House Hacking: The Complete Guide

Ed couldn't afford a house. Not on his IT salary in Columbus, where starter homes pushed past $350,000. So he ran the numbers on a different approach.

A duplex listed at $340,000 in a B+ neighborhood. Two-bed/one-bath on each side. One unit rented at $1,800/month, the other vacant (he'd live there).

Conventional investment loan: 25% down = $85,000. Plus closing costs, he'd need $93,000 in cash. He had $22,000 saved.

FHA loan: 3.5% down = $11,900. Closing costs of $7,400. Total cash to close: $19,300. He had that.

Monthly PITI with FHA (including MIP): $2,500. Rental income from the other unit: $1,800. Ed's housing cost: $700/month. His coworkers paid $1,400 for a one-bedroom apartment. Ed paid half that and owned a building.

The FHA route cost him $73,700 less to enter. That $73,700 in freed capital? It became the down payment on his second property 14 months later.

One detail Ed almost missed: the FHA loan carries mortgage insurance premium (MIP) of roughly $220/month — and with less than 10% down, it stays for the life of the loan. That's the cost of the low entry. Some investors refinance into a conventional loan once they've built 20% equity to drop the MIP. Ed planned to do exactly that at year 3.

Ed's coworker Rachel watched him buy the duplex and wanted in. But she wasn't comfortable sharing a wall with a tenant. Different tolerance, different strategy.

Rachel found a 4-bedroom single-family in the same Columbus neighborhood for $285,000. FHA at 3.5% down: $9,975 plus $6,800 closing = $16,775 to close.

She moved into the master bedroom and rented the other three rooms at $850/month each through individual lease agreements. Total rental income: $2,550/month. Her PITI (including MIP): $2,180.

Rachel's housing cost: negative. The rental income exceeded her mortgage by $370/month. She was getting paid to live there.

The tradeoffs were real. Shared kitchen, shared bathroom on one side of the house, managing three roommate relationships instead of one tenant. She drafted a detailed roommate agreement — quiet hours after 10pm, guest policies, cleaning rotation for shared spaces, 30-day notice for either party.

Two of her roommates were stable for 18+ months. The third turned over twice in the first year — but room-by-room vacancies hurt less than full-unit vacancies. One empty room out of three cost Rachel $850/month, not $2,550.

After 14 months, Rachel was done sharing a kitchen. She moved out, converted the master to a fourth rental room, and the house now generates $3,400/month against $2,180 PITI. Cash flow after vacancy and maintenance reserves: $670/month. From a $16,775 investment.

Ed found a triplex in Columbus listed at $380,000. Three units: a 2-bed/1-bath (he'd live there), and two 1-bed/1-baths. All three in decent condition — no major rehab needed.

FHA at 3.5% down. Down payment: $13,300. Closing costs: $8,000. Total cash to close: $21,300.

Monthly costs: principal + interest at 6.75% on a 30-year = $2,380. Property taxes: $320. Insurance: $150. MIP: $220. Total PITI + MIP: $3,070.

He'd rent the two 1-beds. Market comps showed $1,050-$1,100 for similar units in the area. He priced conservatively at $1,050 and $1,100. Total rental income: $2,150.

Ed's housing cost while living there: $3,070 − $2,150 = $920/month. Comparable 2-bedroom apartments in the neighborhood: $1,400/month. He'd save $480/month and own a building.

Now the move-out math. At month 13, Ed rents his 2-bed for $1,350. Total gross rent: $3,500. Minus PITI: $3,070. Gross cash flow: $430/month. After 5% vacancy ($175) and 10% maintenance ($350), net cash flow is near break-even — about −$95/month.

That sounds bad. But Ed's also building equity through principal paydown (~$380/month going to principal in year 2), getting depreciation tax deductions (~$7,300/year on the rental portion), and the property appreciates. At 3% annual, the triplex is worth $440,000 in 5 years. Loan balance: ~$350,000. Equity: $90,000 from a $21,300 investment.

Break-even occupancy: $3,070 / $3,500 = 87.7%. He could lose one unit for a month and still nearly cover costs. That's a margin he could live with.

Month 13. Ed moves into a 1-bedroom apartment — $1,050/month — and rents his 2-bed unit for $1,350. The triplex now generates $3,500/month gross.

His next move: get pre-approved for property #2. The lender pulls his lease agreements on all three units. Per FHA guidelines, they credit 75% of gross rent ($2,625) against the triplex's PITI ($3,070). The gap — $445/month — counts as a debt in Ed's DTI. Manageable with his IT salary.

He finds a duplex 3 miles away. Listed at $298,000. FHA again, 3.5% down. Cash to close: $18,430. Ed had been saving the difference between his $1,050 rent and what he used to pay ($700 at the triplex). Plus the $430/month gross cash flow from the triplex before reserves. Over 12 months: roughly $14,000 in savings. He needed another $4,430 — covered by his emergency fund.

By month 26, Ed owned five doors across two properties. His net housing expense (apartment rent minus combined rental cash flow): $310/month. His coworkers still paid $1,400 for a 1-bed apartment.

By month 38 — year three — Ed had done a third house hack. A fourplex in a nearby suburb. He moved in, rented the other three units, and his housing cost dropped to $200/month. Total portfolio: 9 doors. Total cash invested across three purchases: $57,405. Estimated equity across all three: $142,000. Cash-on-cash return on property #1 (now fully rented for 2+ years): 24.2% before reserves.

Ed wasn't rich. But he was building wealth faster than anyone else in his office — on the same salary, with the same starting point. The difference was a 3.5% down payment on a duplex 38 months ago.