Is ‘househacking,’ aka renting out rooms of your home, an actual wealth building secret?

Everyone is looking to get ahead on their financial goals, and housing hacking may be a good option. The strategy involves buying a multi-family property with 2-4 units. You live in one unit and rent the others to tenants. 

This strategy has been around for a while, but it has generated plenty of discussions in the FIRE Reddit group. Whether you go the multi-family property route or live with roommates, it can help with your finances. I’ll share some things to keep in mind before getting started, but it is always good to speak with a financial advisor if you can.

Housing Is the Biggest Expense

For most people, housing is their largest expense, and any way to trim it down can lead to financial independence sooner.Some experts recommend the 28% rule, which states you should allocate up to 28% of your monthly income to your mortgage payment. While some people are over this number due to higher housing costs, it demonstrates that housing is the biggest expense.

A roommate or a tenant in a second unit will reduce your monthly housing costs. You will have to share space, but youdon’t have to do it forever. Some people pay their mortgage much sooner and then stop house hacking once they are debt-free. Other people use house hacking as an introduction to real estate investing and use leverage to buy additional properties.

Tenant Quality Is Critical

The quality of each tenant is the make-or-break part of this strategy. Even house hacking with a single tenant can feel like a full-time job since you have to regularly communicate with them and maintain the property. However, it may not be so bad if you get the right people in your units.

One Redditor explains in the comments that he and his wife bought a house with four bedrooms and three bathrooms. After adding four additional bedrooms, they rented seven rooms to international students and used the 8th bedroom for themselves.

This arrangement helped the Redditor pay off his mortgage in four years and helped them purchase a second home. Many students treat college like a job, so they leave at 8 am and come back at around 7-9 pm. It’s easier to keep the property ingood condition if the tenants are gone for that long and aren’t disruptive. 

Wait for Marriage

One Redditor shared in the comments that the best roommate is the one you marry. This individual also brought up a poll that revealed most people in the FIRE Reddit group are dual-income earners. Having a spouse contributing to mortgage payments and other expenses will make it easier to stay afloat and cover living expenses.

While a dual income makes it easier to cover mortgage payments, a key benefit of house hacking is that it’s a good introduction to real estate investing. A married couple can use house hacking to see what it’s like to manage real estate properties and gradually build out their portfolios. However, if you don’t want to get into real estate and can easily cover living expenses, then you may not need house hacking.

House Hacking Makes More Sense for Younger People

Anyone can get into house hacking, but one of the Redditors says that the strategy is optimal for people who are in their 20s. At this point, you typically don’t need as much space and can share some of it with a tenant. Furthermore, you will have fewer financial obligations and may not have a family at this point.

Younger people can take more risks and hack houses so they can buy their dream homes in the future. For most people, the property they use for house hacking isn’t their dream property. Once they move out of their unit and get a better home, a house hacker can proceed to rent out the vacant unit, collecting additional revenue. It’s possible for a house hack property to cover that property’s mortgage while reducing the monthly mortgage payment for your primary residence.