Is Multi-Family House Hacking Still Possible in Northwest Chicago?

Question

Hi there,I'm an aspiring house-hacker that will be moving to Chicago for a couple months to learn more about the city & neighborhoods within, with the goal of buying my first multi-family house hack in the next year. I'm specifically interested in the Northwest part of the city - neighborhoods like Avondale, Irving Park, and even up to Albany Park. I will have around $100k to dedicate to a deal (for down payment, closing costs, initial repairs & expenses, and reserves), with the goal of breaking even or cash flowing only once I move out (I'm ok with paying the difference in rental income and mortgage while I live there).However, after talking to a few people who do real estate in Chicago as well as looking at data, I've heard that inventory in this area is pretty slim. Are people experiencing the same? Is it still possible to house hack in these neighborhoods in Chicago?

John Clark · Answer

Why are you only looking at the northwest side? Follow the orange line towards midway airport. Archer heights, Brighton park, and west elsdon are solid neighborhoods with better value for the money.

Ryan Thomson · Answer

@Fedrick Finjap what do you mean by "still possible"? Are you asking if it will cashflow? The answer is almost certainly no for the first couple years. Are you asking if its possible to find multifamily properties in Chicago that you could buy with 100k as a primary residence? I'm guessing the answer is yes. I would connect with @Paul De Luca in Chicago though. He knows the house hack scene really well there.

Jonathan Klemm · Answer

Without a doubt, it is still possible @Fedrick Finjap! In my opinion, the key is to just get the first deal done and pay less for rent than you normally would living in that area (AKA PITI is $4000, you get $3000 in rent from tenants, and you pay $1000, and normal rent would be $1500). That is a win and a great way to get your first deal done.It will definitely be harder on the nw side of chicago to use a low down payment loan FHA and pass the self-sufficiency test, so oftentimes I just encourage clients to find a 2 unit in a desirable area. If you can pull off a 203k rehab loan thats the easiest way to build instant equity.Happy to connect and help out any way I can.

Ryan Thomson · Answer

@Fedrick Finjap I wonder if youre criteria may be a little unrealistic for Chicago. I know it is in Colorado Springs. House hacking is tough to cashflow even in year two after you move out (with current house price run-ups and interest rates) for a couple reasons: 1. Interest rates are much higher then they have been the last couple years (when everyone was talking about cashflow) 2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment. I would consider your net worth ROI. What I mean by this is considering how much your down payment returns to your net worth (appreciation, loan paydown, tax benefits, AND rent avoidance). Don't forget to include rent avoidance in your numbers! You have to live somewhere. You may need to lower your return or cashflow expectations so you can get into a house hack that will allow you to avoid throwing rent money away every month. You know this, but don't forget all the other ways real estate makes you money. Paying down your mortgage and owning an asset that will appreciate over the long term.

Paul De Luca · Answer

Thanks for the tag @Ryan Thomson! I agree with your points about the challenges of getting cash flow in this market, especially when putting relatively little money down. @Fedrick Finjap - the ability to break even or cash flow after you move out of your house hack will depend on a number of factors, such as: your financing (down payment, interest rate), location (prices & taxes to consider), and your rehab budget. I underwrite a lot of 2-4 units for house hacking and most properties need some cosmetic improvements to raise the rents ($5k-$10k for lighter rehab, $10k-$20k+ for larger scope). Finding something breakeven at 3.5%-10% down can be challenging, even with some rehab.

John Warren · Answer

@Fedrick Finjap the neighborhoods you mentioned are all great spots to look. You will find them to be very, very competitive, and it may take some time to find something that works for you. You have a nice nest egg saved up, and I would encourage you to continue saving so you can be well capitalized. The folks we have helped find properties in those areas almost always have 20-25% to put down with some additional reserves for cosmetic repairs. I would also work backwards from where you need to be in the city. Are you working in the loop? Do you need to take public transit? What is your draw to Chicago? That way you can work backwards to the neighborhoods that make sense.

Millon Blackshear · Answer

What exactly are you looking for? Price and size?

Millon Blackshear · Answer

It's definitely possible, but you have to know what you want and be ready to jump when it becomes available. I'm an Illinois Realtor and there are deals to be had!

Eudith Vacio · Answer

Hey @Fedrick Finjap 👋🏽 We have low inventory throughout Chicago, and it's really a reflection of what's happening all over the world right now. But I agree with @John Clark, why not explore other areas in the city of Chicago in the south side? There is plenty of opportunity for appreciation and cash flow.

Fed Finjap · Answer

Thank you Ryan, this is a helpful reminder. I definitely value the other avenues that will help build my net worth. I just worry about the risk that I'd be taking on, and minimizing the amount of time that I will be cash flow negative will help reduce that risk I'm taking on in my eyes. But that being said, this is good to know and it seems like I should be adjusting my expectations around cash flow slightly, but I'll have to do some more research to figure that out.