House hacker and real estate investor Gabe Bult bought his first property at age 22, reducing his housing expenses to nearly zero by renting out the extra space in his home. At the time, he made under $40,000 per year but was able to save enough to put $15,000 toward a down payment, closing costs, and a few repairs to start house hacking and earning money.
Bult believes house hacking made buying a home possible and set him on the path toward long-term financial success.
“You can save up all that money every year, and you can bring it to the next property,” Bult says, “I knew once I got into this, I would have so much freedom for the rest of my life. I would never have to pay rent again.”
If you’re looking to start real estate investing but are unsure how to jump into the game, house hacking could be your solution. Keep reading to learn how to house hack by using your primary residence to generate rental income.
- House hacking allows property owners to reduce their cost of living and save money to fund future investments.
- You can house hack with a multi-family property, a spare bedroom in your home, or even the parking space in your driveway.
- House hacking could cost upwards of $100,000 to start, but it can also be done with no cash upfront, depending on your goals.
- It’s important to treat house hacking like a business and plan your strategies with intention.
What Is House Hacking?
House hacking is a real estate investment strategy that covers housing expenses by renting out portions of a person’s primary residence. By reducing monthly housing costs this way, investors can often afford their first investment properties in more expensive markets. Additionally, this strategy can even generate positive cash flow.
There’s a wide range of strategies house hackers use to earn money. House hacking includes renting to tenants while living in a multi-family property or renting spare bedrooms in a single-family property. Some house hackers rent spare parking and storage space. House hacking is appealing to many new investors because it makes getting started in real estate possible with a small amount of upfront cash.
4 Benefits of House Hacking
- Reduced Cost of Living: The U.S. Bureau of Labor Statistics reports housing represents 29% of the average American’s budget. House hacking allows investors to reduce housing costs, free up cash for other expenses, and put money toward future investments.
- Easier Financing Options: Interest rates on rental properties’ mortgages are generally higher than rates for primary residences. However, if your rental property is your primary residence, you’ll qualify for a lower interest rate. The rental income from a multi-unit property can also improve your debt-to-income ratio, making it easier to qualify for a loan.
- Low Effort Property Management: If you’re new to being a landlord, house hacking can be the perfect transition because it requires less time and energy. Managing a rental property that you live in eliminates travel time and expenses. Communication with tenants will also likely be easier and more regular.
- Tax Deductions: While house hacking, you qualify for many of the same tax deductions that all rental property owners qualify for. You can reduce your taxable income by deducting mortgage interest, maintenance and repair expenses, and depreciation.
6 Strategies for House Hacking That Increase Your Monthly Income
1. Buy a Multi-Family Property and Rent the Other Apartments
One of the most common house hacking strategies is living in a duplex, triplex, or fourplex while renting the spare units. Purchasing a multi-family property is one of the most simple house hacking options because it doesn’t require reconfiguring or renovating the property, and the utilities are already divided by unit when you move in.
The more units in the property, the easier it is to cover your mortgage payments through rental income and generate a positive cash flow.
Baltimore resident Kelly Marburger used an FHA loan to put 3.5% down on a $430,000 fourplex. To cut costs, she began renting vacant apartments to tenants. She explains to Bigger Pockets, “When I moved in, the rents weren’t totally covering the mortgage, but then I was able to raise the rent a little bit. On the bottom floor, there are two apartments. One rents for $650. The other one’s $1,000. And the second floor is $1,200. So together, we’re getting $2,850 for income.”
With a monthly mortgage payment of $2,870, Marburger pays around $20 to cover her own housing expenses. Yet, she believes as rents rise, she’ll be able to completely cover the mortgage and cost of repairs for a positive cash flow.
2. Invest in Finishing Your Basement
Many single-family homeowners convert their basements into living spaces to rent to tenants. If your basement has enough square footage, a full apartment with a bathroom, kitchen, and 1–2 bedrooms can produce a lot of value for you.
To save money and space, some house hackers convert their basements into private rooms instead of private apartments. This type of renovation will be cheaper, although it will also generate less rental income.
Real estate agent, investor, and developer Rodney Ross says, “When you’re thinking about finishing a basement, you need to really consider the cost to finish it and the value it’s going to bring.”
Ross also encourages homeowners to consider the features of their basements and how they will impact the project’s cost.
