What Is House Hacking? 9 Ways to Start
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Richard Haddad Executive EditorClose
Richard Haddad Executive EditorRichard Haddad is the executive editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
For generations, buying a home followed a simple formula: purchase a house, make your mortgage payments, and gradually build equity over time. But with home prices and living costs rising, many buyers are looking for ways to make homeownership work a little harder for them. Instead of asking only, “Can I afford this house?” they’re also wondering, “Can this house help pay for itself?” That’s where house hacking comes in.
By creating opportunities to earn income from the property you own, you may be able to lower your housing costs and make buying a home feel more doable. This guide explains how house hacking works, its pros and cons, and the different ways buyers are putting this strategy into practice.
Consult With an Expert Before House Hacking
Your best first step to house hacking is to consult with a top real estate agent with experience in local rentals and investment properties. They’ll know which houses and locations work best and can help you avoid common pitfalls. HomeLight can connect you with property specialists in your market.
What is house hacking?
House hacking has come a long way. Traditionally, it usually meant buying a multifamily property, living in one unit, and renting out the others so you could earn extra income while building equity. But with inflation, higher mortgage rates, and rising home prices, homeowners have gotten more creative and started applying the same idea to single-family homes.
These days, house hacking can look like renting out a spare bedroom, converting a garage, building an accessory dwelling unit (ADU), or even making money from a barn, backyard, or parking space.
At its core, house hacking is about using your home as both a place to live and a way to bring in extra income. That additional cash can help cover your mortgage, lower your housing costs, or even free up money for future investments.
Whether you’re buying a home with this strategy in mind or finding ways to make your current home work harder for you, house hacking offers a flexible way to make homeownership more affordable.
Why are homeowners house hacking?
For most people, the biggest reason to try house hacking is simple: spend less on housing. By bringing in rental income from your property, you can offset part of your mortgage payment or, in some cases, cover it entirely. The extra money can also go toward savings, home upgrades, or paying down other debts.
For others, house hacking is a stepping stone into real estate investing. Renting out part of your home gives you a chance to learn the ropes of being a landlord and build equity without taking on the cost and risk of buying a separate investment property. Think of it as a way to test the waters of real estate investing while making better use of the home you already own.
Smart ways to start house hacking
There’s no single formula for house hacking. The right approach depends on your budget, the type of property you own, and how comfortable you are sharing or repurposing your space. Here are some strategies and tips that can help you generate income from your home and make homeownership more affordable:
1. Purchase a multi-family home
This could be called the original house hack. A multifamily home is a residential property with multiple housing units, such as apartments, duplexes, or townhomes. Each unit typically has its own entrance, kitchen, bathroom, and utility meters.
In a house hacking scenario, the owner lives in one unit and rents out the others. This setup works well because it gives you some privacy while still bringing in extra income.
Benefits
- Multiple rent payments, increasing your income potential
- Greater privacy than with other house hacking strategies
Drawbacks
- Higher upfront costs to buy a multi-family property
- More maintenance and tenant management responsibilities
2. Rent out part of your single-family home
This strategy involves renting out a portion of your single-family home, such as a finished basement, attic, or even spare bedrooms. It’s a flexible way to generate rental income while sharing your living space with tenants.
Benefits
- Lower upfront cost since you’re using your existing home
- Quick start on the rental business since you already own the home.
Drawbacks
- Less privacy since you share living spaces with tenants
- Necessary to make upgrades or modifications to create a more livable rental space
3. Build an accessory dwelling unit (ADU)
An ADU is a smaller, secondary home built on the same lot as a single-family house. These are sometimes referred to as a mother-in-law suite or a granny flat. An ADU can be a detached structure, an addition to an existing home, or a converted space, like a garage or basement. Many homeowners use ADUs for rental income while maintaining their primary living space.
Benefits
- Greater privacy while earning rental income from a separate unit
- Long-term value to your property, boosting resale potential
Drawbacks
- Significant upfront investment to build or convert the space
- Local zoning laws restricting or complicating the process of building an ADU
4. Add a finished room over garage (FROG)
A finished room over the garage, often referred to as a FROG, can be an ideal space to rent out. It turns unused or overlooked space into something livable that can bring in extra income. Best of all, you can earn rental money without affecting your main living areas.
