How to “hack” your way to mortgage-free housing

For the vast majority of homebuyers, the reality of taking out a mortgage and making monthly payments can be intimidating, particularly for first-timers. Very few people have the luxury of buying a house without first having to qualify for a mortgage.

In a 2018 survey conducted by the National Association of Realtors®, buyers aged 37 and younger said saving for a down payment and getting a mortgage are two of the hardest parts of buying a home. One way first-time buyers can get over homebuying anxieties is by embracing a tactic known as “house-hacking.”

House-hacking can help you lower your mortgage payments or even erase them altogether. Here’s how it works: You buy a residential property (typically with two to four units), use some of the space as your primary residence and rent out the rest. Thanks to the rental income, you can potentially cover all or part of your mortgage and other housing expenses.

“If you can make it work for you, it is a great strategy to get started with homeownership,” Todd Huettner, president of Denver-based mortgage lender Huettner Capital, said in an interview. Of course, you first need to tackle the challenges of coming up with the down payment and qualifying for a loan, he added.

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Chad Carson, a real estate investor in Clemson, South Carolina, is a prime example of a successful house-hacker. As a first-time homebuyer at age 26, he bought a fourplex in 2006 with the intention of renting out multiple units. The residential building in Clemson was a vacant bank-owned foreclosure in need of major rehabilitation. He scooped up the building for just $70,000 and found creative ways to secure his down payment.

In what’s known as a buy, remodel, rent and refinance transaction, a local bank lent Carson 80% of the purchase price. In addition, he took out a private second mortgage with a real estate investor for part of the down payment and most of the $45,000 needed for remodeling. After renovating the property, Carson occupied one of the units and rented out the other three for a total of $1,200 a month. The monthly mortgage payment, including taxes and insurance, was $970, so he had a little over $200 per month to help cover maintenance and occasional vacancies.

He was close to living rent-free. “After paying $700 to $1,000 per month in rent, free housing was an amazing feeling,” Carson said.

Carson initially had no interest in real estate investing, but his parents had owned a few rental properties while he was growing up, which helped spark his post-college foray into the field. “The house-hack actually made the leap to entrepreneurship less scary, because it took away my biggest expense — housing,” Carson said.

Six months after the repairs were completed and renters had moved into the three units, Carson refinanced the property with a traditional 30-year loan. Because of the renovations, the property value had more than doubled to $155,000.

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Now 38, Carson and his wife still own the fourplex, where the rents have risen to $600 a month — up from the original $400 in 2006 — helping make the building a smart long-term investment.

Carson said house-hacking was “an amazing way” to buy a first home and a low-risk way to jump into real estate investing. He strongly recommended tapping the expertise of a real estate agent during the process, as that “can make or break the deal.”

However, Carson also cautioned that house-hacking isn’t for everybody, since it’s effectively a part-time job. “It requires you to get directly involved in the details of a property,” he said. “You have to live next to your tenants and handle maintenance and repairs, or at least call someone to do it.

“But my own house-hacking tenants were great and became my longtime friends,” Carson added. “And I enjoyed learning hands-on how to repair and manage a property. So if you’re OK getting your hands a little dirty in exchange for low-cost living and a long-term investment property, house-hacking [may be] for you.”

Before you dive into house-hacking, Julia Lorenz-Olson, 30, co-owner of financial planning firm The Art of Finance, in Austin, Texas, has recommended the following:

• Do your homework. Talk to a real estate agent about what the long-term rental market is like in the property’s area, including typical vacancy rates. With that knowledge in hand, you can nail down how much to charge for rent and compare that to your estimated mortgage payment.

• Stick with a mortgage that’s no more than 25% to 30% of your take-home pay. That way, you won’t struggle to pay the mortgage if a renter moves out and the space is vacant for an extended period of time.

• Treat the role of landlord as a true business. You’ve got to separate your business finances from your personal finances, and you need to set aside enough money for repairs. Create a spreadsheet to track financial transactions, and utilize an online platform like Cozy to handle property management tasks such as tenant screening and rent collection.

In the end, one of the keys to successful house-hacking is working closely with a real estate agent to ensure a property you’re considering is the right fit. For instance, can you afford the property? Are you confident you can turn it into a great investment?

If the answer to both questions is yes, you might be ready to become a house-hacker and work your way toward living in your home practically mortgage-free. Start your home search today by finding a Realtor®, a member of the National Association of Realtors®, at