10 House Hacking Ideas For Total Beginners
House hacking is a great way to save money on the purchase of your home or even to get into real estate investing. Here are 10 ways to get started!
Residential real estate investing is a great way to build long-term, generational wealth.
But a lot of people think there’s only one way to do it: you have to put up a ton of cash to buy a home, renovate it, and then find someone to buy it so you can make money.
As you’ll soon see, though, there’s a new trend that’s building momentum, especially among brand new investors.
In this guide, we’re going to introduce you to house hacking, cover the basics of what makes it so popular, the benefits of using this strategy, as well as 10 house hacking ideas for total beginners so you can start experiencing why this strategy is becoming so popular.
What is House Hacking?
House hacking is a style of investing that works by purchasing a property using a low down payment mortgage and then using it to build equity and, in some cases, passive income.
It’s a long-term strategy but many beginners are interested in it as a smart way to get into the real estate investing game, offset their cost of living, and eventually turn the property into a passive income stream.
Here’s how it works:
You purchase a single-family or multi-unit residential property, like a duplex, triplex, quad, or small apartment building and live in one of the units while you rent out the rest.
Using this strategy, you’re able to tap into more conventional loans and FHA mortgages so your down payment can be as low as 3%. Then, after closing on the deal, you can move into the property, rent the additional units, and let your tenants cover the cost of your loan.
When you’re doing this, your tenants are helping you build equity in the property while you’re essentially living rent-free — if you do it right.
And while some investors are simply using this to cover their cost of living, especially in more expensive markets, the house hacking strategy actually serves as the foundation of more advanced strategies, like the BRRRR method.
With it, you can live in the property you’re hacking for a year and then use the equity you’ve built up to help fund your next deal. Rinsing and repeating as your portfolio grows.
In our experience, house hacking is one of the best ways to start your career in real estate investing, especially when you’re a beginner limited on cash and credit.
But there’s more to it than that.
The Benefits of House Hacking
While saying house hacking is a great investing strategy because it gets other people to pay for the equity you build, there are quite a few benefits to the model:
Low Down Payments
For first-time buyers able to utilize an FHA loan, you’re essentially sidestepping the 15% to 20% down payments that conventional loans require on multi-family properties.
This lets you keep all that extra cash in a reserve account to help cover expenses like maintenance and repairs.
Tenants Build Your Equity
Reducing your cost of living is one of the biggest benefits of house hacking. But letting your tenants pay for the equity you’re building in the property is that sweet, sweet icing on top.
Then, when you realize they’re also covering your utilities (in many cases), insurance, taxes, interest, your mortgage, maintenance, and other expenses, you stand a good chance of generating real income through the property — while you’re living in it rent-free.
Easy To Get Started
House hacking is like training wheels for real estate investors. Since it’s so easy to get started, it gives you the space to grow as an investor as you gain more experience.
Then, you can use the equity you’ve built plus your track record to use the property as collateral for investments you make down the road.
And since you’re living in the property with your tenants, you can build a stronger relationship with them so they’re more likely to treat the property like it’s their own — helping to eliminate some of the risk associated with rental properties.
No Longer Renting
On top of all of that, you’re no longer handing your monthly rent over to another landlord. When you’re house hacking, you ARE the landlord.
That means all the money you’re spending on rent right now goes into helping build equity in the property WHILE you’re collecting rent checks from your tenants.
Added Tax Benefits
Another benefit that beginner investors don’t necessarily understand the true power of are the tax benefits you get from owning an investment property.
The expenses you incur can be deducted from the income so any money you’re spending to maintain the property and a percentage of the depreciation you experience from doing maintenance and repairs (not upgrades) can help you show a loss on the property in your taxes.
That reduces your overall tax burden at the end of the year.
As with any tax strategy, though, you’ll want to talk to an experienced accountant to help utilize these benefits and stay within the IRS guidelines to avoid making any costly mistakes or triggering an audit.
Since house hacking is such a great investing strategy for beginners, there’s going to come a day when you’re ready to take your experience, cash, and collateral and start utilizing more advanced investing strategies.
To get started with house hacking, though, here’s 10 great ideas you can use right now:
1. Multi-Family Home
This is one of the most common forms of house hacking.
With it, you’re going to locate a duplex, triplex, quad, or small apartment building and begin living in one of the units. Then, you focus on filling the vacancies of the remaining units.
For beginners, if you’re able to find a multi-family property for sale in your area, this is going to be the easiest way to get started as an investor.
