Success with Chicago Condo Rentals?

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Success with Chicago Condo Rentals?

Derek Luttrell
Chicago, IL · Member since 2017 · 231 posts · 124 votes

Hi All, 

I wanted send a beacon out to fellow Chicago investors and ask if anyone has a portfolio of condos within the city, since single family hardly exists out here. I know the popular opinion is that special assessments can wipe out cash flow, not all associations allow renters, association policies can suddenly change, but I successfully house-hack through roommates in my Ukrainian Village condo right now (I'm 25 so for now it feels weird NOT to have roommates), and for my first true investment property I want to stay close to home (no more than 20 minute drive/public transit). 

I have a pre-approval with my lender with stipulations that the building can't be over 50% tenant-occupied, and at least 10% of the monthly HOA dues need to go into reserves. Does anyone reading have a few successfully rented Chicago condos under their belt? The rental market is great in this city, and I'd really like to invest close to home as I love it here and don't see myself leaving anytime soon.

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Daniel F.
Chicago, IL · Member since 2013 · 27 posts · 8 votes
8y

@Derek Luttrell I think it depends on your time horizon. If this is a property you're thinking of buying and holding for the long haul, maybe worthwhile on doing the 15 year route and sacrifice that marginal cash flow you'll get today while building up equity way faster. 

If it's more like a 5 year hold, you need cash today, and think that extra cash flow will help continue a goal in mind of buying more properties, then 30 year maybe not be bad either. 

Point being, a lot of people forget to factor in the equity piece and if you're buying this thing for the long, 15 year isn't a bad idea if at the end of the day your monthly cash flow is marginally different and won't have an impact on your bottom line.

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  • Harjeet BhattiPro Member
    Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes
    8y

    The above mention requirement is standard for investment property for condo. Otherwise that will come under non-waratable condo which has higher interest rate. You or Relator can ask these questions from HOA before you submit your file to your lender. There are so many condos which comes under this requirement. Keep looking.

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  • Derek Luttrell
    OP
    Chicago, IL · Member since 2017 · 231 posts · 124 votes
    8y

    @Harjeet Bhatti thanks for the response. I'm not concerned about the lender's requirements, really. In fact, I'd agree that at least 10% should go into reserves every month, and I believe that buildings with fewer renters are better taken care of than ones filled up with renters. I can't disagree with those requirements. 

    My main question is whether there are people out there who do have condos as their niche, since I've gotten the feeling through my time on BP that many people think condos are where cash flow goes to die. Living in Chicago, though, I see potential because condos are a primary housing type here, and they are easy to rent (as long as the association allows it)

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  • Harjeet BhattiPro Member
    Lender · Glenview IL- CDLP NMLS#230554 · Member since 2015 · 2k+ posts · 747 votes
    8y

    @Derek Luttrell I have investors clients who mainly invest on condos. As a  MLO we see their finances everyday and from that point of view I can say its not bad investment if you want to spend in loop. My Investors clients are investing from last 10 years in Chicago market .  As you said its  easy to mange and rent it out. 

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  • Bob Floss II
    Attorney · Northbrook, IL · Member since 2017 · 719 posts · 549 votes
    8y

    @Derek Luttrell  Yes, I've seen people be successful with rental condos.  They typically use it as a stepping stone and get a handful under their belt before moving up to larger properties.  It sounds like you already know the main issue, which is making sure the monthly hoa doesn't eat up your profits.  

    I've seen clients do well with condos is very high end areas where they get large rent and in very low end areas where the return on investment is larger.  Don't get caught up in worrying if you would want to live in the condo or if you like the fixtures.  Add up your debt (mortgage, hoa, taxes) and pull comps for rentals in the area.  If it doesn't have a sizeable monthly profit to make it worth your while, move on to the next unit.  

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  • Daniel F.
    Chicago, IL · Member since 2013 · 27 posts · 8 votes
    8y

    @Derek Luttrell 

    I'm a strong believer in that it never hurts to own condos. Little to no time effort required and always will rent out in a breeze. That being said, it all depends on your expectations on your return and the type of investment you are looking for. You may not see as much appreciation as you potentially would see in say buying a C class multifamily and turning into a B, but that requires time, money, sweat. A condo is a great way to have a tenant pay your mortgage off for you and build equity. 

