House hacking.
Living for free while building equity.
House hacking means buying a multi-unit property, living in one unit, and renting the others. When done right, the rental income covers your mortgage. Done wrong, you become an unhappy landlord living next to your tenants. This page walks through the math, the financing, and the ways it goes wrong.
FHA, VA, and conventional loan options described here are US-specific. Other countries have analogous owner-occupier multi-unit programs but with different rules.
Buying a duplex, living in one unit, and renting the other is how many first-time investors eliminate their housing cost entirely. FHA loans allow this with as little as 3.5% down on properties up to 4 units. The mortgage gets paid down by your tenant. Depreciation deducts against rental income. After 1-2 years you can move out and convert it to a full investment property. The risks are real: bad tenants, vacancy, maintenance, and the personal cost of sharing walls with people who pay you rent.
On this page
Section 1 · What house hacking is
The basic model: buy a property with 2-4 units, live in one, rent the others. Rental income offsets or eliminates the mortgage payment.
- Buy a duplex for $400,000.
- Down payment (FHA): $14,000 (3.5%).
- Total monthly housing cost (PITI + MIP): approximately $2,400.
- Rent from other unit: $1,600/month.
- Your effective monthly housing cost: $800.
- Equivalent rent for a comparable single unit: $1,800/month.
- Monthly savings vs renting: $1,000.
Numbers vary by market. Test against your actual local rental and purchase prices before assuming the math works in your area.
Variants: rent rooms in a single-family home (cheaper to enter, more friction with roommates); buy an ADU (accessory dwelling unit) property; live-in flip (renovate and sell after 2 years to use the primary residence exclusion).
Section 2 · The financing
The rental-income qualification advantage
When buying a pure investment property, lenders typically count only 75% of projected rent toward your debt-to-income qualification. With FHA owner-occupied multi-unit purchases, rental income from the other units can help you qualify even as a first-time buyer with limited income. Your loan officer will run the rent schedule (typically Form 1025 or appraiser estimate) and apply 75% of that figure to your qualification math.
Section 3 · The real math
The mortgage offset is the headline. The full benefits go further.
Building equity two ways
- Principal paydown from your own monthly payment.
- Principal paydown from the tenant's portion of rent.
Tax advantages
- Depreciation on the rental portion of the property. Residential rental depreciates over 27.5 years verify×DON'T TRUST, VERIFYClaim: Residential rental property depreciates over 27.5 years for tax purposes.Verify at: IRS Publication 527 (Residential Rental Property) ↗ Source 3 in the list below27.5-year MACRS straight-line is the standard residential-rental class life.. On a duplex with $400k of building basis, excluding land (50% rental): $200,000 / 27.5 = approximately $7,273/year deduction. At a 22% bracket: approximately $1,600/year in tax savings.
- Mortgage interest on the rental portion is a Schedule E deduction (not a personal Schedule A itemized deduction).
- Property tax on the rental portion: same.
- Maintenance and repair costs allocable to the rental portion: deductible.
Note: depreciation is recaptured when you sell, taxed at up to 25%. The deferral is real; the elimination is not.
Section 4 · What can go wrong
- Vacancy. A bad tenant, an eviction, or a vacancy month means you pay the full mortgage. Budget for 5-10% vacancy.
- Maintenance. As landlord, you are responsible for repairs. Budget approximately 1% of property value per year for maintenance. On a $400k property: $4,000/year, $333/month.
- Tenant management. Screening tenants carefully reduces but does not eliminate problems. Eviction is slow and expensive in most states; landlord-tenant law is highly state-specific.
- Being a live-in landlord. You share walls, entry, or yard with tenants. Not everyone can handle this proximity. Tenants who know you live there sometimes treat the relationship as personal rather than business.
- Property-level risks. Roof, HVACHeating, Ventilation, and Air Conditioning (HVAC)The system that controls temperature and air quality in a building, also a skilled trade career path., foundation, and plumbing failures are large, lumpy expenses. The maintenance budget is an average; individual years can be much worse.
- Concentration risk. A house hack puts most of your net worthnet worthEverything you own (assets) minus everything you owe (debts). The most comprehensive measure of financial health.Full definition in one local market. If the city's job base or rental market deteriorates, you have no diversificationdiversificationSpreading investments across different assets so a drop in one doesn't devastate your entire portfolio.Full definition.
Section 5 · Exit strategies
Where to go from here
Sources
Verify badges in the text link to these sources. Figures, rates and rules change: check each source’s date before acting on it.
- HUD FHA loan limits · hud.gov. ↩
- VA Purchase Loan · va.gov. ↩
- IRS Publication 527: Residential Rental Property · irs.gov/publications/p527. ↩
- IRS Like-Kind Exchanges (1031) · irs.gov. ↩
- IRS Topic 701: Sale of Your Home · irs.gov/taxtopics/tc701. ↩
Last updated . Not financial advice. Real estate is local; verify your market. Disclosures · How pages are reviewed