What if someone else paid the mortgage every month? That’s the core idea behind house hacking, a real estate strategy that lets homeowners offset or eliminate housing costs by renting out part of their property. This house hacking guide breaks down how the strategy works, which approaches deliver the best results, and how beginners can get started. Whether the goal is to live rent-free or build long-term wealth, house hacking offers a practical path forward.

What Is House Hacking?

House hacking is a real estate investment strategy where the owner lives in a property while renting out a portion of it. The rental income covers part, or all, of the mortgage payment. In some cases, it even generates extra cash flow.

The concept isn’t new. People have taken in boarders and rented spare rooms for decades. But the term “house hacking” gained popularity in the early 2010s, thanks to real estate investing communities and podcasts. It’s now a go-to strategy for first-time investors and homeowners looking to reduce living expenses.

Here’s the basic math. Say someone buys a duplex for $300,000 with a monthly mortgage of $2,000. They live in one unit and rent the other for $1,500. That leaves just $500 out of pocket each month. If they find a property where rental income exceeds the mortgage, they live for free, and pocket the difference.

House hacking works with single-family homes, duplexes, triplexes, and fourplexes. It also works with short-term rentals like Airbnb. The key requirement? The owner must live on the property, at least initially. This unlocks access to owner-occupied financing, which typically offers lower interest rates and smaller down payments than investment property loans.

Popular House Hacking Strategies

House hacking takes many forms. The right strategy depends on property type, local regulations, and personal comfort level with tenants.

Rent by the Room

This approach works well for single-family homes. The owner rents out spare bedrooms to individual tenants. It often generates more income than renting to a single tenant because each room is priced separately. A four-bedroom home might bring in $600 per room, $1,800 total, compared to $1,400 for a whole-house rental.

The tradeoff? Shared living spaces mean more interaction with tenants. Screening roommates carefully matters here.

Buy a Small Multifamily Property

Duplexes, triplexes, and fourplexes are classic house hacking properties. The owner lives in one unit and rents the others. Properties with up to four units still qualify for residential financing, which means lower down payments (as low as 3.5% with an FHA loan) and better rates.

This strategy offers more privacy than renting rooms. Tenants have their own kitchens, bathrooms, and entrances. It’s house hacking with boundaries.

Short-Term Rentals

Platforms like Airbnb and Vrbo let owners rent out a basement apartment, guest suite, or ADU (accessory dwelling unit) to travelers. Short-term rentals often command higher nightly rates than long-term leases, especially in tourist-friendly areas.

The catch? Short-term rentals require more active management. Cleaning, guest communication, and local regulations add work. Some cities restrict or ban short-term rentals entirely, so owners should check local laws first.

ADU or Garage Conversion

Some homeowners build or convert an accessory dwelling unit on their property. A garage apartment, backyard cottage, or basement suite becomes a rental unit. This works especially well in high-cost markets where land is scarce and rents are strong.

ADU construction costs vary widely, from $50,000 for a basic conversion to $150,000+ for new construction. But the added rental income and property value often justify the investment.

How to Get Started With House Hacking

Getting started with house hacking requires research, financing, and a willingness to share (or subdivide) living space. Here’s a step-by-step breakdown.

Step 1: Determine a Budget and Financing Options

First, figure out how much house is affordable. Lenders typically want a debt-to-income ratio below 43%. Owner-occupied loans offer the best terms. FHA loans require just 3.5% down. Conventional loans may require 5% to 20% down, depending on the lender and borrower profile.

Pro tip: Some lenders count projected rental income when calculating loan eligibility. This can boost buying power significantly.

Step 2: Choose a Market and Property Type

Not every market supports house hacking equally. Look for areas where rent-to-price ratios are favorable. A property that costs $250,000 and generates $2,500 in monthly rent has a 1% ratio, a solid benchmark for cash flow.

Decide between single-family, multifamily, or ADU strategies based on local inventory and personal preferences.

Step 3: Run the Numbers

Before making an offer, analyze the deal. Estimate monthly rental income, mortgage payment (including taxes and insurance), maintenance costs, and vacancy reserves. A good house hack covers the mortgage and leaves a buffer for unexpected expenses.

Online calculators and spreadsheets help here. Don’t skip this step.

Step 4: Make an Offer and Close

Once a property checks out financially, make an offer. Work with a real estate agent experienced in investment properties. After closing, prepare the rental unit, screen tenants, and collect rent.

House hacking requires landlord responsibilities, even if the tenant lives next door. Understand local tenant laws and keep clear lease agreements in place.

Pros and Cons of House Hacking

House hacking offers real financial benefits. But it’s not for everyone. Here’s an honest look at both sides.

Pros

• Reduced housing costs: Rental income offsets mortgage payments. Many house hackers live for free or close to it.
• Easier entry into real estate investing: Owner-occupied financing requires smaller down payments than investment property loans.
• Wealth building: The property appreciates over time. The owner builds equity while tenants help pay the mortgage.
• Tax benefits: Landlords can deduct mortgage interest, property taxes, insurance, repairs, and depreciation on the rental portion of the property.

Cons

• Less privacy: Living near tenants means shared walls, noise, and occasional awkward interactions.
• Landlord responsibilities: Repairs, tenant issues, and vacancies require time and attention.
• Upfront costs: Even with low down payments, closing costs, repairs, and reserves add up.
• Location limitations: Not every market has affordable multifamily properties or favorable rent-to-price ratios.

For those willing to trade some privacy for financial freedom, house hacking delivers serious value. For others, traditional homeownership or investing in rental properties from a distance may fit better.