. Accessory dwelling units provide multiple options for house hacking. You can rent out the ADU, consider living in the ADU and renting out the main home, or even turn the ADU into a vacation rental.

Compare the costs of properties in your desired area with ADU’s versus properties without them. You can also combo house hacking the main house while renting out the ADU to provide further income.

Camper House Hacking

Do you have a camper that you don’t use for a good portion of the year? You can rent out your camper to earn some extra money.

Most typically, individuals will list the camper as a vacation rental while they live in the main house. Some people will live in their camper and rent out their home to maximize their house hack profits.

Don’t let that camper sit idle while it could be earning you money!

Rent Storage Space

If you have spare closets, space in a garage, or sheds, you can rent these types of spaces for storage. Some people prefer renting storage space in someone else’s home over a storage unit due to cost and other problems with storage companies.

House Hack Tips

Getting started with your first house hack can be stressful. Here are a few tips that will help you find the perfect house hack property, how to find quality tenants, and what team members you need to get started.

Find A Realtor

Do some research on google and biggerpockets.com to find a realtor in your area. Put in some extra effort to find a realtor that has experience working with clients on purchasing properties specifically for house hacking. Having a real estate agent with previous experience will give you a huge advantage when searching for potential house hacks.

You should also consider finding some meetup groups near you that focus on house hacking. Networking locally is a fantastic way to find an agent.

Find A Lender For Your House Hack

Again, look for a lender that has experience closing on homes that are used for house hacking. This is super important! Lenders have to check so many boxes and have certain criteria to get you approved and to close on the home.

If you find an agent that has experience with house hacks, ask if they can refer an experienced lender. My realtor only works with great lenders and he has referred awesome lending companies.

Running The Numbers On A House Hack

You can begin by searching for similar types of rents in your market. For example, if you will be renting out rooms, search what the going rate is for a room in your location. Here are a few sites where you can find prices for renting by the room.

  1. Roomies
  2. Hotpads
  3. Spareroom
  4. Roomster
  5. Facebook Marketplace

After you’ve figured out how much you can rent your space for, just subtract that number from your mortgage amount to find out how much money you will save. Factor in vacancies and repair costs for more accurate results.

As mentioned earlier, consider purchasing a home in an upcoming or sought-after area. This can potentially help increase your cash flow. Run the numbers on all of the properties that you like and compare how they stack up against each other.

Do some networking and connect with people that are currently house hacking. More than likely, these house hackers can help you validate your numbers and help you make a solid choice on your house hack property.

Finding Quality Tenants

This is the scariest part of becoming a first-time landlord. Finding great tenants can be a little bit of work but this is absolutely necessary to running a successful house hack. You want to find people that will not only be good tenants but also good neighbors.

Figure out your criteria for your tenants and make sure to put your criteria in your listing. This is an example of what we used when we were searching for tenants for our full-time rental.

Credit Score: 600+
Income: Income of 3 times the rent
Rental History: Must have a good rental history for the last 2 years

Be sure to run a credit and background check on the tenants. In most areas, you can pass the cost for this on to the applicant in the form of an application fee. Check the regulations and laws in your area before charging an application fee.

Follow up with the previous landlords from the last 2+ years to make sure that they have been solid renters. Throw a few curveball questions at these landlords to make sure the tenant doesn’t have a friend or family member posing as a previous landlord.

Always make your tenants sign a lease! Even if they are renting a single room, you should have a lease. Be thorough with your lease to protect your home and yourself.

Creating Financial Goals For House Hacking

We believe that creating financial goals is essential when trying to save money. Think about why you want to house hack. What do you plan on doing with the money that you save? Will you use it to purchase more rental properties?

There are a few examples of financial goals for your house hack.

  1. Gain Financial Freedom – Financial freedom can be achievable by purchasing multiple investment properties and increasing your cash flow. Depending on your cost of living, it might take a few years or longer.
  2. Pay Down Debt – Using cash flow to pay down debt is a great goal to have. Make sure you aren’t amassing more debt though! You don’t want to get caught in a cycle of never fully paying your debt down. We believe that mortgages are good debt as long as you have a tenant paying for them.
  3. Contribute To Investments – You can use the cash flow to go towards other stocks, businesses, lending, or other types of investments to diversify.
  4. Build Up Savings – Having some money set back for emergencies and reserves is crucial to staying out of debt. You can use cash flow to build up a nice buffer to keep those surprise expenses covered when they show up.

Having a solid financial plan is key. You might want to speak with an accountant or financial advisor to help guide you along the way.

Advantages To House Hacking

There are so many advantages to house hacking! Honestly, we believe that it’s the best way to get started investing in real estate. Here are a few more reasons why you should house hack if you aren’t completely sold yet.

