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House Hacking Guide For Beginners

House Hacking Guide For Beginners

House hacking is one of the best decisions I've made for reaching financial independence. It helps you save money on housing expenses and build equity if you own your house hack.

If done as I recommend in this house hacking guide, this "roommate" will live in a separate space from you. So, it's like having a roommate you split rent and home maintenance with, but don't live with. Because who wants to share a bathroom, ya know?

Table of contents

  1. What is house hacking?
  2. Pros
  3. Cons
  4. How to buy your first house hack
  5. How to analyze a house hacking deal
  6. Mistakes to avoid
  7. Guidelines for maintaining your property
  8. Single-family vs. multi-family house hack
  9. How to afford your first house hack
  10. How to get a loan
  11. Is it worth it?
  12. How to house hack with no money
  13. How to house hack when you have a family

What is house hacking?

House hacking is when you rent or own a house and rent out a part of it to help pay some (or all) of your housing expenses.

That's it. You don't need technology or computer knowledge to house hack.

I remember when I first heard someone mention house hacking and thought they meant hacking someone's WiFi. Once I learned what it meant, I wanted to take action right away.

I wasn't in the right mindset at the time to take action right away; but I knew instantly that house hacking was a good idea.


  • Lower rent/mortgage
  • Tax benefits
  • Building equity (if you own your house hack)
  • Use the rental income to qualify for buying properties (if you own your house hack)
  • Gain experience managing a property and "business". This is helpful if you plan on investing in real estate later.


  • You now have the responsibilities of a landlord (even if you rent)
  • You must file taxes yearly
  • You may lose some of your privacy if you're renting rooms out of your house
  • You must repair any issues that affect your tenant immediately.

How to buy your first house hack

If you want to own your house hack versus renting one - you're going to need to own a home or buy your first house hack.

Buying your first house hack sounds more difficult than it is. If you've ever purchased a home before, buying a house to "hack" is the same.

The process for buying a house hack goes like:

  1. Get pre-approved for a home loan
  2. Find a house that works as a house hack
  3. Submit an offer on the house
  4. Once your offer is accepted, perform inspections
  5. Finish home loan application
  6. If inspections go well, close on the house
  7. Take possession of your new house

The "hacking" part of your new home doesn't start until after you've purchased a home. But before submitting an offer on a home, you need to find a house that will work as a house hack.

So, let's talk a bit about analyzing a house hacking deal.

How to analyze a house hacking deal

When purchasing a house for house hacking, you want to analyze the home. Unlike when you're buying a forever home, paint colors and the ability to knock down walls are not important. The important areas to analyze are cash flow, ease of maintenance, and how much you need to invest.

It's necessary to approach potential house hacks like investment property.

Analyzing a real estate deal is difficult unless you have previous experience. But that's OK. Purchasing a rental property to live in gives you flexibility with your analysis. You can make some mistakes with your analysis without suffering huge consequences.

So, how do you analyze a house hacking deal? Here are tips for keeping it simple and doing it:

Calculate your potential cash flow

If you've researched investing or starting a business, you should be familiar with the term "cash flow". But if you're not familiar with the term, here's an official definition:

"Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business." - Investopedia

If simplified further, cash flow means how much money is coming in and going out of your business (or house hack in this case). Luckily, calculating potential cash flow for house hacking is relatively simple.

I recommend running two different cash flow calculations:

  1. A cash flow calculation that covers you living in your house hacking.
  2. A cash flow calculation that covers after you move out and rent the place.

Here's the info you need for a simple potential cash flow calculation:

  • Estimated mortgage payments
  • Estimated rent from tenants
  • Estimated savings for repairs and vacancies

Estimating your mortgage payments:

Estimating your mortgage payments is simple. Use a "mortgage calculator" to get a relatively accurate estimate of your potential mortgage payments.

I recommend using Redfin's mortgage calculator. Redfin can calculate your mortgage principal, interest, taxes, insurance, HOA, and PMI.

Estimating potential rent:

Estimating the rent you'll receive from tenants is more difficult than estimating your mortgage payments. There are different methods you can use, but I recommend keeping it simple (which is what I'm going to do in this guide).

