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Housing is the single largest expense for most households, devouring 30% to 50% of take-home pay. For many, this makes saving and investing a slow battle. However, what if you could eliminate your housing payment entirely? That is the premise of **house hacking**.
House hacking is a real estate strategy where you purchase a primary residence, rent out rooms or separate units, and use the rental income to cover your mortgage. In this guide, we will break down the business model of house hacking.
The Different Ways to House Hack
House hacking is highly flexible and can be adapted to different lifestyles:
- Multi-Family Properties (Duplex, Triplex, Fourplex): The classic method. You live in one unit and rent out the others. It is highly attractive because you maintain your own private living space.
- Single-Family Room Rentals: Purchasing a house, living in one bedroom, and renting the others to roommates.
- Accessory Dwelling Units (ADUs): Renting out a basement apartment, carriage house, or tiny home on your property.
The Financial Math of House Hacking
FHA and conventional owner-occupant loans allow you to buy a multi-family property (up to 4 units) with as little as 3.5% to 5% down. This allows you to secure a cash-flowing asset with minimal capital. To look up property values and rental metrics, you can use sites like Zillow.
To compare house hacking with other real estate passive income tools like REITs, read our guide on Real Estate Investing vs. REITs. For a plan on managing your savings from house hacking, check out Building a Resilient Long-Term Portfolio.
Conclusion
House hacking is a powerful launchpad for building wealth. By eliminating your largest monthly expense, you drastically accelerate your savings rate and gain hands-on real estate experience. Read basic real estate guidelines on Investopedia or BiggerPockets for more.
