Key takeaways
- House hacking means living in a part of your home while renting out the rest to offset your housing costs.
- House hacking is a popular path to financial freedom, especially for first-time homebuyers or those in expensive markets.
- Popular house hacking methods include renting out extra bedrooms or living in one unit of a small multifamily property.
- Always remember to check local laws and run the numbers to ensure your plan is both legal and profitable.
What is house hacking?
House hacking is a real estate move where you live in a part of your home while renting out the rest, so your tenants help cover your mortgage while you build home equity. Whether you have spare bedrooms, a garage, an accessory dwelling unit (ADU), or another unit in a duplex, triplex, or quadplex, it’s really just all about generating extra income from your primary residence.
Many first-timers start house hacking because it’s a beginner-friendly way to learn property management, build wealth, and slash living costs all at once.
Pros and cons of house hacking
Before putting your time and money into house hacking, consider the pros and cons of this real estate investing method:
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Popular house hacking methods that work
There’s no one-size-fits-all way to house hack. If you’ve already started house hacking, then good for you! If you’re still weighing your options, here are some of the most popular (and practical!) house-hacking ideas people are using today:
1. Buy a multifamily property and live in one unit.
This is the classic live-in-landlord move: snag a small multifamily home, move into one unit, and let your tenants cover your mortgage. You get all the perks of homeownership and a built-in cash flow to help pay down the loan faster. Over time, as rents rise, you’ll see even more equity stacking up in your favor.
📌 Pro Tip
FHA loans allow you to buy up to a 4-unit property with just 3.5% down, so this method is perfect for first-time house hackers.
How to Buy a Multifamily Property in 10 Steps
2. Rent out spare bedrooms or find housemates.
Do you have spare rooms? Invite a potential housemate or two into your home and split utilities and rent rather than shouldering the entire mortgage yourself. It’s the most straightforward hack (no renovation required!), and you’ll see your monthly housing bill shrink in no time.
📌 Pro Tip
Screen tenants carefully! Living with someone changes the dynamic, and you want to make sure it’s a good fit. Try crafting a written agreement to avoid misunderstandings about bills or chores.
3. Convert an ADU, basement, or garage into a rental apartment.
If you have an unused space, such as a basement with a separate entrance, a detached garage, or a room to build an ADU, you may be able to turn it into a small home. Tenants will pay you market rent, and you’ll still be just a few steps from home when they call with a leaky faucet. Of course, you’ll invest some upfront cash in permitting and finishes, but the rent checks can offset that.
📌 Pro Tip
Before you spend on renovations, double-check your city’s zoning and ADU rules, as some areas restrict rental conversions.
4. List part of your home as a short-term or vacation rental.
If you’re not ready for long-term rentals, try chopping your house into nightly stays on Airbnb. Usually, Airbnb rates in business districts or touristy areas can outpace what you’d get from a standard lease. However, be sure to check local rules and HOA guidelines, as some areas prohibit short-term stays.
📌 Pro Tip
Your short-term rental will become a favorite of repeat guests when you provide hotel-like touches. Invest in good coffee and always leave a welcome note.
5. Offer up storage space (garage, attic, or land).
No one said your renters need to live inside your home. Rent out your empty garage or even driveway for RV or boat parking. It’s almost entirely passive income: you’ve already got the space, and you collect checks without sharing your living room. Maintenance is minimal, too. Just keep the area clean and secure.
📌 Pro Tip
Set clear terms with your renter to avoid headaches down the line. Decide on access hours, what can and can’t be stored, and who’s responsible for damages.
Once you start house hacking and juggling rent from roommates or tenants, Baselane can help you keep it all organized. It lets you collect rent, track expenses, and manage your property finances in one simple dashboard. It’s perfect for first-time landlords.
How Much Should I Charge for Rent? A Guide for Landlords
Financing options for house hackers
You don’t need millions of dollars to start house hacking. Several financing options can make getting into your first property much more doable. Depending on your credit score, income, and the type of property you’re eyeing to house hack, here are some common routes to consider:
- Federal Housing Administration (FHA) loans: FHA loans are a popular choice among house hackers because they can be obtained with as little as 3.5% down. The catch? You need to live on the property for at least a year. It’s perfect because that’s your house hacking plan anyway.
- VA loans (for eligible veterans): If you’re a qualifying service member or veteran, a VA loan is an excellent option. Zero downpayment, no private mortgage insurance, and great terms. You can use it for a multifamily property with up to four units, as long as you live in one of them.
- Conventional loans: If you’ve got a stellar credit score and a bit more saved up, a conventional loan can give you more flexibility. You may be able to purchase a duplex or triplex with just 5% down if you live in one of the units.
- House hacking with an investor partner: Not every house hacker does it alone. You can team up with a friend, family member, or another investor to buy the property together. Ensure that everything, including equity shares and responsibilities, is clearly defined from the start.