My preferred method involves using rental listing websites like:

I recommend looking for rentals similar to your potential house hack in square footage, bedrooms, and location. Once you've found a similar property, divide the rental price by the square footage - this will give you an estimated rental price per square footage.

Estimating what to save for repairs and vacancies:

Figuring out what to save for repairs and vacancies as a beginner is the most troublesome part of analyzing a house hack unless you have home improvement/construction experience.

Both extreme underestimating or overestimating can ruin a good deal. If you underestimate what to save, the deal will look great on paper, but less so in real life. And if you overestimate what to save, the deal won't look profitable.

To keep things simple, if you have no experience with construction or how much repairs cost, I'm going to recommend you start between 25% and 30% for repairs and vacancies. That number will also include capital expenditures (big-ticket, low-frequency items like roofs, driveways, foundation work, etc..).

The reason that number is "higher" is that without experience dealing with home repairs - you won't know what to replace and how much it'll cost until it breaks.

However, if you'd like to be more accurate with what to save for your house hack, here's how.

First, save ~5%-10% for vacancies. As a beginner, you won't know for sure how often your property will be vacant. I recommend going for the higher percentage.

Second, save ~3%-10% for potential repairs. Choose the percentage based on the age and condition of the property. The newer and more updated the property, the less you need to save for potential repairs.

Third, look at all the major items of your potential house hack:

  • Roof
  • HVAC
  • Foundation
  • Electrical
  • Plumbing
  • Driveway

and put together the following information:

  • The cost to replace each item
  • The expected lifespan of each item (in years)
  • The remaining lifespan of each item (in years)

Once you have those numbers, you can now calculate what to save for capital expenditures. Here's the equation:

(cost to replace the item) / (remaining lifespan of the item) = how much to save now to be prepared for the expense

After calculating what to save for each item, add them all up and that's what you must save monthly for capital expenditures.

But Darius, what about my home inspector? Won't they inspect my house and let me know what to repair?

The honest answer is maybe, but most likely not.

Home inspectors are valuable for the price. But because most home inspectors are generalists and you don't own the home you're inspecting (yet), it's very easy to miss red flags and potential problems due to things being covered up.

A better way, that may (or may not) make sense financially, would be to hire specialists to come inspect all the major aspects of your potential house hack.

These specialists can help you understand what you're getting into repair/maintenance wise a lot more than a general inspector can. But like I said above, because of the cost of getting each specialist out, it might not make sense.

Mistakes to avoid

One of the most important things to understand as a beginner is that you're going to make mistakes when buying a house hack. Mistakes are part of the process. However, the goal of this section is to help you avoid more expensive mistakes that can make the situation miserable.

Avoid major foundation issues

As a beginner, you don't want to deal with any foundation issues. Foundation work is expensive unless you DIY it, time-consuming, and as a beginner without construction experience - you shouldn't attempt it.

As you may already know, homes are built differently throughout the country. So I can't give you specific details on how to avoid them in this post. What I will recommend is calling a few foundation repair companies in your area, tell them you're looking at purchasing a home, and ask them about the most common foundation issues in your area.

For example, in my area, a lot of the homes are older and have basements. When a lot of these homes were built, the block-wall foundation was backfilled with a lot of the native soil (which is heavy, expanding clay). Over time, the soil causes the foundation walls to crack, bow, and ultimately fail. However, before the walls bow and fail, they crack and leak moisture/water into the basement.

Repairing and waterproofing a cracked foundation in my area cost somewhere between $130-$200 per linear foot. Which, for an average-sized house, could cost tens of thousands of dollars. That would delay any benefit you'd receive from house hacking for quite some time.

Trust me, after fixing foundation cracks and waterproofing 1 wall of my house hack DIY, you want to avoid this work unless you're prepared for a lot of work and mistakes.

Avoid 1-car driveways

House hacking requires you to share your property with others. If you choose a property with a one-car driveway, there will be times when you or your tenants will block the other from exiting. This will continue to cause an inconvenience to all parties involved unless you extend the driveway.