    If a condo is slightly positive on the cash flow or even breakeven with a 15 year note, I say that's a win. You're 25, imagine you are 40 years old and you have a fully paid down condo you own outright that your tenants paid for. Of course that comes with the occasional tenant turnover, maybe getting a new fridge in there, etc. but that's easy. Of course can always refinance as well to pull out equity and roll that into another deal when time is right.

    As you mentioned lenders look for that tenant-occupied metric, along with that comes with the fact that majority of high rises also have their own restricts on rentals, i.e. the building I live in has a cap at 10% rentals and owners need to get on a waitlist.

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y
    Originally posted by @Derek Luttrell:

    Hi All, 

    I wanted send a beacon out to fellow Chicago investors and ask if anyone has a portfolio of condos within the city, since single family hardly exists out here. I know the popular opinion is that special assessments can wipe out cash flow, not all associations allow renters, association policies can suddenly change, but I successfully house-hack through roommates in my Ukrainian Village condo right now (I'm 25 so for now it feels weird NOT to have roommates), and for my first true investment property I want to stay close to home (no more than 20 minute drive/public transit). 

    I have a pre-approval with my lender with stipulations that the building can't be over 50% tenant-occupied, and at least 10% of the monthly HOA dues need to go into reserves. Does anyone reading have a few successfully rented Chicago condos under their belt? The rental market is great in this city, and I'd really like to invest close to home as I love it here and don't see myself leaving anytime soon.

    It is not that HOA's wipe out your cash flow, it is that HOA's have control and you don't.

    You can get hit with a special assessment and get screwed, they can change the bylaws and restrict rentals and you can get screwed, downtown rental buildings can convert units to condos and flood the over saturated market and you can get screwed.  You have too little control.  Read this

    https://www.biggerpockets.com/forums/311/topics/27...

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  • Derek Luttrell
    OP
    Chicago, IL · Member since 2017 · 231 posts · 124 votes
    8y

    @Bob Floss II that's a good point about remembering not to look at the condos as if it'd be me who is about to move in. I guess "sizable" monthly profit is subjective, but I'm aiming to set $350/month as a personal minimum.

    @Daniel F. this leads me to you--would you still consider it worthwhile profiting $300/month on a 30-year conventional loan? On one unit I have my eye on, I would profit $100-150/month on a 15-year. I hadn't really considered a 15-year loan before. 

    I'm priced out of downtown (I just closed on my personal condo 5 months ago), and I also want to focus on smaller buildings opposed to high-rises. I've looked in Humboldt Park (east side...west is still a bit rough), and I'm seeing one up in Albany Park this weekend. The rents are lower than in other city hotspots, there is good public transit and I can easily qualify for the loan. 

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  • Derek Luttrell
    OP
    Chicago, IL · Member since 2017 · 231 posts · 124 votes
    8y

    @Brie Schmidt thank you for your input. I agree that the possibility of the association changing bylaws down the line is worrisome. Being from Chicago, do you have any personal experience with this happening? 

    I see in that forum post, the poster purchased multiple units in the same building. He kind of shot himself in the foot, as it is a common rule that only a certain percentage of a building's units can be rented at any given time. What is your suggestion for someone like me who is already house hacking and wanting to invest locally in Chicago?

    0Reply
  • Daniel F.
    Chicago, IL · Member since 2013 · 27 posts · 8 votes
    8y

    @Derek Luttrell I think it depends on your time horizon. If this is a property you're thinking of buying and holding for the long haul, maybe worthwhile on doing the 15 year route and sacrifice that marginal cash flow you'll get today while building up equity way faster. 

    If it's more like a 5 year hold, you need cash today, and think that extra cash flow will help continue a goal in mind of buying more properties, then 30 year maybe not be bad either. 

    Point being, a lot of people forget to factor in the equity piece and if you're buying this thing for the long, 15 year isn't a bad idea if at the end of the day your monthly cash flow is marginally different and won't have an impact on your bottom line.

    1Reply
  • Derek Luttrell
    OP
    Chicago, IL · Member since 2017 · 231 posts · 124 votes
    8y

    @Daniel F. I guess a concern with a 15 year loan that's nearly breaking even is that if property taxes or HOA dues were to increase, I could get dangerously close to losing money each month.

    Also, if I refinanced and took out future equity, the increased loan from that could have the same effect. But I do love the idea of owning it at age 40. 

