How House Hacking Works

As more and more cities experience booming housing costs, individuals who work in those cities are struggling to afford housing. Both rent and homeownership seem to be out of reach, at least in the traditional sense. But more and more city dwellers are practicing house hacking.

House hacking isn’t actually a new practice, but the catchy phrase was coined by Brandon Turner, host of the BiggerPockets podcast. Basically, it means any practice that helps home buyers think creatively so that they can afford to buy a home, especially in expensive areas of the country.

Hacking homeownership can help you live in an area you’d otherwise be unable to afford, which can seriously cut your commute times (and weekly level of road rage) if you need to work in an expensive location. When you house hack, you might not get much more space of your own than if you rent an apartment. But you’ll build equity as a homeowner and get the sweet tax write-offs that are available to those who have a mortgage on the property they live in.

For some people, house hacking is just a way to make life work while generating a bit of extra income. For others, it’s a strategic step in their quest for financial independence and, often, an introduction into the world of real estate investing.

So what strategies do house hackers use? Here are some to consider.

Living in a Multi-Family Property

Multi-family properties are basically the original house hacking unit. If you buy a home meant for two or three families, you and your family can live in one unit, and you can rent out the rest. Living in a multi-family unit can give you the space you need, particularly if you have a family, while giving you a way to pay the mortgage.

The key to making this situation work is ensuring that you can get the rental income you need from the other unit(s) in your property to make your mortgage and other expenses affordable. This is most likely if each unit you’re able to rent has more than one bedroom.

Roommates are also becoming more common, and taking roommates on into your single-family home can be a helpful way to pay the mortgage. If you’re a single person, having roommates can be a fun way to ease the financial burden of homeownership. And if you form great relationships with your roommates, it can come with the benefit of built-in friendship.

But with the right layout, you can even rent to total strangers with comfort in a single-family home. One of the best ways to do this is with a finished basement or an attic or second story you can access from an outside stairway. If youre on your own, rent out the larger portion of the home while you live in the smallest section. If you have a family, do the opposite.

You can also get creative with the layout of your home for house hacking, especially if youre able to renovate and do some rearranging. For instance, my family’s home is a converted duplex. We wanted more space than just one unit, but also wanted to be able to rent out a portion of our home safely.

So we sectioned off an efficiency-apartment-sized part of the first floor near one of the duplexes’ existing back doors. Now, we successfully rent that unit, which includes a small full bathroom, through Airbnb. It consistently pays our mortgage and then some!

Getting creative with layouts, when youre able, can allow you to rent out the portion of your home that makes the most sense for your circumstances.

Related: How to make money with Airbnb

Adding an Additional Dwelling Unit

Another option, if zoning and budget allow, is to add an additional dwelling unit (ADU) on your property. This way you can rent out a section of your property that isn’t even necessarily attached to your home.

This ADU could look like a carriage house apartment above your standalone garage, a tiny home in your back yard, or a semi-attached in-law suite that has a separate entrance from your home. The cost of building an ADU can be prohibitive, so make sure you do your homework. But, again, if youre single or have no kids, you could actually live in the smaller ADU, rent out the larger house, and make a good income each month.

Renting Your Whole Home Part-Time

One final option is to actually rent out your whole home some of the time. In my native Indianapolis, people often do this for Indy 500 weekend. Those of us who live here but aren’t really race fans like to get out of town, anyway. And if your home is close enough to the track and can accommodate several people, the income you make in one weekend could pay your mortgage for several months.

This option can be trickier and less steady, so it’s probably your best bet as a supplement to other methods or to a mortgage you can afford but would like some bonus income to help with. The key to success is to make sure your home is sparkling clean for your short-term renters, and to list it for the right time frames when demand is likely to be high.

Tips and Tricks for House Hacking

By now you may be looking around your existing property and thinking of ways to hack your house. But if youre in the market for a new home and want to plan for these types of strategies, these tips and tricks will help you be more successful:

Location: As with most real estate decisions, location is everything with this one. If you can find a home in a well-rated school district, close to public transportation, and without a lot of regulations and rules from a homeowners association, that’s the sweet spot.
Number of Rooms: A larger home is easier to hack, so look for a home that’s got as much space as you can afford. If the house has more bedrooms and bathrooms, that’s more potential for renting it. And if youre planning to split up the home or have people move in as roommates, more space means more comfort. And that means better long-term tenant relationships.
Landlord Rules: If youre a home sharer through a site like Airbnb or a more traditional landlord in a multi-family unit, be sure you have a clear understanding of the laws in your state before you take on the task of landlordship.

Whether you want to be able to afford a home close to where you work or become financially independent before you reach middle-age, house hacking can help you achieve your goals. All it takes is some creative thinking and the right property to make it happen.

Also read: