What Is House Hacking? 9 Ways to Start
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Richard Haddad Executive EditorClose
Richard Haddad Executive EditorRichard Haddad is the executive editor of HomeLight.com. He works with an experienced content team that oversees the company’s blog featuring in-depth articles about the home buying and selling process, homeownership news, home care and design tips, and related real estate trends. Previously, he served as an editor and content producer for World Company, Gannett, and Western News & Info, where he also served as news director and director of internet operations.
If you’re looking for a way to ease the burden of your mortgage payments or generate extra income from your home, house hacking could be the strategy for you. House hacking is all about making your home work harder for you, often by renting out some of the space, which can even include your garage, yard, or parking areas.
This approach is gaining traction among inflation-hit homeowners who want to offset expenses, increase savings, or invest in future properties. Whether you’re new to the idea or exploring your options, there are multiple ways to start house hacking.
Consult With an Expert Before House Hacking
Your best first step to house hacking is to consult with a top real estate agent with experience in local rentals and investment properties. They’ll know which houses and locations work best and can help you avoid common pitfalls. HomeLight can connect you with property specialists in your market.
What is house hacking?
House hacking has evolved. Traditionally, the phrase was most often associated with buying a multifamily property, living in one unit, and renting out the others. This allows the live-in owner to generate passive income and build equity. However, in the face of inflation, high interest rates, and increasing home prices, many homeowners have taken house hacking to new levels by finding creative ways to apply this live-in-and-rent strategy to single-family homes.
The concept can be applied in various ways, from renting out extra rooms to building separate living spaces like an accessory dwelling unit (ADU). Money can also be generated from a garage, barn, yard, or parking space. Essentially, you’re using your home as both your residence and a source of income, which can help offset mortgage payments or fund future investments.
Whether you’re buying a home with house hacking in mind or adjusting your current living situation, it’s a flexible approach that can make homeownership more affordable.
Why are homeowners house hacking?
The primary motivation behind house hacking is to reduce housing costs. By generating rental income from their property, homeowners can lower or even eliminate their monthly mortgage payments. This additional cash flow can also be directed toward savings, home improvements, or paying off other debts.
For some, house hacking is also a way to begin investing in real estate. Renting out part of your home allows you to ease into property management and build equity, often with less financial risk than purchasing a separate rental property. It’s a way to dip your toes into real estate investing while benefiting from the space you already have.
Let’s look at nine house hacking strategies you might apply to your home.
1. Purchase a multi-family home
This could be called the original house hack. A multifamily home is a residential property with multiple housing units, such as apartments, duplexes, or townhomes. Each unit typically has its own entrance, kitchen, bathroom, and utility meters. In a house hacking scenario, the owner lives in one unit and rents out the others. This strategy works well because it offers a balance between having privacy and generating rental income.
Benefits
• You can collect multiple rent payments, increasing income potential.
• Separate units provide a degree of privacy compared to other house hacking strategies.
Drawbacks
• Higher upfront costs to purchase a multi-family property.
• More responsibility for maintenance and tenant management.
2. Rent out part of your single-family home
This strategy involves renting out a portion of your single-family home, such as a finished basement, attic, or even spare bedrooms. It’s a flexible way to generate rental income while sharing your living space with tenants.
Benefits
• Lower upfront cost since you’re utilizing your existing home.
• Simple and quick to get started if you already own the home.
Drawbacks
• Less privacy, as you’ll share living spaces with tenants.
• You may need to make modifications to make the rental space more livable.
3. Build an accessory dwelling unit (ADU)
An ADU is a smaller, secondary home built on the same lot as a single-family house. These are sometimes referred to as a mother-in-law suite or a granny flat. An ADU can be a detached structure, an addition to an existing home, or a converted space like a garage or basement. Many homeowners use ADUs for rental income while maintaining their primary living space.
Benefits
• You maintain privacy while earning rental income from a separate unit.
• Adds long-term value to your property, boosting resale potential.
Drawbacks
• Requires significant upfront investment to build or convert the space.
• Local zoning laws may restrict or complicate the process of building an ADU.
4. Build a finished room over garage (FROG)
A finished room over the garage, often referred to as a FROG, can be an ideal space to rent out. This conversion typically turns unused space into a livable, rentable unit, providing a way to generate income without impacting your main living areas.
Benefits
• Allows you to generate income from underutilized space.
• Provides tenants with a more private, separate living area.
Drawbacks
• Upfront renovation costs can be high depending on the existing structure.
• You may need to install additional amenities like a bathroom or kitchenette.
5. Buy and temporarily rent your future retirement home
In this variation of house hacking, you’re not actually living in the home — yet. The strategy involves purchasing a property where you plan to retire, and renting it out in the meantime to generate income. You can manage the rental until you’re ready to move in permanently.
Benefits
• Generates income while you prepare for your long-term living plans.
• Helps you lock in a desirable home at today’s market prices.
Drawbacks
• Managing a rental from a distance can be challenging.