  1. Lowering Your Housing Costs – As mentioned earlier, lowering your out-of-pocket housing costs can be massively beneficial. This will allow you to save money at a much faster rate.
  2. Lowering Taxable Income – There are numerous tax advantages to owning real estate and rental properties. You can lower your income and thus pay less in taxes. Consult with an accountant or lawyer to get more information.
  3. Higher Cash Flow – If you run your numbers correctly, you should earn more cash flow than offering your property as a full-time rental.
  4. Great In Expensive Markets – Housing costs have been going crazy for the last year. House hacking can be an awesome tool to help you purchase a home and lower your housing costs. This works well even in expensive markets! There are a ton of people purchasing single-family homes and renting by the room in Denver, Colorado.
  5. Selecting Your Neighbors – With the bad comes the good! Yes, you will need to find tenants but you get to select who lives next to you.
  6. Gain Equity Over Time – As your tenants pay down your mortgage, you will gain equity in each property. The home will more than likely gain more equity from appreciation. This will make your net worth rise! You can potentially use that equity to purchase more investment properties.

Disadvantages To House Hacking

Along with the good comes the bad. The pros far outweigh the cons though! We wanted to make sure that you have all of the information before committing to a house hack.

  1. Moving Often – This only applies if you plan on purchasing multiple homes and house hacking. You might find yourself moving every year. Moving is a hassle but it’s a small price to pay to gain cash flow and equity with each property.
  2. Managing Tenants – Self-managing your properties can become cumbersome. That’s why it’s crucial to create a solid tenant screening process and find quality tenants. It may be difficult to find a property manager willing to manage properties that are rented by the room.
  3. Scaling Your Rentals Slowly – At the most, you will be purchasing a new property every year. This could make scaling a little slow. It all boils down to your financial goals and how many properties you intend on purchasing.

Financing Options For Your House Hack

  1. FHA – With an FHA loan you can put as little as 3.5% for a down payment. This is a great option for someone looking to purchase their first home.
  2. Conventional – Another fantastic option for first-time homeowners. You will need to put at least 5% down to take advantage of conventional financing. Using conventional financing can help you get under contract in a competitive market.
  3. VA – If you or your spouse has served in the military, a VA loan might be a solid choice. You can purchase a home with no down payment on a VA loan.
  4. USDA – This type of loan can be an option in rural areas. Similar to VA loans, you can purchase a home without a downpayment.
  5. FHA 203k – You can purchase a home and fund the rehab with a 203k loan. There are quite a few rules and a specific timeline to follow for the rehab.
  6. Fanny Mae Homestyle – This loan also allows the homeowner to finance the purchase of the property and covers certain types of renovations.

Alternatives To House Hacking

We hope that you now have a pretty solid understanding of what a house hack is and how you can benefit from it. There are many real estate investing strategies that you might also consider. Let’s take a quick look at a few of them.

  1. Nomad – This is very similar to house hacking, but instead you purchase a new home every few years and turn your previous home into a rental. We’ve used the nomadic strategy to turn our first home into our first rental.
  2. Traditional Rental Properties – With the traditional route, you will need at least 20% to put towards a down payment. It can be tough for beginners to save up that much money for a down payment. This is one of the reasons that makes house hacking great for beginners.
  3. Flipping – Flipping properties can provide large amounts of cash that can be used to scale up your flipping business or purchase rental properties. It can work well for someone with construction experience. Flipping might not be the best strategy for a complete beginner though.
  4. Live-In Flip – Similar to flipping, but you will live in the home while you flip it yourself. This might be a great option if you are handy and don’t mind doing most of the rehab work yourself.
  5. BRRRR – This is an acronym for buy, renovate, refinance, rent, and repeat. This is an awesome technique for scaling up a rental portfolio because you try to use the same money over and over to continually purchase rentals. This also might be a bit daunting for a rookie real estate investor.

The Numbers From Our First House Hack

We purchased our first home in May of 2015. This property was our first rental but we recently decided to turn it into a vacation rental. We are hoping to double our monthly cash flow!

We had family living with us when we purchased the property. They were paying us $700 a month in rent to live in the spare bedroom. Back then I knew nothing about real estate investing and had never heard of the term, “house hack”.

$1730 Mortgage
$700 Renting the spare room
$1030 To cover the remaining mortgage

This dropped our out-of-pocket cost to $1030 a month. You can’t live much cheaper in Arvada, Colorado unless you are a house hacking expert! Our renters didn’t cover our mortgage but they were cutting into by $700 a month. That’s $8400 a year!

At this point, We weren’t financially savvy yet and we spent most of the money. I wish we had the investing knowledge that we do now! We would probably have one or two more rentals by now.

Wrapping Up Why You Should House Hack

House hacking is one of the most powerful tools anyone can leverage to start investing in real estate. You can get started with less money and immediately reduce your housing costs while having your mortgage paid down by your tenants.

We hope that you are now super excited about house hacking!

Please let us know if you think there’s a better way to get started with owning rental properties.