House hacking is a great way to offset living expenses.

What is House Hacking?

by Kaitlyn Ranze

Confession: I’m 33 years old and I’ve only lived alone for a single year of my adult life. I’ve just always had roommates. They’re whom I shared chores, heartbreak, and adventures.

So for me, when my then-boyfriend and I moved in together years ago, it was natural that we kept his roommate. But it was also intentional.

Sharing our living expenses in our first apartment allowed us to travel and play more. And then, when we focused on our goals, it allowed us to cashflow a wedding and buy a home after a little more than a year of saving aggressively.

There’s a name for our lifestyle: house hacking.

When we moved into our home, our roommate came with us. And then a second moved in. Since then, we’ve rotated a couple friends (really adopted family members) into the rooms until a baby became the newest roommate. Even though he jokes “no new roommate”, our current roommate turned into my daughter’s favorite human – the uncle who throws spontaneous dance parties, judges her outfits and sips tea with her when his adult friends are on his nerves.

We’ve reaped a ton of financial and social benefits from house hacking. Here are some of them.

Financial benefits of house hacking:

  • Shared expenses
  • We’re able to tackle more of our financial goals, like paying down my husband’s massive student loans
  • Home improvement and emergencies are less overwhelming
  • Built-in dog sitter
  • Benefits of their work perks
  • I got to blow extra money on gardening
  • No need for therapy when your roommate can’t escape being your ear
  • No FOMO forcing us to leave the house and spend

Social benefits of house hacking:

  • Sharing the burden of chores
  • Feeling safer and less isolated
  • Live-in accountability partner that reinforces positive behaviors like healthy eating and fitness routines
  • I have someone to bully my husband into watching chick flicks
  • We can go on adventures together that hubby avoids
  • Shopping buddy
  • Dance parties
  • Extra support during a pandemic or when a baby is being… well, a baby
  • Exposure to new things
  • Increased level of overall fabulousness (but that just may be specific to Christopher)

The list goes on and has some variability over the course of our history of roommates. (More on this later.)

There are some downsides to renting a room as a house hack:

  • Chores – some roommates are cleaner than others
  • Rent payment tardiness – it’s one thing for there to be a pandemic, but managing a roommate who is chronically late is admittedly awkward, tough, and potentially financially jeopardizing
  • Lack of privacy
  • Social discord and not getting along
  • Lifestyle conflicts (hello, thermostat)
  • Noise
  • Increased responsibility (For instance, we don’t mind handwashing dishes when the dishwasher gave out…)

Full disclosure: We’ve been lucky to only have one roommate who was chronically late (Covid passably excluded) with rent and another who was dirty. (Like our apartment charged us a fee for how bad their bathroom was on move-out.)

Another we weren’t happy with because frankly, their lifestyle was different than ours (Imagine gamers living with athletes). Even in that situation, we just went our separate directions after a year. There weren’t arguments, just a misalignment in values. Your ability to cope with less than ideal living situations is subject to your tolerance level.

But let’s say you decide against renting out a room, but you have an opportunity to buy a duplex, or put a trailer or tiny home on your property.

General Challenges of being a landlord

  • Repairs
  • Collecting Rent
  • Screening tenants
  • Dealing with problem renters, including evictions
  • Legal concerns – local laws vary. Example: You may have a ton of land but not be eligible to put a trailer or tiny home on your property
  • Managing finances, including paying taxes

How can you tell if house hacking is worth the trouble?

House hacking can get a lot more complex and strategic. For instance, if you’re trying to reduce or eliminate your housing payment, you’ll have to understand your cash flow numbers.

Running the numbers on house hacking

The Net Operating Income (NOI) is the amount of money your rental property will produce before paying your mortgage and income taxes.  Your NOI is important because it tells you how much of your mortgage payment will be covered by rent each month.

Disruptions in payment, like a pandemic, could be disastrous to your budget if the numbers aren’t right. While my husband and I choose to rent out a room to reduce the burden of a mortgage payment, we didn’t invest in a property or over-extend ourselves financially before buying. We bought a house we could afford without them and have been able to reinvest into our home with solar panels, a soft water system, gutters – adult stuff because we have had roommates.

Personal considerations in house hacking

Renting a room out isn’t all sunshine and dance parties. Being a landlord or even sharing a home is a deeply personal experience. You alone know how much convenience, privacy, and the burden of increased responsibility are worth.

Take a good look in the mirror and ask yourself:

  • How flexible and social are you?
  • Can you withstand a financial blow if someone can’t pay? If so, for how much and how long?
  • How much free time do you have to manage the property?
  • Are you protected with liability insurance?

You can create a situation that works best for you by vetting your tenant, planning ahead, and considering your options. While this seems time-consuming, house hacking can be rewarding socially but also a supremely lucrative investment strategy.

Rolling House Hacking into a Real Estate Investment Strategy

For many starting in real estate investing, house hacking is the first step. They’ll buy a place, rent out a portion of it, and refinance it. Often this will be a property that requires a little work, i.e. flipping. This particular strategy is known as the BRRRR Strategy (Buy, Rehab, Rent, Refinance, Repeat). 

If long-term rentals aren’t in the cards for you, you’re in luck. You could trial living with your parents or short-term stays through peer-to-peer rental sites like Airbnb.

Short-term stays with Airbnb

Avoid the pressure of collecting rent and long-term social interaction by renting out spaces for short term stays. Guests can come and go, and best of all, you can block out dates for increased privacy.

You should know, there are costs to hosting on Airbnb. These include cleaning fees, increased utility bills, taxes, Airbnb’s host fee, and maintaining the property.

You also might need to approval from homeowner’s associations, and if you’re renting, you may need to get permission from your landlord. Your city may require a business license and you may owe local taxes from any income you earn.

Weighing the risks and rewards of house hacking

Having roommates has helped us offset living expenses. We should be rolling in the bank but with lifestyle inflation and student loans, we’ve still got more work to do with managing our money. The thing is, house hacking and having a roommate has really helped financially. We’re worried a little less every month about making ends meet and can accomplish goals (like buying a small plane) a little faster.

That’s not all. For us, renting out a room was simple and natural. Acquaintances became friends and friends became adoptive family members. Their value as roommates was more than just their rent. For one of my former roommates, I am still his emergency contact. For another, I am his unofficial life coach. And when I need to vent, a lift, or a pick-me-up, I have a Rolodex of former roommates I can call. When this damn pandemic is really over, I can’t wait to have the biggest, loudest barbecue with them. My life is richer because we are house hacking.

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