• Property may require updates or repairs by the time you’re ready to move in.
6. Find a roommate or housemate
This was a house hack before the phrase was ever coined. Finding a roommate or housemate is one of the simplest ways to reduce housing costs. You share your living space and utilities with another person, who pays you rent to cover part of the mortgage and bills.
Benefits
• Easy and fast to implement, especially if you already own the home.
• Reduces your overall living expenses without significant changes to your home.
Drawbacks
• Less privacy, as you’ll share common areas.
• Personality conflicts with your housemate could become an issue.
7. Offer short-term room rentals
This house hack might be more palatable for you than some of the privacy-tapping rental strategies above. Short-term rentals, such as those offered on platforms like Airbnb and Vrbo, allow you to rent out a room or portion of your home for brief stays. This approach gives you flexibility in hosting tenants without long-term commitments.
Benefits
• Higher income potential with short-term stays, especially in high-demand areas.
• Flexibility to rent only when it’s convenient for you.
Drawbacks
• Frequent turnover means more effort to manage guests.
• Local regulations may restrict short-term rentals, limiting your options.
8. Rent out your garage, barn, or yard
If you have extra space like a garage, barn, or large yard, you can rent these areas out for storage, vehicle parking (RV or boat), or even recreational or event use, depending on your location. This strategy doesn’t require you to share your living space and offers a low-effort income stream.
Benefits
• Generates income from spaces you don’t need to actively manage.
• Doesn’t require you to share your living quarters.
Drawbacks
• The income potential will be lower than renting out living space.
• Depending on the use, there may be zoning, legal, or insurance restrictions.
9. Purchase a live-in flip property
A live-in flip involves buying a home that needs renovation, living in it while you fix it up, and then selling it for a profit. This approach can earn both rental income (if you rent out part of it) and profit from the eventual sale.
Benefits
• Potential to earn both rental income and equity through appreciation.
• You can improve the property’s value while living there.
Drawbacks
• Renovations can be expensive, time-consuming, and disruptive to daily life.
• The housing market can fluctuate, impacting your return on investment.
How Much Is Your Home Worth Now?
Home values have rapidly increased in recent years. How much is your current home worth now? Get a ballpark estimate from HomeLight’s free Home Value Estimator.
Tips when buying a house to hack
When purchasing a property with house hacking in mind, keep the following tips in mind:
- Check zoning laws and regulations: Before proceeding, ensure that your local laws allow renting out part of your property.
- Look for flexible layouts: Choose homes that can be easily divided or modified for rental purposes.
- Prioritize privacy: Properties with separate entrances or self-contained units will attract more tenants.
- Maximize income streams: Look for multiple opportunities to generate income, such as renting out rooms, garages, or ADUs.
- Budget for renovations: Be prepared for the costs of upgrading or converting spaces to make them livable and rentable.
- Research location rental demand: Ensure there’s a strong market for rentals in the neighborhood before you commit.
- Work with a top agent: Partnering with a trusted real estate agent familiar with house hacking and local rental properties will remove pitfalls and increase your chances of success.
House hacking pitfalls to avoid
While house hacking can be rewarding, it’s important to be aware of common pitfalls:
- Don’t overestimate rental income: Set realistic expectations by researching local rental rates.
- Avoid undesirable neighborhoods: If you’re buying a house-hack property, research locations to ensure you can attract quality tenants and charge a profitable rental rate.
- Account for extra costs: Include maintenance, repairs, and property management expenses in your budget.
- Screen tenants carefully: Poor tenant selection can lead to financial and personal difficulties.
- Prepare for lifestyle changes: Be ready for the impact of reduced privacy and sharing your space with tenants.
- Review taxes and insurance: Renting out part of your home may affect your property taxes and insurance premiums.
- Stay legally compliant: Have clear rental agreements and follow landlord laws to avoid legal issues.
- Don’t ignore building ordinances: If you are making changes or additions to your home, check local building ordinances long before the hammers come out.
Considerations about being a landlord
Becoming a landlord brings new responsibilities that can change your day-to-day life, especially when you share a property with tenants. While you may develop close relationships with those who rent from you, it’s important to remember that landlording is a business.
This includes tasks like tenant screening, rent collection, and handling maintenance requests. It may even require evicting tenants. Neglecting these responsibilities can lead to financial losses or even legal complications.
It’s also essential to set and enforce boundaries. Living in close proximity to tenants requires clear communication about expectations. If you don’t want tenants contacting you at all hours, establish guidelines upfront about when and how they can reach you.
Contact a top agent before house hacking
House hacking can be a great way to generate income and make homeownership more affordable, but you need the right property and the right plan.
If your house-hacking plan involves buying a home, connect with a top real estate agent through HomeLight. They’ll help you find properties with high potential, guide you through local regulations, and make sure your house hacking strategy is sound.
Even if you are not buying a home, consulting with a local agent who has experience in rental properties and neighborhoods can make a huge difference in your success.
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