House Hacking: How to build a financial runway in your 20s and 30s


As inflation gradually manifests itself in the housing market and more and more young people are finding it difficult to find a home with a reasonable budget, house hacking offers a great alternative pathway into homeownership and wealth-building. Put in practice, it makes a bigger financial difference than the most generous raise an employer can offer. At least, that’s my experience of having done it myself for a few years.

My goals and financial freedom written on a blackboard. My goals and financial freedom written on a blackboard. financial freedom stock pictures, royalty-free photos & images

What is house hacking?

In my opinion, house hacking is simply an in-between option for being a renter and landlord. To house hack, you would purchase a multi-family property, live in one of the units, and rent out the other unit(s). This is very different from purchasing a single-family house or condo, because, if you do it right, your rental income should cover most, if not all, of your mortgage, tax, and insurance cost associated with owning the property, as opposed to having to pay them from your job income. And aside from the initial downpayment, your ongoing expense for living in one of the units is almost nothing, sometimes even making you some money.

Why house hack?

House hacking is probably the most effective, proven, and repeatable way to build a financial runway in your early years. It’s important to point out the word “repeatable” in the adjectives I’ve added to describe house hacking. Unlike stock market investing or getting an amazing raise, which happens but depending on how you invest, the business cycle, your company performance, and your boss, it’s not always repeatable when given as advice for others to follow. However, the barrier to entry is far lower for house hacking, thus it’s a more repeatable way to build a financial runway.

To demonstrate the effectiveness of house hacking in building a financial runway, I will share the exact number from my first house hacking experience. The first property I owned is a three-family property, two 2-bedrooms units plus 1 studio unit. It’s not a particularly expensive property because, at the time, owning real estate is new to me and I didn’t want to commit too deeply to it yet. My escrow payment, which includes mortgage, property tax, and home insurance totaled $1,024 a month. I lived in one of the two-bedroom units, and the other was rented for $825 a month. The studio was rented for $500 a month. Therefore, the rental income I was receiving was about $300 more than my fixed expense. Yes, I do have to consider maintenance and capital expenditure like depreciation of the roof and furnace. But just from a simple cash-flow point of view, I was making money and lived for FREE!

Once I realized the power of house hacking, I just “turned it up to 11” with it. Since I was still single at that time, I found a roommate and rented out one of the bedrooms in the unit I was living in for $450 a month. So, my net cash flow goes from $300 to $750 a month! To put this in perspective, I was paying $750 for rent just a few months back.

Piggy Bank,3d Render Piggy Bank,3d Render money stock pictures, royalty-free photos & images

So, how much of a financial difference it has made for me? Just to put this in perspective, we can compare it to the equivalent salary raise from my job, and in order to have a fair comparison, we need to take taxes into account. The $750 per month of rental income I received was largely offset by the depreciation deduction. I won’t expand it too much here and will write another article just in this area in the future. Basically, you can consider the $750 per month rental income as after-tax money, and the money I used to pay rent prior to house hacking is also after-tax income. Therefore, my after-tax income has increased by $1,500. Assuming an overall 30% of the marginal tax rate, that roughly translates into a $25.7k before-tax salary increase!

So, why house hacking? Because it builds a financial runway. With enough financial runway, you have more freedom, more flexibility to make career choices, and more financial security.

The downside of house hacking

You are right to expect that not everything about house hacking will be rosy, because you are, now, a landlord. Being a landlord comes with a lot of responsibilities, the kind of things you never had to think about when being a renter. When something doesn’t work, you are the guy tenants are going to call and because you are the “owner” of this “enterprise”, you can’t just say that you don’t know and kick it to a different department. It simply doesn’t work that way, and everything good or bad leads to you.

Green Paper Man Stopping Wooden Domino Blocks Closeup of green paper man stopping wooden domino blocks on table against gray background responsibility stock pictures, royalty-free photos & images

For me, it has been an amazing growth experience. I learned about developing processes for handling different things, dealing with interpersonal relationships and managing tenants, how to make a sales pitch to prospective tenants, how keep an accounting of income and expense, learned more about taxes, and a lot more. And it is from those learning, came the inception of my all-in-one property management toolbox, PortfolioBay. Utilizing PortfolioBay to manage tenants, leases, payments, and maintenance have drastically improved the scalability of rental management.

Other consideration

At different stages of life, house hacking can be approached differently. In my earlier example, I was able to “turn it up to 11” because I was single and really don’t have much stuff. Years later, I’m still doing house hacking, but instead of being single, I’m married and at a stage to expect a bigger family. Therefore, my standard for looking at a house-hacking property will also take into consideration of neighborhood, and the size of the property. Not just focused on the cash flow aspect of the property. In the end, using house hacking to build a financial runway is to have a better, more comfortable life. So, whether house hacking fits your financial and family goal might be different for everyone, and at different stages in life, we might “house hacking” differently.


Meng Chen

Founder at PortfolioBay