House hacking is a strategy that allows homeowners—especially first-time buyers—to reduce or eliminate their monthly mortgage payment by generating income from their property. At its simplest, house hacking means living in a home while renting out part of it to others.
For example, you might:
In each case, you’re creating rental income that helps cover your monthly mortgage payment, reducing your personal housing costs and making homeownership more attainable.
This strategy has become increasingly popular among younger buyers, especially those looking to start building wealth through real estate investing while managing living expenses.
According to NerdWallet, this approach is especially effective when buying properties with up to four units, which qualify for traditional residential financing.
A successful house hack starts with choosing the right property and understanding your local regulations. Look for homes that offer extra room or the potential for a separate entrance. A finished basement, detached garage, or unused living space can all be transformed into a source of income.
You’ll also need to familiarize yourself with local ordinances, occupancy limits, and any homeowners association rules that may affect your ability to rent out part of your home.
Sites like Landlord Studio offer helpful advice on tax benefits, managing tenants, and legal considerations when starting your first house hacking strategy.
Not every home is suited for house hacking. The ideal investment property for a first-time buyer is one that offers:
Your goal is to find a property that offers room to grow your income and build wealth over time. Start by narrowing your search to multifamily properties (like duplexes or triplexes) or single family homes with unused space for conversion.
Work closely with a qualified real estate agent who understands house hacking and can help you evaluate the potential purchase price, property value, and rent price in your target neighborhood.
There are several house hacking strategies to explore. While renting to roommates is the most common, it’s far from the only way to offset your mortgage:
Some homeowners also opt to rent to family members, travel nurses, or long-term tenants seeking a primary residence. Others create in law suites for multi-generational living or rental use.
The right strategy depends on your comfort level, your property type, and your goals for cash flow and long-term equity.
Want to understand the differences between renting and buying? Check out Buying vs. Renting a Home: Which is Better?
First-time buyers often assume they need a large down payment to buy a multifamily property, but that’s not always true. With an FHA loan, you can purchase a multi family home (up to four units) with as little as 3.5% down, as long as you live in one of the units as your primary residence.
This makes FHA financing an ideal tool for buyers interested in house hacking.
The rules allow you to:
To qualify, your annual income must support the loan, and your credit score and debt-to-income ratio must meet lender requirements. You’ll also need to account for housing expenses like property management, landlord insurance, and interest payment on the mortgage.
For example, if you purchase a $400,000 triplex with an FHA loan and 3.5% down, your loan amount would be $386,000. With average rates, your monthly mortgage payment could be largely offset by rent from the other two units.
You can also explore VA loans (for qualified veterans) or conventional loans if you plan to put more money down.
To determine if a property is a good house hack, you need to run the numbers. Specifically, you’ll want to calculate your:
A property with strong monthly cash flow and positive net operating income is ideal. Don’t forget to include estimated rental expenses, including vacancy periods and property upkeep.
This is also where terms like rental income, income earned, and generate income come into play. You’re not just saving on your own living expenses; you’re turning your home into an income-producing asset and earning passive income.
You don’t need a triplex or duplex to get started. You can also house hack in a single family home, especially if it includes:
Even renting out a room in your house can reduce your financial burden and free up funds to save money, pay off debt, or invest.
Just make sure your space provides enough personal space and privacy for both you and your tenants. Establish clear house rules, expectations around shared spaces, and a written rental agreement.
Tip: Read The Do’s and Don’ts of Renting Out a Room in Your Home for more advice.
Building or converting accessory dwelling units (ADUs) is one of the most powerful house hacking strategies available, especially in areas with high housing costs or undesirable neighborhoods lacking rental options.
An accessory dwelling unit can be:
ADUs offer full separation from your living area, making it easier to attract quality tenants and charge market rent.
Just be sure to research local ordinances, zoning restrictions, and permitting rules before you begin construction. Some cities have strict guidelines around non owner occupancy, occupancy limits, or short-term use.
If done right, a well-placed ADU can significantly improve your property value, produce reliable passive income, and allow you to build equity over time.
Want more examples? Lean Urbanism’s House Hacking Catalog offers in-depth case studies and compliance examples for various ADU-based house hacks.
One of the most powerful benefits of house hacking is the ability to build equity while reducing your living expenses. Every month, a portion of your mortgage payment goes toward the principal balance of your home loan. Over time, this increases your ownership stake and grows your home equity.
When tenants help cover the mortgage, you’re essentially acquiring real estate at a discount, or in some cases for free, while your property appreciates in value.
If you choose a live in flip strategy, your equity may grow even faster. Making smart improvements while you live in the property can significantly raise the resale value and improve your return when you decide to sell.
Before you start your first house hack, make a plan for handling repairs, maintenance, and tenant requests. Even if you’re renting a single room, you are now both homeowner and landlord, and that comes with responsibility.
Be ready to cover:
Set aside some of your rental income or extra space in a reserve fund to cover these types of expenses.
Balancing your role as a landlord and a resident is key. House hacking can blur the lines between personal and professional spaces, so it’s important to establish boundaries that protect your peace of mind and tenant relationships.
Some tips:
It’s your primary residence, so your comfort should be a priority. Successful house hackers often report that setting clear expectations from the start makes all the difference.
When you’re earning rental income from your home, you must account for the legal and tax implications. This includes:
Work with a qualified tax advisor or housing counselor to stay compliant and protect yourself financially.
Pro Tip: Make sure your mortgage and insurance policies allow for rental activity; some lenders or insurers may have restrictions.
The longer you hold onto your house-hacked property, the more it can benefit your overall financial future. Here’s how:
Some house hackers go on to acquire additional rental property and scale their portfolios, while others simply use the savings to eliminate debt or fund retirement.
House hacking isn’t for everyone. There are real risks to consider:
That’s why it’s critical to have an emergency fund, clear house rules, and a plan for covering expenses if rental income fluctuates.
For extra support, explore nonprofit education programs or housing counseling to help you prepare.
Business Insider recently profiled how one early retiree used house hacking to achieve financial freedom, even without landlord experience.
If you’re a first-time buyer struggling to afford a home, house hacking offers a creative, realistic path forward. By using multi family home properties, accessory dwelling units, or even a spare room, you can turn your home into an income stream and achieve greater housing stability.
You don’t need to become a full-time real estate investor to benefit. Even a modest house hack can increase your monthly cash flow, improve your financial resilience, and help you reach your long-term goals faster.
Looking to learn more? Check out our free homebuyer classes to explore topics like budgeting, credit, mortgage loans, and homeownership planning. These educational sessions are designed to help first-time buyers make informed, confident decisions.