Avoid houses with big yards

Although big yards are nice, for house hacking - you're going to want to keep your maintenance as low as possible. This means choosing a house with a small to moderate yard that's like other yards in the neighborhood will minimize unnecessary tools.

I made the mistake of buying a house hack with a large yard, and the next house hack/rental I purchase will have a much smaller yard. A small yard won't take much time or need many tools - you can get away with:

  • Lawnmower ($300)
  • Trimmer ($150)
  • Edger ($100)
  • Blower ($100)

However, if you have a big yard, the cost of the equipment you'll need goes up:

  • Riding lawn mower ($1500+)
  • Trimmer ($300)
  • Edger ($100)
  • Blower ($300)

Avoid homes with only one bathroom

Sharing one bathroom is hard enough to do with family and friends, but sharing a bathroom with a stranger long-term is difficult. If possible, find a home with 2 bathrooms or a multi-family house (or apartment) that will give you your own unit.

Guidelines for maintaining your property

Maintaining your rental property is both important and never-ending. Because of the ridiculous number of repairs that can happen in a house, instead of giving you specific tips about specific problems, I'm going to give you a few guidelines on how to maintain your house hack.

  • Repair things that can cause additional damage to the house or inhabitants immediately. This covers things like plumbing, electrical, roofing, gutters, mold, etc.
  • Repair things that inconvenience to your tenant ASAP.
  • Repair things that cause an inconvenience to you soon.
  • Improve things that work eventually.

These guidelines are here to help you prioritize repairs and improvements when multiple things need work. If you only need to fix one thing, regardless of where it fits in these guidelines,  fix it.

Single-family vs. multi-family house hack

I prefer (and recommend) a multi-family house hack over a single-family house hack. With a single-family house hack, you live in close quarters with a stranger and share a lot of common areas. I prefer my own space. Besides that, renting out a multi-family unit will attract a longer-term tenant compared to a roommate in a single-family home.

If you're comfortable living with strangers as roommates, single-family homes have a much lower purchase price than multi-families in most cities. Single-family homes have more inventory available for purchase compared to multi-family homes and less experienced competition as well (aka investors). Allowing you to get in the "game" sooner.

Pros and cons of a single-family house hack:

Here's a list of some pros and cons that come with house hacking a single-family home:

  • (+) Less expensive to purchase (typically)
  • (+) Better financing options available
  • (+) More inventory to choose from
  • (+) Less maintenance due to only having 1 furnace, AC, water heater, etc..
  • (+) Selling is more about the look of the home versus how profitable it is
  • (-) Renting rooms attract shorter term tenants
  • (-) Share common areas with your tenant and their family/friends
  • (-) Moving out and renting your room is possible but more work than renting the entire house to one family - possibly lowering your rental income.

Pros and cons of a multi-family house hack:

Here's a list of some pros and cons that come with house hacking a multi-family home:

  • (+) You'll have your own space and won't have to share common areas
  • (+) Renting out an entire unit attracts longer-term tenants
  • (+) You'll be able to rent out your unit when you move out (allowing you to collect rent from 2 units)
  • (+) Regardless of how the real estate market is doing, investors will almost always be willing to purchase a multi-family home
  • (-) There's more maintenance thanks to each unit having a furnace, AC, water heater, etc..
  • (-) More expensive to purchase than a single-family home
  • (-) Lots of competition when buying because of investors
  • (-) Lower inventory available to choose from

How to afford your first house hack

Before I purchased my house hack, my main excuse was that I didn't have enough money. I thought if I was going to house hack, I'd need enough money to have 20% down, do any minor fixes or renovations, and have enough savings to cover any major repairs. Thankfully, I was wrong.

I mean, the more money you have - the better off you'll be. But you don't need as much money to afford a house hack as you may think.

Use housing/lending programs

With housing programs like FHA, you can get away with putting as little as 3.5% down. This will leave you with an additional PMI payment, but as long as you factor this into your calculations - it's not a big deal. Plus, you can always refinance later and remove the PMI from your mortgage.

In my area, affordable multi-family homes are old and not well taken care of. This makes it hard to finance them via FHA due to the inspections and requirements. However, there are other housing programs that you can use.

