House Hacking - Chicago

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House Hacking - Chicago

Matt Ference
New to Real Estate · St. Louis, MO · Member since 2020 · 35 posts · 33 votes

Hi everyone this is my first post, but right now I am 21 and I am a senior at Northern Illinois University and originally from St. Louis, MO (go cards). I am playing football while getting my MBA degree. I plan on moving to the Chicago area after football to pursue a career in sales. I am trying to “penny pinch” right now for my first investment which will be a house hack.

I was wondering if anyone could give advice regarding 1. location, 2. where to buy from (wholesalers/foreclosures, or neither), and most importantly 3. an exit strategy with the main question being:

“Is it better in today’s Chicago market to continuously purchase and move into new house hacks and fill your personal vacancy after or to stay in a house hack for multiple years and continuously buy rental properties?”

My guess would be that it depends on your situation and the numbers and to maximize the cash flow, but I would love to hear other opinions as I am super new to investing!

I would also love to connect with as many people in the Chicago area as possible!

Thank you!

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Zack KarpPro Member
Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
5y

@David Kohler you're spot on, and this is a lot of my frustration with BP and this great community. Don't get me wrong, I love BP, but the carrot is dangled here on this topic and how it's so easy to house hack with FHA and then rinse/repeat every year. No, it's not. You are going to put 3.5% down, and then no one talks about the part where you have to create 21.5% more equity to refinance out of FHA into Conventional so that you can use FHA again and not get stuck.

The exit strategy is critically important, before you even ink that purchase contract. You need to have a plan, know the realistic conservative ARV of what it will actually appraise for (not ZIllow), plan for costs to be higher than you want them to be, etc so that you don't get stuck. That's one thing that I talk about with every investor buyer of mine at the time of preapproval. And it's really easy to force 21.5% appreciation when you're buying $50K MFH's in Bufoo, Nebraska, but it's a much different story in most of Chicagoland with much higher price points.

Another solution for house hacking a 2-4 unit is Home Possible, which usually only works on the 1st property due to an income cap. It's a Conventional loan with 5% down for a 2-4 unit. And since you are already in a Conventional loan, there is no need to refi out of it. So you still have FHA in your pocket for property #2 without needing to force anything to refi. Currently the HP income cap in Chicagoland is $71,280/yr. If you make less than that, we figure out what kind of property and price point you can be eligible for, and you find the first property accordingly. Many people have never even heard of Home Possible, and even many LO's don't know about it, or how to play all the angles. It makes me cringe when I talk to someone who used FHA first when they could have used HP!

I'll get off my soapbox.  Best of luck!

847-387-5513
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  • Nicholas Mazdra
    Real Estate Agent · Fairbanks, AK · Member since 2020 · 25 posts · 15 votes
    5y

    Great question Matt,

    I don't have the answer for you, but I'm here to see what other people say! Thanks.

    0Reply
  • Tony AngelosPro Member
    Real Estate Agent · Member since 2019 · 192 posts · 131 votes
    5y

    @Matt Ference You're definitely in the right place to start with. There is no right answer to #1, that kind of depends on you. A better question is "where do you want to live" and then to try to find a property that fits your criteria near that area. Different areas offer different amenities, and since you ultimately will need to actually live there, mine as well pick somewhere you like. 

    2. No wrong way to find a deal. A good agent can help you find something if you lay out exactly what you're looking for/looking to achieve. 

    3.Again, no right answer, it all depends on your goals. If you're able to househack your first property with no, to minimal monthly payment and you're just stacking cash, maybe you don't need to househack and can just buy another property. It really depends on your situation, and what you're able to do.

    Good luck on your senior year and getting started building your portfolio!
     

    1Reply
  • Matt Ference
    OP
    New to Real Estate · St. Louis, MO · Member since 2020 · 35 posts · 33 votes
    5y

    @Tony Angelos 

    Much appreciated and I definitely agree with what you said

    0Reply
  • David Kohler
    Rental Property Investor · Joliet, IL · Member since 2020 · 9 posts · 0 votes
    5y

    @Tony Angelos I have a question on your advice for the exit strategy. Say a year goes buy and he only has enough to house hack again (can't afford to purchase a rental with a conventional loan) how could he house hack again with an FHA loan if he already has one, or what else could he do then?

    0Reply
  • Tom Shallcross
    Rental Property Investor · Chicago · Member since 2018 · 612 posts · 1k+ votes
    5y

    @Matt Ference - congrats on getting started, (and glad to see the MAC is trying to get a season in!). 

    A big driver for location is how much money will you actually have for down payment, reserves, repairs...etc. This answer can potentially exclude certain neighborhoods which can help you hone in your search (also judging by the penny-pinching comment, buying a foreclosure that needs a ton of work is probably not the right first investment). 

    There are a ton of great agents that specialize in working with househackers, but as @Tony Angelos mentioned, have a rough draft of your budget and cashflow expectations. This can obviously change, but it's more efficient to come to the table with a rough plan than to come in with a blank canvas. Same goes for the exit strategy, overall what are you trying to accomplish - and it's ok to not have a clear answer here.  

