Short answer: House hacking by the room means you buy a house as your own home, live in one bedroom, and rent the other bedrooms to separate housemates. Because you live there, you can often use an owner-occupant loan with a much smaller down payment than an investor loan. The rent from the other rooms can cover most or all of the monthly payment.
How it works
You buy a house you can take to six or more bedrooms, turning unused rooms into bedrooms where you can, with no more than four bedrooms per bathroom. You move into one. You rent each of the others to a separate adult, with shared use of the kitchen and living room.
Your housemates’ rent goes toward the mortgage, taxes, insurance, and utilities. You pay whatever is left.
Why it is the lowest-cost way to start
The loan. Investor loans commonly ask for 20 to 25 percent down. Loans for a home you live in can ask for far less. FHA loans, for example, start at 3.5 percent down for borrowers who qualify. These loans require you to actually live in the house, typically for at least the first year. Read your loan documents and do what they say.
The house. The classic house hack needs a duplex or a triplex, and those are scarce in a lot of neighborhoods. Renting by the room works with an ordinary house.
The learning. You find out how to screen people, set house rules, and collect rent while you are standing in the kitchen. That is the cheapest landlord training there is.
The math, with round numbers
This is an example to show the method. It is not a real property.
A six-bedroom house with two bathrooms:
| Per month | |
|---|---|
| Mortgage, taxes, and insurance | $2,100 |
| Utilities and internet | $450 |
| Total cost of the house | $2,550 |
| Five rooms rented at $175 a week | $3,792 |
| What living there pays you | $1,242 |
Without housemates, the same house costs you $2,550 a month. With five rooms rented at $175 a week, you live there free and come out about $1,242 ahead.
Rooms will sit empty sometimes. If one room is empty for a month, you still come out about $484 ahead that month. Keep a reserve for longer gaps, and for repairs.
What to check before you buy
- Room rents. Look up what rooms actually rent for in that zip code. Use listings, not guesses.
- The layout. Count bathrooms, parking spaces, and bedrooms that have their own door off a hallway.
- Your loan. Ask the lender how they treat room rent and what the occupancy requirement is.
- Your insurance. Tell the insurer you will rent rooms. A standard homeowner policy may not cover it.
Living with the people who pay you
- Put it in writing. The rent, the due date, what is included, the house rules, and how either side ends it. One agreement per room is the usual way.
- Screen every person. Same steps for everyone. Learn the fair housing rules that apply to shared housing where you live before you advertise.
- Give each person a private room with a lock on the door.
- Decide the shared rules early. Guests, noise, cleaning, parking, and the kitchen. Write them down before the first person moves in.
- Know your state’s rules. When the owner lives in the house, the law in some states treats housemates differently from ordinary tenants. Look it up or ask a local attorney.
When you move out
Your bedroom becomes one more rent check, and the house becomes a full coliving rental. At that point, run it as an investment. Put the numbers into the rent-by-the-room calculator and see whether it clears the bar in rent by the room vs. whole house: the math.
I have rented by the room since 1992, and I run six coliving properties in Atlanta today. House hacking by the room is the same model at its smallest size. For the full picture, read what coliving investing is.
Common questions
Can I house hack with an FHA loan?
FHA loans are for a home you live in, and the minimum down payment is 3.5 percent for borrowers who qualify. Whether and how a lender counts room rent toward your income varies, so ask the lender directly before you write an offer.
Do I need a duplex to house hack?
No. The classic house hack uses a duplex or triplex. Renting by the room does the same job with an ordinary single-family house, ideally one you can take to six to eight bedrooms.
Is the rent from housemates taxable?
Rental income is generally taxable, and some of your costs may be deductible against it. Talk to a tax professional about your own situation.
Education only, not financial, legal, or tax advice. Worked examples use round numbers to show the method and are not real properties unless they say so.