When I purchased my duplex, I went through a program that allowed me to put 5% down on a conventional loan versus a traditional conventional loan needing 15% down AND 6 months of mortgage payment saved in a separate account. That would have killed this deal for me because I wouldn't feel comfortable with the savings I'd have leftover after purchasing the property.

Take advantage of retirement accounts

If you have retirement accounts, research if you're able to use those funds to purchase a property without paying penalties on that money. For example, if you have an IRA, you can withdraw up to $10k to use as a down payment on your first home.

That's exactly what I did. I took money from my IRA (which I primarily started for this purpose) to use as a down payment for my house hack. The ROI on that money has been much higher than if I had left it in the market (unless I had it all in Tesla stock).

Ask the seller to cover closing costs

In my area it's a seller's market, but it's not too competitive to where sellers won't consider covering closing costs. Asking for closing costs allows the seller to cover a portion (or all) of your closing cost, allowing you to bring less money upfront when buying your house hack. This could easily save thousands of dollars upfront, even if you roll the closing costs into your loan by increasing the purchase price.

NOTE: For those of you in major cities where real estate is extremely competitive, this tip may not be of any use to you.

Save and budget

Saving and budgeting your money is a guaranteed way to afford your property. This method is not pretty, but it's simple and practical. All you need to do is spend less money than you make and save some of what's left over.

While easier said than done, the #1 game-changer for me for saving and budgeting involves using budgeting software to help you manage your finances. I've been using YNAB (You Need A Budget) for over 5 years now and it made saving for a house hack so simple that it felt like cheating.

How to get a loan for house hacking

Getting a loan for a house hack is practically the same as getting a loan for a regular home. If this is your first time purchasing a house, the process is simple and your realtor should help guide you and answer questions you may have.

The gist of getting a loan when you're going to live in the property:

Get pre-approved for a loan. This involves giving your lender some information and allowing them to run a credit check.

Make sure they know it's an owner occupied home. Since you're going to live in the property, there could be special programs and financing available to you. This becomes even more important if you're buying multifamily properties (for example, you can use an FHA loan for a multi-unit property, with up to 4 units, as long as you live in one of the units)

Once you get your pre-approval letter, start viewing homes.

After finding potential homes, making an offer, and having an offer accepted - contact several lenders to ask about their interest rates and fees.

Once you've found a lender you like (doesn't have to be the lender that pre-approved you) complete your formal application for a mortgage loan. This will require you to send documents (like pay stubs and bank statements) to your lender.

Afterwards, your realtor, lender, and title company will take care of most of the details. All you need to do is provide them with any additional information they request and follow up if you have questions.

Is it worth it?

Yes, it is worth it.

As I'm sure you already know, the answer to that question depends on what you value. The benefits outweigh the downsides for me, but that may not be the same case for you. It's important to take all the information in this guide and come to your own conclusions.

Frequently asked questions

In this section, I’m going to answer common questions that come up when I mention house hacking to someone. If you have a question that you’d like answered but it’s not on this list, contact me and I’ll make sure it gets answered.

How to house hack with no money

This may seem like an impossible task but house hacking with no money is possible. Since you don’t have any money, your only option is to use someone else’s money. 

When it comes to using someone else’s money in a deal, you have to show the value you bring to the table.  If you’re new to real estate investing, it’s going to be difficult because you don’t have much to bring to the table.  So, in a situation like that, it’s best to get a “loan” from someone that knows you personally and will believe in you, even without experience.

If you have real estate investing experience, then all you have to do is build relationships with investors who are willing to put all of the money as long as you do all of the work. This is a fair partnership and allows investors from all over the country to invest in your local real estate without having to know the area.

Finding investors can be time consuming but the internet makes it easier. Here are a few recommendations for finding an investor.

  • Find real estate meetups to attend via Facebook and Meetup.com
  • Join real estate groups via Facebook
  • Discuss your situation and goals with family and friends.
  • Create content showcasing your “expertise” on websites like Biggerpockets

How to house hack when you have a family

When you have a family that lives with you (wife/kids), the only way I recommend you house hack - buy a multi-family and live in a separate unit. This will allow you to have your own  private space. 

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