House Hacking: Living in One Unit and Renting the Rest
Buying a small multi-unit property (2-4 units), living in one unit, and renting out the rest. Often qualifies for the same low-down-payment financing as buying a regular home to live in, even though part of it is a rental.
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House hacking means buying a property with two to four units, living in one, and renting out the others. Because you occupy it, the purchase qualifies as a primary residence, which is the whole point, since owner-occupied financing is dramatically cheaper than investment financing.
Why the financing is the advantage
| Investment purchase | House hack | |
|---|---|---|
| Minimum down | 25% on 2 – 4 units | 3% – 5% conventional, 3.5% FHA |
| Rate | +0.5% – 0.875% premium | Standard primary-residence rate |
| Reserves | 2 – 6 months | Often minimal |
On a US$320,000 duplex, that is roughly US$80,000 down as an investor versus about US$11,200 at 3.5% FHA. The same deal, at a quarter the entry cost or less.
Lenders will usually count 75% of the rent from the units you do not occupy toward qualifying, which also helps your debt-to-income ratio.
An example
A US$320,000 duplex, FHA at 3.5% down (US$11,200), 30 years at 6.5%. Each side rents for US$1,500.
| Amount | |
|---|---|
| Mortgage (P&I) | US$1,952 |
| Tax, insurance, MIP | US$690 |
| Maintenance, CapEx, vacancy reserves | US$330 |
| Total monthly cost | US$2,972 |
| Rent from the other unit | US$1,500 |
| Your net housing cost | US$1,472 |
You live there for US$1,472 a month instead of paying US$1,500 in rent elsewhere, and you are building equity while a tenant pays most of the loan.
Move out after a year and both units rent: US$3,000 against US$2,972 of cost. Roughly break-even on paper, which after the reserves are counted is a functioning rental bought with US$11,200.
The rules
- Occupancy requirement: you must live there, typically for at least 12 months. Lying about this is mortgage fraud.
- FHA self-sufficiency test on 3 – 4 units: the rent must cover the full payment. This frequently rules out triplexes and fourplexes in expensive markets.
- MIP on FHA is permanent at low down payments, which argues for refinancing out later.
- One at a time, since you can only have one primary residence.
The catches
You share a building with your tenants. That means repair calls you cannot ignore, noise, and the awkwardness of chasing late rent from someone you see daily. Some people find this a reasonable trade for the economics; others strongly do not, and it is worth being honest with yourself before committing.
Also check HOA rental restrictions if there is an association, and confirm the property is legally a multi-unit rather than an unpermitted conversion.
Related reading
House hacking your first rental property works through the loan options and the numbers in more depth. Run a specific property through the calculator.
Longer reads on this
Related terms
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