How to Use “House Hacking” To Supplement Your Current Income … Or Pay Your Current Mortgage

Getting into real estate investing can seem daunting to first-timers. 

Buying property … managing property … and all the money involved?!

Let’s be honest: it can be a lot. 

Did you know there’s a way to dip your feet into the shallow end of the real estate investing pool that allows you to:

• earn additional income
• help you pay off your current mortgage
• help you pay off any debt your have, such as student loans
• gain valuable experience with tenants
• and more 

No, we’re not joking. 

Welcome to the world of house hacking!

House hacking is a simple yet highly effective way to invest in real estate without incurring in many of the risks associated with investment properties. 

If you’re ready to learn more about house hacking, let’s get started! 

What is House Hacking? 

So, what is house hacking exactly?

House hacking is a real estate investment strategy you can use to maximize your return while minimizing expenses.

It consists of living in a multi-unit property while you, as the investor, rent out the other available units. This could be an entirely separate unit, or even just an extra bedroom.

 This strategy’s goal is to reduce or eliminate your own housing expenses by generating rental income from the rest of the property.

House hacking has become popular with first-time investors because it allows you to enter the real estate investment game without the significant risk and financial strain that comes from other forms of real estate investing, like owning multiple rental properties. 

Advantages of House Hacking

Among house hacking’s many benefits, the following key ones stand out:

• House hacking allows you to reduce or eliminate your living expenses by allowing rental income to pay off mortgage payments, property taxes, and maintenance bills, among other expenses.
• You can build equity through house hacking over time.
• House hacking adds the possibility of additional positive cash flow streams. These additional income streams can supplement other investments, or your employment and business ventures.
• House hacking is a great diversification strategy, especially for first-timers looking to expand their interests in the real estate market.
• House hacking also offers flexibility, particularly if you’re looking to leave full-time employment or move into other business areas.

Disadvantages of House Hacking

As with any real estate investing strategy, there are downsides to house hacking. These include: 

• House hacking may raise privacy concerns as property owners interact with tenants. 
• Property owners are responsible for maintenance and repairs to the property, leading to greater responsibility and expenses.  
• High tenant turnover can leave property owners without a steady income stream.
• You must also be aware of legal and regulatory compliance issues such as zoning restrictions, landlord-tenant laws, and housing regulations.
• First-time investors may also lack experience in property management, causing them to invest considerable time and energy as they learn the ropes.

House Hacking Strategies 

There are several ways to house hack, and it all depends upon your goals and the type of property you’re interested in. These methods include: 

Multi Family Home

This house hacking strategy consists of purchasing a home with multiple units such as: 

• duplex 
• triplex  
• fourplex 

Simply put, you live in one and rent out the rest. 

Yes, it’s that simple!

The rental income allows you to partially or totally cover your living expenses along with maintenance and upkeep for the other units.

Short Term Rentals 

Another popular house hacking strategy is short-term rentals. For example, this means renting out an individual room for a year or less. 

If you utilize this strategy, you must be aware of local regulations governing short-term rentals. 

Roommates 

Roommates are a good way to house hack in a single-family home or apartment. You can rent individual rooms on a weekly or monthly basis to offset living expenses.

Airbnb

Airbnb has simplified house hacking. You can rent out part or all of a property using the Airbnb platforms. 

While this strategy can certainly be profitable both short and long term, keep in mind that you will be required to pay a commission for the use of Airbnb’s platform.

Loan Options when House Hacking 

Unless you have the money to purchase a property upfront, you’re going to need financing for your property that you plan to use for house hacking.

Here are three useful loan options to consider when house hacking:

Conventional Loans

Conventional loans consist of seeking financing from a bank or mortgage lender where your current credit score is held as one of many weighing factors.  

In general, you’ll need a down payment ranging from 3% to 20% with variable interest rates. 

Conventional loans can be a great option for house hacking if you have a good credit score since you can get lower interest rates.

FHA Loans

Another option are Federal Housing Administration (FHA) loans. These are government-backed mortgages popular with first-time home buyers. 

FHA loans generally require a lower down payment and offer flexibility for those with a lower credit score. 

FHA loans can get you lower monthly payments compared to conventional loans, making them a great option for financing your property to house hack.

VA Loans

VA loans are available to military members (retired or active duty) and spouses. 

These loans provide affordable monthly rates, often requiring no down payment. 

You can use VA loans for multi-family properties, making them a great choice for military members interested in house hacking.

Keep in mind that many local and state governments offer first-time buyer programs. 

It’s worth checking out if your area offers one of these programs. 

You may even be able to qualify for lower rates and down payment assistance.

House Hacking FAQs

Next, we’ll take a look at some of the most commonly asked questions associated with house hacking. 

Q. How can you house hack without owning a home?

House hacking without owning a home consists of renting an entire property and then renting out portions of it. 

If you go this route, be sure to check your lease agreement as some contracts forbid this practice.

Q. Do you have to pay taxes on the income you receive from house hacking?

You generally need to report your rental income as part of your income tax statement.

But you may be able to qualify for deductions, reducing the amount of taxable income that you’ll owe.

Q. Does house hacking require any special permits? 

In general, no. But you may need to check on restrictions due to zoning regulations, short-term rental laws, and other applicable safety and building compliance issues.

The Bottom Line: House Hacking

As you can see, house hacking is a great way to offset your living expenses while building equity. 

Even better, if you’re looking to slowly wade into the pool that is real estate investing, it’s a great way to get started!

Best of all, it’s simple!

If you’re ready to get started — once you have a property in mind — use the loan option suggestions in this article to finance your first house hack. 

Who knows, it may lead to an entire career in real estate investing!