House Hacking Using 203k or Homestyle Loan to Duplex Down

[Lucas Helliker]

Hi all, 

I am looking to house hack a 3-4 unit building on the North Side of Chicago with an owners unit that will offer my family more space than we have now. One option that I am evaluating is buying a 3 flat with a basement and creating an owner's unit by duplexing unit 1 down to the basement. I am wondering if a homestyle loan could cover this. In my current residence we built an ADU in the basement through the cities ADU pilot program. It was extremely expensive because we needed to replace the electrical for the basement, dig down 8 inches, and replace the water service.

Since we would of course be pulling permits in the duplex down scenario, I am wondering if we would potentially need to do all of those major renovations again? It seems like this approach to duplexing down could create a lot of value and make the refinance worth the costly renovations, especially if I could use a renovation loan. Before pulling the trigger I would do market research on the ARV for similar product in that area. Has anyone done this that could share some insights or tips ? Appreciate you!!

[Tj Floros]

Quote from @Lucas Helliker:

Hi all, 

I am looking to house hack a 3-4 unit building on the North Side of Chicago with an owners unit that will offer my family more space than we have now. One option that I am evaluating is buying a 3 flat with a basement and creating an owner's unit by duplexing unit 1 down to the basement. I am wondering if a homestyle loan could cover this. In my current residence we built an ADU in the basement through the cities ADU pilot program. It was extremely expensive because we needed to replace the electrical for the basement, dig down 8 inches, and replace the water service.

Since we would of course be pulling permits in the duplex down scenario, I am wondering if we would potentially need to do all of those major renovations again? It seems like this approach to duplexing down could create a lot of value and make the refinance worth the costly renovations, especially if I could use a renovation loan. Before pulling the trigger I would do market research on the ARV for similar product in that area. Has anyone done this that could share some insights or tips ? Appreciate you!!

 Hey Lucas, 

I'm actually in the same boat as you, I'm looking to house hack a 2 flat in the northside and duplex down to the basement to have a bigger onwer's unit. I'm focusing on a 2 unit vs a 3-4 unit because most north side building wont pass the FHA self sufficiency test.

However, I used the homestyle renovation 5% down loan on a 3 unit to update all the units which came out to about 100k per unit. I just finished that project last month in early March down in Bridgeport. From my experience with the loan program I had to use a licensed GC and pull all permits as needed, I had to forward all approved permits and architect drawings to the bank to do any withdrawals and to pass underwriting. 

Now if you had private money, hard money, or a HELOC maybe that could be a work around to avoid having to get permits and having to get the city involved which as you know could cost you way more money than what you budget for.

Since you are not adding a legal unit through the ADU program and just adding more living space to the first floor by going down into the basement i'm sure there are some loop holes or items that you could maybe avoid or maybe "not do". Since my budget is extremely tight I'm trying to avoid updating the water service, having to dig down, possibly leaving the floor joist exposed to make the basement feel taller. One thing I WOULD do is water proofing, ie drain tile, and possibly updating the underground sewer line if needed before I finish the space.

Depending on the amount of deals you have done it might be hard to get hard money, but I would try that first to try to save some money on the front end then just refi into a conventional loan when the project is finished. I would also suggest looking into the area you want to buy and looking at ARV's then running the numbers backwards into your deal to see what your purchase price needs to be.

If you want to talk more about this or need any help, I'm always free to chat !