Some Americans are turning to an unconventional strategy to alleviate their housing expenses: house hacking. What began as a niche investment tactic is quickly becoming a mainstream approach to homeownership and financial independence.
Here are 8 things you need to know about house hacking to help you start using your home to earn some extra income:
1. What is House Hacking?
House hacking is when a homeowner rents out part of the home they live in.
This setup can involve a multi-family property, such as a duplex or triplex, or a single-family home with spare bedrooms, a finished basement, or an accessory dwelling unit (ADU).
The goal is simple: use rental income to offset or eliminate your housing costs.
2. How House Hacking Generates Income
There are two primary ways to house hack:
Rental Income: Monthly rent from tenants can cover mortgage payments, property taxes, insurance, and utilities.
Equity and Appreciation: As tenants contribute to the mortgage and the property appreciates in value, the owner builds equity.
While these methods are the most common, they aren’t the only ways to house hack.
Some homeowners, like Bruce and Tracy Levinson of The Bell House Wimberly, use their property as a venue for weddings and cooking classes.
“What led us to want to get this property was not only do we see the opportunity for house hacking, but we saw the opportunity for multiple house hacks under one roof,” Bruce Levinson said.
Other house hackers go beyond breaking even and generate positive revenue, turning their homes into income-producing assets while they reside in them.
3. How House Hacking Differs from Traditional Renting
While traditional landlords rent out properties they do not occupy, house hackers live on-site. This distinction offers a few advantages:
Favorable Financing: Because it’s classified as a primary residence, a house hack property qualifies for owner-occupied loan programs such as FHA, VA, and conventional loans.
Lower Barriers to Entry: House hacking typically requires less capital upfront compared to purchasing an investment property, since it’s typically an addition, not an entirely different home.
Dual Purpose: The property serves both as a home and an investment, helping homeowners build wealth while reducing personal living expenses.
A Single Mortgage: Traditional landlords prioritize cash flow and return because they must ensure they can pay the mortgage on their rental property as well. House hackers are simply looking to lower their living costs or even offset their entire mortgage on one home.
4. Legal and Tax Considerations
House hackers must navigate a mix of legal and tax obligations:
Zoning and Local Laws
Verify that the property is zoned for rental use (and business, if you want to go the venue route), especially for multi-family or short-term rentals.
Local ordinances may regulate occupancy limits, ADUs, or Airbnb-style rentals.
Landlord-tenant laws apply even if the owner lives on-site.
“When we came by [The Bell House], immediately we found out that it was a business,” Bruce said. “It was zoned for business with residential use, meaning people could operate a business here, but also live here at the same time.”
Rental income must be reported to the IRS.
Owners may deduct a portion of expenses such as mortgage interest, repairs, depreciation, and utilities.
Capital gains exclusions on primary residences may be affected if part of the home is used for rental purposes, according to the Cummings and Cummings Law Journal.
“Insurance is going to cost more depending upon the business you run, too, because there's just more exposure to the property when you're running a business out of it,” Bruce said.
If, like the Levinsons, you want to use your home as an event venue, you might also have to look into liquor licensing, sound ordinances, parking rules, and more.
We advise that you consult an attorney or finance professional before launching a house hack.
5. Best Practices for First-Time House Hackers
Start with a Multi-Family Home: A common way beginners start their house hacking journeys is through a duplex or triplex.
Screen Tenants Thoroughly: Living next to your tenants makes proper vetting critical.
Set Boundaries Early: Establish clear rules and expectations from day one.
Set up two WiFi networks: You likely don’t want your guests on the same network as yours to ensure security.
Invest in Security: Consider an alarm system and/or doorbell camera, and secure areas (and items) you want to keep renters away from.
Budget for Vacancies and Maintenance: Always maintain a reserve fund.
Use Owner-Occupant Loans Strategically: Take advantage of low down payment options to minimize upfront costs.
The most successful house hackers treat their property like a business, even while living in it.
6. Risks and Challenges
House hacking offers notable benefits, but it’s not without its challenges. A thorough understanding of landlord responsibilities and strong financial planning are important to set yourself up for success.
Tenant Conflicts: Sharing walls or common areas means clear boundaries are important.
Management Demands: Maintenance, rent collection, and emergency repairs fall on the owner.
Regulatory Hurdles: Some municipalities restrict short-term rentals or multi-family use in residential zones.
Unexpected Costs: Repairs, legal fees, and vacancies can reduce profitability.
If you plan to use your home as a venue, you will need to account for being on premises on weekends, after-hours.
“Just be prepared for things to potentially not workout the way you always dream them up,” Bruce advised. “You have to be prepared for curve balls.”
7. Your Responsibilities as the Owner
House hacking turns homeowners into landlords, which carries legal and operational responsibilities:
Collecting and managing rent
Maintaining the property and common areas
Responding to repair requests and emergencies
Complying with fair housing and tenant laws
Managing leases, deposits, and evictions if necessary
If you use your home as a vacation rental, a good host provides amenities such as linens, toiletries, and some food items such as coffee or water.
These obligations require time, effort, and professionalism.
8. Evaluating Return on Investment
House hacking delivers multiple layers of return:
Monthly Cash Flow: Tenants’ rent may cover or exceed monthly expenses.
Loan Paydown: Rental income can contribute to mortgage principal reduction.
Property Appreciation: Real estate values tend to increase over time.
Tax Advantages: Depreciation and other write-offs can improve net returns.
The Bottom Line
House hacking offers a compelling way for homeowners to reduce housing expenses, enter the real estate market, and build long-term financial stability.
It’s not without challenges, but with smart planning and diligent management, it’s become an accessible and effective real estate strategy.
“You have to really know what your limitations are,” Bruce said. “Because you don't, I think, want to get into this thing like it's a job and it's miserable and it's difficult. It should be exciting, and it should be fun.”
For its believers, house hacking isn’t just a tactic. It’s a lifestyle shift that opens the door to financial freedom.
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