At 28 years old I bought a three family house in New York City. While my story with real estate doesn’t start here, this was a significant  step in my financial freedom journey. At the time that I purchased the home, I didn’t know anything about financial independence or what the term house hacking meant. All I knew was if tenants paid the mortgage for me, I would have a smaller mortgage payment. The idea of a smaller mortgage payment sounded like a good idea to me. Despite not being a real estate expert at the time, the decision to house hack that multifamily home changed my financial trajectory. A similar decision could do the same for you if you are open to real estate as a vehicle for  financial independence.
What is House Hacking Exactly?
Brandon Turner at Bigger pockets coined the term “house hacking”. House hacking essentially means finding a way to reduce living expenses by maximizing the rental potential of a living space. If you have an apartment you are renting and you have a  roommate you are doing something similar. However, the term house hacking refers to a property that has a mortgage. House hacking  is possible with a single family home. But house hacking a multifamily property is especially appealing because of the possibility to lease the addtional units.Â
Financial Benefits of this Real Estate Strategy
Tenant Paid Equity Building
Tenants living in the same building as a homeowner might sound intimidating. However, discomfort sometimes is necessary in order to meet financial goals.  Having tenants renting space leads to a reduced out of pocket mortgage cost, and potentially no cost at all. For example, imagine buying a home and MAKING money each month from the home as opposed to paying the bank every month! With the correct pre-purchase analysis, house hacking could lead to cash flowing on a property. In addition, as the tenants pay down the mortgage on the homeowner’s behalf, the homeowner creates wealth as the equity increases. All of these benefits are with little to no money coming out of the homeowner’s pocket.
House hacking, on the other hand, is epic, life-changing stuff. When properly implemented, this can have a dramatic effect on your wallet and the financial destiny of your family.
Brandon Turner
Additional Income to Reduce Debt or Increase Savings Rate
Increased cashflow in the homeowner’s budget is another benefit to house hacking. House hacking leads to reduced or eliminated housing costs. As a result, the homeowner benefits from additional cash to either pay down debt faster OR increase their savings rate. Either of which is beneficial depending on your finance philosophy and your financial goals. Â I was able to live stress free when I was layed off from my job a few years ago. This was due to the added security of additional income streams from my tenants.
Investment Property with Low Down Payment
Finally, the ability to start real estate investing with a low downpayment is my favorite benefit to house hacking. Mortgages on 1 through 4 family homes are all grouped as residential loans. What this means is wheather a borrower purchases a single family, two family, three family or four family home, if the property is a primary residence the borower is eligible for a 3.5% or 5% down payment mortgage loan. Essentially, a borrower can get into an investment property with the benefits of an owner occupant down payment. Alternatively, the minimum down payment for a rental purchase is  20%. Essentially, house hacking makes real estate investing attainable for an average person look you or I.Â
Summary
So why is a two family, three family, or four family home a good option for a primary residence purchase? A multifamily purchase will turbo boost the financial independence journey. House hacking allows for a reduction in monthly livings costs. This allows funds for additional savings or debt pay down and an increase in equity using rental income. This real estate strategy is like investing training wheels with the benefits of equity building and increased cash flow. Check out the video below from the Bigger Pockets Podcast featuring Craig Curelop’s house hacking success story.
What is stopping you from purchasing a multifamily family property for your first or next purchase? Share your thoughts in the comments!
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