House-Hacking: Live The Dream, Rent-Free

Anyone on the homeownership journey can tell you that it takes a lot of work to get together the savings and the know-how to get started. Sometimes the goal of owning the perfect home seems impossible to achieve. But what if we told you that homeownership is not only attainable, but can even make you a little money at the same time? It’s true. There’s a lesser-known path that offers the opportunity to make the home you’re working for work for you.

We’re talking about house-hacking. And we’re sure you have a few questions.

What Is House-Hacking?

House-hacking is when you purchase a piece of real estate with the plan to lease out one of the bedrooms or units. As Brandon Turner puts it, “House-hacking is the idea of combining your investment property with your personal residence.” Instead of purchasing a home just for you with the intent of building wealth through equity and selling the property years later, house-hacking simultaneously provides you with a place to live, an investment that can help grow your wealth, and the potential for passive income.

The central idea of house-hacking is that other people will help you pay your mortgage through rent. Even though we tend to think of this kind of thing only happening in a multi-family property, like an apartment building, it doesn’t have to. Your house-hacking approach could be as simple as purchasing a two-bedroom home with the intent to rent out the extra room, or as big as purchasing a duplex and renting out the other living space. Having a renter immediately lowers your monthly costs and helps you pay off your mortgage quicker.

House-hacking can also reduce expenses and increase your savings. It offers many of the usual financial benefits of homeownership—such as equity and tax deductions—but with the bonus of having someone help mitigate the costs.

As we explain in Your First Home, house-hacking is a great way to afford a house that may be otherwise out of your price range or make mortgage payments more affordable.

Don’t You Still Need To Buy A Property? How Is This More Affordable?

Well, yes. Good question. To effectively house-hack, you will need to find, finance, and purchase a property just like with any other real estate transaction. But, the fundamental difference between house-hacking and just having roommates is that you own the property and lease it to others. You’re simultaneously a landlord and a roommate, as the rent check gets sent to you each month for you to apply to your mortgage payment.

With the rising cost of property and increasing interest rate for mortgage loans, potential house-hackers still face many of the same affordability challenges as traditional home buyers. However, the house-hacking approach actually gives its potential buyers a little more flexibility than other real estate investors.

Because the property in a house-hacking scenario is also where the owner of the property lives (they are “owner occupied”), there are government-backed options for mortgage loans that typically help with closing costs or the ability to make smaller down payments. You can find out more by discussing Federal Housing Administration (FHA), Veteran’s Administration (VA), and United States Department (USDA) loans with your lender.

If you’re worried about your debt-to-income ratio and purchasing a home, house-hacking allows you to increase your take-home pay without taking on a side gig. Many lenders will allow you to include future rental income in your mortgage application. So, even if buying a larger property like a duplex or fourplex seems like too high a price tag for you—that potential rental income included in your application means that you can qualify for a higher loan amount because your overall income is higher.

As always, be honest with your lender about your budget and what you’re comfortable with. And ask your agent for advice—both on the property you’re considering purchasing and also the local rental market. They should be able to advise you on what your potential rental rate should be, and your agent could also help you find tenants farther down the line.

What’s The Payoff? Other People Pay.

As we discussed in our Mortgages 101 newsletter, when determining what you can afford in taking on a mortgage payment, you need to calculate your monthly budget. When you’re house-hacking, you have the opportunity to put yourself in a situation where your monthly mortgage payment is paid by other people.

Imagine that you purchase a triplex for $650,000, moving into one of the units and renting out the other two. If you put 20 percent down and the loan had an interest rate of 5 percent, then your monthly mortgage payment would be around $2,800 (excluding taxes). If you leased out each of the two units you weren’t living in for $2,000 a month, you’d collect $4,000. Once you subtract the monthly mortgage payment, that would leave you with a bonus $1,200 of passive income. So, you not only get to use your rental income to fund your monthly mortgage bill (meaning that you live rent-free), but you get additional funds that you can use to pay off other necessary aspects of home ownership such as the taxes and insurance and then use any remaining funds to invest in other areas to build wealth. It can truly be a win-win.

House-hacking can help turn your homeownership adventure into an even more life-changing investment. If you’re ready to start a lifelong journey toward homeownership, download the first chapter of Your First Home here: Your First Home Chapter 1.pdf

With step-by-step advice on how to approach the home-buying process, this book is meant to help you find and finance your home. Go to for other downloads and to pre-order your copy.

Do you have helpful advice for how to make a first-home purchase affordable and attainable? Share it with us on our KellerINK Facebook page. And subscribe to our newsletter for more articles and research.

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