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House Hacking: How To Hack Your Way Into Real Estate?

If you haven’t heard of house hacking yet— listen up because it is about to change your life.

House Hacking is one of the best ways to begin your real estate journey. Outside of being one of the most popular niches within real estate, it is probably the best and most profitable life hack that you can find on the internet today.

What is House Hacking?

House hacking is a strategy in which the property owner rents out a portion of their primary residence to generate rental income to offset their mortgage and other expenses within the property.

This strategy is typically done with a multi-family unit but can also be done in a single-family home by renting out extra rooms. Since you will be living in the property, you will be able to obtain an owner-occupied loan for the investment property. With this loan, you may qualify for a down payment on the property anywhere from 3.5% - 10% of the purchase price.

For example, if a property costs $100,000, you may be able to purchase it with $3,500 as a down payment plus additional closing costs.

How to House Hack a Single-Family Home

In the case of a single-family house hack, the house will need to have extra bedrooms for your future tenants. The plan is to rent out the extra bedrooms to eliminate or lower your housing expense.

Having more bedrooms within your home will allow you to collect more rent per bedroom, AND this can truly maximize your return on investment (ROI). Now, having roommates may sound like your worst nightmare, or maybe you are at a stage in life where you have a family and are not comfortable living with people you don’t know. Keep on reading because you too can still house hack!

How to House Hack a Small Multi-Family: Duplex, Triplex or Quadplex

The small multi-family house hack is very similar to the single-family house hack, but you would have more space since your tenants don’t actually have to live with you.

Whether you are buying a duplex (one property with two units), a triplex (one property with three units), or a quadplex (one property with four units), each will have the units separated by either a roof or a set of walls. And you can still acquire a tenant for the unit you are living in to achieve more cashflow.

Some of you may be asking, “What about a Five-plex?”

Well, you could acquire a property with five units, but you would not be able to acquire an owner-occupied loan to do so. If you would like to acquire a property with more than four units, you will need to take out a commercial real estate loan, which would require A LOT more than a 3.5% down payment. Typically, commercial real estate loans will require a minimum down payment between 20% - 25% of the purchase price.

The power of house hacking is in its ability to maximize your leveraged position while maintaining full control over your asset since it serves as your primary residence.

What are other creative ways to House Hack?

The single-family house hack and the small multi-family house hack described above are the most common ways to house hack.

Here are some more ways to take advantage of this real estate strategy:

  • Turn your single-family home into a duplex

  • Add a basement apartment

  • Add a garage apartment

  • Place a mobile home on your existing property

  • Place or build a tiny home on your existing property

What are the Financing Options for a House Hack?

There are many financing options that you can obtain to start your house hacking journey. They all have many different rules and requirements to be considered eligible. Take a quick look at them below:

  • Fannie Mae and Freddie Mac Conventional Loans

  • Federal Housing Administration (FHA) Loan

  • Federal Housing Administration (FHA) 203K Loan

  • Veteran Administration (VA) Loan

Is House Hacking Legal?

In most cases, house hacking is legal, but you must check with your local zoning regulations to ensure that the way you would like to house hack is allowed within that area. Some locations restrict the number of unrelated people a homeowner can rent to, while other locations require a license or permit to rent by the room.

In addition to zoning regulations, by taking out an owner-occupied loan, you are signing a contract that requires you to live in the property for at least a year. This is definitely one of the major limitations to house hacking. Finding ways to get around this limitation can be risky and it’s not recommended because you may lose the property altogether. This concept is called mortgage fraud, and it is highly illegal.


What are you waiting for? Start preparing to acquire your first house hack today!

If you want to learn more about house hacking and how to start your real estate journey—head over to the Zelite App!

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