Chicago House Hack Case Study + Advice Needed

5 Replies

Hey BP community,
Wanted to share my current House Hack situation plus gain input from the community on thoughts on how you would proceed given the situation below -- 


Purchased a legal 2 Flat with 3 units for $440k w/ 5% down in Avondale Chicago back in 2018. One of the three units is non conforming/illegal and we are currently living in that unit. The other two units (3 bd/1 & 1bd/1) are rented out with great, long term tenants for a combined $2,600. I also rent out the garage for $200 per month, bringing my total rental income to $2,800 per month. 


Current PITI is $2,700 on a 2.5% interest rate with $400k remaining on the loan. Most recent estimated value of the home is $500k during April finance in 2020. Current guesstimate is $525k-$550k based on market + similar homes that went for sale.


Chicago recently passed a law that in certain neighborhoods (mine included) allowing illegal units to become to become legal again. Aka bringing back coach houses/additional dwelling units. This would give me the opportunity to make my top unit legal or I could build a brand new coach house in the back yard while keeping the garage. 

Ideal outcome

My wife and I would like to look to move out of state to a warmer location. I would ideally like to keep a property in Chicago for the summer and find a similar building out of state where it is warmer. We are also exploring the idea of purchasing a van to do cross country road trips and having a coach house on top of a garage would be ideal for privacy while still getting income from the main property.


  1. Since our top unit is currently illegal, I wouldn't feel comfortable renting it out while we are living in a new location. 
  2. The cost to get the top unit up to code could easily be $100k based on one GC's walk through (creating a 2nd exit + getting everything up to code). 
  3. The building as a whole also has some old pipes that will eventually need replacing ($20k -$30k estimate). 
  4. Building a coachhouse in the back is roughly $200k minimum from the architects that I have spoken with. 


I am in no hurry to sell the property as its working great. Our mortgage is covered, the tenants are great, no kids for us currently and we like the area. BUT I want to start planning for the future (2-5 years) and wanted to reach out to the BP Community for their thoughts. 

  1. Sell it in the future "as is" when we are ready to move? 
  2. Sell the building now and pump the funds into a legal, Chicago property that eases these concerns?
  3. Spend money to make top unit legal or into building a coach house?
  4. Any other thoughts? 

Happy to provide more context/details and thanks in advance! 

@Donald Aleshire - First off congrats on an awesome deal!  Sounds like a perfect house hack and has been working out well.  

How small is the space you are living in the attic?  Assuming it has a bathroom and kitchen?

I guess I would question the concern for renting out the illegal unit?  There honestly isn't a ton of risk here in Chicago.

I always like recommending the idea of a home equity line of credit (HELOC) from @Michael Barbari with First Midwest. They can go up to 90% Loan to Value (LTV). With a HELOC you can keep your property, not pay interest on undrawn funds, and use that money for another investment property.

Doing all the other work like a coach house etc. wont really give you the return on investment (ROI) to get your money back so I dont think its worth it. Other wise just sell as is.

Thanks for this feedback @Jonathan Klemm  it definitely helps. 

The Space is roughly 800 SQFT and does include a kitchen/bathroom. 7 rooms in total (all though small rooms) it honestly works great for what we are trying to do currently. 

My concern with the illegal unit is from an insurance standpoint if worse case scenario happened. You are correct that a large majority of properties in Chicago have always had these. If I were to move out, I could easily get $1,300 for the space. 

Appreciate the referral to @Michael Barbari I'll connect with him to discuss a HELOC. I have been a fan of that option in the past but due to the market last year, couldn't get one lined up.

Hi Donald, I have been an insurance agent/broker in Illinois for 26 years and would be more than happy to discuss your insurance questions.  Please reach out to me.  Northeast insurance solutions in Northbrook IL 60062 Thanks, Alan Sussman

@Donald Aleshire   I agree with @Jonathan Klemm that simply taking the small risk and renting the top unit would be the least complicated solution. When you bought the property was the plan to never rent it out?  Im not sure spending the $100k+ spent to convert the top floor would push your value enough to recapture the rehab costs after refi.  For updates done where you cant recoup capital back through refi I like to see the cost recaptured through the resulting raised rent in under 10 yrs (or less if you plan to sell before then) -  otherwise the updates might not make financial sense on a buy/hold.   Ex:  $3,000 to add in unit laundry = $50/mo boosted rent =  recapture period 60 mo (5 yrs).   But if the $200,000 spend for a coach unit leads to an additional $1600/mo income you could recapture that spend in about 10 yrs.  Not too bad considering you are adding a lot of value at the same time. 

Also, insurance providers still provide liability, lost rent, and property coverage for non-conforming units - just need to pay for the boosted coverage.   

3rd option = Duplex top floor with 2nd?  Less bang for your buck, but at least it wouldn't be wasted space if you are set on not renting it out as a stand alone unit. 

Hi @Jake Fugman appreciate the feedback and agreed, renting out the top floor is the least complicated situation. I spoke with my insurance agent this week and he said I would be covered with insurance even in a non conforming unit. However there are still some risks in case of a major event (fire for example). 

Thanks for the detailed breakdown on how you think about the investments/rehab's + the return. This is a great way to look at it. 

When I started this house hack 3 years ago, I wanted to drastically reduce my rent + build wealth. A legal 2 flat with 3 units was the cheapest/easiest way for me to do it in a decent neighborhood. 

Good news, 3 years later, the plan worked out! I am now trying to plan for the next 3 - 5 years. Thanks everyone!