House Hacking: 3 Ways to Cut Down (or Eliminate) Your Mortgage Payment

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A new client of mine sent me an article about house hacking with a note that said, I guess what I’m trying to do has a name and that’s house hacking. Her edification on this point surprised me as I hear the term so often, I thought everyone knew what it was. She’s financially savvy though and had not/did not know exactly what it is… so that makes me think there’s room to help others understand as well. And that, in a nut shell, is what this blog post is about. 

1. What Is House Hacking?

House hacking generally means cutting down your mortgage by renting out parts of your property either long-term or short-term to someone else. Typically, the person house hacking is the owner of the property and lives at the property—but is using other people to reduce their monthly mortgage.

2. How Do You House Hack?

There are a couple of ways to house hack, and I’ll explain the three most popular models here.

Related: The 5 BEST House Hacking Methods

Airbnb and Other Short-Term Rental Platforms

House hacking can be done with Airbnb and other short-term rental platforms easily and is a common model. This means you live in the property but utilize Airbnb to find people to rent out a space in your home while you are there and/or while you are away.

The advantages of house hacking with Airbnb are that you can charge a higher nightly rate, the guests are temporary, and you control how often you have renters.

The disadvantages of using Airbnb are that it requires more communication with the guests, and you have rotating strangers in your place.

This model is the most popular model with my clients, because it’s easy to find renters and they have a lot of control over who is coming and going and for how long.

Rent by the Room

In this scenario, you live and furnish the property but rent out spare rooms to different long-term renters (30 or more days). In most cases, you provide a queen-sized bed and a television in every room, furniture for common areas, and pay for the shared utilities (wifi, cable, electric, trash, etc.). Typically the way to charge for these rooms is to charge 70 to 75 percent of what a studio would cost in your area.

I have a client doing this right now who is buying (for the third time) a 5-bedroom/4-bath home. He will occupy one of the rooms, while renting out the other four rooms. His closing is still two weeks away, and he already has two different rooms rented out for $800/room on leases of three months or longer. In other words, he already knows that he’ll be paying at least $1,600 less for the first three months of his mortgage.

The advantages of this model are that finding individuals who need rentals is easier than finding groups, and also you can charge a lot more under this model. Assuming my client gets $800 for four rooms, he’ll make $3,200/month in rents, whereas the average 5-bedroom in that area rents for $1,700/month.

The disadvantage to this model is… well, people. You are going to see them in your kitchen, in your living room, and also have to have conversations with them.

Rent the Basement Out

A basement with a separate entrance is a beautiful thing. I know because I’m in the middle of buying this kind of property for this exact reason. Again, you’re responsible for paying for utilities and furniture, but you have the luxury of choosing whether or not you want to rent short-term (Airbnb), medium-term (30 to 100 days), or long-term six-month-plus stays.

The advantage of this model is that with a separate entry, you can really live separate lives without running into each other, and because it’s your primary residence, you have the flexibility to decide what kind of model you’d like to do.

The disadvantages to this model are that you may have to share the laundry and the kitchen with these renters and/or accept less rent and not share your laundry or kitchen with them (that’s what I do because… people).

Related: The ROI on the First Year of My House Hack: 82%

3. Where Can You Find Tenants for House Hacking?

So, there are the obvious places to find tenants for house hacking and those are: Airbnb, VRBO, Booking.com. A lot of people think that these platforms are limited to short-term renters, but you can also find a lot of long-term renters on them, as well. Roomster is also a good option, as is SpareRoom, for finding renters.

House hacking is extremely popular with our clients. To begin with, it allows them to live in a nicer home while paying the mortgage of a less nice home. And second, it is a good first step to investing. Since investing can seem daunting or risky, house hacking is a great way to educate yourself on having someone else pay your mortgage without feeling that you took a huge financial risk. 

Would you like more info on house hacking (particularly in Denver or Colorado Springs)?

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.