How To Start Living For Free Through House Hacking

I’ll start by saying anyone can do it, and it’s okay if you haven’t heard of “house hacking” before or don’t know what it is. If you’ve been thinking about buying a home and have felt the desire to reduce your living expenses simultaneously, you’ve been leaning toward house hacking without even realizing it!

I, too, was house hacking before I even knew what that term meant. Maybe you’ve thought about buying a duplex and renting out one side while living in the other, or perhaps you’ve been looking at single-family homes and considering renting out a room or two. Well, you’re in the right place!

In this article, you’ll learn what house hacking is, how to decide if a property is worth it, discover how to get started, and learn how to stockpile your earnings from one property to buy the next and continue to build your wealth. 

 

What Is House Hacking?

Any time you’re living in one portion of a property and renting out another room, unit, or space, you’re essentially house hacking. You can do it with any small multifamily unit like a duplex, triplex, or larger, and, surprisingly, you can even do it with a single-family home!

When we were just 22 years old and bought our first home together, we found this gem of a duplex. I say that with both sarcasm and love because while the upstairs unit was in decent shape, the bottom floor had previously been used as a brothel. So we had our work cut out for us! 

As ambitious 20-somethings with no kids, we knew with patience and some elbow grease, we could soon have paying tenants living downstairs who’d be helping us build equity while we lived upstairs for free. 

Years later, we still own that original duplex from our 20s and have moved into, renovated, and rented out many more units in small multifamily properties following this formula. With each move, we live in one of the units and then repair and find tenants for the other units, creating equity and cash flow each month. 

 

How To Determine If A Property Is A Good House Hacking Purchase

When shopping for the “perfect” house-hacking property, you’ve got to consider how much rent each unit of the property is likely to provide and compare that with the mortgage payment. Look at the price of duplexes, for example, and see if the overall cost of the property would render a mortgage payment that could be covered by the rental income from one unit alone. 

Let me explain. 

If you find a duplex for $300,000, you’ll likely apply a down payment of $60,000 in cash. That leaves you with a $240,000 mortgage. At about 5% interest on a 30-year mortgage, your payments will be about $1,600 each month. 

Now, after doing this math, you’d want to look around and see what people are generally paying in rent for units comparable in size to the one you’d be renting out. This is as simple as looking at Craigslist or any other online hub where people share and shop for a place to live. Sometimes, you can even find realtors that specialize in finding rental properties for tenants. 

If the rental rates you see in the market are at or near $1,600 per month, then it’s likely you’ll be able to get a paying tenant in one side of your duplex for that amount. Then, you can live in the other side, basically for free, while your tenant’s rent payments contribute to your mortgage and build your equity in the home. 

If the rent rates in the area are a little less, say $1,400 per month, then you’ll only have to pay $200 a month to cover the mortgage on the property, which is still a great deal!

Alternatively, what if you find out rental rates in the area are $1,800 per month? In this case, you’d be able to cover your mortgage and have a little cash flow right off the bat. Sweet!

Either way, you’ve reduced your living expenses to essentially zero and gained a significant advantage toward being able to save for your next real estate endeavor. 

 

What It Takes To Get Started

Getting started house hacking is easy! All you need is your down payment in cash (20% of the market price of the property is required) and some basic knowledge of the area and types of property you’re searching for. 

You may want to stash a little extra cash in a reserve account for things like anticipated renovations, lawn services, and pest control. Some unanticipated costs of becoming a landlord may be repairs, tenant damage (intentional or not), and notary or attorney fees. 

You can easily find templates for tenant applications, leasing forms, and even contractor agreements online. Take advantage of services like Angie’s list or similar to find reliable handymen for repairs. 

Once you have your savings goals met, simply expand your property search to include small multifamily units like duplexes or triplexes in the area. You can easily do this on any home listing site like realtor.com or by asking your agent. 

 

How To “Snowball” Your Real Estate Purchases And Keep Living For Free While Investing 

Once you see the magic in having your tenants pay your mortgage while you live for free, you’ll probably want to do it again and again, accumulating real estate properties, growing the number of units you have rented out, and building your equity and passive income as you go. 

The primary way to accomplish this is, as your tenant is covering your mortgage with their rent payments, continuing to “pay rent” to yourself. Set aside at least $1,000 per month into a separate savings account as if you were still paying a mortgage payment or rent. In time, this account will accumulate enough savings to cover a down payment on your next rental property. 

As you move out of your first duplex, for example, and get another tenant to rent your old space, you’ll suddenly have two people paying $1,600 per month, effectively doubling your rental income. Meanwhile, you’ll be moving into a new triplex, for example, living in one unit and finding paying tenants to live in the other two. 

 

Where House Hacking Might Take You – Oh, The Possibilities!

I’m sure you can continue to imagine how repeating this formula every few years and increasing the number of units with each purchase could amass to fantastic passive income, a great portfolio, and excellent tax benefits. 

Want to quit your job and travel full time, living the life you think is possible only in your dreams? Well, creating passive income through real estate investments could be the key to actually making that happen. Of course, it all starts with the first small multifamily property purchase. 

Now, honestly, being a great landlord is hard work and requires your time and attention to daily decisions about what’s best for the property and the people involved. Even if you choose to use a property management company, you’re still responsible (and liable) for every repair, tenant complaint, rent raise, and eviction. 

If you love the idea of passive income but would rather not move every few years or deal with tenants and other landlord responsibilities, group investments called syndications might better suit you. When you invest as a limited partner in a real estate syndication, you reap all the benefits of real estate like tax deductions, passive income, and property value appreciation without dealing with any landlord-type headaches. 

We still own several small multifamily properties, but as a mom with two kids who would rather not move every few years, real estate syndications have become my favorite way to passively invest in recession-resistant assets, earn income, and limit my liability so I can live the life I’ve always dreamed of with and for my family. 

From here, it’s entirely up to you – Neither house hacking nor real estate syndication investing requires any experience, degrees, or certifications. And you don’t have to be experienced in one to do the other. So identify your lifestyle and investment goals first, and decide whether you’re willing to try to manage a property as a landlord. 

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