Chicago Househacking - Impatient or concerning trends?

Question

Hey all,I own two four flats (Albany and Kilbourn Park) that I've househacked and looking for a third. I was fortunate to do Homepossible (5% down) on those two but now I'm relegated to FHA and 3.5% down. I've been looking at properties for about 1.5 months now, and I'm just having trouble seeing how some of these properties cash flow at current prices. I recognize that I'm putting a very small amount down (I'd be putting down 1-1.5% since I'm including my 2-2.5% commission as an agent), and not expecting large cash flow numbers, but I'm hard pressed to find anything that makes financial sense once I were to move out. In addition to that, I'm restricted in what I can purchase because of FHA rules. With self sufficiency rules for 3 and 4 flats, those are going to be priced out. So, I'm really looking for a two flat that will cash flow, ideally with 1-2 illegal additional units. For agents/investors/househackers, has anyone seen houses that actually cash flow? The market seems so hot where I'm seeing legal two flats (with or without basement/attic units) going for 475K and up and I'm just baffled on how these are cash flowing? Hasn't anyone noticed this.. I feel like I'm taking crazy pills! We're early in the spring cycle and I expect more inventory to come up - but am I just being impatient, or is this an issue that others have noticed? Any recommendations on approach? Are there other alternatives for low money down programs for house hackers I could take advantage of? I've done some off market cold calling and may pick that back up if I'm not finding success through the MLS. I have no issue moving quickly if something does make sense - I can usually schedule same day and make an offer within a few hours of seeing the property, but I'm having trouble with things even penciling out. Neighborhoods - Albany Park, Portage Park, Jefferson Park, Logan Square, Humboldt Park, Kilbourn, Avondale, Irving Park, Keywords: Househack, Chicago, Multi family, garden unit, cashflow, ADUCriteria - Northside, Purchase price- under $560K (FHA Loan limit of 540K for two flat), ideally 3-4 units, cash flow of 100-400 bucks/mo for entire building. I'm expecting I'll do cosmetic rehab over time to push rents up closer to market. That's a mid/longer term play. Thanks! Curious to hear everyone's thoughts.

Michael Facchini · Answer

@Brendan M., FHA might be tough for you to qualify for due to a variety of reasons. Fortunately though, 5% down Conventional is possible and you bypass the Self-Sufficiency concern. That said, you are correct, less and less properties moving forward will cash-flow when house-hacking, namely at low down payments. The game is changing, and we're getting into more "realistic" times ahead....whereas the past was a gift, so to speak. Lack of inventory, higher (and more normal) rates, and the increase of house-hacking demand year over year - most properties in most cities simply won't cash-flow right away. This will be an adjustment for most everyone reading along on BP, but it was an inevitable reality that is now coming to fruition. Even large value-add rehab projects (for investors/developers such as myself) are becoming harder and harder to pencil out, given the cost of land and labor/materials. Going to be a long-play from here on out for most properties.

Andy Smith · Answer

Thanks for the mention @Jonathan Klemm! @Brendan M., there are definitely still products out there that can work with 5 - 10% down. We have a program that allows 2 flats for 5% down, it has to be located in a low to moderate income area. There is no income cap on this program.We also have a 10% portfolio product that allows 2 - 4 units with 10% down. No self sufficiency test, and no PMI.Congrats on your successes so far!!

Funsho Adesanya · Answer

@Brendan M. - You may want to check out the FHA 203k loan program. Still 3.5% down and you get the cheapest renovation loan financing out there. This could easily be a workaround to getting good househacking deals that will eventually cash flow once the project is completed. Yes it's requires time and hard work plus man management (contractors, HUD consultants, etc.) but it typically pays off in the long run if you do it right and stay reasonably within budget. Otherwise, as you said, the ideal "turnkey" househack inventory the cash flows are far and few between these days.

Jonathan Klemm · Answer

@Brendan M. - You nailed every aspect of the process there....clearly you've done your homework and been through the process a couple of times. 3-4 units with FHA will always be a diamond in the ruff here in Chicago. I settled for a 2 unit to move quicker the option might be looking for heavier distressed properties. Lastly, I'd check with both @Michael Facchini & @Andy Smith I believe one or both of them have a newer program that offers 5% down for 3-4 units without the limitations that FHA loans provide.Either way, keep writing offers and eventually one will stick. BTW, great job on your success so far!

Victor So · Answer

Yeah, some of these deals don’t seem to make sense. I think some investors are banking on appreciation in some areas and others count on expenses (like vacancy, cap ex, and maintenance) to be lower if units are renovated and stabilized. Others find creative ways to make extra Income by renting out extra storage spaces or the garage. I try to find properties where I can do the cosmetic renovations myself to push appreciation a bit. I had a client who closed on a duplex in Skokie a few months ago. He got a renovated 2 unit building with a non- conforming basement for 500K. He rents the 2nd unit for 1800, lives in the 1st unit and rents the basement for 800. He also rents his garage out for 200. After he moves out, he expects to get around 1700-1800 in rent for his own unit and accounting for 5% for capex, 5% for vacancy, 5% for repairs, he expects to cash flow about 200 bucks. We didn’t account for property management but he’s okay with that for now.

Sal Grimaldi · Answer

I'm also local investor. Very hard to find small multifamily that cash flow. I personally stay away from Chicago. All my Properties are in the suburbs. Good luck

Brendan M. · Answer

Were they legal 3/4? I'm guessing that's home possible, right? 5% makes it easier since there is no self sufficiency requirements. What areas were they located in?

Henry Lazerow · Answer

Its harder but I just closed 3 differant house hack deals last 2 months so still out there. All the clients did some rehab to though like gut kitchen/bath and paint nothing crazy but doing this gets the rents way up so you do need to have a decent bit of capital. 5% down rather then 3.5% down also.