House Hacking - Chicago

[Matt Ference]

Hi everyone this is my first post, but right now I am 21 and I am a senior at Northern Illinois University and originally from St. Louis, MO (go cards). I am playing football while getting my MBA degree. I plan on moving to the Chicago area after football to pursue a career in sales. I am trying to “penny pinch” right now for my first investment which will be a house hack.

I was wondering if anyone could give advice regarding 1. location, 2. where to buy from (wholesalers/foreclosures, or neither), and most importantly 3. an exit strategy with the main question being:

“Is it better in today’s Chicago market to continuously purchase and move into new house hacks and fill your personal vacancy after or to stay in a house hack for multiple years and continuously buy rental properties?”

My guess would be that it depends on your situation and the numbers and to maximize the cash flow, but I would love to hear other opinions as I am super new to investing!

I would also love to connect with as many people in the Chicago area as possible!

Thank you!

[Zack Karp]

@David Kohler you're spot on, and this is a lot of my frustration with BP and this great community. Don't get me wrong, I love BP, but the carrot is dangled here on this topic and how it's so easy to house hack with FHA and then rinse/repeat every year. No, it's not. You are going to put 3.5% down, and then no one talks about the part where you have to create 21.5% more equity to refinance out of FHA into Conventional so that you can use FHA again and not get stuck.

The exit strategy is critically important, before you even ink that purchase contract. You need to have a plan, know the realistic conservative ARV of what it will actually appraise for (not ZIllow), plan for costs to be higher than you want them to be, etc so that you don't get stuck. That's one thing that I talk about with every investor buyer of mine at the time of preapproval. And it's really easy to force 21.5% appreciation when you're buying $50K MFH's in Bufoo, Nebraska, but it's a much different story in most of Chicagoland with much higher price points.

Another solution for house hacking a 2-4 unit is Home Possible, which usually only works on the 1st property due to an income cap. It's a Conventional loan with 5% down for a 2-4 unit. And since you are already in a Conventional loan, there is no need to refi out of it. So you still have FHA in your pocket for property #2 without needing to force anything to refi. Currently the HP income cap in Chicagoland is $71,280/yr. If you make less than that, we figure out what kind of property and price point you can be eligible for, and you find the first property accordingly. Many people have never even heard of Home Possible, and even many LO's don't know about it, or how to play all the angles. It makes me cringe when I talk to someone who used FHA first when they could have used HP!

I'll get off my soapbox.  Best of luck!