What you need to know about house hacking laws & taxes
House hacking comes with legal and tax strings attached. Before you start renting out part of your home, ensure you’re not accidentally breaking a rule or missing out on a tax benefit.
Zoning and local permits
📌 Why it matters: Some cities or homeowners’ associations have strict rules on converting basements, adding an ADU, or running short-term rentals.
✅ What you can do: Check your local zoning office or HOA guidelines before you commit. A quick phone call can save you from unknowingly breaking the law or facing fines down the road.
Landlord-tenant laws
📌 Why it matters: Even though you live on-site, you’re now a landlord. That means you must follow lease requirements, security deposit rules, and eviction procedures.
✅ What you can do: Spend time researching your state’s landlord-tenant laws to learn about notice periods and required disclosures. Treating your housemates as tenants (even if they’re your friends) can prevent misunderstandings later.
How to Evict a Tenant in 7 Steps (+ Free Eviction Notices)
Insurance considerations
📌 Why it matters: A standard homeowner’s policy may deny claims if your property is “used as a rental.” Tenant damage or liability lawsuits could go uncovered.
✅ What you can do: Talk to your insurance agent about switching to a landlord or “dwelling fire” policy. It’s usually a small premium bump, but it gives you peace of mind if somebody slips on the stairs or damages the walls.
Reporting rental income and paying taxes
📌 Why it matters: All rent checks must be reported as income on your tax return.
✅ What you can do: Keep a separate folder (digital or physical) for all rent receipts, invoices, and bank statements. When tax time rolls around, you’ll thank yourself for not scrambling to find missing records.
The 14-day rule for short-term rentals
📌 Why it matters: If you rent a room or unit for fewer than 15 days in a year, that income can actually be 100% tax-free.
✅ What you can do: If you’re curious about dabbling in short-term rentals, do the math on how many nights you’ll host. Once you cross 14 days, you must report that income. Plus, you can deduct only the prorated expenses related to those rental days.
House hacking mistakes to avoid
Before you start house hacking, watch out for these common mistakes that can cost you time, money, and peace of mind:
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Not screening tenants properly:
Always do background checks, ask for proof of income documents, and follow fair housing laws.
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Ignoring local zoning and rental laws:
Yes, it’s easy to rent out parts of your home. But city ordinances, HOA rules, or short-term rental bans can shut you down fast. Ensure you research everything thoroughly before starting to list or renovate.
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Not having a backup plan:
Set aside a budget for everything and give yourself some wiggle room. What happens when there’s an unexpected vacancy? Or a broken roof? Always have an emergency fund to avoid financial strain.
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Underestimating the duties of being a landlord:
Even if you live on the property, it’s still your responsibility to handle maintenance, collect rent, and deal with other tenant issues. It’s all part of house hacking.
Rental income ideas beyond house hacking
Not every house hacker sticks to the classic buy-a-duplex or rent-a-room method. If you’re looking for more ways to earn from your home, these alternatives might be right up your alley:
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Rent out your amenities:
You can rent your pool for private parties, your driveway for commuter parking, or your backyard as a dog park — the possibilities are endless!
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Live in a fixer-upper and rent it out after renovation:
Buy a property that needs work, live in it while you renovate, and then rent it out once it’s good to go. It will take you a long time to complete that project, but it’s a strategic way to house hack if you have long-term gains in mind.
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Rent out your home while you’re away:
If you often travel for work or spend weekends elsewhere, you may opt to rent your home (or parts of it) on Airbnb while you’re gone. It’s a nice way to earn money from your space without committing to full-time tenants.
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Live in a mobile home and rent out your primary home:
Some people choose to live in a small van, an RV, or a tiny home and rent out their house for full market value.
Frequently asked questions (FAQs)
How does house hacking work?
House hacking is when you buy a property, live in a part of that home, and rent out the other parts of it to help you cover your mortgage and other expenses.
Is house hacking legal everywhere?
Not really. While house hacking is legal in most areas, the specifics depend on local laws and regulations. There are zoning laws, homeowners associations, and rental ordinances that can limit how and what you can rent out. Before diving into house hacking, it’s essential to check with your local government.
How can I start house hacking with little or no money down?
Start by looking into low- or no-downpayment loans like FHA or VA loans, depending on your eligibility. Another option is to partner with someone with whom you can share the upfront costs. It’s all about being creative with financing while staying within the loan rules.
Bottom line: Is house hacking right for you?
House hacking won’t make you rich overnight, but it can be a powerful method to build equity if you’re willing to put in the work. If you’re comfortable with sharing your space and want to offset your housing costs, house hacking may be the right move for you. Just remember to have realistic expectations before diving in.
Have you ever tried house hacking? Or are you still weighing your options? Share your questions or tips in the comments!
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