To House Hack Now or Buy More?

Question

Hi! I currently have a large 1/1 with a ton of space in a highly desirable location in Chicago. With interest rates being so high and it being a condo I pay just under 3k/month. The condo surprisingly has no limit on rentals, as confirmed by my lawyer I could Airbnb it if I wanted to. Right now I have a very demanding 9-5 and don’t see running an Airbnb as an option right now. I have a great contractor and have explored adding a bath for 45k and/or add a bedroom (removing the large dining room). If I add a bath I could split the unit and house hack, however I don’t see it covering all of my housing costs/renovation cost at least for some time. Alternatively, if I left the unit as is, or added a bedroom for a much smaller cost by removing the dining room, I could rent the entire unit out on a short or medium term basis, for at or above the monthly cost, then look for a separate house hack with a bath already installed. Many thanks in advance!

Sarah Miksa · Answer

@Jonathan Klemm thank you!! I really like the approach to start with the numbers then bring in intuition. I am leaning toward renting it out as is and finding a multi family/duplex when rates settle down.

Sarah Miksa · Answer

@Tony Angelos thank you for your input! I agree the 7% rates really don’t make much sense at this point and the 45k investment will hold up significant capital. I may rent it out and find a cheaper rental until the market makes more sense to find a duplex. My goal is to cover monthly housing expenses and then eventually to cover cost of living expenses beyond that by purchasing a few mid term rental properties. I’m not in a rush or expecting it to happen tomorrow, I appreciate the advise to hold for now.

Jessica Aldakar · Answer

Sarah,

mind if I ask what building you are in?

Crystal Smith · Answer

Here's what I would do.  It's not about how much the property will cash flow while you're living in it.  It's about how much will it cash flow when you move out.  I'd evaluate how much rent I could get for the 2 bedroom/2 bath by renting each room to 2 individuals (not related) after I move out.  If the property will cash flow at a number that meets my target then maybe it's worth spending $45K to convert the unit.  If the property will not cash flow from renting the unit after I move out then It's thumbs down to spending $45K to convert the unit.  Take the $45K to buy more.

Jack Matthias · Answer

Hi Sarah! As mentioned several times before, I would rent the condo as is and use the capital to buy the next place. Rates have been dropping over the last several days so that is a plus. If you would love any help getting rough numbers on any potential places your interested in. Please reach out as I'd be happy to help!

Sarah Miksa · Answer

@Paul De Luca thank you! I agree, I wouldn’t be able to manage a STR with my current job so focusing on MTR for the rental rates here and ease to manage.

Tony Angelos · Answer

@Sarah Miksa Spending 45k does not seem like an effective use of capital. And I see you're in LP, so is our team, and in 2023 1/1s were the highest appreciating property type in LP. So congratulations.As for everything else, do you need to do something right now? House hacking can be great, but it's challenging to find something that works. With the new 5% down conventional loans, it definitely opens up more possibilities, it really comes down to what you're trying to accomplish. If your goal is cashflow, buying a highly leveraged property in the neighborhoods around Lincoln Park with 7+% interest rates is probably not realistic.What is your objective with the next property?

Jonathan Klemm · Answer

Hey there @Sarah Miksa - That is super surprising to hear that your condo HOA doesn't have any short-term restrictions.  Which Chicago neighborhood are you in?  Do you know if anyone else in the building is doing STRs?

As far as your condo goes how much would it be worth if you just sold it out right?  Just asking because I wasn't clear if you have enough money for a down payment on a househack if you keep the condo as a rental and move out?

I think doing another bath is likely not the right move - I tend to let numbers be my first data point and then my intuition.  You can calculate the difference between a 1-bed and 2-bed STR on AirDnD...then ask yourself what feels light?  Least friction?

My goal is always to be as decisive as I can be once I've collected 60-80% of the data because you'll never have everything you need and speed is usually your friend in investing.

To House Hack Now or Buy More?

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