Tips for Beginner Looking for Small Multi-Family in Chicagoland

13 Replies

Hello everyone! 

I'm Adam Bandola, a 22-year old recent college graduate who's looking to be get started in small multi-family units in the Chicagoland area. Having lived around Chicago my whole life, the dream is to work and live in and around the city in the near future. 

That being said, real estate investing and the concept of house-hacking has only been in my life for the past 6-8 months. Although I've been reading BP books (as well as others), listening to podcasts and doing my own analyses on properties that are currently on the market, I would still appreciate if any investors in the Chicagoland area have any tips or would be able to answer some questions I have. 

Specifically:

  • - How did you get your start in Chicago?
  • - Is it worth it to purchase a duplex, triplex, fourplex in a worse neighborhood for cheaper? My gut is saying it would not be given that there's a higher likelihood for property crimes, vacancy, a generally worse pool of tenants to choose from and, ultimately, less income from a lower rent. However my brain is saying that if the numbers work and it cash flows even for a couple hundred dollars then it may be worth it to inspect further. 
  • - Are there any neighborhoods to completely avoid besides the Englewood, Garfield Park areas? I know all too well that certain streets can make a difference. 
  • - What tactics have you used to determine if an area is up-and-coming and worth it to buy in earlier?

Thank you to those who have read and a thank you to those that are able to provide any guidance. If you have any tips in general I would love to read them. I look forward to seeing the power of the BP community. 

@Adam Bandola - Welcome to the Chicago BP community and the real estate investing world.  Definitely sounds like you are on the right path to get started.

My opinion, house hacking is the path of least resistance to get started and is also the least risky.  My personal strategy starting out was pretty simple, invest in areas that I wanted to live.  I never put a high emphasis on cash flow, but rather just wanted to make sure my mortgage payment was less than what I would have paid for rent.

I also always found it easier to purchase 2 units instead of 3/4 due to the FHA self-sufficiency test. I'd recommend connecting with someone who specializes in working with investors like @Tony Freeman who works with many investors on their first purchase.

Happy to connect and see how I can help as well.

Well if these are going to be investment properties, In my humble opinion it shouldnt matter as long as you see the value. How much does the average renter pay in that area, the comps in the are etc. You would just higher a property management company to deal with the day to day and month to month operation. Just a thought.

@Adam Bandola

Welcome to the forums, Adam!

- I started by house hacking a 2-flat in Berwyn. Then I bought a second one the following year, which I'm still in now and the plan is to get another one this year. The FHA self sufficiency test can be difficult to overcome for 3-4 units depending on the location. One way investors get around this is by buying a legal 2-flat with a finished basement or attic unit, so you have 3 units in total.

-It depends on what your goals are, what areas you're willing to live in, and what you can afford. Personally, I wouldn't house hack in an area I don't feel safe. 

-You mentioned a few areas that aren't exactly house hack friendly. Many new house hackers I work with either look toward NW Chicago neighborhoods or the western suburbs like Berwyn, Aurora, Elgin, etc.

-You can keep your finger on the pulse of where other investors are buying by being here on the Chicago forums. An easy way to anticipate up and coming areas is to look at the areas that are hot/expensive and buy on the outskirts of those areas. Buy on the fringe of a good neighborhood, hold, and wait for the natural expansion of the city to run its course. You can also look at other important things like population/job growth, ease of access to public transportation, and government projects.

Hey Adam, welcome to BP and congrats on committing yourself to real estate investing. In my opinion house hacking is the best way to get a start so you can receive the "on the job" training of being a landlord. If you can make it work financially I think aiming for a 4-unit is ideal, to get certain economies of scale. Like others have already mentioned, it can be difficult to get FHA financing to work, but that said there are still other low-down payment loan products out there. In terms of what areas to invest, I put an emphasis on being near a metra or L station, not only for the convenience of myself commuting but also because many renters will look for the same. Identify a few properties you think you *might* be interested in, then go drive around that block and neighborhood to see if it's a place you yourself would want to live. Remember, you won't need to live there forever, maybe just 1-2 years as you get your feet under you. Best of luck and feel free to reach out any time.

