How to House Hack in Chicago with 150k

Question

Hi everyone,

My partner and I live in Durham, NC, but we have a strong attachment to Chicago, IL. I did my Ph.D. up at Northwestern, and I fell in love with the northern neighborhoods (Rogers Park, Edgewater, Andersonville).

Long term, he and I want to own a place in Chicago. The goal would be to acquire an investment property that we can rent out when we’re not in Chicago, but that we can use for ourselves whenever we’re there (e.g., for the summers, parts of the fall and spring).

We have 150k of investible capital, but we’re at a loss as to how to invest it. Initially, we thought we’d buy a condo in Rogers Park and then list it on AirBnB when we weren’t there, but it looks like AirBnb laws make this strategy complicated. Another thought was that perhaps we could try to move forward with a multi-family unit and rent out all but one of those units—but 150k doesn’t seem like enough capital to move forward with a multi-family unit. (We can handle some cash loss per month, but not a ton; ideally, we’d like to do something that results in cash flow.)

Any advice that this group has for us would be deeply appreciated. I’d also love to work with an agent, if anyone has good recommendations.

Thanks in advance for your help,

Chris

Mike Scaccia · Answer

Hey Chris!

Congrats on beginning your journey to investing in multi family here in Chicago!

From a finance and lending standpoint 150k of investable capital i'd say is a good chunk of change. Even if you were to purchase the property as an investment property (assuming 20-25% down) you're looking at a 500k purchase price. In those area's it'll be tougher to find something that is turn key and producing a good amount of cash flow.

About 1/3 of the real estate in Chicago is multi family so i am confident there is something out there for you! If you're interested i think connecting to dive deeper would definitely help!

Feel free to shoot me a PM!

Conrad Legé · Answer

Do either of you have the option to work remotely? One of you could relocate to Chicago temporarily and use a low-down payment program (3-5%) to house hack a 3-4 unit. Additionally, could turn one of those units into a STR or MTR. I did this with my house hack. Let me know if you want to connect. Happy to chat further.

Crystal Smith · Answer

At the time of my response to this thread, there were some listed multifamilies in your target areas that the $150K you have would serve as a downpayment and would be cash flow neutral or positive. I see one 4 family with one unit vacant that would be cash flow positive, not taking into account capex and maintenance.

If you limit your search to properties listed on the MLS you'll find some but the inventory is low.  A strategy you may want to consider is to allocate some of your $ and target a specific area and contact the owners using snail mail (direct mail).  Yes, it still works. We still do it.  You would send a letter to every owner. There are ways to micro-target properties that may be a good fit.

Sarita Scherpereel · Answer

Hi @Christopher Petsko  Running and AirBNB out of a condo is very difficult to do all the HOAs that have added regulations in recent years to stop this. If you do find a building that allows it that's great but there is always a risk that they could change the rules on you or make it more difficult for you do to a STR. There are some people that do this and have found success. I just think this is too risky in the areas you've said you're interested in.

This is enough capital to find a 2-4 unit building. Maybe do a MTR which would still allow you the flexibility of using the unit when you wanted to be here in Chicago.

Andrew Postell · Answer

@Christopher Petsko hmmm, I'm guess you are in Chicago for "some" of the year?  And keeping your residence in North Carolina?  Does that sound fair?  That would be formally a "Second" home type of scenario it sounds.  Lot's of people use that strategy with a single family home.  These are important terms for lending purposes.  Once you move to the 2-4 unit property, then only "investment property" loans are allowed (20%-25% down in those scenarios).

Keep in mind that house hacking REDUCES my cost of home ownership. You will NOT cash flow on any property that you purchase if you are living in it as well. I'm not sure if anybody has said anything different to you but I need this to be your expectation. Remember, you are occupying one of the units...it would be impossible to cashflow in that scenario. Ok, maybe if you rented out each room and maybe did everything Short Term or something like that. But if it's long term renting, mid-term renting, or even short-term...then you won't cashflow. But it will still allow you to afford a SIGNIFICANTLY higher price point than if you did not house hack.

So, if real estate appreciates 5% per year, then a $500,000 property will have $138,000 in additional value after 5 years. A $1million home will have $276,000 in value increase after 5 years (using that same 5% appreciation per year). The higher our value, the higher the equity gain is - even if the % of gain is equal between the properties...the dollar amount is higher on the higher valued home because the property is worth more. That's how house hacking helps us gain wealth. We certainly aren't gaining $276,000 with $200 of cashflow. So, don't sweat the "no cashflow" thing.  Just focus on purchasing a good home...and that is, if it's right for you to do so.

Hope all of that makes sense.

Jake Fugman · Answer

@Christopher Petsko  You are correct that the STR laws + HOA rules here make doing AirBnb here tough unless you buy a commercial 5+ or mixed use building.   I would recommend targeting a 2-4 unit (perhaps with a "bonus" unit) that you can furnish and rent out MTR (30 day min).  This allows you to dodge some of the nightly/weekly restrictions.  There are lenders that offer portfolio loans with 15% down on pure investment 2-4 units.  This could allow you to be more highly leveraged VS a  conventional 25% down investment mortgages, and thus get into a solid neighborhood with your budget.

Christopher Petsko · Answer

A temporary relocation would certainly be possible! I'm able to be remotely during the summers, and he has a bit more flexibility year round.

How to House Hack in Chicago with 150k

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