House Hacking: A Simple Guide To Living For Free

Rent and mortgages make up a large portion of the average person’s monthly expenses. Odds are, one of those two makes up a large percentage of your monthly expenses too. That has certainly been the case for me. Then one day, I came across the idea of house hacking. At first, I didn’t think it was possible. The more I researched it the more I realized that it wasn’t only possible, it was replicable. Thousands of people have done it on their quest for financial independence. So what is it, you may ask? House Hacking.

House hacking is the idea of buying either multifamily housing or a single-family home (a.k.a a regular house) and having other people pay the mortgage, taxes, and bills for you.

But why would someone else pay your mortgage? Because you’re giving them a place to live and charging rent in return. You then take that rent and apply use it to pay your bills, leaving you to live for free.

How can you do this?

The key to house hacking is owner occupancy. If you live there and it’s less than 5 units, you’re eligible for an FHA loan, which minimizes your down payment, greatly reducing real estate’s barrier of entry.

Let’s take a look at an example.

Example

You buy a duplex that costs $200,000 and requires a $7,000 down payment, resulting in a $193,000 loan and $1,100 monthly payment. That means you need to make $1,100 each month to pay the mortgage.

The money is made on the second unit. Since there are two bedrooms, you rent the unit out for $1,200/month. As a result, your mortgage is paid by your tenants, and you have $100 a month to put towards utilities. As a result you’re essentially living for free.

If you decided to move out of the apartment, you could charge $700 a month for your unit, leaving you to come out $700 ahead every month. In that case, you could use the money you’re making to help pay for your new mortgage or apartment.

Alternatively, you could repeat this process a few times, using the savings and profits to grow your real estate holdings and investments. Many real estate investors that are making $10,000+ a month started their journey through house hacking.

Regardless, having someone else pay your housing costs significantly reduces the cost of financial independence and can help push it forward several years.

While this approach may not be for everyone, it’s a useful method and worthwhile to understand.

The idea of this post isn’t to make you an expert, but to let you know that it’s possible.

If you want to learn more, check out this post on Bigger Pockets. It’s where I first discovered this idea and it goes much more in depth. They also do a series of podcasts on the idea, for those that think this may be for them.

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