House Hacking: Make Money Using Other People’s Money

what is house hacking

You should view your first home as an investment, and when you go to buy, try to get the best deal that you can. But if you really want to make money on your first property — like really make money — and even live for free, then you should consider house hacking.

How It Works

The idea is pretty simple: You buy a condo or house and rent out the extra rooms to cover the cost of your mortgage.

There are many levels of house hacking. You can start small and just buy a two- or three-bedroom apartment or house and rent out the other rooms to your friends. It’s a win-win: You’ve purchased a property that is appreciating (growing) in value and you’re living for free, as rental income will likely cover the cost of the entire mortgage.

You can often get approved for a very low down payment loan (1 to 5 percent) on an entire building, as long as you have good credit and the building is in a neighborhood where prices are appreciating.

But why buy one condo when you can buy two or three, or even six! One of my friends bypassed all three options and went straight for an entire 12-unit apartment building!

You’re probably thinking, “How could I even possibly afford to buy more than one unit?” The key is to use other people’s money — the bank’s, more specifically. You can often get approved for a very low down payment loan (1 to 5 percent) on an entire building, as long as you have good credit and the building is in a neighborhood where prices are appreciating. You don’t need to have an insane amount of money to buy a multi-unit property, and it’s definitely something you should look into if you live in a relatively affordable city or town. You also want to ensure that you can rent the units — in some cases you can buy an entire building with most of the apartments already rented.

One piece of advice: Definitely buy at least a two- or three-bedroom home as your first place, because it will appreciate/increase in value at a faster rate than a studio or one-bedroom apartment, and then you can start house hacking when you feel comfortable.

Do I Really Want to be a Landlord?

Finding renters and dealing with troublesome tenants are two of wanna-be house hackers’ biggest worries. But remember: It’s your place. You, as the landlord, can rent units to whomever you please. Another important thing to keep in mind: You don’t have to house hack forever; you can buy a two- or three-bedroom home and house hack just long enough to cover the first year of mortgage expenses. You may decide pretty quickly that living with a roommate isn’t for you. Don’t panic. The units have likely increased in value in the year or so since you purchased them. If so, you can sell and buy another place. The key is to find a way to get someone else to pay the mortgage and live for free as long as you want — or need — to.

In the world of investing, there are few better investments than buying your first home using mostly a bank’s money (aka mortgage), getting renters to cover the mortgage (aka tenants), owning a property that can grow in value (aka an awesome investment), oh, and living for free (aka how does it get better than that?).