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y
    Originally posted by @Derek Luttrell:

    @Brie Schmidt thank you for your input. I agree that the possibility of the association changing bylaws down the line is worrisome. Being from Chicago, do you have any personal experience with this happening? 

    I see in that forum post, the poster purchased multiple units in the same building. He kind of shot himself in the foot, as it is a common rule that only a certain percentage of a building's units can be rented at any given time. What is your suggestion for someone like me who is already house hacking and wanting to invest locally in Chicago?

    I hear about it all the time. Also one of my clients is a lawyer and sues HOA's. Personally, I wouldn't even take a 50% off condo.

    How did you buy your first?  I would suggest utilizing a strategic loan program and house hack again.  

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  • Derek Luttrell
    OP
    Chicago, IL · Member since 2017 · 231 posts · 124 votes
    8y

    @Brie Schmidt do you own any multi-families in Chicago? What is your niche here, if you happen to have one?

    I bought my first/current condo with a 5% down conventional loan, though 2% of it was granted to me by the lender. I was planning on living here for two years, at which point I will be 27 and would like to then end my days of having roommates. House hacking at that point would require buying a multi-family, which are wildly overpriced in any of the neighborhoods worth living in (at least in today's market.) 

    I'd be plenty happy with hacking a duplex, but the numbers just don't make sense in this city. 

    0Reply
  • Daniel F.
    Chicago, IL · Member since 2013 · 27 posts · 8 votes
    8y

    Originally posted by @Brie Schmidt:
    Originally posted by @Derek Luttrell:

    @Brie Schmidt thank you for your input. I agree that the possibility of the association changing bylaws down the line is worrisome. Being from Chicago, do you have any personal experience with this happening? 

    I see in that forum post, the poster purchased multiple units in the same building. He kind of shot himself in the foot, as it is a common rule that only a certain percentage of a building's units can be rented at any given time. What is your suggestion for someone like me who is already house hacking and wanting to invest locally in Chicago?

    I hear about it all the time. Also one of my clients is a lawyer and sues HOA's. Personally, I wouldn't even take a 50% off condo.

    How did you buy your first?  I would suggest utilizing a strategic loan program and house hack again.  

     Beauty of real estate! Different ways of skinning a cat. 

    0Reply
  • PJ Kolnik
    Chicago, IL · Member since 2017 · 81 posts · 87 votes
    8y
    Derek, I own a condo and a newly purchased three flat. Condo in Bucktown and Three Flat in Logan Square. In regards to renting Condos, I’m not convinced that there is a huge upside to renting them to make money. Maybe you breakeven on most condos if you’re lucky, the only people I really see renting condos in the price range of that 350-550k are people that had to leave a bit unexpectedly after they bought the place but didn’t want to sell. Most of them are breaking even or even losing a bit of cash. The reality is that the price per unit on a three flat, even on some of the outrageous priced ones in Wicker park UK village are still getting you units at 300k a piece. In this city if you’re looking to make money off rentals buying in scale seems pretty important. There is just so much competition in the people who want their first home as a condo right now, especially in these neighborhoods that you’re talking about. That being said the only guy I’ve seen make money off of condos was going around buying garbage garden units around the city in great locations and doing decent 6-7 CAP.
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  • Derek Luttrell
    OP
    Chicago, IL · Member since 2017 · 231 posts · 124 votes
    8y

    @PJ Kolnikdo you live in the condo and then you bought the three-flat with 25% down? Is the 3-flat in need of major rehab? I'd love to know more about how your journey in Chicago has played out so far. 

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y
    Originally posted by @Derek Luttrell:

    @Brie Schmidt do you own any multi-families in Chicago? What is your niche here, if you happen to have one?

    I bought my first/current condo with a 5% down conventional loan, though 2% of it was granted to me by the lender. I was planning on living here for two years, at which point I will be 27 and would like to then end my days of having roommates. House hacking at that point would require buying a multi-family, which are wildly overpriced in any of the neighborhoods worth living in (at least in today's market.) 

    I'd be plenty happy with hacking a duplex, but the numbers just don't make sense in this city. 

     Yes, I am a buy and hold investor with 90+ units.

    Before you think of moving check your grant and see if it has a payback.  A lot of them make you pay it back if you move before a certain number of years, usually 3 or 5.

