House hacking north side of Chicago - 24 years old, am I ready?

Question

24 years old, single. Living with parents in Chicago suburbs but moving to Lakeview East (North side Chicago) next month to get a feel for living in the city. Current salary 110,000 hybrid tech job. Savings of 50k in HYSA @ 5%. Student loan debt of 40k, paying 700/month (20k at 4% paying 200/month and 20k at 0% paying back parents 500/month). Drive a 2009 car that is paid off.

I'm taking this next year to rent in Chicago (rent is about 1600/month) but am starting to seriously think about house-hacking and want to start talking numbers now so that I might be ready to close about a year or so from now. Are my finances in the right place to be starting house-hacking soon? I've heard that it can be difficult to house hack with FHA loans especially in HCOL nice areas (where I'd prefer to live). But, I think my financial situation may be good enough to do a 5% conventional loan, please poke holes in my plan if there are any.

With the north side of Chicago as my market, I think duplexes and 3-flats are what I'm mostly going to be looking at. Does anyone else have recent experience in this market and could share their story? I'm just not sure if my situation right now is good enough for go-mode. I do have the option of moving back in with my parents in the suburbs a year from now if I need to save up any more capital. Our suburb is pretty far from the city, so I wanted to rent in the area for a year before deciding to buy anything in the city. Thanks so much, have already learned a lot from this site but looking to get more personalized advice.

John Warren · Answer

@Brett Lofendo when you start looking at house hacking in the more expensive areas, you can do it but you won't see massive cash flow with 5% down. Lakeview, and other similar northside areas, would be very desirable. If you could find something to break even after you move out, you are probably winning in this market.

With that said, I like to have my clients run the numbers to see how much they would save buying versus renting. That is one of the best lenses to look at the whole thing through. I also think you will continue to see a lot of appreciation in those northside neighborhoods.

Paul De Luca · Answer

I recommend connecting with an investor-friendly lender that can give you an idea of what you will be able to afford based on your DTI, credit score, and current income & assets. From there, you can see if you can afford a 2-4 unit property in the areas you want to target. Then you can dive into analyzing the numbers to see if your investment goals are doable. I recommend targeting a 3-4 unit property to get better numbers when it comes to cash flow or just lowering your housing expense. Like John said above, it's more challenging to get cash flow in A class areas like many of the north side neighborhoods but the appreciation can be pretty nice. If you want to live in those areas anyway, it's very likely that house hacking in those areas will be better than just renting or buying a primary home just to live in.

If you need lender referrals, send me a PM and I'll get you connected.

Eudith Vacio · Answer

Hey Brett! 👋🏽

Based on what you've described, I would say you're in an ideal financial position to get started house-hacking. As @Paul De Luca mentioned, I would definitely recommend speaking with a lender high level about your financial position, credit score, etc. to get a better idea of what you currently qualify for, and what you need to get qualified for what you want. North side of Chicago has lower profit margins but higher potential for appreciation, just something to keep in mind. Usually my clients that invest in the north side always airBnB one of their units to increase cash flow as you can make way more doing that than LTR.

I hope it all works out, and let us know what you end up doing 😃

John Clark · Answer

I think your mistake is concentrating on the North side. Granted, North side appreciates better, but South and Southwest side cash flow, and are appreciating more as they get discovered by people priced out of North side.

Follow the Orange Line, get off at each stop, and get a feel for the areas. Brighton Park, Archer Heights, and West Elsdon are solid neighborhoods. Does anyone go there for the night life? No.

Christine Cho · Answer

Former Chicagoan here!

I wish I had done house hacking when I was living in Chicago (almost 10 years of rental living ugh). I think Chicago has a lot of houses in the surrounding neighborhoods of downtown that are up-down duplex, so a building can be 4 stories high with each unit having 2 stories. My friend is doing this in Logan Square. If you are finding it difficult to find cash flowing property, try looking into short term rental possibility (Airbnb). Lakeview East is desirable and it can convert a net-zero property to cash flowing one. I househacked in Denver renting out my walk-out basement and it was a better financial decision than to have a long term rental.

As for timing, if you were going to rent for a year while you look for a property anyway, I'd keep living at parent's house and look at property aggressively during weekends or weekdays after work. Tour the house, walk around the neighborhood and learn the area. Skip the rent so you are ready to pull the trigger when you find a good one!

Jack Matthias · Answer

Hi Brett! Definitely sounds like getting pre approved would be a great idea to get a ballpark range of what you would be able to do. It is very hard to do an FHA 3 & 4 unit currently because it has to pass the self sufficiency test and with where rates are at it is unlikely to pass. So I would definitely recommend the 5% conventional if you can do it. Getting the idea of payments now should been even less in a year as the fed plans on lowering rates, which only makes you more comfortable.

Send me a PM if you have any questions!

Benjamin Sulka · Answer

Brett,

Sounds like you are crushing it financially. Good for you, man!

Given the $50k in the HYSA, you have more than enough covered for your emergency fund. Think about getting some of those funds to work in your first house hack. I'm right where you are actively looking to buy my first house hack in the next couple of months. I don't make $110k per year unfortunately though, Lol (yet). If you're making $110,000 and living with your parents, you should be able to easily save enough money for a house hack even in a HCOL area. I don't know much about the Chicago area at all but just start getting yourself acquainted with the area and determine some neighborhoods that you'd like to buy in. Go to the local real estate events in these areas, drive/walk the streets, find a local real estate agent who invests in the area or works with investors in the area, and then go from there!

You got this, man. I do have a little bit of imposter syndrome answering questions when I have yet to do a deal myself, but I'm right on the cusp!

House hacking north side of Chicago - 24 years old, am I ready?

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