Some of you may have heard the old saying: an asset puts money in your pocket, a liability takes money out. So, your house is not an asset unless it pays you to live in it. If you've never heard the term "house hacking" before, it's an investment strategy that's great for getting started. In fact, it's how I got started.

What is House Hacking?

House hacking is where you buy a small multi-family property like a duplex, live in one side, and rent out the other. Ideally, the income from the other unit covers the entire mortgage and all operating expenses. This significantly reduces your expenses, breaks even, or, my favorite, makes you money.

Yes, my first investment was a house hack. My wife wasn't thrilled about it until I showed her the math, which I'm about to share with you. I bought three duplexes side by side. We lived in one unit and rented out the other five. After a year, we upgraded to a better duplex in a better neighborhood and still live there today while renting out the other side. It's awesome—zero monthly housing costs, allowing us to save more for additional investments.

Other Forms of House Hacking

Besides living in a duplex, there are other forms of house hacking:
1. Live-in Flip: Buy a house, live in it while renovating, and sell it for a profit.
2. Room Rentals: Own a house or Lock Out Condo and rent out rooms to cover all expenses.

These strategies eliminate one of the largest expenses in your life—housing. Temporarily adopting house hacking can have significant long-term benefits, essentially investing in your future.

The Challenges of House Hacking

Before diving into how house hacking works, let's discuss the challenges:
1. Living Next to Tenants: You can't just hope they're good; you need to vet them or hire property management to avoid awkward moments.
2. Family Comfort: Ensure the neighborhood is comfortable for your family.
3. Shared Walls: Less privacy compared to a standalone house.
4. Temporary Home: This likely won't be your dream home but a stepping stone to get there faster.

The Benefits of House Hacking

Now, let's get to the good stuff:
1. Living for Free: Potentially making a profit with monthly cash flow.
2. Appreciation: Your asset increases in value over time.
3. Equity: Tenants pay the mortgage, building your equity.
4. Tax Benefits: Depreciation can reduce your taxable income.
5. Learning Investment: Start small and gain experience safely.

A Simple House Hacking Example

Let’s take a simple duplex deal:
- Purchase Price: $200,000
- Down Payment: $40,000 (20%)
- Loan: 30-year at 6.705%
- Monthly Mortgage Payment: $1,000

With expenses like maintenance, repairs, insurance, and taxes averaging $250 a month, your total expenses are $1,250 a month. Renting out the other side for $1,450 a month results in a $200 monthly profit, or $2,400 annually.

Over ten years, with a 3% annual appreciation, the value of the duplex increases to $265,000. You've created $165,000 in equity. Plus, living for free likely saved you $1,000 a month, adding another $120,000 in savings. Altogether, that's over $300,000 improvement on your balance sheet in ten years, just by house hacking a duplex.

House hacking can fund more income-producing assets, your dream home, or your retirement. The options are phenomenal. It just takes a little delayed gratification. Personally, I love duplexes. They’re cheaper per unit than single-family homes and more desirable for renters compared to apartments or condos.

For renters, duplexes offer the best of both worlds—affordability, privacy, and a small yard without the downsides of apartment living. They’re ideal for young professionals or older folks looking to downsize.

If you’re starting out or looking to change your financial course, house hacking could be the perfect option for you. It was for me, and it’s one of the best things I’ve ever done.