House hacking is one of the most popular real estate investing strategies for a reason—you can put very little money down and get a whole lot in exchange. Due to some governmental rules, you can put as little as 3.5% down and get a fourplex! You can’t tell me that’s not enticing.

While it wasn’t my first deal, I did house hack a triplex. I lived in a small one bedroom and rented out the larger, more profitable units. I learned a lot about property maintenance and tenant relationships while living on-site, and it really helped me become a better investor. For these reasons, I think house hacking is the single best way for new investors to get started in rental property investing.

How house hacking works

House hacking means being a live-in landlord. This can come in two forms:

You purchase a single-family home, live in one bedroom and rent out the others.
Or you can buy a duplex, triplex, or quadplex, live in one unit, and rent the rest—as I once did.

The key here is that you have to live in the property you buy.

A quadplex is the maximum number of units for a house hack due to banking rules. Basically, banks have decided that anything four units or smaller can be considered your “primary residence.” With that designation comes all sorts of benefits:

Lower interest rates
Down payment assistance programs
Higher loan-to-value ratio.

Using an FHA loan maximizes these benefits. This loan type allows borrowers to put as little as 3.5% down for anything up to four units.

Keep in mind that putting down less than 20% often mandates private mortgage insurance (PMI), which jacks up your monthly payments. But for many newbie investors, that reduced cash flow is worth it to get started in real estate with as many as four units.

How to house hack for less than $20,000

In addition to the down payment—which we’ll peg at 3.5%—we also need to consider two other major expenses: closing costs and cash reserves.

For closing costs, I typically reserve around $5,000. There are many state and local programs that can help reduce closing costs for a primary residence. If you’re a new investor and meet the programs’ criteria, do some digging.

Secondly, we need to keep some cash reserves. How much you need to reserve varies dramatically. A single-family rental requires less reserves than a multifamily would—only one fridge versus three, for example. If you buy an older property, you’ll need more reserves than something recently renovated. But $5,000 is a good ballpark.

That leaves us with $10,000 in expenses so far, with $10,000 remaining to stay under the entirely arbitrary threshold of $20,000 I set when researching this article

Now, let’s figure out how much we can afford. To do that, we divide our available cash—$10,000—by our 3.5% down payment to get our maximum price: $285,714.28, and not a penny.

So there we have it: Setting aside $10,000 for closing costs and cash reserves, we can still spend about $286,000.

Five great house hacking markets

Armed with our new budget, I searched for markets where houses can be purchased for under $286,000. These properties also needed to offer a good rent-to-price ratio (RTP), which is a strong proxy for cash flow.

(There were many other good markets other than these five, but these markets have good underlying fundamentals outside of just RTP.)

For fun, I also pulled the price of a duplex in each market and priced out what it would cost to get into the average duplex. Some of those go above our $20,000 threshold—but you are buying two units!

One note on methodology: We get our data priced by unit. For the duplex analysis here, I assume you buy both units in a building. I also used rent data for “multifamily” rather than “houses” for the rent analysis for duplexes.

St. Paul, MN

While Minnesota doesn’t normally command a lot of attention from real estate investors due to high prices, house hackers could find success in St. Paul. The city boasts solid rent-to-price ratios (RTPs), and the median home price just ekes it into our budget.

Interestingly, the RTP for a single-family rental in St. Paul is higher than that of a duplex, which is unusual—which is good because buying a duplex here is outside our price range.

St. Louis, MO

St. Louis offers the lowest entry point for single-family rentals on our list. To get into the median home here and enjoy the prospects of a very high 0.87% RTP, you’ll likely only need to bring about $15,000 in cash to the deal.

Duplexes offer a similar RTP and can still be had for under our budget of $20,000.

Cincinnati, OH

Cincinnati is another strong market with a higher RTP for houses than duplexes. Duplexes here are just over our price range, but if you’re interested, you better be aggressive—there are only 32 on the market right now.

Columbus, OH

Columbus, OH has great RTP numbers for both houses and duplexes, at 0.87% and 0.85% respectively. Both types of structures can be had for under our $20,000 budget, which is very enticing.

Jacksonville, FL

Jacksonville is the most polarizing of all our markets and I’m not entirely sure why. When I look at duplex sales over the last few months, they come in way lower than home prices, even for both units. I am wondering if that is an anomaly, but thought it would be interesting to share!

Given all that, Jacksonville single-family rentals have the lowest RTP on our list at 0.68%—still good! A duplex offers the best RTP at 1.34%. If you can find them, that is: There are only 27 currently on the market.

In some markets, buying a duplex increases the potential for cashflow—which is what I expected. In others, it actually reduced it.

This might be due to the methodology I used—but I’m curious to hear from investors who know these markets well, if that is the case.

In markets like Jacksonville and St. Louis, can you buy a duplex unit for cheaper, but still rent it for nearly the same amount? If so, that could be a very valuable strategic insight for all rental property investors out there.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.