Question For All You Househackers Out There...

[Tom Shallcross]

I'm currently negotiating a deal that involves several 4 unit buildings in Chicago. We are going through different exit strategies and it may make sense to sell a building or two post-rehab as they'd make a great house-hacking opportunity for someone looking to get started. The rents cover mortgage and expenses, and since it's a 4 units, it qualifies for FHA.

We're doing some actual market research on this, but also wanted to gather some anecdotal opinions from those who have/will be in a househack situation.  Which situation would you prefer?

1. We merge the top two units into one large living for the owner where the he/she would have a large living space 3bed/2bath, in-unit washer/dryer, and 2 bottom 1/1 units paying rent at 800/m each. 

2. Keep it as a 4 unit so the owner would have a 1 bed / 1bath (plus a small 7x7 den room that doesn't have a closet so tech not 2nd bedroom), individual w/d hook-up in basement, 3 other 1/1 units all paying 800/m each.

In each situation all units would be fully-rehabbed and listing price would be roughly the same, just trying to determine if someone in this buying situation is looking to maximize cashflow, or since it's their own living space, take the larger area and be ok with just 2 tenants (which pretty much cover the mortgage/PMI/taxes/insurance, but no additional expense, maintenance).

I personally would take the additional income and suck-it up in the smaller space (which is purely theoretical since I'm expecting my 4th kid and neither of these scenarios would have enough space for my situation:) )   

Looking for your opinions, thanks!

@Mark Ainley

[Jake Fugman]

@Tom Shallcross Very smart strategy to target house hacking buyers. I have worked with a lot buyers that are recently disappointed with the inventory will qualify for FHA. My rule of thumb is that the building more/less has to pass the 1% rule to have a chance at working (assuming taxes are reasonable) - would yours? If not, I would question if they could truly pass the FHA test. However, if you do have buildings in B class or better area(s), like the north and NW side, that will pass please let me know... Ill have buyers lined up!

In any event, I would recommend option #2 since most house hackers will ultimately want to hold the property as long term investment and prioritize returns over comfort. 

Good luck!