House Hacking in an Expensive City

[Kyle Winston]

Hey everyone, I am new to the BP Forums, but have been listening to the pods for a while now. I'm 23 and live in Chicago and am want to buy a duplex/triplex/4-plex to live in and rent out the other units. I have been looking at a handful of potential deals and the majority of them barely cashflow or are negative if I include myself paying rent (in theory to cover the mortgage). In these scenarios I am assuming a loan of 3.5%-5% down as I do not have the capital for a larger down payment in the expensive Chicago market. I haven't seen many deals less that $600K for where I am looking and some of the deals are up to $1-$1.25M.  

Does it make sense to buy a deal where I am paying the same amount as I currently pay for my rental to help cover the mortgage and at least own the house? Or should I look for deals that make more sense return-wise in other smaller/less expensive markets? The way I see it is that renting a house is basically burning money. 

I am just starting out so I have a good grasp of underwriting and concepts but not a great baseline of what I should expect for returns, especially in a "House Hacking" scenario. Has anyone else had this issue?

[Brian Medansky]

Hey Kyle! I am actually closing on a house hack in Lakeview in about two weeks so I totally understand where you're coming from. The way I thought about it was do I want to have the best return based on numbers or the best return based on lifestyle, and I ended up choosing the second. I will have monthly out of pocket expenses myself, but it'll be less than market rent. I also know that once I move out, the property will cash flow a decent amount, and I am confident in the appreciation that can come from this property and the Lakeview area. 

I personally think it is worth it to own if you can pay less than market rent, and you can still have your reserves because you also get the tax benefits from home ownership, as well as potential appreciation. 

This obviously can change depending on where you're looking because there are definitely areas in Chicago where you could house lack and even make some money while living there. You just need to choose your priorities.