House Hacked a 3-flat in 22, Questions for HH #2

[Jake Kinney]

Hello Chicago BP Community,

Back in 2021, I came on the Chicago forum and received some phenomenal input and contacts that led me to my first house hack in 2022. I have a feeling Brie Schmidt might see this, so thanks again for the incredible amount of help during that purchase and my beginning as an investor.

Quick background: I work in tech (remote job) with a good W-2 income and have lived in the northside of Chicago for 17 years. I'm very familiar with the north and northwest side. With Brie's help, I closed on my first house hack in April 2022 in west Logan Square (near Scofflaw, just north of the 606), putting 10% down and got a 30 year fixed at 4.125%. The property has a large 2-flat main building (3 fully finished floors and partially finished attic) and a large 5 BR coach house. I've had to do some work to the property (drain tile in basements, insurance claim for plumbing issue) but I knew that things like this would happen and I could stomach these expenses with my W-2 income. I moved out of Unit 1 last August to move into another rental unit closer to my fiancee's office. Things are going smooth at the property with all 3 units rented out and a comfortable amount of cash flow each month.

I'm anxious for house hack #2 next year and I have some questions I'd greatly appreciate some feedback on. 

1. Best areas for long term buy and hold? I've heard many times that moving NW from Logan Square into Avondale and Portage Park is a pretty foolproof approach. My fiancee has to commute to the loop, which is an important factor. 

2. How have financing options changed since 2022? I am aware of the 5% down programs available. 

3. Sense check on the rents of my units: 5 BR 3 bath coach house with 1 parking spot ($2,500), 5 BR 2 bath duplex down ($2,450), 3 BR + den 1 bath unit with brand new kitchen, plus parking spot ($1,450). I know the 3 BR unit is under market but he's a long time tenant and does a lot of work for me. 

4. How can I scale my portfolio faster? This is the number one question on my mind. I have a decent amount in retirement accounts but I'm not sure if it's a smart move to leverage those. I can continually save up enough for another down payment through my W-2 income, but the time elapsed kind of drives me nuts. 

Thanks in advance for your time and input!

Jake

[Jonathan Klemm]

Hi @Jake Kinney - Great to see you jumping back into the forums.  You are surely one of many Chicago investors @Brie Schmidt has assisted on their real estate journey, Brie is great!  

Love that you are ready and hunting for your next deal!

1.  I love all those neighborhoods you mentioned NW along the blue line - you can't go wrong long-term

2. FHA 203k and homestyle (5% down) are amazing financing options. If you can do the renovation, the deal will get even better!

4. If you have switched jobs and your retirement is in an IRA vs. 401k, maybe consider rolling it into a self-directed account to invest in other people's deals with that money (aka private money lender, syndications, etc.)

[Mike Scaccia]

Hey Jake!

First off, congrats on the successful house hack back in 22! Sounds like you got a winner of a deal there, and all things considered a great interest rate before they shot up in 2022!

I'm a local lender based out of Bucktown and work with a ton of investors, and help host meetups in our office. It sounds like you have a good idea of what you are doing and are looking to speed things up for future purchases. 

1. I'd agree with John- anything with blue line access seems to see quite a good amount of price growth year over year. There is some other up and coming areas where we are seeing a ton of activity with house hacker (unsure its somewhere you'd want to live TODAY though).

2. The biggest change in terms of lending programs id say is fannie's changes to allow for 5% down for 2-4 units. That said, like John mentioned above me, if you're looking for more of a value add type deal, than 203k and homestyle offer great assistance! 

answer to #4: Speeding things up to do more deals every year, i'd say begin looking into partnering on deals with friends or family who perhaps have yet to purchase a property so they can use an fha 3.5% down or 5% down conventional loan, you gift them a portion of the downpayment for a % of equity in the property. Other options would include tapping into the equity of the current property through a heloc or cash out refi to fund the next purchase, or be able to put 20% down for a straight investment property or using private money. Depending on your liquidity/vesting in these retirement accounts - utilizing these accounts can be a great way to purchase more property, you'll just want to be sure you're covering all the bases to keep you on track for retirement, emergency fund etc.

If you have any more specific questions as it relates to financing i'd be happy to chat more in the DM's!

Best,

[Brie Schmidt]

Of course I am going to answer...

1. I would say along the Kennedy from Belmont to Lawrence is going to give you the best ROI so also expand your neighborhoods to Irving Park and Albany Park

2.  The 5% down is really a game changer because you can use it multiple times and it has a renovation loan option.  The issue is rates of course, but I think we are going to see them go down shortly. 

3.  I can run comps for you

4.  If scaling is your priority I would be open to location, buy on cap rate, and use the 5% down program to move every year.  The issue is once you move on to the next you cannot refi for a lower rate unless you have 25% down

[Anthony Swain]

Hey @Jake Kinney 

Awesome that you came back to share how your deal is doing and how a BP rockstar helped you on your journey. That is what it is all about.

It sounds like your property is quite the income producing piece of real estate with multiple income sources. Great job managing that!

2) The new Fannie Mae 5% down small multi-family was introduced last November. It is a game changer. Many sellers were skeptical of FHA financing because of all the extra steps. The conventional loan product can help eliminate sellers concerns while still keeping a low down payment.

3) I would just compare your rents versus market rents. If you are a lot lower than potentially consider rent increases. You can include your tenants in this by explaining your market rent findings, rising costs, and giving the tenants an option to suggest a fair rent increase. They may be less resentful this way than if you just blatantly raise it with no explanation. Just my thoughts. 

4) Sometimes faster isn't always wiser. Investors way more experienced than me suggest building a portfolio of high quality properties that produce well instead of a ton of low quality under performing properties. 

Eventually, your property snowball will start building momentum and your efforts will start compounding. 

Keep at it Jake! Keep us updated on how things go.

Anthony