    Your next option is 3.5% down FHA or 20% down conventional on the loan. You are definitely young if you think ukranian village is a neighborhood worth living in. When you go to Lolla and see a bunch of 12 year olds with wristbands you will be old enough to not want to live in UKV. You can look at numbers on properties bought in good areas of Chicago here https://www.biggerpockets.com/files/user/chicagobr...

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  • Daniel F.
    Chicago, IL · Member since 2013 · 27 posts · 8 votes
    8y

    @Brie Schmidt 

    Hey Brie- looking at your Recently sold properties spreadsheet. 

    In general have you found 5% for maintenance and 3% for capex to be sufficient?

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y
    Originally posted by @Daniel F.:

    @Brie Schmidt 

    Hey Brie- looking at your Recently sold properties spreadsheet. 

    In general have you found 5% for maintenance and 3% for capex to be sufficient?

     Depends on the property, but yes

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  • Daniel F.
    Chicago, IL · Member since 2013 · 27 posts · 8 votes
    8y

    @Brie Schmidt


    Also how is the monthly P&L being calculated? I see you're taking the Purchase Price loan amount, dividing it by 100K and multiplying it by 500? Thank you!

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  • Derek Luttrell
    OP
    Chicago, IL · Member since 2017 · 231 posts · 124 votes
    8y

    @Brie Schmidt thank you for that Excel doc--though the properties profiled require six-figure down payments, and 8-10 years to recoup that down payment. I can't say that really fits into my strategy. 

    We all have our acquired tastes, but I don't need to be young to enjoy my time in UK Village. There are wristband-donning street youths in every neighborhood of the city. Coming previously from the Southport Corridor and then River North, I appreciate that the UK Village offers a neighborhood feel without all the bourgeois. Maybe that's just me, but I'm okay with that.

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  • Account Closed
    Downers Grove, IL · Member since 2017 · 366 posts · 165 votes
    8y

    Derek, purchased 4 investment condos in the past few years even though would have preferred to purchase singles or multi's. Future value of condos is more risky, property issues are less risky. As far as HOA fees vs paying for repairs, thats a big fat it all depends. One advantage of distressed condo purchases, less bidding competition. My most recent purchase should ROI close to 8%, after factoring in all closing and repair costs, not including vacancy, or management fees, cash purchase, no cash on cash funny math. B+ area

    C property.

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y
    Originally posted by @Daniel F.:

    @Brie Schmidt


    Also how is the monthly P&L being calculated? I see you're taking the Purchase Price loan amount, dividing it by 100K and multiplying it by 500? Thank you!

    Each financing option has different amounts depending on PMI. I use a 30 year fixed at 4.3875% interest rate

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    8y
    Originally posted by @Derek Luttrell:

    @Brie Schmidt thank you for that Excel doc--though the properties profiled require six-figure down payments, and 8-10 years to recoup that down payment. I can't say that really fits into my strategy. 

    We all have our acquired tastes, but I don't need to be young to enjoy my time in UK Village. There are wristband-donning street youths in every neighborhood of the city. Coming previously from the Southport Corridor and then River North, I appreciate that the UK Village offers a neighborhood feel without all the bourgeois. Maybe that's just me, but I'm okay with that.

    That is why most people use low money down programs.  

    UKV is fine, but when you get into your 30's and all your friends leave the area your priorities will change.  By only limiting yourself to a cool hip neighborhoods you are going to sacrifice on cash flow potential.  So right now that may be a priority to you but down the road going NW for more space and spending less money may be a priority.  

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  • Account Closed
    Downers Grove, IL · Member since 2017 · 366 posts · 165 votes
    8y

    Just to clarify my post above, all my rental condos are suburban Cook, not Chicago.      

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  • Derek Luttrell
    OP
    Chicago, IL · Member since 2017 · 231 posts · 124 votes
    8y

    @Brie Schmidt tell me if I'm missing something, but even on the 5% down payments and living in one unit, the owner still pays ~$1000+/month themselves (not the best outcome when house hacking), which means that once they move out and rent their unit to a tenant, there's not a whole lot of cash flow opportunity. 

    I'm by no means above living north of Irving Park road a few years from now, but at current prices buying MFHs just doesn't make a whole lot of sense to me. 

    I appreciate this dialogue! I really enjoy soaking up knowledge from local investors. Someone's got to be making money around here. 

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