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House Hacking - What is it? And How Do You Get Started?

The following article is strictly the opinion of the author and is to not be considered financial/investment advice. Call to Leap LLC and the author of this article does not claim to be a registered financial advisor (RIA) or financial advisor. Please visit our terms of service and privacy policy before reading this article.

What is House Hacking?

Let’s say John is scrolling on Zillow and sees a 3 bedroom home that he wants to buy. But the house is too expensive, and John knows he wouldn’t be able to pay his monthly mortgage on his own.

So, John decides to house hack.

John talks to the bank and gets a loan to purchase the house he wants. He then lives in one of the rooms and finds 2 tenants to rent the other two rooms. Now John and two other people are working to pay off his mortgage.

John used house hacking to purchase his first property and his tenants are helping him purchase his new home.

By definition, house hacking is when you live in one of the multiple units in your property, while renters are living in the other units to help you pay your mortgage and other expenses.

House hacking can be used for homes with several bedrooms or real estate properties with 1-4 units.

Okay, but what does house hacking have to do with my personal finance journey?

Let’s dive a little deeper into how house hacking can help you.

Why should I learn about house hacking?

If you’ve spent time learning about personal finance, you understand that real estate investing can play a crucial role in building wealth.

Even if you’re not interested in becoming a full-time real estate investor, house hacking can be a great way for you to reduce your housing expenses.

Here are some benefits of house hacking to help you decide if house hacking is for you:

  • A powerful way for you to purchase your first property: If done properly, house hacking can reduce your housing expenses and can even eliminate it entirely. This makes it a great way for first-time homebuyers to easily get into the market.

  • Creates a source of passive income to grow your wealth: House hacking provides you with cash flow that allows you to pay off your mortgage and invest in other assets if you want to continue to grow your portfolio.

  • Flexibility: House hacking doesn’t require you to live in the property forever. For example, if you have a remote job and you want to live out of the country for a while, then you can move out of your property and just let someone rent the space while you live somewhere else.

Do these benefits sound too good to be true? We’ll let you decide the answer to that.

Let’s talk about how you can start house hacking.

How do I do it?

Fun fact: Buying a home isn’t only for those who want to settle down and start a family. You can purchase a multi-family property or a house with several bedrooms to make house hacking work for you.

Here are a few steps to guide you through your house hacking process.

Find an ideal property:

An ideal property for house hacking would be 2,3, or 4 unit properties. Anything over 5 units would be considered commercial real estate and that’s a whole different ball game.

For example, you can find a 4 unit property. Live in one unit, and rent out the other 3 for $500 each.

That gives you $1,500 per month.

A great way to find an investment property would be to talk to a local Real Estate agent. You can even consider driving around neighborhoods that you would like to live in.

Finance your property:

If you have the cash to finance your property, awesome!

But for those of you who don’t, you may want to consider using an FHA loan to finance your property. An FHA loan allows you to purchase a home with a 3.5% down payment.

So, if you find a multi-family property for $200,000, your down payment would be $7,000 (or 3.5% of $200,000) if you use an FHA loan.

The FHA loan generally appeals to first-time homebuyers because it makes it easier for investors to enter the housing market.

Side note: If you’re a veteran, you can use a VA loan which is a $0-down mortgage option.

After you find out how you want to finance your property, you may consider investing time and money into renovating your property to make an attractive living space for your tenants. (This is not always required but can play a crucial role in raising your rent.)

Do the math:

Just like any investment, we need to do some analysis to figure out if the asset is worth the investment.

To analyze an investment property, we need to compare our cash flow to our expenses.


Let’s say we find a 4 unit property for $280,000. You get approved for a loan and your mortgage payment is $1,400 per month.

(These numbers may not reflect the reality of your market, but pay close attention to how we’re calculating the expenses here.)

You decide to live in one of the units and charge $700 for the other three units each month. So your total income before your expenses is $700 x 3 = $2,100.

(Note: If all 4 units were rented out to tenants, then your total income would be $2,800. In this scenario, you’ve decided to live in one of the units, so can expect your income before expenses to be $2,100. But we will be using the $2,800 to calculate other expenses.)

Other expenses:

Let’s say you have property taxes at $100/month and Property insurance for $50/month.

Ideally, you’ll also want to set aside 5% of your gross rent each month on the following expenses:

  • 5% for any potential vacancies: This is extra money saved for any amount of time that your units are not occupied and therefore aren’t generating any cash flow.

  • 5% on capital expenditures: This is money set aside per month for big-ticket items that need to be changed over time like carpet, flooring, roofing, etc.

  • 5% on repairs/maintenance: Money set aside to anticipate any repairs or maintenance like broken pipes, lawn maintenance, pool cleaning, etc.

So, your total expenses will look like this:

Mortgage: $1,400/month

Vacancy: $160/month

Repairs/Maintenance: $160/month

CapEx: $160/month

Property Taxes: $100/month

Property Insurance: $50/month

Total expenses: $2,030

To find your total cash flow you would subtract your total income from your total expenses:

$2,100 - $2,030 = $70

Your total cash flow for this example would be $70.

So, now you’re living for free because your monthly mortgage is being paid by your tenants every month.

You’re also gaining an extra $70 per month in cash flow and beginning your real estate portfolio at the same time.

Keep in mind that the beauty of house hacking isn’t only when you get to live in a house with little to no rent payment. House hacking also sets you up so you can move out of the property and either purchase another property or just live somewhere else and let your first investment grow.

In the example we used, eventually, you’ll move out as the landlord. This means that you’ll have a 4th vacant unit to rent to a new tenant.

Which means more cash flow for you.

Pros and cons of house hacking

At this point, you can understand how powerful house hacking can be. But let’s go over some pros and cons too so you don’t dive in thinking that house hacking is going to be all sunshine and rainbows.


Financing: If you’re house hacking, you get better financing from lenders if the property is owner-occupied.

Tax benefits: If you’re a landlord, you can deduct rental property expenses from your taxes. This can include property taxes, maintenance, advertising, insurance, and interest rates.


It’s a business: House hacking will include you maintaining your home, making sure the rooms are always occupied, and collecting rent from all your tenants. And if your tenants are your friends, then you will have to remember to set some boundaries and expectations with them. So just like choosing any other tenant, you’ll want to choose who wisely.

At the end of the day, you’ll want to treat owning a property like a business because you are in fact a landlord. But if you think that house hacking is for you, it’s best to get started sooner rather than later so you get experience. You may also want to consider hiring a property manager to handle maintenance, repairs, and rent collecting when you eventually decide to move out.

It may not be profitable: Many factors go into calculating whether or not an investment property will actually have a good return. This can come with factors that are difficult to predict like floods that damage the floor or tenants that don’t want to pay rent. You may even make mistakes on factors you can control like the market you or the location you choose to purchase the property in.

What now?

House hacking can be incredibly beneficial depending on your situation. We hope that you’ve learned something that you can take away from this article. If you watch my videos, you probably know that I’m currently using the house hacking method for my home.

At Call to Leap, we believe it’s important to learn from others. Especially people who are currently where you want to be. If you’d like to learn more about my story you can check out my Instagram Live episode here on “How I Went From Making 5k/month to a Multi 6-figure Income

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