Where does house hacking still work in Chicago?

[Paul De Luca]

Hi everyone,

I thought it might be helpful to share a few house hack case studies from the past few months where my clients have closed.

Property #1 - 2-flat with 4 beds/2 baths in Unit 1 (duplex down) and 2 beds/1 bath in Unit 2. Pro forma rent $3000 for Unit 1 and $1600 for Unit 2

Location: North Austin, just a few blocks from Cicero and North Ave

Purchase Price $429,900

Seller credit $12,600

Earnest money: $4,200

FHA financing 3.5% down payment

Cash due at closing $3623.75

Projected cash flow once fully rented (even with property management) $450/mo

Notes: $12,600 seller credit was built into the offer upfront. Overall turnkey but my client will likely boost rents by installing in-unit laundry.

Property #2 - Legal 2-flat with non-conforming basement unit. Unit 1 has 3 beds/1 bath, Unit 2 has 4 beds/1 bath, and basement has 2 beds/1 bath. Pro forma rents - Unit 1: $1890; Unit 2: $1750; Basement: $1000.

Location: Brighton Park, right by Pershing and California

Purchase Price $475,000

Seller credit $14,000

Earnest money $4,700

FHA financing 3.5% down payment

Cash due at closing $12,639.89

Projected cash flow once fully rented $109/mo

Notes: $11,500 seller credit built into the offer upfront but buyer received an additional $2500 to address catch basin repairs.

Property #3 - Legal 3-flat. Unit 1 has 2 beds/1 bath, Unit 2 has 1 bed/1 bath, Unit 3 has 3 beds/1 bath. Pro forma rents - Unit 1: $1300; Unit 2: $1100; Unit 3: $1600

Location: Marshall Square, right by 23rd and Sacramento

Purchase Price $355,800

Seller credit $10,674

Earnest money $3,600

Conventional financing 5% down payment

Cash due at closing $15,824.69

Projected cash flow once fully rented $216/mo 

Notes: $15k concession from seller between purchase reduction plus seller credit for buyer to repair the garage, which will cost about $25k. This was a multiple offer situation and it sold for $30k over the asking price.

[V.G Jason]

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The risks of self managing and disrupting family/independence just isn't worth the material risk for anyone over 25, maybe 28 years old.

House hacking is the low hanging fruit to get in. But people never explain those aforementioned risks.

Think most of us want to find properties that exhibit intrinsic valuation or aren't terribly deep OTM and show vast extrinsic applied to it. That's really showing something if you can get that. This is just kind of expected and can be done anywhere, pay the least down, get the most rooms then rent each room. 

Still likely overpaying for the property once you consider it's at market, and if you had to use a DSCR or a normal conventional way you would not qualify.

 What are the risks of self-managing? If you're saying house hacking as a family with children can limit your privacy or be less desirable than owning a detached single family home, I don't disagree. However, many families rent or owner-occupy apartments in 2-4 unit buildings, condos, or townhomes. House hacking is essentially the same situation with the exception of the owner/landlord aspect to it. For me, I would rank house hacking as a more desirable situation than any of the above I laid out. What are these material risks you're alluding to?

Setting the age limit for self-managing or house hacking at 25-28 seems pretty arbitrary as well. Many people are now delaying buying homes or starting families until later in life (30s or even 40s+). 

It's arbitrary, because if it was a priority it'd get done sooner. Instead they commit to stuff like "house hacking" and dealing with the pain of it instead of focusing on family formation. 

What risks are there for self managing? The grandest of them all... liability. This is why most RE agents shouldn't be giving advice, they never see the blind spots.

 Do you have any specific examples of greater liability when self-managing? 

 Do you need examples? Or do you not understand what you're asking?

 Yes, that's why I asked. 

Are you talking about only self-managing while you live in the property or are you talking about self-managing any properties in general, whether owner-occupied or not?

 All of the above. Besides being a point of contact, a property manager is best. You want to deflect any and all areas of liability. 

Just being exposed is the most basic issue, but beyond that being in constant contact let alone living with/near them is enough to define it as "greater" liability.