2. Rent a Room
With multi-family house hacking, you’re able to take advantage of having your own space while your tenants have their own. A spin on that, though, especially if you’re unable to get an FHA loan for a multi-family property, is to rent out a room in the house that you’re living in.
This is great if you’re living alone and have rooms that you aren’t currently using. You can open those rooms up for short-term rentals, like an AirBnB guest or college students, or for more long-term rentals for people like executives that don’t want to live out of a hotel.
3. Get Housemates
If you live alone and have multiple open bedrooms, you can also get multiple housemates to help fill up the space and bring in enough rental income to completely cover your mortgage.
Instead of treating it like a short-term rental where your tenants are living with you for 3 to 6 months, you can make it a more permanent residence for folks.
As with any rental, though, since your housemates will be living in much closer proximity to you, you will want to make sure you’re qualifying your applicants -- and not being afraid to say no if you get any bad vibes or red flags.
4. Do a Live-In Flip
If you're already considering more advanced strategies, buying a live-in-flip is a great way to get started -- while opening the door for other strategies down the road. With a live-in-flip, you’re buying a property that you plan to live in that also needs renovations performed on it.
This lets you get a deal on a home that may need work, live in it while you’re performing the work, and then flip the property once you’ve had it re-appraised at a higher value.
You’ll need to pay attention to the fine print in your mortgage, though, because with most first-time homebuyer loans, you’ll need to live in the property for at least 12 months for this.
But it’s a great strategy if you know house hacking is just the beginning of your investing career.
5. Build an ADU
Many homeowners are realizing that building an ADU, or accessory dwelling unit, is a great way to take advantage of larger lot sizes. With this strategy, you’ll construct a secondary building that has its own water and electrical supplies and functions, at its core, like a studio apartment.
These buildings don’t have to be huge, either.
You’ll want to check your local building ordinances but, in many locales, your building only needs to be more than 600 square feet to be accepted as a dwelling.
If you intend to live in the primary residence for an extended length of time, though, building an ADU on the property can be a good way to make passive income and increase your property’s value at the same time.
6. Find Your Own Deal
And when it comes to saving money, one of the best things you can do is avoid using a real estate agent to find the property for you.
When an agent locates the property, you’re going to end up paying more for the home -- with a large chunk of that extra expense coming out of the cash in your pocket in the form of commissions.
With this strategy, you’ll want to get pre-approved for your mortgage, pull lists from REISift, find properties you’re interested in, send out mailers, make cold calls, and let owners know that you’re looking into buying their property without using an agent to facilitate the deal.
7. Reverse Wholesaling
While not technically house hacking, reverse wholesaling is a great strategy for beginning investors who ARE interested in house hacking.
With reverse wholesaling, you’re going to reach out to active investors who are always looking for properties and set up an arrangement with them to purchase any properties you don’t think are a perfect opportunity for your first investment.
Then, when you come across those properties that aren’t a fit for you, you can have buyers ready to go and put those properties in front of them.
If those investors want to purchase the property, you can get paid a finder’s fee for helping connect the deal so you’re pocketing more cash while finding the perfect house to hack.
It’s also an excellent step to take once you get more experience in the REI business.
8. AirBnB Arbitrage
Another strategy that isn’t necessarily house hacking as we’re talking about here, but an excellent step to take once you start getting experience is the AirBnB arbitrage model.
With it, you’re locating rental properties and setting up a sublease agreement with the owners so you’re able to use the property on short-term rental platforms like AirBnB and VRBO.
This is an excellent strategy for generating income while making sure the property owner is getting what they want from the deal, too.
9. Add a Basement or Garage
Adding a basement to your existing property or building a garage on the property opens up even more income opportunities for you. With the basement, especially if it’s refinished, you can rent it out for enough to cover most of (if not all of) your mortgage.
For garages, you can rent the space to people who need to store their car or other belongings but don’t want to leave it outside at a storage facility.
The added property value from adding a basement or detached garage on top of the monthly income you’ll get from renting the space can quickly add up.
10. Rent Out Storage Space
Likewise, if you prefer not having tenants, you can rent out the space you already have available as climate-controlled storage space for folks.
Whether that’s an existing basement, attic, bedroom, or a decent-sized storage shed that’s on the property, people are always looking for more storage space — and are happy to pay you to keep their belongings safe.
Hopefully, by now, you can see why house hacking is so attractive and how to start getting your feet wet with this strategy. When you use the ideas we’ve broken down for you in this guide, it’s one of the best ways for beginners to start their career as a real estate investor.