New College Grad Chicago Multifamily FHA (House Hack)

[Declan McManus]

Hi- I'm a 22-year-old college grad. My first full-time job out of school is remote with a startup that gives me flexibility to explore other interests like real estate. I have $30,000 already set aside for a down payment, thanks to savings from various jobs and internships while in school. Now that I am full-time, my projected savings rate means I will have $50,000 to put toward a down payment by the start of 2024. Note that this is not my whole net worth- I also invest in a Roth IRA and standard ETF portfolio, but I plan on keeping that money separate as I want my portfolio to be at most 50% real estate.

I plan to house-hack a multi-family property using an FHA loan. Based on some preliminary conversations with loan officers and my math, I'm comfortable purchasing a property worth up to $950,000. I'd ideally like to buy something between $450k and $700k. I have five finalist cities: Chicago, Houston, Minneapolis/St. Paul, San Antonio, and Jacksonville/Central Florida Coast. Chicago is my first choice because it's convenient for my work, a city where I have family, and somewhere where I feel I could cultivate a meaningful social life. I understand I stand to lose appreciation potential compared to a city like Houston or San Antonio and tax savings compared to a place like Jacksonville. However, given that I'm choosing a home for the next 12-18 months rather than a pure investment property makes me lean toward Chicago for the aforementioned reasons.

Additionally, because Chicago is such a large, diverse market, I feel confident that with the right team in place, I could close on a property with 3+ units in an appreciating neighborhood like Logan Square, East Garfield Park, South Shore, Pilsen, Portage Park, or somewhere similar. My two non-negotiable criteria are that the area has a stellar rental history, and the property produces break-even margins while I occupy a unit and a 10% cash-on-cash return after that. My approach is that I don't need to hit a home run here. Just stepping into the batters' box and getting to a stable first base feels like an accomplishment at age 22. 

I am open to buying as early as January 2024 and as late as May 2024. The expert consensus seems to be that things will get worse before they get better, and I know that every month I don't buy is another month that I put more money away for a down payment or safety net. Based on this, I feel it makes sense to wait a few months and continue to learn/ refine my criterion before entering the market. 

With this context in mind, I'd be incredibly appreciative of your insight on any of the following questions:

-Do you recommend any loan officers or real estate agents in the Chicago area who have experience creating successful outcomes for people with goals similar to mine?

-Considering the five finalist cities I named in my second paragraph and the context provided, am I mistakenly choosing Chicago? I know the other cities have pros, and I'd love to buy property in them someday too. I'd be more interested in why Chicago is the wrong place for a buyer with a strategy like mine. 

-Do you have experience in the Chicago market or a situation like mine? If so, I'd love to hear your perspective on what I shared, your venture, and anything you think I may need to consider. 

-What is your opinion of my outlook on the real estate market in general? 

PS- My only motivation behind sharing detailed numbers/information is the hope of receiving specific, actionable advice from the BP community. I hope my tone reads as such! 

[Paul De Luca]

Hey @Declan McManus, welcome to the forums! I put my responses to your questions below in bold:

-Do you recommend any loan officers or real estate agents in the Chicago area who have experience creating successful outcomes for people with goals similar to mine? I can recommend investor-friendly lenders in Chicagoland. The lenders I work with are experienced with house hackers like yourself. Disclosure: I'm an agent and house hacker in Chicago and I mostly work with house hackers.

-Considering the five finalist cities I named in my second paragraph and the context provided, am I mistakenly choosing Chicago? I know the other cities have pros, and I'd love to buy property in them someday too. I'd be more interested in why Chicago is the wrong place for a buyer with a strategy like mine. It's really a matter of opinion. You'll hear many investors here on BiggerPockets criticize Chicago for any of the following reasons: tenant friendly laws, outmigration, higher property taxes, etc. But like you said, every city has pros and cons. Here are a few reasons to consider investing in Chicago though:

https://www.noradarealestate.c...

https://www.gcrealtyinc.com/bl...

https://www.biggerpockets.com/... - from last year but Chicago came in as one of the best house hacking markets in the country.

-Do you have experience in the Chicago market or a situation like mine? If so, I'd love to hear your perspective on what I shared, your venture, and anything you think I may need to consider. I'm an agent and house hacker in Chicago (Belmont Cragin) and I mostly work with house hackers. If you're looking to use an FHA loan to acquire a 3-4 unit property, the FHA self sufficiency test is going to disqualify a lot of properties simply because they don't pass the test. For that reason I usually recommend a house hacker get pre approved for 5-10% down conventional loans as well. Gives you more potential properties to consider.

-What is your opinion of my outlook on the real estate market in general? It's going to remain competitive until we have more inventory. And when rates do eventually come down as people anticipate toward the end of this year, more buyers are going to jump back in. So far in the last few years we've seen real estate become less affordable for the average person and while price reductions have been more prevalent in the pandemic "boom markets" many people have been surprised to see how resilient the housing market is. That's due to the basic market fundamentals (supply/demand).