House Hacking: How to Save Money and Build Wealth with a Multi-Unit Property

On average, Americans who are able to build significant wealth do so through creative use of real estate investments. In the long run, owning a home will always be better than renting for life. However, if you’re willing to “house hack,” purchasing your own home could catapult your net worth even faster.
Broadly speaking, house hacking is the practice of owning a property and having your tenants pay your mortgage for you. This can be done by renting out a spare bedroom or basement, building an accessory dwelling unit (ADU) on the property, or buying a multi-unit property (duplex, triplex, or fourplex) and renting out the units you are not living in.
House hacking is a smart way to reduce or completely offset your monthly mortgage payments while being able to own 100% of the equity in the property and benefit from appreciation. Whether you are a seasoned real estate investor or a first-time homebuyer, house hacking can be a powerful path to financial freedom.

The greatest benefit of house hacking is that because you will actually be living in the property, you have access to residential mortgage programs that come with lower interest rates and lower down payment requirements than most investment property loans.
Investment properties can require down payments as high as 25 to 30 percent, but you can purchase a primary residence with as little as 5 percent down. FHA loans have down payments as low as 3.5 percent and can be used to purchase properties of one to four units. Veterans can even use VA loans to purchase primary residences with no money down!
House hacking also allows you to take advantage of the tax benefits associated with home ownership, while saving on taxes by deducting rental-related expenses and accounting for depreciation. Hacking allows people with modest incomes to live in nicer areas, pay off other expenses, or to make repairs they might otherwise need to defer.
By adopting a house hacking strategy, you get to significantly reduce or even eliminate your monthly mortgage payments. The rental income generated can cover a large portion, if not all, of your mortgage, taxes, and insurance. Over time, as you build equity in your property, the financial benefits can extend beyond just covering your living expenses.
Remember, rent prices increase while your monthly mortgage payment remains fixed over the life of your loan!

NOTE: The scenarios shared below are purely illustrative and may not reflect the actual financial dynamics in different parts of the U.S., where rent costs and property values vary widely.

Scenario 1: Purchasing a Duplex for $450,000

Down Payment: 3.5% of $450,000 = $15,750
Loan Amount: $450,000 – $15,750 = $434,250
Monthly Mortgage Payment (at 7% interest rate over 30 years): ≈ $2,888
Rental Income (assuming $1,600 rent from the other unit): $1,600
Net Monthly Payment: $2,888 – $1,600 = $1,288

Scenario 2: Purchasing a Triplex for $750,000

Down Payment: 3.5% of $750,000 = $26,250
Loan Amount: $750,000 – $26,250 = $723,750
Monthly Mortgage Payment (at 7% interest rate over 30 years): ≈ $4,819
Rental Income (assuming $1,600 rent from each of the other two units): $1,600 * 2 = $3,200
Net Monthly Payment: $4,819 – $3,200 = $1,619

Scenario 3: Purchasing a Fourplex for $1,100,000

Down Payment: 3.5% of $1,100,000 = $38,500
Loan Amount: $1,100,000 – $38,500 = $1,061,500
Monthly Mortgage Payment (at 7% interest rate over 30 years): ≈ $7,069
Rental Income (assuming $1,600 rent from each of the other three units): $1,600 * 3 = $4,800
Net Monthly Payment: $7,069 – $4,800 = $2,269

With the increased rent amount, the net monthly payment in each scenario is reduced, illustrating how higher rental income can further offset your monthly mortgage payment in a house hacking setup. SOURCE: JVM Lending

When it comes to house hacking, the best way to earn the maximum amount of financial benefit is to go big by investing in properties with two, three, or four units. This allows you to own multiple completely separate units, have your privacy in one of them, and get top dollar in rental income without having to invest even more money into finishing a basement or building an ADU on your property.
In the past, purchasing a multi-unit property meant shelling out 15-25% for down payment. However, new conventional loan guidelines allow you to buy a two-to-four-unit property with only 5% down.
With this new program, you will be able to save money on your home purchase and start building wealth in more ways than one:

Own multiple income-generating properties without having to save 15-25%.
Generate rental income to help cover your new mortgage payment.
Use projected rents as income to help you qualify.
Start building equity right away.
Have some extra cash to tackle high-interest debt and save even more money every month.

This new program offers a fantastic chance to generate rental income and/or ease the burden of mortgage payments with only modest upfront costs. And to make things even easier, you will be able to use the projected rents from the other units as income to help with qualification.

< Older Post Newer Post >

The Significant Impact of Dropping Mortgage Rates

July 22, 2024

1% Less, 5 Million More: The Significant Impact of Dropping Mortgage Rates

Parents - Are you teaching your kids about credit?

July 22, 2024

Parents - what are you teaching your children about credit and credit scores?

Stay Secure: How to Shield Your Real Estate Transactions from Wire Fraud

July 15, 2024

Understanding Wire Fraud in Real Estate

10 Things to do after buying a home!

July 8, 2024

Welcome to your new home! We know that moving can be a stressful time, but it’s also an exciting opportunity to start fresh and make your new place feel like home. To help you settle in, we’ve put together a list of the 10 things you should do after moving in.

Q&A Regarding Earnest Money

July 8, 2024

What is all this talk about Earnest Money?

Overcoming Housing Market Fears

May 8, 2024

Overcoming Housing Market Fears

Mastering Your Credit Score: The Key to Unlocking Your Dream Home

April 1, 2024

Mastering Your Credit Score: The Key to Unlocking Your Dream Home

Buy Your New Home Now, Sell Later (Formula for Low Stress & Maximum Profit)

By kim.renquest • February 21, 2024

In today's fast-paced, ever-changing real estate marketplace, moving homes without the immediate need to sell an existing residence provides an unmatched level of flexibility and strategic advantage to the process. In an environment where the movement of interest rates and market dynamics is so erratic, the traditional process of buying and selling can be very intimidating. But the historical record is clear, it pays to invest in real estate. How? Well, since 1942, homeowners who have held their properties for a decade or more have never failed to realize gains on their investments in all but one period.