What Is House Hacking? How to Hack Your House for Free (or Cheaper) Housing

Ever considered house hacking?

The cost of housing has gone nowhere but up for years now. And not just for one decade, for three decades at minimum. So you haven’t just noticed it or experienced it yourself where you live. In every state and region housing costs have increased over time. In some places, even more so since 2020 at a rate you’ve never seen before.

But there is hope. Here is the secret of house hacking.

What Is House Hacking?

House hacking means finding ways to generate income from your home.

Some people may define it only as living for profit in a house you live in, but hacking your housing to a cheap or free amount definitely counts. Since housing is typically our biggest expense, it was only natural for someone to figure it out and name it.

But what did they figure out? What does house hacking actually look like?

How Do I House Hack?

House hacking the typical way often requires you to properly buy the property you are going to use for house hacking. Of course, there may be an option of subletting or subleasing an apartment or property you are renting out. This is especially true if you are going to be away for a bit such as for the summer.

Typical House Hacking

The most common and profitable type of house hacking you will come across involves buying a multi-unit house and renting out the other units to tenants. In this case, you get the benefit of housing and you can learn how to be a landlord and maintain your property while having someone else help you cover the mortgage.

In most cases, house hacking works with a mortgage, and it often works just fine with one, too. You do not have to buy a house in cash to house hack properly.

So, you could probably imagine some quick math for a duplex, or two-unit property in your area. Say you have an average property going for $300,000 in your area. The market rents are somewhere around $3,000. By using calculators, and assuming a typical 20% down payment, we get an estimate of about $2,000 per month for a mortgage. In this case, you can buy that property, rent out that other unit, and make $1,000 a month.

As you can see, this is an ideal scenario to make a profit. But if you could live for free as another person pays you rent, or even slash your bills down to $500 or $1,000 for housing a month — that’s also an enormous win.

But let’s take this to the typical extreme example. Four-unit quadplexes, while rare, are the pinnacle of house hacking. But why four units and not five or more? That’s because the Federal Housing Administration considers four-unit properties to qualify as a “home”. Basically, it is still small enough to be considered single-family property, whereas something like five units may be considered commercial property.

But to continue our example of a four-unit property, say you found one for all the same mortgage-related numbers above:

• $300,000 price
• $2,000 a month mortgage payment
• $3,000 a month market rent
• and a 20% downpayment

And let’s say you think $3,000 is too much to ask for rent. So you charge $2,000 per unit. Now you are making $4,000 a month, your mortgage is paid for, and you have lots of extra money to invest in your home or other opportunities. All because you bought a good investment.

Buying the House to Hack

In order to house hack in the traditional sense, and to also have the most control over your house hacking variables, you are going to have to buy a house. Your best option is to search for a quadplex. However, most municipalities’ zoning laws do not allow quadplexes. A triplex can be just as rare and hard to come by. You are much more likely to find a duplex, even in a suburban space with plenty of single-family houses. That’s because lots of single-family residential zoning allows duplexes as seen in Voorhees, NJ, Ormond Beach, FL, and New Iberia, LA to name a few random towns in different US regions.

Now, once you found and identified a great property, you can purchase it in a few ways.

Cash would be the best because it gives you the lowest cost per month and brings you the easiest ability to house hack. Unfortunately, most people do not have enough cash to buy a property outright. But if you do, house hacking becomes significantly easier.

Mortgages are the typical way people will buy a house to house hack with. Conventional mortgages may be surprisingly easy for you to get. These loans are often through private institutions like a bank or credit unions. They may give you the opportunity to finance for as low as a 3% down payment and can be anywhere between 15 to 30 years for a term. Typically the only restriction is that you pay your bill on time, but please see our ultimate guide on buying a house for more information.

It should be brought to your attention that there are three special federal government loans you may have access to for purchasing a home:

• FHA Loans
• VA Loans
• USDA Loans

FHA loans aim to give you the opportunity of buying a house as a first-time home buyer for as low as 3.5%! There may be some hold-ups since certain houses will not make the cut and from general government slowdown. The house must also be your primary residence, and the loan requires a special type of mortgage insurance. If you feel like you have no other options, this is a great loan to look into.

VA Loans are great for those who are associated with the military. They require no down payment, have great interest rates, and can be used multiple times in your life. Just keep in mind that what you are not paying for in a down payment you are paying for monthly, so it may be too much. But if you can find a good monthly deal for yourself, a VA loan might be what gets you started house hacking.

USDA Rural Development loans are probably the most surprising loan that can help you. These loans provide a surprising array of options. The idea behind them is to provide a gateway for lower-income people to get into a house in a more rural area. And rural does not have to be backwoods in Appalachia. In this map of their loan applicability, you can see areas that are eligible. Nearly the entire state of Delaware is eligible, for example. For single-family housing, no down payment is typically required, which might just be the thing you need to kickstart your house hacking journey.

Atypical House Hacking

There are atypical ways to house hack. This is often the territory where you will fall into living free or for cheap instead of for excellent profit like above.

Add Roommates to Your House Hack

Let’s say you bought a regular single-family home. It has two floors, maybe a basement, three bedrooms, and two bathrooms with showers. If you bought this all for yourself, it might be overwhelming. For the sake of simplicity, let’s use the same exact numbers as the example above:

• $300,000 price
• $2,000 mortgage
• 20% downpayment

Maybe you can handle the price of the mortgage each month with no issues, but it’d be nice to save a bit more money.

And let’s say you have a couple of friends around, family members, acquaintances, coworkers, live in a college town, etc. You basically just need access to people you would consider letting live in your house for a bit. If you simply rented out each of your other bedrooms to roommates, let’s say for $500 each, then your mortgage is suddenly only $1,000 out of your pocket. In one simple swoop, you have now halved your housing costs.

House Hack via Your Job

Another atypical way to slash your housing costs is via your job. While your job is likely paying for where you live by paying you, there’s an opportunity for them to directly pay for it.

Of course, you would need to find the right kind of work, but there are a few that spring to mind quickly:

• The military
• Traveling jobs
• Seasonal jobs
• University jobs

All of these have some way to either have your housing paid for or get it at a cheap cost, thereby house hacking and saving you tons of money per month.

Living With Family

This is absolutely not for everyone. Whether it’s out of shame, safety or shackling. But for those of you who have an opportunity to live with your parents — it is a good financial opportunity. It may not be the best to develop yourself, but it could feel great to see your bank account sitting flush with cash.

You know your parents and family best, consider if there is an opportunity to live with one of them for free or cheap housing.

Good luck house hacking!

Dennis is a civil engineer turned freelance writer with a passion for personal finance. While young, he acts as the spearhead of personal finance to just about everyone in his life, passing on his knowledge from the perspective of financial independence. You can find Dennis over at colossicus.com between his freelance ventures.