@Jonathan Klemm Thank you for the welcome. You bring up a good point where immediate cash flow may not be necessary while I'm living in the property, but will be positive once both units are rented out. 

I'll have to look further into the FHA self-sufficiency test as I am unfamiliar with it. Thank you for the recommendation, I will definitely be connecting with Tony!

@Paul De Luca Thank you for the welcome! 

Coincidental that you've mentioned it, but I have been looking at potentially doing what you describe in your first bullet point. Given that I am younger and do not have any children or spouse, living in a finished attic or basement would suffice for me. 

Currently I live in a western suburb so I was aiming to get closer to the city, but your advice on staying current with up-and-coming areas brings a different perspective I wasn't aware of before. Thank you for your response!

@Russell W. Thank you for your response!

Looking in to other low-down loans is something on my to-do list as I've only researched FHA and 203k loans.

Do you have any recommendations on MLS websites that include a way to see local metra or L stations? I also was considering taking a weekend day to drive around the neighborhood of properties I've been looking at so you mentioning it makes me feel more confident that this is actually helpful and not a waste of time. Thanks again!

Hey @Adam Bandola it's amazing that you are looking to get started on your real estate journey early on, something I wish I would have done myself when I first graduated. To answer your question about it being worth it to purchase a 2 unit or 3/4 unit and to be honest it all really depends on what your goal is as an investor. As I'm sure you know, you're going to get different returns based on whether you have a 2, 3, or 4 unit building but you also have to take into consideration, how much you want to spend/can afford to spend. Location is a big one as well too which is something I saw you briefly touch on as well. Some of your main focuses as an investors in Chicago should be investments along the Green Line, Blue Line, Pink Line, and Brown Line. These are the most booming areas in Chicago right now.

  • We got out start 2 ways- The first way- Playing Robert Kiyosaki's cashflow game with like minded investors. Then we went from playing the game on the board to playing the game for real. The 2nd way- Venture out and purchased a multifamily to live in while renting out the other unit then some single families to hold
  • Is it worth it to buy a multifamily in a worse neighborhood for cheaper- If you're nervous about it then no it's not worth it, but if you do your due diligence then yes. For example- Most of the neighborhoods in Chicago are block by block plays. In other words, with the exception of a few areas, you can't assume that an entire neighborhood is a bad investment. Consider this- Many investors are putting $ into those neighborhoods and profiting. Also consider that 10 to 20 years ago many of the neighborhoods that are considered attractive today were dumps back then. The neighborhoods became attractive because of investments, both small and large.
  • I won't answer your third bullet regarding Englewood and Garfield Park.
  • Tactics we use to determine if a neighborhood is up and coming is price growth and the number of permits in an area. Also keep track of investments by other industry in an area. 

@Adam Bandola you have received tons of great advice already on this thread. I got my start by buying a four unit building as a pure investment, and since then I have purchased over 100 apartment units. I never got a chance to house hack sadly, but it is an amazing strategy. The thing most people do wrong, is they focus on the monthly cash flow. You are leveraging 96.5% of the property and paying PMI when you use an FHA mortgage, so your cash flow will stink. Instead, focus on buying a GREAT building in the best area you can afford. Make sure it will cash flow at least a bit when you move out. Over time, you will drop the PMI and get more equity and appreciation. Appreciation is where I have really made all my money, even though I always look for cash flow. You need both, but buy a great building in a good area as that is the most important thing long term.

Adam, 

I just want to start off by saying good luck. Real estate investing is challenging but very rewarding. Remember that real estate investing is a people business so I recommend networking with as many people as you can. 

In regards to your questions. I would start by calling the top property management companies in Chicago. From my experience talking to property managers in the past they know the best places to buy. If you plan to BRRR they will also tell you what properties and upgrades will attract the most tenants.

To find top property managers do a google search and get the phone numbers of top rated PM companies that have been in the business for a long time. Have your questions ready. If they seem legitimate and you have a good feeling with them offer to use them as your property managers.

Good luck and feel free to reach out with anymore questions. 

- Kevin