Benefits
- More livable square footage, which may boost the home’s value
- Flexible, versatile space to be used in the future
Drawbacks
- Potentially high upfront renovation costs, depending on the existing structure.
- Necessary to install additional amenities like a bathroom or kitchenette
5. Buy and temporarily rent your future retirement home
With this version of house hacking, you’re not living in the home right away. You buy a place you eventually want to retire in, then rent it out in the meantime to bring in some income. You handle it as a rental until you’re ready to move in full-time.
Benefits
- Extra income while you prepare for your long-term living plans
- A chance to lock in a future retirement home at today’s market prices
Drawbacks
- Added hassle when the property is located far from you
- Possibility of repairs or updates needed by the time you move in
6. Find a roommate or housemate
This was a house hack before the phrase was ever coined. Finding a roommate or housemate is one of the easiest ways to cut down on housing costs. You share your space and utilities with someone else, and they pay rent that helps cover part of your mortgage and bills.
Benefits
- Quick and easy to start, especially if you already own the home
- Reduced living costs without major changes to your home
Drawbacks
- Less privacy, as you’ll share common areas
- Personality conflicts with your housemate
»Learn more: Before you look for a house to hack, check your budget with a Home Affordability Calculator. It’ll help you plan smarter and pick a property that actually works for your goals.
7. Offer short-term room rentals
This house hack might feel a bit more doable than some of the other options that involve giving up more of your personal space. Short-term rentals, like those on Airbnb or Vrbo, let you rent out a room or part of your home for short stays. It gives you more flexibility since you’re not locked into long-term tenants.
Benefits
- Higher income potential with short-term stays, especially in high-demand areas
- Flexible set-up, as you can rent only when it’s convenient for you
Drawbacks
- Frequent turnover, which means more effort to manage guests
- Local regulations restricting short-term rentals and limiting your options
8. Rent out your garage, barn, or yard
If you have extra space like a garage, barn, or large yard, you can rent these areas out for storage, vehicle parking (RV or boat), or even recreational or event use, depending on your location. It’s a simple way to make money off space you’re not using, without having anyone inside your home.
Benefits
- Extra income from spaces you’re not using day-to-day
- No need to share your actual living space
Drawbacks
- Lower earning potential compared to renting out living areas
- Possible zoning, legal, or insurance restrictions, depending on how it’s used
9. Purchase a live-in flip property
A live-in flip is when you buy a home that needs some work, live in it while you renovate, and then sell it for a profit later on. In some cases, you can even bring in extra income along the way if you rent out part of the home while you’re fixing it up.
Benefits
- Potential to earn both rental income and equity through appreciation
- Ability to improve the home and boost its value while you’re living there
Drawbacks
- Pricey, time-intensive renovations that can disrupt daily life
- Housing market ups and downs, affecting your return on investment (ROI)
Tips when buying a house to hack
Buying a property to house hack takes a bit more planning than a typical home purchase. You’re not just thinking about where you’ll live, but also how the property can help you bring in extra income. Here are some simple tips to help you choose the right place and set yourself up for success.
- Check zoning laws and regulations: Before proceeding, ensure that your local laws allow renting out part of your property.
- Look for flexible layouts: Choose homes that can be easily divided or modified for rental purposes.
- Prioritize privacy: Properties with separate entrances or self-contained units will attract more tenants.
- Maximize income streams: Look for multiple opportunities to generate income, such as renting out rooms, garages, or ADUs.
- Budget for renovations: Be prepared for the costs of upgrading or converting spaces to make them livable and rentable.
- Research location rental demand: Ensure there’s a strong market for rentals in the neighborhood before you commit.
- Work with a top agent: Partnering with a trusted real estate agent familiar with house hacking and local rental properties can help you avoid common mistakes and improve your chances of success.
