what is house hacking

Using house hacking in California is an effective real estate investing strategy. Let’s face it, California is expensive. Housing affordability is continuing to drift further from actually being attainable. Now, consider the new generation of millennial homebuyers with loads of student debt – it’s nearly impossible to afford buying a house in CA without getting creative.

The house hacking strategy allows real estate investors and newer homebuyers to flex their creative muscles and become homeowners. That’s no easy feat in The Golden State! Whether you find yourself in San Diego, San Jose, San Francisco, or Los Angeles, becoming a house hacker may be your best bet to buy that house you have your eyes set on. There are several examples in this guide of successful house hacking strategies that you can use today.

This ultimate guide to house hacking in California can help you buy your next home, launch your real estate investing career, and stop wasting your money paying rent.

What is House Hacking

Table of Contents

house hacking real estate

With a face full of beard, Brandon Turner coined the term house hacking in 2015 after successfully implementing this real estate investing strategy. Turner, from the BiggerPockets podcast, purchased a property to live in, rented out a portion of it, and used that rental income to offset some of his housing expenses. As the BiggerPockets podcast took off, so did house hacking.

The key ingredients to creating a successful sauce to lather on your house hacking strategy include:

  • A property that you can afford to purchase
  • Ability to rent out a portion of the property
  • Offset the housing expenses with the rental income
  • Be able to afford the remaining housing expenses as you live there (if there are any left)

House hacking has turned into an industry-wide phenomenon. First-time homebuyers and real estate investors house hack their way into amazing properties and projects. By covering a portion (or all) of your housing expenses via rental income generated through the home, you create an opportunity for you to afford a home that you otherwise may not have been able to. It’s an impactful real estate strategy that can change your life financially. Let’s break down what the house hacking strategy looks like with real numbers!

House Hacking Example

You are aiming to buy a single-family house for $750,000 in California. The home has 3 bedrooms in total. Here is how to buy that home in CA through house hacking:

  • Purchase Price of House: $750,000
  • Downpayment: $26,250
    • For this example, let’s say you use an FHA loan at 3.5% downpayment and 7% interest to purchase the home.
  • Mortgage Payment (monthly): $4,881
  • Rental Income by renting out two of the three bedrooms (monthly): $2,400
  • Total Mortgage Payment Owed by You: $2,481

That’s nearly cutting your mortgage in half! Not bad, right? Of course, we didn’t factor in other monthly housing expenses that can come along with owning real estate. Make sure to account for the following items when calculating the total return when house hacking in California:

  • Property Insurance
  • Property Taxes
  • HOA
  • Water Bill
  • Electricity Bill
  • Gas Bill
  • Landlord Expenses (rental licenses, taxes, etc.)
  • Maintenance and Repairs

A successful housing hack in California does NOT mean you need to cover the entirety of your monthly expenses. Yes, that is ideal (and AMAZING) if you can swing that. However, since places like San Diego and Los Angeles are so expensive, you must take what you can get. Now, let’s cover different ways to use California house hacking strategies when buying your next property.


How to use House Hacking in California

house hacking in California

Don’t be intimidated by the overwhelmingly high prices of California houses. Many homebuyers like you are facing the same fears! Fight the good fight and get creative with different house hacking strategies. The dream of being a homeowner is more achievable than you think when looking through the lens of a California house hacker.

1. Single-family House Hack

Don’t judge a book by its cover.

Just because a single-family home is technically a ‘single unit’ doesn’t mean you can’t house hack it! However, you will need to be comfortable living under the same roof as your tenants. For newer millennial homebuyers, this ain’t nothin’!

You can house hack in California by buying a single-family residence with multiple bedrooms, live in one, and rent out the others. This is becoming more common in larger, expensive cities. House hacking in San Diego has increased more because affordability has decreased. Again, get creative to reach your homeownership goals!

