The Best Properties for House Hacking: What to Look For
Jan 22, 2025
House hacking is one of the most powerful strategies for building wealth through real estate—especially for first-time investors. The idea is simple: you buy a property, live in part of it, and rent out the rest to cover your mortgage or generate additional income. But not all properties are suitable for house hacking, so it's crucial to know what to look for when selecting your first house hack.
In this post, we’ll dive into the best property types for house hacking, and share key features to consider as you embark on this exciting journey to financial independence.
1. Duplexes, Triplexes, and Fourplexes: The Classic Choice
When it comes to house hacking, duplexes (two-unit properties), triplexes (three units), and fourplexes (four units) are among the most popular choices. These properties offer multiple rental units under one roof, which allows you to live in one while renting out the others. Here’s why they’re often considered the best options for house hacking:
Advantages:
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Multiple Streams of Income: With multiple units, you can collect rent from more than one tenant. This is especially helpful for covering your mortgage and other property expenses.
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Easier Financing: Many lenders treat duplexes, triplexes, and fourplexes as “residential” properties, which means you can still qualify for conventional loans, FHA loans, and even low-down-payment options (as low as 3.5% with FHA).
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Flexibility: If your financial situation changes, you can choose to rent out more units, or move into a different unit, while keeping the property as a source of passive income.
Things to Keep in Mind:
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Zoning and Regulations: Check your local zoning laws to ensure these types of multi-unit properties are allowed in your area. Some neighborhoods have restrictions on the number of units that can be rented.
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Maintenance: The more units, the more maintenance. You’ll need to factor in the cost and time it takes to manage multiple rental units.
2. Single-Family Homes with Separate Living Spaces
Not everyone is interested in owning a multi-unit property right away. A great alternative is purchasing a single-family home that has the potential for renting out part of it, such as a basement apartment, an in-law suite, or a garage converted into a studio.
Advantages:
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Flexibility in Usage: You can rent out a basement, a finished attic, or even convert part of your garage into a livable space. These options provide the opportunity for house hacking without purchasing a duplex or triplex.
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Simpler Management: With fewer tenants and less complexity in managing multiple units, a single-family home might be more appealing for those who prefer a quieter, less demanding rental operation.
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Privacy: Renting out part of your home while living in another section offers more privacy than sharing a multi-unit property.
Things to Keep in Mind:
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Renovations: In some cases, you’ll need to make some renovations or modifications to create a separate, rentable unit. Make sure to factor in these potential costs before purchasing the property.
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Legal Requirements: Verify local laws regarding rental units in single-family homes. You may need to add a separate entrance, install extra utilities, or ensure that your unit meets specific building codes.
3. Multi-Family Properties with Separate Entrances
Another great house hacking option is a multi-family property that offers separate entrances for each unit. These properties are more common in urban and suburban areas, and may include anything from duplexes to five-plexes or larger buildings.
Advantages:
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Complete Separation Between Units: With separate entrances, your tenants have their own private access to the property, providing a more comfortable living experience. This also increases the attractiveness of your rental units, as tenants often prefer the privacy of a separate entrance.
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High Income Potential: Multi-family properties often offer the highest potential for rental income. With the right property, you could cover your mortgage and generate a substantial profit, especially in areas with high rental demand.
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Scalability: Multi-family properties offer more units, which can be ideal for investors who want to scale their portfolio quickly without having to purchase multiple properties.
Things to Keep in Mind:
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Upfront Costs: Multi-family properties generally cost more than single-family homes or duplexes. Make sure the potential rental income justifies the higher price.
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Management Challenges: More tenants mean more potential issues. Managing multiple units can be time-consuming and require more attention to detail.
4. Properties with Legal or Built-In Rental Units (ADUs)
Accessory Dwelling Units (ADUs) are smaller, self-contained rental units that can be attached to or detached from the main property. Common examples include a converted garage, a small backyard cottage, or a basement apartment with its own kitchen and bathroom.
Advantages:
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High Income Potential with Low Maintenance: ADUs can be a highly profitable addition to a property. Once you’ve built or converted an ADU, the ongoing maintenance is often minimal, especially if the unit is separate from the main home.
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Desirable for Tenants: Many tenants prefer the privacy and autonomy of living in a separate, smaller unit. ADUs can often command higher rents than a shared space in a multi-family property.
Things to Keep in Mind:
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Permitting and Zoning: Before you purchase a property with plans for an ADU, check with local authorities to ensure zoning laws allow for such a structure. You may need permits for new construction or significant renovations.
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Construction Costs: Converting a garage or building a new unit can be costly. Make sure the potential rental income justifies the investment, and that the local rental market can support higher rents for ADUs.
5. Properties in High-Demand Rental Markets
No matter what type of property you choose, location is critical. If you’re house hacking in a highly desirable area with strong rental demand, your chances of success increase significantly.
Advantages:
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Strong Rental Income: A property in a high-demand rental market (such as near universities, major employment hubs, or public transportation) is likely to attract tenants quickly, which increases your rental income.
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Appreciation Potential: Properties in strong rental markets tend to appreciate more over time, providing you with the opportunity for long-term wealth building.
Things to Keep in Mind:
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Higher Purchase Price: Properties in desirable areas are often more expensive, so you’ll need to ensure that the rental income will cover the higher costs of the property.
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Competitive Market: You may face more competition for desirable properties, so it’s essential to act quickly when you find a good deal.
Conclusion: What’s the Best Property for Your House Hack?
The best property for house hacking depends on your financial goals, lifestyle preferences, and the local real estate market. If you’re just getting started, a duplex or triplex with separate units may be the most straightforward option. If you prefer privacy, a single-family home with a basement or ADU may be a better fit.
Whatever property type you choose, make sure to carefully evaluate your financing options, calculate your potential rental income, and consider the long-term management needs. House hacking is a powerful way to build wealth, but the key to success lies in choosing the right property that fits your budget and your goals. Visit the Contact page to connect with Joel Jones to learn more about house hacking!
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