5 real-estate investors who 'house hacked' to afford their first properties explain how the strategy works and can help anyone build wealth

• If you're looking to get into real estate, house hacking is a strategy worth considering.
• It involves renting out a portion of your home and having rent-paying roommates.

It's difficult to buy a home in America right now, especially for millennials.

That said, it's not entirely impossible. Insider regularly interviews people who are buying property in today's tricky market.

One strategy that first-time homebuyers looking to break into the market could consider is called "house hacking." It involves renting out a portion of your home and essentially having rent-paying roommates.

It's cost-effective for two main reasons: One, since you're actually living in the property, you may qualify for an FHA loan, which is a government-backed mortgage that gives people the opportunity to buy a home with down payments as low as 3.5%.

Two, the rental income can lower your housing payment — or even completely eliminate it.

Here are five individuals who used house hacking to get their start and build equity quicker while lowering their overall risk.

Peter Keane-Rivera bought his first home for $355,000 and cut his monthly housing payment in half by house hacking

Peter Keane-Rivera lived frugally and found ways to increase his income before he could buy his first property. In late 2017, he had enough saved up to buy a $355,000 three-bed, two-bath house about 20 minutes south of Seattle.

His mortgage payment and other housing expenses came out to about $2,000 a month. To offset that cost, he found two roommates to fill the other rooms.

Keane-Rivera moved into the smallest room in his house and rented out the other two for $725 and $900 a month, he said. That dropped his monthly housing payment to $375.

Part of the reason he invested in this specific house was that it had an unfinished basement, which he figured he could turn into another bedroom and rent out. Rather than setting his sights on a second property, Keane-Rivera focused on working with what he already had. Over the following six months, he funded a $28,000 remodel.

By the time it was done, he was able to rent out the new room for $1,000, meaning his mortgage was entirely covered by rental income and he was living for free in his own home. Plus, he was profiting a little more than $500 a month.

Self-made millionaire Todd Baldwin bought a 6-bedroom home and rented 4 of the rooms

Seattle-based real estate investor Todd Baldwin bought his first property at age 23. It was a $506,000, six-bedroom home that he financed with a 3.5% down payment.

He and his girlfriend at the time (now wife) moved into the master bedroom and rented out the four other rooms, which more than covered his monthly mortgage. It meant finding compatible roommates and having significantly less space, but it allowed him to save more money to put toward a second property.

Since he was living for "free," collecting rental income, and earning a six-figure salary from his day job, he was able to save more money and continue buying rental properties. By age 25, Baldwin's net worth crossed $1 million, mostly thanks to rental income, he said. At 28, he became a multi-millionaire and felt comfortable leaving his 9-to-5 to double down on real estate.

Avery Heilbron says house hacking is 'the most inexpensive way to buy real estate'

After graduating in May 2018, Heilbron moved into an apartment in Boston with two roommates and paid $1,100 a month.

His goal was to buy a place as soon as possible but he didn't have enough savings to do so immediately. After nearly a year of living frugally and setting aside the majority of his paycheck, he had enough savings for a down payment.

He closed on a $525,000 duplex in March 2019 and financed the property with an FHA loan.

He and his girlfriend moved into the downstairs unit. It was a two-bedroom and they found a roommate for the other room. His girlfriend paid $400 in rent for her half of their room and the roommate paid $800 for his room. Heilbron also rented out the upstairs unit, a four-bedroom, to a family for $2,400.

He was bringing in $3,600 per month in rental income, which more than covered his $3,300 mortgage payment. Heilbron went from spending $1,100 per month in rent to living for free and profiting $300 a month. That $1,400 swing helped him save up for his second property, which he bought less than a year later, in May 2020.

Housing hacking is "the most inexpensive way to buy real estate," he said. He was able to earn cash flow like you can from an investment property without actually buying an investment property, which typically require larger down payments. In an expensive market like Boston, that wouldn't have been possible for him: "The houses in the area were half a million to a million dollars, so a 3.5% down payment was obviously much more attainable, at around 15 to 25 grand, compared to 20% down, which would have been somewhere between $100,000 and $250,000."

Ali and Josh Lupo bought a duplex on social-worker salaries

Ali and Josh Lupo managed to buy their first property despite being six-figures in debt and working relatively low-paying jobs.

After reading about house hacking, they ran the numbers and realized that by taking on more debt with the mortgage, they'd actually be able to pay off their other debt faster. At the time, they were paying $1,300 in rent in upstate New York. But the numbers showed that if they bought a duplex in the right price range and rented out half of it, they'd be able to lower their monthly housing payment significantly and free up extra cash to throw at their loans.

That's exactly what they did: They closed on a $155,000 duplex in 2018, moved into the downstairs unit, and rented out the upstairs one for $725, which covered more than half of their monthly mortgage payment and lowered their housing cost to about $660 a month, they said.

A few years later, Ali and Josh added to their real-estate portfolio, bought a second duplex, and started collecting rent from three units. It was enough to cover both mortgages, meaning they not only live for free but also earn a couple hundred dollars in profit each month, they said.