PRO TIP: Before officially housing hacking in California through this method, ask yourself this question. “Am I ok living with my tenants?” Not everyone is, and that is totally ok! But if you’re basing a huge financial decision off this question, make sure you’re ok with the outcome. Finding the right tenant for a house hack is VERY important if you’re living with them.

PRO TIP: House hacking doesn’t have to last forever. Say what? You can purchase a property and live in one of the rooms for a temporary chunk of time, with the ultimate vision to move out eventually. Once you move out, you can rent out your old room and make even more passive income.

BONUS TIP: If you want more privacy from your tenants, look for a property with separate entrances or with a bathroom inside the bedroom you’ll reside in.

2. Buy a Duplex for House Hacking

This is the tried and true way to house hack in California. Purchasing a duplex (2-unit building) is a great way to affordably buy your next home. You – the landlord – can live in one unit and rent out the other. Although you’re technically under the same roof, your units are completely separate. Now you won’t have to worry about your tenant getting a whiff of your smelly socks! Depending on the purchase price of your duplex, you may be able to cover the entire monthly mortgage payment with the rental income generated from the other unit.

But duplexes are impossible to find in California.

Difficult, yes. Impossible, no.

Typically – in life – things that are worth chasing after aren’t easy to obtain. Set your goals, map out a plan, and start your real estate investing career through house hacking in California. Many would argue that duplexes are the best kind of home for house hacking. Do you agree?

PRO TIP: There are limits to how much landlords can raise the rent for tenants that live in duplexes in California during a house hack.

3. Other Multi-family House Hacking Strategies

Housing hacking a triplex or quadplex in California is a powerful way to purchase a multi-unit building and not break the bank. With an FHA loan, you can buy up to a 4-unit building. Any property 5 units and above falls under a different set of lending rules which will require a much larger down payment. You would make the BiggerPockets community proud. Multi-unit buildings are ‘harder’ to house hack since the prices and mortgage payments are typically higher. But don’t dismiss triplexes and quadplexes altogether. Each house hacking opportunity in California is different from the next. Run your numbers and determine what makes the most financial sense.

4. Build an ADU

If you rent in San Diego or Los Angeles, there’s a chance you lived in an ADU. Accessory dwelling units are used by investors to house hack in California successfully.

Again, get as C-R-E-A-T-I-V-E as possible.

Don’t sleep on single-family homes that sit on large lots. Even if the single-family home has one 1 bedroom (which is rare) there’s still an opportunity to house hack it. You can build an ADU in the backyard and rent that out. San Diego house hacking thrives with this strategy. Of course, check with your local ADU regulations before committing to a property. Since the rental market is so crazy in San Diego, your ADU can likely produce a decent amount of rental income that you can put toward your monthly mortgage payment.

5. Convert the Garage

Who really needs a garage? Think about it. They usually turn into a storage closet for your gardening tools, old CDs, and Christmas lights, right? Plus, in California, the elements aren’t as harsh, so sheltering your car in a garage isn’t as important for homeowners in snowier states.

If you don’t have enough property to build an ADU in the backyard, consider converting your garage into its own unit. You can live there yourself and rent out the entire house to multiple tenants. Optimize the rental income you generate. Try house hacking in California by converting your garage that you don’t use. Most of us don’t have basements here, but we do have garages!

PRO TIP: If you do major home (or garage) renovations, make sure you pull the proper building permits when necessary. Trying to sell a house after illegal renovations were completed is tough.

6. Airbnb House Hacking in California

Airbnb is the most popular platform for short-term rentals. Homeowners can use Airbnb housing hacking in California in any of the strategies listed above. Airbnb is legal in certain cities and illegal in others. Before banking on using Airbnb to house hack in CA, double-check that it is legal. There are sometimes additional steps to get approved for offering short-term rental units, depending on the city in California.

Best Cities in California to House Hack Real Estate

house hacking San Diego

House Hacking in San Diego

Have you ever tried house hacking in San Diego? After looking at the housing prices, it can make you feel more depressed than having a ‘sandy eggo’.

