Help: to buy an owner occupied property to break even?

Question

Hi,

I'm new here and starting to learn about real estate investing.. I'm looking to buy a multi-family home in Chicago (Wicker Park / Bucktown area) and live in one of the units.

From what I see on the market / the analyses i've done using rentometer, it looks like (roughly) most scenarios are around breakeven.

The reason why I'm not looking at areas that have higher potential cash-flow is because this is where I want to live

Does it make sense to invest in a property where I'd break even like this? Or would it be better for me to rent, and invest in a property elsewhere that could bring in positive cash flow

Any thoughts or suggestions are more than welcomed

Thanks!

-Evan

Jonathan Klemm · Answer

@Evan Engelhardt - Welcome to the Chicago BP community.

I completely understand your scenario and encourage you to move forward even at break-even or some money out of pocket.  I am definitely like a broken record when it comes to pushing new investors to just get started and not worry so much about the numbers.

Those are great neighborhoods and assuming you don't need the immediate cash flow they will be great investments down the road.

If there are any specific questions or ways I can help please let me know.

Theresa Harris · Answer

If you are breaking even and living there, you are actually further ahead as you have no rent.  Why change $500/month cash flow (making up a number) if you are going to have to pay $1000/month in rent?  You'd be $500/month behind that way.

Crystal Smith · Answer

You should analyze the multifamily to see if it will cash flow if it's not owner occupied & if so by how much. If that figure meets your financial goals then purchasing it as an owner occupant because that's where you want to live for now is a smart move. At first the property will just reduce your monthly housing costs with the other units occupied with tenants. You'll also learn some things on how to deal with tenants. 2nd- If you decide to move out but hold on to the property, you'll have a cash producing asset. 3rd- If you decide to sell the property and it's the type of property that cash flows when fully occupied then you'll attract both owner  & non owner occupants to make offers.

Sarita Scherpereel · Answer

Hi Evan, I agree with what John is saying about appreciation. Another issue to think about is the exit strategy. While the hypotheticals of trying to predict markets are endless and not helpful. Purchasing a property at a market standard is really important for standard appreciation with long term returns. Wicker Park in particular, has a lot of streets with 100 square foot lots. Those areas have lower returns than the standard city lots. Obviously because the lots are smaller which lowers the FAR rules and can affects other areas of the property- like bedroom size. If you want to live in these areas find a property that offers a little bit of ad value projects- like updating kitchens and bathrooms. Force your appreciation with the rehab so that you can pull equity on your next purchase to find a cash flow property. For most buyers that want to be in Wicker Park/Bucktown, their goal is to find a property that would be cheaper than renting in the area. And they can build equity at a higher rate.

I also have buyers that purchase cash flowing properties and don't house hack for their first purchase. I would say be open to both paths so you don't miss an opportunity. The benefit of living in your property is the on sight experience you get as a landlord. Best of luck.

Brie Schmidt · Answer

In those areas you need 20% to break even not living there, you will not live for free

Nicholas L. · Answer

@Evan Engelhardt post some detailed numbers.

Evan Engelhardt · Answer

@John Warren thanks for the advice! Right now my priority is building equity while mitigating cost, so I think it makes sense for me. Down the road I think I would want to build more of a portfolio for cash flow but I know that will have to be more focused on cash flow upside rather than preferable location

John Warren · Answer

@Evan Engelhardt this is a common question here in the Chicago market when people look to house hack in nicer neighborhoods. I do think it can make sense, but the cash flow from a Wicker Park 2 unit will never set you free financially. The goals in this case typically would be to lower your cost of living which allows you to increase your savings rate. You also are able to secure really advantageous debt on a A class assets which is another angle a lot of investors take when buying in these neighborhoods. The last thing is you can see appreciation that can be quite substantial. If you have a 700k property and it appreciates only 5% you just made 35k! If the property was levered up with low interest rate long term debt then a 35k increase in value might have been seen with only 70k (10%) invested. Now you are talking 50% returns.

As long as you aren't thinking that you are going to buy a 2-4 unit property every year and build a portfolio of cash flowing houses in 3 years to support you, then you will be happy. That strategy requires investors to go into lower cost areas to find the cash flow.

Jared Baker · Answer

Welcome Evan!  Its difficult for anyone to answer this question for you, but I think the question to ask is what is your goal?  I'm not quite sure what you mean by break-even since that could be calculated with either you living there or not living there.  If your goal with investing is to help offset expenses a break even with you living there would be fine, you are able to live there by reducing your living expense.  On the other hand if you are wanting to create a portfolio to build wealth then it might be better to invest somewhere else.  All depends on your goals and what you are trying to get out of it.  Both have their benefits and drawbacks.

Help: to buy an owner occupied property to break even?

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