House hacking pitfalls to avoid
House hacking can be a great way to cut costs and build wealth, but it’s not always as simple as it looks. There are a few common mistakes that can turn a good setup into a stressful one if you’re not careful. Here are some key pitfalls to watch out for before you get started.
- Don’t overestimate rental income: Set realistic expectations by researching local rental rates.
- Avoid undesirable neighborhoods: If you’re buying a house-hack property, research the areas you’re eyeing and be sure that you can attract quality tenants and charge a profitable rental rate.
- Account for extra costs: Include maintenance, repairs, and property management expenses in your budget.
- Screen tenants carefully: Don’t rush when choosing tenants, as the wrong renter can create a lot of stress and financial issues.
- Prepare for lifestyle changes: Be ready to give up a bit of privacy, as you share your space with tenants.
- Review taxes and insurance: Renting out part of your home may affect your property taxes and insurance premiums.
- Stay legally compliant: Have clear rental agreements and follow landlord laws to avoid legal issues.
- Don’t ignore building ordinances: If you are making changes or additions to your home, check local building ordinances long before the hammers come out.
Considerations about being a landlord
Becoming a landlord comes with new responsibilities that can change your day-to-day life, especially if you’re sharing a property with tenants. You might build a friendly relationship with the people renting from you, but it’s still important to remember it’s a business.
That means handling things like screening tenants, collecting rent, dealing with maintenance requests, and sometimes even handling tougher situations like evictions. If you don’t stay on top of it, you could end up dealing with financial losses or legal issues.
It’s also important to set clear boundaries early on. When you’re living close to your tenants, communication matters, so make sure expectations are clear from the start, like when and how they can reach you.
Home values have rapidly increased in recent years. How much is your current home worth now? Get a ballpark estimate from HomeLight’s free Home Value Estimator.
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Contact a top agent before house hacking
House hacking can be a smart way to make homeownership more affordable, but it works best when you go in with a clear plan and realistic expectations. From choosing the right setup to managing tenants and avoiding common mistakes, the details really matter. With the right mindset and approach, house hacking can be a powerful way to lower costs and build long-term wealth.
If your house-hacking plan involves buying a home, connect with a top real estate agent through HomeLight. They can help you find properties with solid potential, walk you through local rules, and make sure your house hacking plan actually makes sense.
And even if you’re not buying right now, talking to a local agent who knows rental properties and neighborhoods can boost your chances of success.
Frequently asked questions (FAQs) about house hacking
Yes, house hacking is legal in most cases, but it depends on how you set it up and where the property is located. Local zoning laws and housing codes determine whether you can rent out parts of your home or add extra units. Some cities also have rules about short-term rentals, occupancy limits, and landlord requirements, so it’s not a free-for-all.
In most situations, people house hack through standard setups like renting rooms, duplex living, or ADUs, which are generally allowed when properly permitted. If you’re unsure, checking local regulations or talking to a real estate agent or city office can help you avoid issues before you start.
Yes, you can use an FHA loan for house hacking as long as you live in the property as your primary residence. FHA loans are popular for this because they allow lower down payments, often as low as 3.5% if you qualify.
The key rule is that you have to occupy the home for at least one year, so it works best for owner-occupied setups like duplexes or homes with rentable rooms. You can’t use an FHA loan for a purely investment property you don’t live in. As long as you follow the occupancy and property guidelines, it can be a solid way to get started with house hacking.
How much you’ll save depends on your property, location, and rental setup, but some people cut their housing costs in half or even eliminate them. The more rental income you bring in, the less you’re paying out of pocket each month. In the best cases, you might even cover your entire mortgage.
Multifamily homes, like duplexes or triplexes, are usually the easiest to start with. Single-family homes can also work well if you rent out rooms or convert extra spaces like basements or garages. The best option is whatever gives you solid rental potential in your area.
Yes, rental income is taxable, so you’ll need to report what you earn. The good news is you can usually deduct expenses like repairs, maintenance, and even part of your mortgage interest. It’s a good idea to talk to a tax professional, so you know exactly what applies to your situation.
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