Estimating ARV of a Chicago area duplex, first time investor

Real Estate Agent · Portland, OR · Member since 2016 · 1k+ posts · 605 votes

5y

Hey @Bett Rogers, sounds like it could be a solid deal, congrats! I think you are on a good path for finding the ARV through comps but I wouldn't compare SFH to Multifamily. I would suggest looking at cap rates for similar properties. That should make things a little more apples to apples. For that, you will need to find your ARV monthly rent and I would suggest going to Rentometer.com for that.

As far as financing goes, I would suggest looking into conventional. They have low down payment options that rival FHA and you don't get stuck with paying PMI for the life of the loan.

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Michael K.

Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes

5y

@Bett Rogers

for multifamily properties there are a couple things to keep in mind. #1, the more units in the property the more closely ARV will be related to net rental income. Every investor will have their own number, but if the property can't produce at least a 8-12% return people may not want to even consider it, so focus on improving aspects that will allow you to increase rents.

#2 know your area and what things rent for, be careful not to over improve your building. If the average rent in an area is 1000 dollars you could probably justify asking 1250, but if the avg. rent is 1000 and you want to get 2000 you will struggle. Renters who can afford 2000/month are more likely to start their search in 2000/month neighborhoods.

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Michael K.

Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes

5y

@Bett Rogers

Reach out if you'd like help running through the numbers on a deal, I have a couple multifamily buildings in the city and might be able to provide you some insight! My number is 8722407300.

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Mark AinleyBusiness Member

Property Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes

5y

@Bett Rogers I will send you a house hacking calculator that can help you on your journey! I am sure @Michael K. can advise you as well.

[email protected]630-781-6744 Podcast Guest on Show #72

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Bett Rogers

OP

Member since 2021 · 3 posts · 0 votes

5y

Thank you for the encouragement @Brad Hammond @Michael K. I will definitely explore conventional loans as well. I'm also going to ask my agent to help me find some more analogous comps to work with. I've been using Rentometer in my planning, and there is not a ton of spread in terms of average rent in the area which is helpful in terms of setting expectations. The building in question has one unit move-in ready and the other is in pretty rough shape, though the kitchen is intact. I'm going to see the property tonight and I will likely have more questions after that- thanks again!

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Bett Rogers

OP

Member since 2021 · 3 posts · 0 votes

5y

Thanks @Mark Ainley !

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Michael K.

Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes

5y

Originally posted by @Bett Rogers:

Thank you for the encouragement @Brad Hammond @Michael K. I will definitely explore conventional loans as well. I'm also going to ask my agent to help me find some more analogous comps to work with. I've been using Rentometer in my planning, and there is not a ton of spread in terms of average rent in the area which is helpful in terms of setting expectations. The building in question has one unit move-in ready and the other is in pretty rough shape, though the kitchen is intact. I'm going to see the property tonight and I will likely have more questions after that- thanks again!

I've used rentometer in the past too. Although I think it's a decent tool I also believe it tends to inflate average rents, so might want to take that into consideration. The people who are posting their apartments for rent online are probably catering to a different audience to begin with, so will be charging higher rents than people who are just relying on putting a for rent sign in the window.

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Paul De Luca

Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes

5y

Originally posted by @Bett Rogers:

Greetings,

I'm hoping to begin my investing journey with a house hack project in a Chicago suburb. When calculating ARV of a multi-family unit is there anything I need to be attuned to beyond the typical process of finding what rehabbed homes within the immediate vicinity have been going for in terms of $ per square foot? Is there a better way to predict ARV for a duplex?

The comps I'm using are primarily single family homes in the immediate vicinity. If I push farther out in order to incorporate more multi-units into my analysis I get into neighborhoods that are priced significantly higher than the area I'm looking at.

My plan is to use this property as a BRRR investment. Asking price is 265 k, rehab is estimated at about 75-90 k, ARV appears to be somewhere between 450 and 525 k, average monthly rent for both units will total 3600. With regard to finance strategy I'm considering using an FHA loan for the low down payment in order to cover my renovations out of pocket, however, I need to research the financing piece more before I can really speak to my plans in that area. I haven't gotten that far yet!

Any advice is welcome. Thank you all!

- Bett

Before you do a bunch of analysis on the property you should have your financing situated otherwise you might be just wasting your time. To force that kind of a value increase you're likely going to need to use hard money financing or cash since it probably won't qualify for conventional or FHA.

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John Warren

Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes

5y

@Bett Rogers first of all, congrats on taking action. So many people never even start educating themselves. Secondly, I would think carefully about your goals. Do you want a major rehab in your life? Do you have the bank roll if things go wrong to float the project? I have worked with a lot of house hackers, and generally speaking using FHA financing and getting a screaming deal don't normally align. Normally as a house hacker you would want to focus on finding a great building that you want to own as you are getting insane leverage and cheap money (sub 3%). That is the play right now. Tying up debt for almost nothing is an amazing tool that you can only use once (or twice, or three times...).

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Crystal SmithPro Member

Moderator

Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes

5y

Originally posted by @Bett Rogers:

Greetings,

I'm hoping to begin my investing journey with a house hack project in a Chicago suburb. When calculating ARV of a multi-family unit is there anything I need to be attuned to beyond the typical process of finding what rehabbed homes within the immediate vicinity have been going for in terms of $ per square foot? Is there a better way to predict ARV for a duplex?

The comps I'm using are primarily single family homes in the immediate vicinity. If I push farther out in order to incorporate more multi-units into my analysis I get into neighborhoods that are priced significantly higher than the area I'm looking at.

You cannot compare single family homes to multifamilies when attempting to determine the ARV of the multifamily. You must find recently sold similar multifamily homes within a one mile radius in the past 6 months with similar room counts, square footage; mechanical systems, parking,exterior features,..... There are ways to make adjustments to the recently sold price which I won't go over here. I just want to correct the big mistake you're making. If you can't find anything within one mile and/or 6 months you can go a little furthur out, but not to far.

312-681-7487

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Estimating ARV of a Chicago area duplex, first time investor

Estimating ARV of a Chicago area duplex, first time investor

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