Which type of property to buy?

Question

I'm curious what people think is the best type of 'buy and hold' property to look at for beginners (condo, single family home, multifamily, other). Living in the Chicagoland area, multifamily units in Chicago proper are an investor's go-to but I don't necessarily want to deal with Chicago/Cook taxes and duplex/multifamily building stock is dramatically lower in the suburbs so might go single family home in DuPage or Will. Any advice/thoughts would be appreciated. Thanks

John Warren · Answer

@Stephen DeFalco Chicago is an enormous market, and I think you should start with the end in mind here. Where do you want to live? That is going to drive this decision more than whether or not you want to do SFR vs Multiunits. Do you want to live downtown? Then you won't be doing single family! Do you want to live in Naperville? Then it is unlikely that you will be picking up a triplex.

I personally always prefer more doors, but that is just me. The taxes are much higher on single family homes in the areas I invest in than they are on multi units if you look at them in as taxes per unit. I have built my portfolio in the Berwyn and Cicero areas right outside the city.

John Warren · Answer

@Stephen DeFalco I would recommend that you start to drive neighborhoods. Grab lunch at local places. Hit up local coffee shops (or find out if any exist!). Nothing beats boots on the ground, and as you start to think about neighborhoods to invest in I think it makes a lot of sense to pivot out of internet mode and into ground mode.

Alecia Loveless · Answer

@Stephen DeFalco I’ve got a SFH, duplex, 3 unit and 4-plex. Personally I like the multis because there’s a larger income base to offset expenses and vacancies.

I house hack the duplex and the other side pays most of my living costs associated with the property.

If you can find SFH’s in your market that will pay your mortgage, provide for your other expenses the tenants don’t pay for, and provide for your reserves, (CAPEX, vacancy, Repairs and maintenance) and still cash flow a bit and that’s

What you’re comfortable buying, do it!!

You’ve got to be comfortable with your business model and it may shift and change as you buy additional properties over time.

Victor So · Answer

@Stephen DeFalco

Hey Stephen, are you looking to house-hack at all? If so, there are so many different options. I’ve househacked in Niles, Norwood park, Pulaski park, and uptown and so I’ve been all over. I’ve acquired 7 units that way.

But just like how others mentioned, consider where you want to live or feel comfortable living in and go from there. Consider the different financing options available too (fha, conventional, etc).

Stephen DeFalco · Answer

@John Warren @Joe Archbold- Currently living in my forever home (not looking to house hack) in the SW suburbs near Midway. Have family throughout DuPage and was thinking out there or central-western Cook thinking there's probably families trying to get into good school districts and not a lot of SFH rentals in areas like Wheaton/Naperville/Downers Grove but am finding the cashflow doesn't make sense for 90% of the deals I analyze. Our condo is in near north Chicago so not really worried about having properties right in my backyard. Just focusing finding good opportunities to expand our portfolio. I've heard Cicero/Berwyn from a couple people now - may start investigating that area

@Jonathan Klemm - Can you explain the "light" idea? My goal/timeline is I'd like to have 4 more deals under my belt by 2030. I believe if I can achieve that I can be on my way to FIRE. My main fear is expanding too quickly and if I have a vacancy or something unexpected with one of the properties I don't want to be sitting on multiple mortgages I can't pay.

Crystal Smith · Answer

Our opinion:  The best type for buy and hold is multifamily. Keep the units 95% full and you're off to the races. We had a portfolio of single families and could never get over a unit being empty; i.e. an asset not producing. With multifamily we've never had that problem. Over time you can build up a portfolio of single families in Dupage or Will; but your cash flow numbers won't be as good.

Jonathan Klemm · Answer

@Stephen DeFalco - I am also with @John Warren - Start with the end in mind.  What's your goal as an investor and what type of timeline are you looking to complete it by?

Real estate investors can make great returns using every different asset class (mulit, sfr, industrial, retail, etc.) and in any location/market (more or less).

My suggestion would be to figure out what feels "light" (from Jason Drees who is @Brandon Turner coach) and at least lightest.

Michael Williams · Answer

Multi family is the way to go for your first property. Live in one unit and rent the others out, it may not cover the entire mortgage but you'll be able to refinance and move in a year if you like. Then you'd have income from multiple units which would hopefully cash flow.

Robbie Young · Answer

I think SFH are the best type for very first investment unless house hacking a duplex or triplex.  SFH have the highest demand generally so easiest to rent.  You only have one tenant to deal with while you are learning the ropes and getting your procedures in place.  You don’t have any tenant vs tenant issues.  They are also the easiest to sell if you decide real estate is not for you.

Having said that, it really depends on your market and what cash flows.  I would recommend a 20-30 year old property over a 40+ year old property no matter the type.  Just less repairs and issues.

Joe Archbold · Answer

Stephan,

I agree totally with @John Warren. I live in Naperville the stock for Multifamily is pretty low in and around Dupage county. My Investments are to the West in Kane county. Although I very much prefer Multifamily, just this week a modest home across the street from me has tenants moving out and new ones moving in. I hadn't thought much about it until I heard that it rents for almost $4,000 a month. My best advice FTIW- decide if you are going to manage yourself and be active or if you will be passive. More doors will reduce your risk. Passive Real Estate Investing provides significant advantages in putting your money to work. — Chicago (antheminvesting.com)

Regards,

Joe

Which type of property to buy?

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