Is House Hacking For You? How to Do It & the Pros & Cons Involved

By Myles Leva


Last Updated: May 30, 2022


How do you get into the business of real estate at a time like this? 

Housing costs have been growing fast these past few years, and becoming a homeowner is hard enough on its own. But in difficult times like these, many people become interested in a more frugal method for achieving homeownership with the potential for expansion: House Hacking. 

In this article, we will cover:

  • Why people are considering measures like house hacking
  • What it means to hack your house
  • If house hacking is worth it



Why Do People Hack Their House?

Housing expenses are on the rise. Since 2020, increases in house prices have been far faster than usual. 

For most people, this means that mortgage payments will be higher the later they enter the housing market. For those who have bought a home very recently, affordability can be a huge problem. Given that household costs are as high as they are in 2022, the problem only looks more daunting.

Necessity is the mother of invention, the saying goes. As housing affordability becomes all the more difficult but remains just as necessary, people are coming up with new ways and revisiting old ways of reducing costs.

House hacking first appeared as a concept in neighborhoods where, at some point, it became too expensive to live comfortably.



What Does it Mean to Hack Your House? 

The term “house hacking” has been gaining interest in the last several years. House hacking is a real estate investment strategy. Overall, house hacking describes methods for offsetting a homeowner’s mortgage payments.

The simplest form of house hacking is buying a starter home and renting out space. Often, the buyers will remodel a room, basement, or attic to accommodate a tenant.

They then use the money generated from renting the space out to offset their mortgage payments. Rental income is generated, the mortgage is less of an issue, and the homebuyer builds equity.

At some point the homeowner will have acquired enough equity to cash it out for a significant amount. When that time comes, the homeowner uses that cash to make another down payment. Then, they can rinse and repeat, slowly edging into the housing market.

There are many ways to skin this cat. Buying a larger, perhaps multi-family, home is more convenient and comfortable. A duplex or triplex provides enough space to live comfortably while appropriately segregating space for the landlord and the tenant.



Is House Hacking Worth it? 

The answer always comes down to the amount of money and time the process requires.

There are mortgage products that make a two, three, or four-unit home more feasible. Freddie Mac offers some particularly affordable mortgages for multi-family homes, with especially low down payments and interest rates.

Low down payments can make it easier to start acquiring real estate while renting out space to pay for the mortgages. 

Ultimately, we must look at it from a cost-benefit standpoint to see whether house hacking is an activity you will find worth the time and effort.



House Hacking Benefits

First, house hacking can offset one of the largest expense categories for the average American.

The Bureau of Labor Statistics placed average housing spending at $21,409 in 2020.

The Fed reported annual the average annual household income in 2020 at $67,521.

If you’re in a situation at all similar to the average American’s, it’s obvious how useful it can be to take advantage of measures like house hacking. Otherwise, your household is spending somewhere around 31.7% of its income on housing.

In terms of lifestyle, it does require time and effort. However, setting up rentals in your primary property leaves you some flexibility. You can maintain the income needed to cover mortgage and other housing expenses should you temporarily move.

Of course, if you have larger ambitions but don’t have much capital to start with, house hacking is a path you can take towards greater real estate investing income. You can learn the skills you will need to manage rental units…

  • Maintenance
  • Community involvement
  • Taxes
  • Refurbishing
  • More

…and apply them continuously to manage a small real estate business of your own.



House Hacking Drawbacks

If you start with a single-family home, you may not feel at ease.

You will be living in close proximity to tenants and you may feel fatigued from a lack of true privacy. Even if you start with a multi-family home, it’s not the same as having a home to yourself or just your family.

While you will learn valuable skills as you go, house hacking can be quite stressful.

This is normally more applicable while you’re inexperienced, and your new responsibilities may feel like a strange lifestyle change at first. You will need to screen renters, handle remodeling/refurbishing, handle ongoing maintenance issues, and do other things you’re not accustomed to doing regularly.



Conclusions on House Hacking

House hacking is an investment strategy that makes sense to many people given the current US housing market.

It’s one of the easier ways to get into the housing market and makes homeownership more affordable. However, it comes with some drawbacks, as it requires ongoing attention from the homeowner.

Photo by Max Vakhtbovych


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