    Once you have a general idea, you can work to hone in on a few neighborhoods. Even if you're not buying now, get on the MLS every day and practice analyzing deals in that area so you know what a 2 unit, 2 unit with garden, 3 unit, and 4 unit go for and how certain rehabs or other attributes move the needle. You can do the same exercise with rents so you can better forecast rents you would receive.

    You can't comprehend a good deal without having a baseline to pull from. 

    3Reply
  • Tony AngelosPro Member
    Real Estate Agent · Member since 2019 · 192 posts · 131 votes
    5y

    @David Kohler @Tom Shallcross is right about exit strategy; when going into the investment it's totally fine to not have a clear answer but you should have an idea of where you want your next move to be on the chess board. 

    If @Matt Ference wanted to househack with an FHA loan again, he actually can. The stipulation is not that you can only get one FHA loan, but that you can only hold one FHA loan at a time. So, if he was able to get enough equity in the property over the course of a year and refi into a conventional loan he could apply for another FHA loan.

    2Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    5y

    @Matt Ference - I think you already answered your question with "My guess would be that it depends on your situation".....

    If you are going to be fresh out of college I'd recommend finding a househack in a nice area that you'd personally want to live in.  The key is to just get started and you dont' have to find the perfect deal like everyone makes you think.  If you are paying less rent than you normally would be, I consider that a win for your first deal.  Househacking would most likely be the easiest way for you to get going.  


    Otherwise find someone who knows what they are doing and work for free.

    [email protected]
    Quality Builders4.966 Reviews
    WebsiteView Page
    0Reply
  • David Kohler
    Rental Property Investor · Joliet, IL · Member since 2020 · 9 posts · 0 votes
    5y

    @Tony Angelos @Matt Ference That makes perfect sense. To build enough equity in that first year to refi to conventional may be tough, so I think the best bet would be to buy a property that may need some work done to try to get some forced appreciation, which may help build equity quicker than just paying the principle down.

    I’m in a similar spot as Matt, and am looking to get started in the Joliet area. Do either of you have any opinions or experiences in that general area?

    0Reply
  • Tony AngelosPro Member
    Real Estate Agent · Member since 2019 · 192 posts · 131 votes
    5y

    @David Kohler unless it's in a crazy hot market you're right. It's got to be forced. Definitely a lot more than just slapping some paint on the wall too. I don't have any experience in Joliet, but I just had a conversation with a friend who is from around the area and if memory serves right, he told me that the Joliet market is doing well compared to recent years. My advice is find someone who's an active investor in the area and develop a mentor/mentee relationship. There are a couple REI meetups focused on Joliet.

    0Reply
  • Zack KarpPro Member
    Lender · Schaumburg, IL · Member since 2015 · 833 posts · 774 votes
    5y

    @David Kohler you're spot on, and this is a lot of my frustration with BP and this great community. Don't get me wrong, I love BP, but the carrot is dangled here on this topic and how it's so easy to house hack with FHA and then rinse/repeat every year. No, it's not. You are going to put 3.5% down, and then no one talks about the part where you have to create 21.5% more equity to refinance out of FHA into Conventional so that you can use FHA again and not get stuck.

    The exit strategy is critically important, before you even ink that purchase contract. You need to have a plan, know the realistic conservative ARV of what it will actually appraise for (not ZIllow), plan for costs to be higher than you want them to be, etc so that you don't get stuck. That's one thing that I talk about with every investor buyer of mine at the time of preapproval. And it's really easy to force 21.5% appreciation when you're buying $50K MFH's in Bufoo, Nebraska, but it's a much different story in most of Chicagoland with much higher price points.

    Another solution for house hacking a 2-4 unit is Home Possible, which usually only works on the 1st property due to an income cap. It's a Conventional loan with 5% down for a 2-4 unit. And since you are already in a Conventional loan, there is no need to refi out of it. So you still have FHA in your pocket for property #2 without needing to force anything to refi. Currently the HP income cap in Chicagoland is $71,280/yr. If you make less than that, we figure out what kind of property and price point you can be eligible for, and you find the first property accordingly. Many people have never even heard of Home Possible, and even many LO's don't know about it, or how to play all the angles. It makes me cringe when I talk to someone who used FHA first when they could have used HP!

    I'll get off my soapbox.  Best of luck!

    847-387-5513
    7Reply
  • Paul De Luca
    Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
    5y

    Thanks to @Zack Karp I'm following that exact strategy he described with the Home Possible loans. Since I'm house hacking with my brother, I bought the first property using Home Possible in my name and now my brother is under contract to purchase our next one in his name also using Home Possible. Then, we'll each be using our FHA eligibility to pick up 2 more properties in the next two years.

    The value of having a partner to invest with can't be overstated. Find a friend, family member, partner, etc to invest with and you'll be able to accomplish more with less money.

