What is “house hacking” and how is it helping millennials and Gen Z buy houses?

Published May 27, 2024

What is house hacking? Definition:

“House hacking” is a term coined for the practice of generating income from your home. It is most often done by purchasing a multi-family home, living in one unit, and renting out the others so that your tenants are paying the majority – or all – of your mortgage payment. This is called passive income, meaning you are earning without having to actively make much effort.

However, there is more than one way to hack your house. With housing affordability proving to be difficult for many millennials and Gen Z, they are embracing house hacking in order to buy their first homes. We’ll explain all the different techniques so you can begin your journey to homeownership.


House hacking strategies

Here are all the ways that you could generate income from your first or current home.  Keep in mind while reading that any passive income earned is taxable.


Buy a multi-family home and rent out the other units

Whether you live alone or have a dual income family, the more ways that you can split your mortgage payment means the less you will have to pay. If you can find a multi-family home to purchase, you can live in one of the units while renting out the others. Depending on how many units your multi-family home has, you could be bringing in enough rental income to cover your entire mortgage payment.

When you’re able to refinance your mortgage and lower your monthly payment, you can start to make a profit and build equity in your home. If your end goal is to move into a single family, you can choose to keep your multi-family home and rent the unit you were living in to pay for your next mortgage.

Accessory Dwelling Units (ADUs)

ADUs are the formal name for secondary living spaces on your property, such as in-law suites or detached guest houses. If you’re lucky enough to find a property that has one of these, you can rent it to someone. If you do not have a house that has one of these, you could opt to build one if it’s feasible for you.


Find a roommate

Most single family homes have 2 or more bedrooms. If you have an extra room or space that you don’t need, get yourself a roommate to help split the bill. If you choose this route, it’s important to have a signed roommate contract detailing the responsibilities of the roommates. This can be both monetary responsibilities outlining how much they will pay in utilities, and personal house rules such as allowing pets or establishing rules of shared spaces.


Rent out part of your home temporarily

Temporarily rent your extra space for short-term stays. Apps like Airbnb© or Vrbo© allow you to host guests in a room, house, or condo for however many nights they may want to stay. There are alternative ways to do this as well, like using a real estate rental company. This can be especially lucrative if you live near a city or vacation spot like Cape Cod.


Rent your garage or yard space

If you have a large garage or barn on your property, you could rent space inside of it to people who need storage for motorcycles, campers, boats, etc. during the winter. Since we live in New England, anyone with a recreational vehicle of any kind will need to store it during the off season to protect it from the winter weather. RVs and campers could be stored outdoors if they are winterized properly.

Charge for parking

One more idea for your garage and yard space is to offer it for parking during events. For this you would need to live near a location that hosts events – like a music venue, sports field, or fairgrounds. Charge a fee to cars that want to park on your land and you could generate a hefty amount of income in one day.


Do a live-in flip

A live-in flip means you purchase an inexpensive home that needs a remodel or renovation. You live inside the home while you make updates to it, then sell it for a profit. You can do this as many times as you’d like to keep generating extra income for yourself, but be aware of tax implications like capital gains tax.


House hacking don’ts: Buyer beware

It’s easy to make mistakes when you’re zealous about owning your first home. Here’s what you should avoid doing when picking a house hacking strategy.

  • Don’t underestimate the responsibility of being a landlord. If your tenant has something that needs fixing, that will be your responsibility as the homeowner. You must also rely on your tenants to pay their rent on time, and there’s always a possibility that they might not. Make sure signed rental agreements exist and that you have a backup way of paying your mortgage should something like that happen. Remember that you will also be living in one of the units, so choose your neighbors wisely.
  • Don’t buy a multi-family home in a bad area. You want renters to be attracted to your units and want to live there. A property in a bad area or far away from the city and public transportation could deter people from renting. So don’t jump into the first multi-family home you find.
  • Don’t buy a home with an HOA (Homeowner’s Association) without doing your research. Restrictions could apply that do not allow non-owner occupancy, meaning you aren’t allowed by the HOA to rent any rooms in your house.
  • Don’t plan to build extra units or ACUs on your property without checking local ordinances. If you break building laws, it could result in legal actions that impact your property value.

Rental property insurance, otherwise known as landlord insurance, covers the risks taken by renting out your home or condo for long periods of time. It can cover property damage, liability costs, and loss of rental income for landlords. Get protection with rental property insurance from our subsidiary, WebFirst Insurance, LLC.

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