Dan Nelson · Chicago 2 to 4 unit buildings
For most first time buyers, yes. House hacking means you buy a small building, live in one unit, and rent out the rest. In Chicago that building is usually a 2-flat: two apartments stacked one on top of the other, each with its own door and kitchen. Most of the country calls it a duplex. Chicago has them on block after block, which is why this works so well here. (If you are new to the idea, start with how house hacking works in Chicago.)
Here is the part nobody explains. People run a house hack like an investor would, see that the rent does not cover everything, and walk away. But you are not buying an investment first. You are buying a place to live. You pay for housing either way.
So the real test is simple. After the rent from the other unit comes in, is your cost to live there close to what you pay in rent today? If it is, you are living for about the same money, and you own the building.
If you live in one of the units, a regular bank loan lets you buy a 2 to 4 unit building with 5% down. On a $600,000 2-flat, 5% is $30,000.
Borrow the other $570,000 for 30 years at 7.25%, and the loan payment is about $3,888 a month.
Add taxes at about 1.8% of the price a year. That is about $900 a month, so you are near $4,788 before insurance.
Plan for closing costs too. We use 3% of the price, about $18,000 on this building.
Now take away the rent from the other unit. What is left is your cost to live there.
Rent changes block by block, so we do not use a citywide number here. You can find the real rent for your block in an afternoon (see what a 2-flat rents for). Then put your own numbers into our deal analyzer and see where you land. If you want the long version of the down payment question, read how little you can put down on a 2-flat.
Part of every loan payment pays down what you owe. In this example, about $5,500 goes to your loan balance in the first year alone, and that amount grows a little every year after. When rent is covering part of the payment, your tenant is helping you buy the building.
FHA, a government backed loan, allows 3.5% down on a 2-flat. On 3 and 4 unit buildings, FHA adds a rent test, so buyers there usually use the 5% loan. Either way, the money to get in is far less than 20% down.
House hacking makes you a landlord. You choose who lives in the other unit, and you take the call when a faucet drips. Living one floor away is the easiest way there is to learn that job, and you learn it on one tenant, not ten.
People buying their first place who want their housing money to build something. You do not need to have owned anything before. You are closer than you think.
Want to see it on a real building? Reach out. Our team will show you how to run the numbers yourself, so you can spot a good deal on your own. You do not need to know exactly what you want yet.