“Some of the things that we look for are the width of the stairs going down in the basement, the height of the ceilings, and whether we need to dig and underpin. Or if there’s water penetration. And we look for whether we can add an egress window which makes it a legal, livable space which makes the house worth more,” Ross says. “Make sure you’re thinking about these things because the cost can be as low as $5,000–$10,000 or as high as several tens of thousands of dollars.”
3. List Your Home on a Short-Term Rental Website
Some house hackers prefer hosting short-term guests instead of renting to long-term tenants. Short-term renting typically produces a higher daily income but also requires more work. As a short-term rental host, you’ll need to clean the living space regularly, manage bookings, and communicate check-in instructions for every new guest.
Analytics company AirDNA estimates the average occupancy rate in 2022 for short-term rentals will be 58.2%, with an average daily rate of $277.53. This leaves hosts with an average of $4,845.68 in monthly income. However, both the daily rates and the occupancy rates are heavily influenced by the property type and the market.
Here are a few common short-term rental house hacking strategies:
List a Private Apartment
If you live in a multi-unit property or you’ve converted a portion of your property into a private apartment, you’ll be able to attract more short-term guests and charge more per night. Guests will pay higher rates for more privacy and larger spaces.
However, if you have to spend money to convert a portion of your home into a private apartment, you’ll want to calculate whether the higher daily rates are enough to cover the investment in renovations.
List a Spare Bedroom
Listing a spare bedroom on a short-term rental platform won’t generate quite as much income as listing an entirely private unit, but it’s a simple way to get started with house hacking. Simply furnish the bedroom, take high-quality photos for the listing, and begin hosting guests.
Many short-term rental hosts enjoy meeting guests from around the world by sharing their homes. In your listing, make it clear whether guests will be allowed to use your kitchen or other common areas. You’ll earn more for your listing if you allow guests access to your kitchen. Providing access to a private bathroom will also make your listing more valuable.
List Your Home While Traveling
If you frequently travel for work or pleasure, you can list your home on a short-term rental platform while you’re away. While this may not provide consistent income, it can help you generate extra cash to partially cover your housing costs. If your home is able to attract guests at the average daily rate of $277.53, you’ll earn over $1,900 by renting your property for just one week.
Airbnb and VRBO are two highly successful platforms house hackers have used to earn short-term rental income. Airbnb allows homeowners to list either private bedrooms or private units, while VRBO only allows completely private units on its platform.
4. Find Roommates and Have Them Sign a Lease
If you enjoy some amount of communal living, roommates could be the perfect house hacking strategy for you. Each extra bedroom in your home can be rented to tenants to help you bring in extra cash.
Seattle real estate agent Monica Church became a homeowner in her 20s when she bought a three-bedroom condo in Seattle. Because she enjoys being around other people, Church decided to rent two of the bedrooms in her home to roommates. She recommends considering not just the financial benefits of renting to roommates but also whether you enjoy having people around you.
“It’s one of the smartest things you can do. But if you’re gonna do it, you can’t just be like, ‘It’s because it’s the best financial decision.’ You have to also do what you like for your lifestyle as well,” she advises.
5. Build or Buy a Property With a Detached ADU
An ADU (accessory dwelling unit) is a separate apartment on the property of a single-family home. Many homeowners add ADUs to their backyards or convert garage space into living space.
Many cities in the U.S. have zoning laws to regulate ADUs. Because of this, it’s important to check what the requirements are in your area. However, as many cities update their zoning laws to allow them, these structures are becoming increasingly popular. A 2020 report by Freddie Mac found that ADUs increased by 8.6% between 2009 and 2019. As more cities look for ways to solve housing shortages, and homeowners look for ways to earn more money, these tiny homes are popping up everywhere.
The Terner Center for Housing at UC Berkeley reports the average size of an ADU is 631 square feet, and the average construction cost is $156,000. However, costs can vary tremendously. Salt Lake City-based ADU builder Stack Homes advertises a base price of $210,000 for a prefabricated 640-square-foot dwelling. In contrast, North Carolina-based Haven Modular advertises a 648-square-foot ADU for a base price of $179,500.
6. Rent Out Extra Storage or Parking Space
Earning extra money for your property isn’t limited to renting out living space. If you don’t have additional living space to rent to tenants or don’t want to be a landlord, consider renting your driveway, garage, attic, or yard as storage or parking space.
