Real estate has long been recognized as one of the most reliable ways to build wealth, offering investors the opportunity to generate passive income, benefit from property appreciation, and leverage tax advantages. However, getting started in real estate investing can feel daunting due to high upfront costs, complex financing, and the need for property management knowledge. House hacking, especially when done with a traditional loan, offers a streamlined, low-risk way to overcome these challenges, making it the easiest and fastest path to wealth for new investors.
House hacking is a strategy that involves purchasing a multi-unit property (duplex, triplex, or fourplex) or even a single-family home, living in one part of the property, and renting out the other units or rooms. By doing so, you can use rental income to cover your mortgage payments and potentially live for free while building equity. Here’s why this method is a great starting point for your real estate journey and how the familiar, well-established process of using a traditional loan makes it even more accessible.
- Low Barriers to Entry with Traditional Loans
One of the biggest advantages of house hacking is that you can use a traditional mortgage—such as an FHA, VA, or conventional loan—to finance your purchase. Unlike investment property loans, which typically require a large down payment (20-25%) and stringent underwriting criteria, traditional loans for owner-occupied homes are much more accessible.
FHA Loan: Low Down Payment for High Leverage
An FHA loan, for instance, requires only 3.5% down (with a credit score of 580 or higher), making it possible for first-time buyers to purchase a property with minimal savings. For a $300,000 duplex, that’s just $10,500 down, instead of the $60,000 or more you might need with an investment property loan. This low barrier to entry allows you to buy property with a small amount of capital, making house hacking an affordable way to begin building wealth.
VA Loan: Zero Down for Qualified Veterans
For veterans and active-duty military, the VA loan program offers the ability to buy a home with zero down payment and no private mortgage insurance (PMI). This makes house hacking particularly attractive to military personnel looking to get started in real estate while minimizing upfront costs.
Conventional Loans: Flexibility for Non-First-Time Buyers
Even if you’re not a first-time buyer, conventional loans are available with as little as 5% down. This makes it easy to purchase a multi-unit property as your primary residence, especially if you’ve built up some savings or home equity.
In each of these scenarios, the key advantage is that the lending industry is already very familiar with these loan products. Traditional loans for house hacking are part of the well-established system of financing, and mortgage brokers, real estate agents, and lenders all know how to help you navigate the process.
- Rental Income Offsets Mortgage Payments
The cornerstone of house hacking is using rental income to cover most (or even all) of your mortgage payment. By renting out other units or rooms, you’re essentially leveraging someone else’s money to pay down your loan and build equity in the property.
Example: How Rental Income Covers Costs
Let’s say you purchase a duplex for $300,000 with an FHA loan. After a 3.5% down payment, your mortgage will be roughly $1,750 per month (including property taxes and insurance). If you rent the other unit for $1,200 per month, your out-of-pocket housing expense drops to just $550 per month.
In some cases, house hackers can find properties where the rent fully covers the mortgage, allowing them to live essentially for free. This dramatically reduces your living expenses while you build equity in the property, providing an easy, steady path to wealth creation.
Over time, as you pay down the mortgage and the property appreciates, you’ll be in a position to refinance or sell, freeing up capital for future investments.
- Familiarity in the Industry
Another reason house hacking is the easiest way to get started in real estate is that people in the real estate industry—from mortgage brokers to real estate agents—are highly familiar with this type of investment. They have helped many clients use traditional loans for house hacking and understand the nuances of how to structure these deals.
Real Estate Agents Understand House Hacking
Most real estate agents have experience working with house hackers and can guide you toward properties that make sense for this strategy. They can help you find multi-unit properties or single-family homes with separate units that are ideal for renting out. This experience makes the process smoother and less overwhelming for beginners.
Mortgage Lenders Know How to Qualify Rental Income
When applying for a loan, many mortgage lenders will factor in the potential rental income from the property to help you qualify. For example, if you’re purchasing a duplex, a lender might count up to 75% of the expected rental income as part of your total income, making it easier to qualify for a larger mortgage. Because lenders are familiar with house hacking, they know how to structure loans to maximize your borrowing power and make the numbers work.
This level of industry familiarity and support makes house hacking with a traditional loan one of the most accessible ways to start investing in real estate, even if you have limited experience.
- Tax Benefits
In addition to covering your mortgage, house hacking offers significant tax advantages. As a property owner, you can take advantage of the same tax deductions and strategies available to traditional real estate investors.
Mortgage Interest Deduction
The interest you pay on your mortgage is tax-deductible, lowering your overall taxable income. This benefit is particularly valuable during the early years of the mortgage when a significant portion of your payments goes toward interest.
Depreciation Deductions
You can depreciate the rental portion of your property, which allows you to deduct the “wear and tear” of the building from your taxable income. Depreciation can be a powerful tool in reducing your taxes, even though the property may be appreciating in value over time.
Expenses Deduction
Many of the expenses associated with the rental units—such as maintenance, repairs, insurance, and property management—are tax-deductible. This further reduces the amount of income on which you’ll pay taxes.
By taking advantage of these tax benefits, you can keep more of your rental income and accelerate your path to wealth.
- Leverage: Maximize Returns with Minimal Investment
The ability to use leverage (borrowing money to purchase an asset) is what makes real estate such a powerful wealth-building tool. With house hacking, you’re able to control a large, appreciating asset with minimal upfront cash, thanks to the low down payment requirements of traditional loans.
Example: Wealth Building with Leverage
Consider that you purchase a $300,000 duplex with $10,500 down. Over five years, if the property appreciates at just 3% annually, it would increase in value by about $47,000. Meanwhile, you’ve been using rental income to cover most of your mortgage, and a portion of your monthly payments is going toward reducing the principal balance on the loan. After five years, you might have built $80,000 or more in equity from appreciation and mortgage paydown—on an initial investment of just $10,500.
By leveraging a traditional loan for house hacking, you’re using other people’s money (OPM)—both the lender’s capital and your tenants’ rent—to build wealth, a strategy that can rapidly accelerate your financial growth.
- Easy Exit and Flexibility
House hacking gives you flexibility in your real estate journey. Because you’re using a traditional mortgage, the property is classified as an owner-occupied home, not an investment property, which means you’re getting favorable loan terms. But once you move out, the property can function entirely as a rental investment.
Easy Transition to a Full-Time Rental
After you’ve lived in the property for at least a year (a requirement for most owner-occupied loans), you can move out and rent the unit you were living in, turning the property into a full-time rental. At this point, you can either sell the property, refinance, or use the rental income to qualify for another house hack or investment property.
This exit strategy gives you flexibility: you can continue to house hack by purchasing additional properties or build a portfolio of rental properties for long-term wealth generation.
Conclusion
House hacking with a traditional loan is the easiest and fastest way to begin your real estate investment journey. With low down payments, rental income that offsets mortgage costs, and support from real estate professionals who are familiar with this strategy, house hacking provides a streamlined path to wealth. The ability to leverage a small amount of capital to control a valuable, appreciating asset makes house hacking an attractive option for new investors, while tax benefits and flexible exit strategies enhance its appeal.
By starting with house hacking, you can quickly gain experience, build equity, and set yourself on the path to financial independence through real estate.