There was a time when people who had roommates or who rented out a basement apartment were chided for not attaining one of the American Dream’s most picturesque fixtures: a single-family home with a white picket fence. 

Turns out, for a variety of different reasons, that dream can become a trap. The housing crisis of 2008 resulted in nearly 1 million Americans losing their home in the mortgage crisis, and today just 65% of Americans own their home

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Whether by financial necessity or by choice, there are lots of renters out there who need a place to stay. And homeowners have gotten the hint that if they rent a room, an in-law suite, or their whole house, they might be able to live in the home with a picket fence – for little to nothing.

This article will explain what is house hacking and help you determine if it’s the right move for you. 

What is House Hacking

House hacking is the term most used in real estate investor circles to describe the art of owning a home that is being fully or partially rented out to others, while the homeowners still live in the home too. 

The most cut and dry arrangement is a multi-family home, where the owner lives on one side of a duplex or in one apartment in a triplex or quad, while the other renters cover the vast majority of the mortgage and utilities. Other options include taking on roommates inside the home itself or renting out livable basement apartments, mother-in-law suites, garages, pool houses, or annexes to make some part of the home income-generating. 

The Pros and Cons to House Hacking

The biggest pro to house hacking is the homeowner has the potential to eliminate their largest expense – housing. But fear and stigma can make it hard for many people to give house hacking a fair shake. These two experts say that new house hackers should not be discouraged, as the savings method has been pivotal to their financial growth.

Jeanine Marie Smith of Black Girls in Real Estate says house hacking has been foundational to her financial success. When Jeanine first started, she was a single mother looking for ways to earn additional income that didn’t require leaving her daughter or driving around in the car all day. 

She found an article on house hacking and decided to give it a try. Based in Atlanta, she had a 2400 sq ft house with 4 bedrooms and 2.5 baths. “I decided to rent out the other 2 rooms to friends and a co-worker. Initially, I was nervous about living with a co-worker but it actually worked out great,” she said. 

“They were on a month-to-month contract with me and I charged each roommate my mortgage payment. So, I was able to bring in an additional $1500 a month in income.” Because she was able to pay down her mortgage quicker, she built equity in the home. “Several years later this home became my first fix & flip property, which I sold in three days for $70,000.00.”  

Mark de Sagun is a Los-Angeles based special education teacher who teaches functional life skills to high school kids with autism. On Instagram, he and his wife share their journey to financial freedom. He also teaches others how to get in on the house hacking action. 

When asked what value house hacking can have for ordinary people, he said “Househacking is a temporary living situation for a lifetime of benefits. In my opinion, it’s the best way to get started investing in real estate. If done right, you can learn so much and gain so much confidence from your first house hack, that you’ll be itching for your next property in no time.” 

He learned about house hacking through Biggerpockets, a platform for aspiring and experienced real estate investors.  Then he picked up Craig Curelop’s book on the topic. After fits and starts with the BRRRR method (buy, rehab, rent, refinance, repeat), he decided to change his approach. 

Mark said, “My initial fears about house hacking were getting a bad property or getting bad tenants, but I learned there were ways to mitigate that risk with property inspections and proper tenant screening.” 

In his first arrangement, Mark decided to buy a house that was suitable for house hacking. “The property we bought has no shared walls between the units. We live in the accessory dwelling unit while renting out the main house. This allows us to use the collected rent to cover about 95% of our mortgage,” he reported. This method has not only allowed his family to travel for nearly a year at a time but he’s also been able to take his savings and buy cash-flowing investment properties.

4 Keys to House Hacking Success 

Mark and Jeanine say there are four keys to securing house hacking success:

First, consider the configuration of the liveable space in your current or future home. If your family could maintain privacy, while also extending private space to a roommate or renter – give house hacking a try.

Two, vet roommates and renters like a professional property manager. Use a combination of employment verification, rental history, and credit checks to find a reliable person who is easy to live with.

Third, calculate all housing expenses to make sure that the renter(s) cover the vast majority of costs, including the mortgage, taxes, maintenance, utilities, condo or community fees, and insurance. If the rental market allows, cover all of these costs with their rent.

Lastly, be a good neighbor, not just a landlord. If you’re sharing the primary home, be a good roommate too. Set ground rules for food and toiletry sharing, as well as washing and cleaning schedules. 

Find ways to be generous and welcoming. For example, shovel out their car when you’re shoveling out yours or invite them over for a meal when they’re home alone. These thoughtful gestures help build positive relationships in your home. 

Should You House Hack?

While house hacking isn’t for everyone, it is certainly becoming a popular way to gain financial independence. Consider all the possible ways that such an arrangement would be acceptable. For example, maybe you only rent to people you already know or only rent out a certain part of your home. Let your boundaries determine how you house hack. 

If space sharing sounds fun, find roomies who will share your vision. If space sharing doesn’t sound ideal, consider using Airbnb, VRBO, or subletting your home or apartment to generate income while you’re on extended vacations or out of town. 

Like house hacking, there is no one size fits all approach to financial freedom. Yet, reducing housing costs is certainly foundational to advancing financial goals and attaining lasting wealth.