While you’ll earn less money renting parking and storage space on your property, it’s a simple way to cover a portion of your mortgage payments without the effort of managing tenants or living with roommates.
You can also use this strategy in addition to other house hacking strategies to supplement the income you earn from roommates, long-term tenants, or short-term guests. List your property on Neighbor, Vanly, or Stache to start earning money.
House Hacking FAQ
What Makes a Great Property to House Hack?
While anyone can convert a property into a space for house hacking, the best properties are ones that need minimal renovation before renting to tenants. Here’s what to look for while searching for the perfect home for house hacking:
- Located in a neighborhood with strong rental demand
- Multiple off-street parking spots or located near public transit lines
- No HOA rules or zoning restrictions that could impact your ability to rent
- The more units or bedrooms, the better (a fourplex is better than a duplex and a four-bedroom is better than a two-bedroom)
- Ensuite bathrooms for more privacy if renting out spare bedrooms
How Does House Hacking Change Your Taxes?
As a house hacker, you qualify for numerous tax deductions. The portion of your home that you rent out is considered part of your real estate investment business. Any expenses you pay to keep your real estate business going are considered a cost of doing business and are tax deductible. Reduce your taxable income with the following expenses:
- Repairs and maintenance expenses
- Costs associated with advertising vacancies and screening tenants
- Mortgage interest
- Property taxes
Remember that the portion of your home you live in does not qualify for the same tax deductions as the rental portion. For example, if you live in a triplex, two-thirds of your home qualifies for investment property deductions. However, the one-third that you live in does not. This means you can deduct depreciation on the value of two-thirds of your home. If you have to replace the roof or rewire the whole property, you can deduct two-thirds of the expense but not the whole thing.
How Much Money Do You Need to Start House Hacking?
House hacking is a popular investment strategy because there are options for investors with any amount of cash. It’s possible to get into house hacking with very little money, while you can also invest hundreds of thousands of dollars.
Use These House Hacking Strategies That Require No Money Upfront
- Rent spare bedrooms in your home to roommates
- List your home as a short-term rental while you travel
- Rent out extra parking and storage space
House Hacking Strategies to Try if You Have Cash to Invest
- Multi-Family Properties: A multi-family property purchase will require cash upfront for a down payment. This can be as low as 3.5% of the property’s total price.
- Renovated Basements: Every basement project’s price tag will be unique. You could spend anywhere from $5,000 to $100,000 on a basement renovation project.
- ADU Construction: ADUs typically cost between $100,000 and $400,000. You can use construction loans, home equity loans, or personal loans to finance an ADU if you don’t have hundreds of thousands of dollars to invest upfront.
Plan Your House Hacking Business With Intention
House hacking is more than a personal finance strategy to save a few bucks on housing costs. It’s best to think of house hacking as a business. You’ll be most successful when you identify your vision, carefully plan your strategies, and ensure all your decisions lead you closer to your investment goals.
To get started:
- Write a mission statement and vision statement for your real estate investment business.
- Identify the strategies you’ll use to achieve your vision.
- Evaluate each investment decision to ensure it aligns with your mission and vision.
For more tips to help plan your real estate investment business, read “Best Investment Properties to Start With as a Real Estate Investor.”
Leader Media has established sourcing guidelines and relies on relevant, and credible sources for the data, facts, and expert insights and analysis we reference. You can learn more about our mission, ethics, and how we cite sources in our editorial policy.
- Gabe Bult Channel. “Instant Freedom: How I Bought My First Property At 22 : House Hacking.”
- U.S. Bureau of Labor Statistics. “Consumer Expenditure Survey.”
- Bigger Pockets Podcast Show. “House Hacking a Fourplex in Maryland As My First Investment Property.”
- Rodney Ross “The Real Estate Boss”. “Should You Finish Your Basement?”
- AirDNA. “AirDNA 2022 Mid-Year Outlook Update.”
- Monica Church Channel. “What It’s Like Living With Roommates As A Landlord In My 20′s.”
- Freddie Mac. “Granny Flats, Garage Apartments, In-Law Suites: Identifying Accessory Dwelling Units from Real Estate Listing Descriptions Using Text Mining”
- Terner Center for Housing Innovation. “Jumpstarting the Market for Accessory Dwelling Units.”
- Stack Homes. “640 square foot modular dwelling.”
- Haven Modular. “Standard Options.”