The Money Muse

House hacking is a real estate strategy where you buy a multi-unit property, live in one unit, and rent out the other(s) to cover or offset your mortgage and expenses. It’s a relatively simple concept, but it can have a big impact on your financial future. For many, it offers a more affordable and strategic path to homeownership and can even be an avenue for building wealth. If you’re tired of throwing away money on rent or feeling like traditional single-family homeownership is out of reach, house hacking might be the perfect solution.

Why consider house hacking?

For years, homeownership has been considered the ultimate American dream. But in today’s market, rising home prices and interest rates make it difficult for many people to even get their foot in the door. The idea of purchasing a single-family home often feels overwhelming, particularly when it comes to managing mortgage payments, property taxes, and other costs associated with homeownership.

That’s where house hacking comes in. By investing in a multi-unit property – like a duplex or triplex – you can reduce your living expenses by renting out the other units. The rent you collect from tenants can help cover your mortgage and other property costs, making it more affordable to own property. In some cases, it might even help you build passive income, giving you a financial cushion or allowing you to save for other investments.

House hacking vs. traditional single-family homeownership.

As I’ve been contemplating my housing options for the coming year (since my current apartment is being demolished in November), I’ve found myself evaluating whether I want to keep renting, buy a home, or even explore house hacking. While buying a traditional single-family home has always been the go-to option for many people, it’s not always the most financially advantageous or sustainable route, especially in today’s market.

Here’s how house hacking compares to traditional homeownership:

1. Lower upfront costs and monthly expenses. Traditional homeownership often requires a large down payment, closing costs, and a hefty mortgage payment. House hacking, on the other hand, typically requires a smaller down payment (especially if you’re using a government-backed loan like an FHA loan) and could help offset your mortgage payments by renting out the other units. In the long term, this can make it easier to afford a home without breaking the bank. For example, when we’ve discussed our options, my partner and I have realized that buying a duplex might actually be a more cost-effective route for us than purchasing a single-family home.
2. Potential to generate passive income. One of the main benefits of house hacking is the opportunity to generate rental income. Rent from tenants can help cover your mortgage, taxes, insurance, and even maintenance costs. In some cases, you might even generate enough income to cover all of your living expenses, making your housing costs nearly nonexistent. This can be a game-changer if you’re looking to save more, pay off debt faster, or invest in other opportunities.
3. Build wealth faster. By covering your mortgage costs with rental income, you’ll be able to build equity in the property faster. Plus, as the property appreciates over time, you’ll benefit from the increase in value. Traditional homeownership doesn’t provide the same opportunity for building wealth in the short term because you’re often just covering your own mortgage payments with no income generation from the property.
4. Flexibility. When you purchase a single-family home, you’re responsible for all the maintenance, repairs, and the entire living space. With house hacking, you may be able to outsource maintenance for the rented units, which can help you offset your living expenses. Additionally, having tenants provides flexibility if you ever decide to sell or move out. If you want to move into another unit or scale your property portfolio, house hacking gives you more options down the line.

Some important considerations with house hacking.

While house hacking can be a great option for many, it’s important to consider a few things before diving in:

1. Being a landlord. One of the biggest factors to consider when house hacking is whether you’re comfortable being a landlord. Even if you’re only renting out part of your property, you’ll still need to manage the tenants, handle maintenance requests, and ensure the property stays in good condition. For me, my partner and I would need to consider how much time and effort we’re willing to dedicate to the landlord role.
2. Tenant management. Finding reliable tenants is essential to ensuring that your house hacking venture is successful. If tenants aren’t paying rent or taking care of the property, it could hurt your cash flow and cause headaches. It’s essential to do thorough background checks and establish clear rental agreements to avoid future issues.
3. Zoning and regulations. Not all properties are suitable for house hacking. You’ll need to do your due diligence to make sure that zoning laws and regulations in your area allow for renting out units. In some cities or neighborhoods, you might be restricted from renting to tenants, so it’s important to check local rules before purchasing a multi-unit property.

Should you consider house hacking?

For my partner and me, house hacking is an attractive option as we consider our future housing situation. It would allow us to offset some of the high costs of living while building wealth over time. Additionally, it’s a flexible option that could provide us with the financial security we need during uncertain times.

Ultimately, house hacking can be a great solution for people looking to build equity in a property while also generating passive income. It offers a more affordable path to homeownership, provides opportunities for wealth-building, and can serve as a great stepping stone toward financial independence. If you’re considering whether house hacking is right for you, it’s important to evaluate your personal situation, long-term goals, and ability to handle the responsibilities that come with being a landlord.

Whether you’re looking to buy a duplex, triplex, or even a fourplex, house hacking can be a smart move toward building wealth and securing your financial future. Happy house-hunting!