*enters San Diego house hacking strategies to save the day*

You can successfully (and legally) house hack in San Diego, making it affordable to purchase a home. San Diego is prime for house hacking opportunities because the city is very spread out. There are areas where you can build ADUs and Junior ADUs to hypercharge rental income.

House Hacking in Los Angeles

Los Angeles is a beast in many ways. Yet, for some reason, people still enjoy living there (I’m biased). Housing hacking in Los Angeles is much easier than other places in CA. For example, San Francisco is a tough one to implement this real estate strategy. Avoid it and stick to Southern California house hacking.

Review landlord-tenant laws before jumping in. Familiarize yourself with the worst-case scenarios that can happen, like dealing with a squatter and not receiving rent. You can view our squatter’s rights guide to learn about laws regarding ejectment.


Tips for House Hacking in California

You Don’t Need a Ton of Money

It’s a myth that you need tons of money to successfully house hack in California. Homebuyers leverage favorable lender products like FHA Loans and VA Loans to purchase a home in CA through house hacking. These are the two cheapest loans to use when buying a house.

FHA loans are great because you can get in with 3.5% down. Yes, that’s still a big chunk when considering home values in California. But it does make house hacking more attainable!

VA loans are extremely popular in San Diego because of the large military presence. Tons of veterans use VA loans to put hardly any money down when buying a home. Try house hacking in San Diego by using a veteran’s affairs loan and save on your downpayment.

Find Good Tenants for House Hacking in California

house hacking in San Diego

Being a landlord is not always what it’s cracked up to be. However, we do it because it makes financial sense! Finding good tenants when housing hacking in California is surprisingly easier than you think. How is that? The demand for rentals in The Golden State is higher than the supply.

As a landlord, you get your choice of tenants. In San Diego and Los Angeles, landlords use Zillow, Craigslist, and Facebook to find tenants. Between those 3 platforms, finding the right tenant for your house hack will be a breeze.

The Legality of House Hacking in California

Yes, house hacking is perfectly legal in California. You can rent out a room, or unit, while living under the same roof. As a landlord, you must follow the landlord-tenant laws in the state of California. Staying compliant as a landlord allows you to legally house hack in this state.

Length of Time You Must Live in the Property When House Hacking

There are different types of loans that homebuyers use when house hacking in California. Typically, an owner-occupant loan requires a homebuyer to live in the property for a defined amount of time before they can move out.

When you house hack with an FHA loan or Conventional loan, you usually must live in the property for 12 months. Once your live-in period is over, you can move out, rent out your room (or unit), and repeat! That’s why house hacking is a great strategy to continuously level up your real estate investing portfolio.

PRO TIP: You will get a better interest rate if you live in the property and take out an owner-occupant loan.

Disclaimer: Loans and lenders can offer different terms. Consult with a professional mortgage lender to confirm this information.

Free House Hacking Calculator – Downloadable

Want to get started house hacking for free today? Check out this free calculator house hackers can use to determine how good a deal really is!

Click Here to Download Our Free House Hacking Calculator

House Hacking in California: Free Action Steps to Get Started

There are FREE action steps you can take today to get started house hacking in California. Especially if this is your first time house hacking, start talking to people in the real estate industry!

Investor-Friendly Realtors – You can speak to realtors about how to find the best home to house hack in San Diego or Los Angeles. They may have great opportunities for you where the numbers can work!

Mortgage Lenders – Additionally, start talking to lenders. You won’t know the exact numbers until you know what mortgage you qualify for and at what interest rate. This all depends on your current financial information. Start that process now so that you can jump on a house hacking real estate opportunity when it comes by.

Real Estate Meetups – Begin attending real estate meetups in your area. You can use BiggerPockets and Meetup.com to find ones near you. It’s worth it and free (usually)! Plus, you never know who has a duplex in their back pocket that they need to sell.

Talking to real estate professionals is free! Alex Capozzolo at SD House Guys is a licensed realtor in CA who has experience buying rental properties himself. Contact us today to learn more about how to start house hacking in California and the benefits you can experience.