Written by James Chae — Co-Founder, Expert Sapiens
Reviewed March 2026
Real Estate
Definition
A real estate strategy in which an owner-occupant rents out part of their primary residence — such as additional units, spare bedrooms, or an ADU — to offset or eliminate their housing costs.
House hacking is a real estate investment strategy where a property owner lives in part of the property while renting out the remaining portion to generate income that offsets or covers the mortgage and other housing costs. The most common forms include purchasing a small multifamily property (duplex, triplex, or fourplex), living in one unit, and renting the others; renting out spare bedrooms in a single-family home; and adding an accessory dwelling unit (ADU) or converting a basement or garage into a rentable space.
The primary financial appeal of house hacking lies in the ability to use owner-occupant financing terms — typically a 3% to 5% down payment with a conventional loan, or as little as 3.5% with an FHA loan — rather than the 20% to 25% down payment typically required for investment properties. FHA loans for multifamily properties (up to 4 units) are a particularly popular house hacking tool because they allow investors to enter rental property ownership with minimal capital while benefiting from favorable interest rates.
Beyond financing benefits, house hackers can deduct a proportional share of mortgage interest, property taxes, insurance, repairs, and depreciation on their tax returns — reflecting the rental portion of the property as a business expense. Living on-site also makes property management more hands-on and efficient, reducing vacancy and maintenance costs compared to managing a property remotely.
House hacking accelerates wealth building by dramatically reducing the largest household expense — housing — and potentially generating positive monthly cash flow. The strategy works particularly well in high cost-of-living areas where rental income from additional units can cover the bulk of a mortgage that would otherwise be the owner's sole expense.
House hacking sits at the intersection of real estate investment, tax strategy, and personal finance — making professional guidance valuable at multiple levels. Financing options and loan eligibility rules are complex, particularly for multifamily owner-occupied properties. Tax rules governing mixed personal/rental use require careful record-keeping and accurate allocation of expenses to avoid IRS scrutiny.
A real estate professional with investment experience can help you identify viable house hacking properties, evaluate rental income potential, and assess local zoning laws that affect ADU conversion or bedroom rentals. A tax professional ensures you capture all available deductions without misclassifying personal expenses as business costs. Getting both dimensions right from the start maximizes returns and avoids legal or financial complications down the road.
Written by James Chae — Co-Founder, Expert Sapiens
Reviewed March 2026