    2Reply
  • Matt Ference
    OP
    New to Real Estate · St. Louis, MO · Member since 2020 · 35 posts · 33 votes
    5y

    @Tom Shallcross glad we are back playing as well! Thanks a ton as well for the insights I appreciate it!

    0Reply
  • Matt Ference
    OP
    New to Real Estate · St. Louis, MO · Member since 2020 · 35 posts · 33 votes
    5y

    @Tony Angelos ok got it only one FHA loan at a time but the ability to convert past ones into conventional loans. Thank you!!

    0Reply
  • Matt Ference
    OP
    New to Real Estate · St. Louis, MO · Member since 2020 · 35 posts · 33 votes
    5y

    @Jonathan Klemm Great advise thank you Jonathan!!

    0Reply
  • Matt Ference
    OP
    New to Real Estate · St. Louis, MO · Member since 2020 · 35 posts · 33 votes
    5y

    @David Kohler great thank you David! It’s tough to plan out and navigate as you move forward.

    0Reply
  • Matt Ference
    OP
    New to Real Estate · St. Louis, MO · Member since 2020 · 35 posts · 33 votes
    5y

    @Zack Karp Wow! Thank you so much for that insight! That sounds a lot better and more realistic for myself due to coming out of college without much experience regarding my income.

    2Reply
  • Matt Ference
    OP
    New to Real Estate · St. Louis, MO · Member since 2020 · 35 posts · 33 votes
    5y

    @Paul De Luca Just heard Andrew and Annie Taggart on the “Straight Up Chicago Investor” podcast talk about the power partnering can have as it can allow you to move much faster like you said Paul thank you!!

    0Reply
  • David Kohler
    Rental Property Investor · Joliet, IL · Member since 2020 · 9 posts · 0 votes
    5y

    @Paul De Luca great strategy. Are you planning on setting up an LLC, and do you know how that would work to transfer them over? I assume you could only transfer in one FHA and one HP right?

    0Reply
  • Paul De Luca
    Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
    5y

    @David Kohler We will probably setup an LLC for each property, but I'm not sure of the logistics of transferring them. I definitely need to talk to an attorney about that.

    0Reply
  • Alex Ferraro
    Investor · South Bend, IN · Member since 2018 · 111 posts · 57 votes
    5y

    @Matt Ference

    Glad to hear your getting started so early! I am actually going through the refinance process now with the FHA, and I got lucky in that I added enough equity for it to work. I agree that the catch 22 is that you need to balance not taking on a project too large that you're in over your head, but also trying to add enough equity so you can refi out of the FHA. The FHA 203k construction loan is always an option, but can also be a headache.

    As said above, the other options are to partner with someone else or just accept the fact that you might not refi as soon as you want. IMO, a lot of it depends on how much you make in your full time job and how much you like that job.

    I’m happy to answer any other specific questions or talk about my experience more if you’d like.

    0Reply
  • Matt Ference
    OP
    New to Real Estate · St. Louis, MO · Member since 2020 · 35 posts · 33 votes
    5y

    @Alex Ferraro definitely agree. Would love to connect and talk more!

    0Reply
  • Jose Lopez
    Rental Property Investor · Los Angeles, CA · Member since 2019 · 18 posts · 6 votes
    5y

    @Matt Ference im looking to invest in Chicago as well. SFHomes. I house hacked here in LA. Now branching out of state.

    0Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    5y

    @Matt Ference I would not partner using an FHA loan. I have had three partners now on larger deals, and there are definitely pluses and minuses. The main reason I have brought on partners is because I did not have enough capital, but if capital is the issue with an FHA deal then frankly you just need to save up more money. Do not rush in real estate. You are already young so let time work in your favor and invest when you have your finances in place.

    With that being said, house hacking is still an excellent strategy. The FHA loan is a great way to get in the game, although it is very challenging to find a deal that many people here on BP want to do in the current environment. You normally will need to explore more challenging areas of Chicago or the suburbs to find a deal that will fit the numbers on the BP calculator. As @Zack Karp mentioned, the home possible loan is great if you can fit into the very narrow guidelines that it offers. That was our go to move last year for all of our clients, but this year it is proving to be a challenge. There is also a fantastic credit union I work with that will do 10% down loans. 

    The most important thing you can do now is to align yourself with great people and learn, learn, learn! 

    3Reply
  • Ricardo Ortiz
    Flipper/Rehabber · Chicago, IL (chciago) · Member since 2020 · 2 posts · 0 votes
    5y

    Hi @Matt Ference nice to hear from you I’m in Chicagoland area and currently looking into buying properties. I am 21 as well and eager to make my first move but one thing forsure I would say is do your research and get well informed before anything. Hope to he’s soon from you

    0Reply
  • Matt Ference
    OP
    New to Real Estate · St. Louis, MO · Member since 2020 · 35 posts · 33 votes
    5y

    @John Warren Most definitely, I am trying to learn as much as possible from people like yourself! Thanks for the input!

    1Reply
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