House Hacking in an Expensive City

9 Replies

Hey everyone, I am new to the BP Forums, but have been listening to the pods for a while now. I'm 23 and live in Chicago and am want to buy a duplex/triplex/4-plex to live in and rent out the other units. I have been looking at a handful of potential deals and the majority of them barely cashflow or are negative if I include myself paying rent (in theory to cover the mortgage). In these scenarios I am assuming a loan of 3.5%-5% down as I do not have the capital for a larger down payment in the expensive Chicago market. I haven't seen many deals less that $600K for where I am looking and some of the deals are up to $1-$1.25M.  

Does it make sense to buy a deal where I am paying the same amount as I currently pay for my rental to help cover the mortgage and at least own the house? Or should I look for deals that make more sense return-wise in other smaller/less expensive markets? The way I see it is that renting a house is basically burning money. 

I am just starting out so I have a good grasp of underwriting and concepts but not a great baseline of what I should expect for returns, especially in a "House Hacking" scenario. Has anyone else had this issue?

Sometimes house hacking doesn't always go positive, especially in an area like that. So you may have to pay a very minimal amount of mortgage but its still a very good idea. Also look into buying a home around 600k etc. with multiple bedrooms and rent out those rooms to people as well. This method will almost always give you positive cash flow but you will end up being a little closer in proximity to your tenants which can be a downside for some people.

Hey Kyle! I am actually closing on a house hack in Lakeview in about two weeks so I totally understand where you're coming from. The way I thought about it was do I want to have the best return based on numbers or the best return based on lifestyle, and I ended up choosing the second. I will have monthly out of pocket expenses myself, but it'll be less than market rent. I also know that once I move out, the property will cash flow a decent amount, and I am confident in the appreciation that can come from this property and the Lakeview area. 

I personally think it is worth it to own if you can pay less than market rent, and you can still have your reserves because you also get the tax benefits from home ownership, as well as potential appreciation. 

This obviously can change depending on where you're looking because there are definitely areas in Chicago where you could house lack and even make some money while living there. You just need to choose your priorities. 

@Kyle Winston are you able to/would you want to partner with anyone who may be able to give you a larger portion of a down payment to lower the payments and find a way to split the equity given that you will be paying a portion of the rent?

Why not rent and get some roommates to cover most of the rent...... then take the capital you do have and either save up or find somewhere else to invest it.

Around me (expensive area) not all landlords are into properties for the same price... if you hunt down a good deal and act fast you can rent a nice place far cheaper than buying it. I'd need close to 300k if not more to make my monthly payment the same as rent.... and 300k deployed elsewhere would cover my rent and then some....

Im soon to be closing on a 3-flat in Jefferson Park. I’ll be house hacking and it’s only one property of few I’ve seen in the past 3 months in my desired area that will cash flow positive. Before offering on this place, I looked at 15 in person after god knows how many online.

The only words of wisdom I can offer is to not give up and be prepared to turn in an offer the moment you find a “deal”. Mine had 2 offers by day 4 after listing. Don’t settle and keep at it. You got this!

I’m with ya brother! I’m trying to househack with a 3 flat in Avondale. Id live in legal garden unit with my fiancé and rent out unit 1 and 2 for $1725. All are 3 bed 1 bath. Trying to see if get a 5% conventional loan with Sam Sharpe who @brieschmidt recommended. He’s a lender with Guaranteed Rate. That should help lower the PMI cost a bit from $400 monthly to $275. The PP I’m at right now is $610k. I’m currently renting a 1 bed bath apartment for $1475 in Logan square. I think it comes down to what are your life’s goal? I think mine is building our net worth and just cash flow to break even. At least for the first one or two just to get in the game. It’s also bigger picture of your retirement years. Once the buildings are paid off then it’s cash flowing like kings.

I’m with ya tho. I’ve been trying to househack for a couple years and it’s not easy in Chicago!!

@Dan Razowsky We might as well be the same person. I'm currently renting Logan Square until closing as well. I also am working with Sam Sharpe on the loan side, but I had to put 20% down (my credit score wasn't great, so maybe your situation might be different). Do you already have pre-approval from Guaranteed Rate? On the place I'm under contract for, that pre-approval is what helped me win a multiple offer situation.

I was looking all the way from Logan Sqaure to Jefferson Park near the blue line, but not much was available with positive cash flow. Good luck! I'll send you a connection invite. I'm sure we'll cross paths or be able to learn from each other as we go down similar paths.

Originally posted by @Kyle Winston :

Hey everyone, I am new to the BP Forums, but have been listening to the pods for a while now. I'm 23 and live in Chicago and am want to buy a duplex/triplex/4-plex to live in and rent out the other units. I have been looking at a handful of potential deals and the majority of them barely cashflow or are negative if I include myself paying rent (in theory to cover the mortgage). In these scenarios I am assuming a loan of 3.5%-5% down as I do not have the capital for a larger down payment in the expensive Chicago market. I haven't seen many deals less that $600K for where I am looking and some of the deals are up to $1-$1.25M.  

Does it make sense to buy a deal where I am paying the same amount as I currently pay for my rental to help cover the mortgage and at least own the house? Or should I look for deals that make more sense return-wise in other smaller/less expensive markets? The way I see it is that renting a house is basically burning money. 

I am just starting out so I have a good grasp of underwriting and concepts but not a great baseline of what I should expect for returns, especially in a "House Hacking" scenario. Has anyone else had this issue?

 Hey Kyle.  My wife and I ran into this same problem when we first started.  The challenge with house hacking is weighing the aspect of 'places we'd like to live' with 'places where the numbers make sense.'  We were able to find somewhat of a compromise in Irving Park.  It was not our dream neighborhood, by any stretch, but we were a 15 minute walk from both the blue and the brown line, which was huge.  We were a short bus ride to Lakeview.  And the numbers were great from an investment standpoint...which we felt would justify taking frequent taxis(and then uber!) to meetup our friends east of the river.  I'd expand your search a bit and give a chance to some of the neighborhoods that maybe aren't quite the fun, trendy neighborhoods, but are close to them.  

Hey Kyle!  First off, congrats on getting this going at a younger age....starting earlier pays dividends!  And what you mentioned is common in Chicago.  It's going to be hard to find the trifecta: 1) low down payment, 2) place in a nicer area that you want to live in, and 3) you don't pay a dime monthly.  Often you need to compromise a bit....but the good news is you're still achieving a lot of the benefit, such as tax write-offs, paying principal down mostly via the rental income, long-term appreciation, and reducing your housing expense significantly.  Then, as mentioned above, you move out one day and have a nice long-term investment that you got into with minimal money down.  That's actually how I got my start in real estate many moons ago.  As time goes buy, that first multi-unit purchase becomes more and more attractive/profitable.  

As this is a world I know very well, happy to talk through all the ins and outs with you!  Never hesitate to drop me a PM!