House Hacking: How to Live for Free (or Nearly Free) by Renting Out Your Home

Most people treat their home as a pure expense. House hackers treat it as an income-producing asset. The concept is simple: you buy a property, live in part of it, and rent out the rest. Done right, your tenants cover your mortgage — sometimes completely.

What Is House Hacking?

House hacking means using your primary residence to generate rental income. The most common approaches:

• Multi-unit properties: Buy a duplex, triplex, or fourplex. Live in one unit, rent the others.
• Single-family with rooms: Rent out spare bedrooms to roommates.
• ADU rentals: Rent an accessory dwelling unit (garage apartment, basement suite) on your property.
• Short-term rentals: Use Airbnb or VRBO for part of your home, like a private entrance suite.

The key distinction from investment properties: you live there. That unlocks favorable owner-occupant financing — typically 3–5% down instead of the 20–25% required for pure investment properties.

Why the Numbers Work

Here's a realistic example: You buy a duplex for $350,000 with a 5% down payment ($17,500). Your mortgage, taxes, and insurance come to $2,200/month. The other unit rents for $1,400/month. Your actual housing cost: $800/month.

Compare that to renting a comparable apartment in the same area for $1,600/month. You're ahead by $800/month and building equity at the same time.

In high-rent markets, tenants can cover the entire mortgage. In that scenario, you're essentially living free while someone else pays down your loan.

How to Finance a House Hack

Owner-occupant loan programs are the house hacker's biggest advantage:

• FHA loans: 3.5% down, works for 2-4 unit properties if you occupy one unit. Lower credit score requirements (580+).
• Conventional loans: 3–5% down for single-family or 2-4 units. Better rates than FHA if your credit is strong.
• VA loans: 0% down for veterans. One of the best wealth-building tools available.
• USDA loans: 0% down in eligible rural and suburban areas.

Lenders will typically count 75% of projected rental income toward your qualifying income, which can help you qualify for a larger loan.

Finding the Right Property

Not every property makes a good house hack. Look for:

• Strong rental markets: Low vacancy rates, rising rents, good employment base.
• Separate entrances: Tenants want privacy. A basement with its own entrance rents better than a shared-entrance setup.
• Reasonable rent-to-price ratios: A rough rule: monthly rent should be at least 0.8–1% of purchase price per unit. In expensive markets this is harder to hit, but aim to cover at least 50% of PITI (principal, interest, taxes, insurance).
• Low maintenance: Older properties or those needing major work eat into your savings. Factor in realistic repair costs.

Run the numbers before you fall in love with a property. Calculate your true monthly cost including vacancy (assume 8% to be conservative), maintenance (budget 1% of property value per year), and property management if you ever want to step back.

Being a Landlord: What to Expect

Living next to your tenants has advantages and challenges. You'll notice maintenance issues immediately, which helps you address them before they become expensive. But you're also never fully off-duty.

To manage it well:

• Screen tenants carefully: Credit check, income verification (aim for tenants earning 3x the rent), landlord references.
• Use a written lease: Never rent without one. Include rules on noise, guests, parking, and pets.
• Know your local landlord-tenant law: Security deposit rules, required notice periods, and eviction procedures vary significantly by state and city.
• Set expectations early: Clear communication upfront prevents most disputes.

You don't have to be best friends with your tenants. Professional, consistent, and fair is the right tone.

Tax Benefits

House hacking comes with meaningful tax advantages:

• Mortgage interest deduction: Deduct the portion of your mortgage interest attributable to the rental unit.
• Depreciation: Depreciate the rental portion of the property over 27.5 years.
• Operating expenses: Repairs, insurance, and other costs for the rental unit are deductible.
• Partial home office: If you work from home and manage the property, there may be additional deductions.

Keep meticulous records. A CPA familiar with real estate taxes will typically save you more than they cost.

When to Move On

House hacking is often a first step, not a permanent lifestyle. After 2–3 years, you've built equity, learned to be a landlord, and may be ready to move up. Options:

• Buy another property as your new primary residence and keep the first as a full rental.
• Refinance to pull equity and fund your next purchase.
• Repeat the process in a larger property.

The combination of low-down-payment financing, rental income, and equity growth makes house hacking one of the highest-return wealth-building strategies available to ordinary people. The main cost is convenience — sharing your property with tenants. For many, that trade-off is more than worth it.

Start by researching multi-family properties in your target area, then run the numbers. Even if you only cover half your mortgage, you've dramatically cut your housing costs while building an asset.