Best Areas for Househacking in Chicago

16 Replies

I'm new to real estate investing and trying to get into owning a Multifamily unit using as little capital as possible. Househacking seems to be very newbie friendly and I'm looking to target a couple of areas in Chicago for my first one.

Can anyone recommend what are good areas in Chicago to house hack? In terms of being a decent area(while not too over priced) and a up and coming area?

Well decent area is pretty subjective.  What one may find acceptable others wouldn't. You can look at the Crime stats in a neighborhood. This City is pretty open about that https://data.cityofchicago.org.. Personally, it's critical whether you are going to house hack or not to walk the neighborhood you are looking at to make that determination yourself.  make sure you do so at various times.

 A lot is driven my your budget.  Another factor do you want the property to be fixed up, or do you want to do that.  If have talents in that department or willing to endure hiring it out, then that will open up more options.

My partner and I are flipping a property to house hack in Avondale.  We are microblogging our progress.  Anyone who wants to follow along can PM me and I'll send the link to signup.

I would recommend getting a great real estate who knows the area well and is also an investor. This will help you find the best areas to house hack around Chicago. They will be able to tell you the areas where people have been investing and what kind of numbers you can expect in those areas.

If you are okay being a bit outside of downtown, there are a few good areas. From what I have seen, people have been looking a lot in Berwyn and surrounding areas such as Forest Park, Brookfield, La Grange, and parts of Cicero.

If you do not have an agent already, I would recommend connecting with @John Warren . He’s very knowledgeable about the area and has been incredibly helpful for me. I am under contract on my first deal in Berwyn now.

@Chris Winslow thanks for the shout out! @Michael Brown you can definitely do well in the near western suburbs if you are patient. A lot of my clients end up choosing areas near transportation as most of these suburbs are well within the CTA and Metra reach. Where Chris is buying for instance, is close to the blue line. A lot of this will depend on your goals though. When you house hack you are always blending your living situation with your investment, so you sometimes have to sacrifice a bit on one or the other. Cash flow tends to be easier to find in the B and C areas, but we all want to live in the A areas!

Originally posted by @Michael Brown :

I'm new to real estate investing and trying to get into owning a Multifamily unit using as little capital as possible. Househacking seems to be very newbie friendly and I'm looking to target a couple of areas in Chicago for my first one.

Can anyone recommend what are good areas in Chicago to house hack? In terms of being a decent area(while not too over priced) and a up and coming area?

My recommendation:

  1. Get pre-approved by a lender so you know how much you can afford
  2. Once you know how much you qualify for then start researching areas that are within your price point. 
  3. Physically or virtually explore the areas within your price point & determine 3 areas you would not mind living in. 
  4. Hire an agent to help you with the search, running financial analysis, and placing offers for listed and off-market properties in your area of interest. 

House hacking is an awesome strategy. I house hack a 4 unit in rogers park/edgewater. My #1 pick right now is Albany Park prices are still relatively cheap and appreciating/rent prices growing like crazy. There also is Avondale, Logan Square, East Humboldt Park, West Town where prices are a bit higher but can still find deals that work especially if OK with an illegal 3rd or 4th unit for additional income. 

Not currently easily atleast but they are in talks about changing the zoning laws to where you can build/legalize accessory units soon.

@Michael Brown Here are some areas that I recommend for the 2-4 unit search (assuming a $400-500k budget and "balanced" cash flow / appreciation. In most of these areas you can find something that will cashflow $100-200/door after move out with only 5% down. Remember that any legal 3-4 unit must pass the FHA self sufficiency test (SST). If you find a legal 2 unit + bonus (basement or attic) it wont need to pass the SST. As mentioned a lot depends on your needs for commute, tolerance for crime, etc..

North / NW side:  Portage Park / Hermosa/  Irving Park / Mayfair

West side:  East Garfield Park

South / SW:  Marshall Square, Douglas Park, Woodlawn (closer to UIC)

Good luck!

@Michael Brown   I think the best area to house hack in depends on what you want to get out of it.  Do you want to reduce your monthly cost of living?  Do you want to live for nearly $0 per month?  Do you want to get paid to live in the house hack?  Depending on your answer, that may lead you to different areas in Chicago.  

