How Does House Hacking Reduce Your Housing Cost?

House hacking is the strategy of purchasing a 2-4 unit residential property, living in one unit, and renting the others to offset your mortgage and expenses. It is a popular entry strategy in real estate investment analysis because of access to owner-occupied financing — lower down payments (3.5% FHA vs 20-25% investment) and lower interest rates (typically 0.5-0.75% less than investment loans). This is the only investment strategy where you can acquire an income-producing property with under 5% down using residential loan programs.

Financing Comparison: Owner-Occupied vs Investment

Loan Type	Down Payment	Rate Premium	PMI/MIP	Best For
FHA	3.5%	Base rate	MIP for life (<10% down)	First-time buyers, low savings
VA	0%	Base rate	No PMI (funding fee instead)	Veterans, active military
Conventional (owner)	5%	Base rate	PMI until 80% LTV	Good credit, plan to refinance
Investment	20-25%	+0.5-0.75%	None required	Pure rental, no occupancy

The financing advantage means house hackers can control a $300,000 income property with $10,500 down (FHA) instead of $60,000-$75,000 for an investment loan. This dramatically improves both accessibility and cash-on-cash returns — see our cash-on-cash return calculator for detailed ROI analysis.

The FHA Self-Sufficiency Test

For FHA-financed triplexes and fourplexes (not duplexes), HUD requires that 75% of gross rents from ALL units — including your unit at market rent — must equal or exceed the total monthly PITIA payment. This test prevents buyers from overextending on properties where rental income cannot support the mortgage (HUD 4155.1). At 7%+ interest rates, many triplex and fourplex deals fail this test even with strong rents. For the full PITI breakdown, see our mortgage payment calculator.

How Rental Income Offsets Costs

The calculator computes your effective housing cost by subtracting net rental income (after vacancy) from total monthly costs (mortgage + expenses). A successful house hack reduces your housing cost by 50-100%+ compared to renting an equivalent unit. Some fourplex house hackers achieve negative housing costs — meaning tenants cover all expenses and generate monthly cash flow.

How to Use This Calculator

1. Purchase Price — Enter the property’s total purchase price. House hack properties are typically 2-4 unit residential buildings.
2. Down Payment (%) — Select your down payment percentage. FHA minimum is 3.5%, conventional owner-occupied is 5%, VA is 0% (type manually if below slider minimum).
3. Interest Rate — Enter the rate from your lender. Owner-occupied rates are typically 0.5-0.75% lower than investment property rates at the same credit profile.
4. Loan Term — Typically 30 years for maximum cash flow benefit. A 15-year term builds equity faster but significantly increases your monthly mortgage payment.
5. Total Units — Enter the total number of units in the property (2-4 for residential financing).
6. Units Rented — Number of units you’ll rent out (total minus 1 for your unit). A duplex rents 1 unit; a fourplex rents 3.
7. Monthly Rent per Unit — Enter the expected rent for each rented unit. Use comparable market data from Zillow, Rentometer, or local property managers. If units have different rents, use the average.
8. Market Rent for Your Unit — What you’d pay to rent a comparable unit in the same area. This is used to calculate your housing cost savings.
9. Monthly Expenses — Include property taxes, insurance, maintenance, and repairs. Do NOT include mortgage payment (calculated separately). Estimate 30-40% of gross rent for newer properties, 40-50% for older ones.
10. Vacancy Rate — Expected vacancy percentage. Use 5% for strong rental markets, higher for areas with seasonal demand or student housing.

The calculator shows your net housing cost (what you effectively pay per month after rental income), percentage savings versus renting, and annual cash flow position. A negative housing cost means the property generates income beyond all costs.