My first house hack in Portage Park drastically reduced my monthly living expenses.  My 2nd house hack in Avondale allowed me to pay about $50/month out of pocket to cover the mortgage.  My 3rd house hack in Garfield Ridge is paying me to house hack.  Every neighborhood I've done this in has had their pros/cons but I haven't regretted any of the decisions.  

Find your answers as to why you want to do this and it should help point you in the direction of which neighborhood is best for you.

@Ryan Canfield thank you for clarified for me. also, can you tell me about percentage of vancancy and other expense so i can plan it better? I want to get my first property in albany park. goals are live in for free or to less than what i am paying now  for the property. 

@Kevin Kim   That's a great plan and a very achievable one.  I've allocated 5% for vacancies since they've all been in areas that will not have extended vacancies.  Depending on the neighborhood and time of year, that number may fluctuate up/down.  I've also started budgeting about 2.5% to use towards leasing fees in the event an apartment gets rented with assistance from a broker.  If I turn my properties over to 3rd party management outside of my brokerage one day, I'd be paying leasing fees so for me best to start preparing for that mentally now and knowing it will be a cost of doing business.

It's a good idea to dial in on owner paid fixed costs as best you can while in attorney review to know what you're responsible for and factor that in.  Garbage/water is a good example.  On my properties I've found this number to be around $65/per apartment per month.

As far as maintenance and capex expenses go, this can vary greatly between property owners.  You can have someone who fixes/replaces things that may not be broken yet, and you have others who won't fix something cause they don't want to spend money.  Depending which side you fall on will depend where your rough percentage of expenses will fall.  When I first started I was following my initial model to a T as far as allocating x to this maintenance and x to capex.  After a while it got daunting and considering I wasn't pulling "cash flow" out to spend after accounting for expenses and financing it all stayed in the same greater bank account, it became pointless.  Right now I'm operating with the idea of, Rent - Mortgage - Monthly Fixed Expenses = Leftover For Future Expenses.  Since my 2016 house hack was ground up construction in 2014 and my current house hack has been renovated in recent years my expenses in the near future should be lower.  I may not spend as much on maintenance and capex right now but in a few years I certainly will as every component has its own life cycle.  This leftover money just accumulates in it's own account and once it grows large enough perhaps I'll pull a little out to use for a future downpayment or whatever else I want.

I hope this helps.

Wow, thanks to @everyone for all the inputs. A bit more on what I'm looking to achieve, I'm basically looking for a BRRRR + Househack, possibly using a FHA loan.

If I go this route, will the 203B loan cover fixing up the property(even if it is considered 'distressed')? I'm looking to live there a year, rehab it, refinance and move on to the next one.

I’m in a similar situation as you, looking for a house hack after I finish up my first flip this summer. I think the best locations are Avondale, Irving park, or Mayfair. I’m not an expert on the market but it appears those areas are going to continue to appreciate. They’re affordable now, can provide some cash flow or at least netzero, and if your willing to rehab it can lead to a great cash flowing rental. All of that while the wealth keeps expanding. Sounds pretty solid to me

@Michael Brown 203k loans definitely let you take on distressed properties, but they are also very tricky loans so you have to know a lot of the rehab numbers ahead of time. I have seen several of these fall apart in escrow over the last few years, and it mostly goes back to expectations. You will pay your GC a premium to do the work compared to what you could get from sub contractors, but that is due to the hassle of dealing with the paperwork, etc. 

If you go this route, still try to find a place where the work is more cosmetic (kitchen cabinets, bathroom tile) and not structural or mechanical. Once you start down the electrical and plumbing rabbit hole the numbers can go sky high. 

@Orvil S.  as a listing agent, I see a lot of offers including closing costs in the starter home single family space. The multi unit properties are more competitive though, and when we are reviewing offers sellers obviously prefer not to give up anything if they don't have to. 

On the buy side we get credits sometimes, but normally we have to negotiate them into the deal during the attorney review/inspection period. The market is such a strong seller's market that normally you are just trying to win the deal against multiple offers early on.