Age of Multi-family buildings in Chicago

[Benjamin J Paoletti]

Many of the multifamily properties listed in Chicago (in the $400k-$600k price range) are built between 1890-1920.

I noticed many of these foundations have settled, cracks in plaster, dips in the flooring, etc. 

If these homes are 100+ years should I be concerned with these issues and the foundation? I know some investors are considering them just tear downs at this point.

Should I increase my budget to $750k+ and try to find newer built homes or is it worth it to invest in these 100+ year old homes?

Bit of a generic question, but wanted to throw this out there for anyone seeing the same thing or who would have some insight. 

Thank you!

[Paul De Luca]

@Benjamin J Paoletti

If there is evidence of foundation issues after doing the inspection, yes I would be concerned. If you eliminate properties of that age from your search your options will likely be pretty limited though. As long as the bones of the property seem to be in good shape, it could be worth moving forward if the numbers make sense.

Going for more expensive properties is going to make it harder to cash flow, but it's your preference and it couldn't hurt to see what's out there.

[Benjamin J Paoletti]

Quote from @Paul De Luca:

@Benjamin J Paoletti

If there is evidence of foundation issues after doing the inspection, yes I would be concerned. If you eliminate properties of that age from your search your options will likely be pretty limited though. As long as the bones of the property seem to be in good shape, it could be worth moving forward if the numbers make sense.

Going for more expensive properties is going to make it harder to cash flow, but it's your preference and it couldn't hurt to see what's out there.

@Paul De Luca I am having a tough time seeing direct foundation issues in these homes as the garden level units are surrounded by drywall and there is no clear visual on the foundation or floor joists so that just leaves me hoping a home inspector can point it out. 

Would you have a home inspector in general or someone specializing in structure that you would recommend? I know floor bowing is not a huge concern as long as it does not dip too deep in a small area.

But you are right, having a tough time finding good deals when I eliminate these older homes so seems like an issue that is going to have be addressed one way or the other. 

[John Warren]

@Benjamin J Paoletti I have sold a lot of properties from that era, and the brick 2 or 3 flats rarely have structural issues. They were really built like tanks, and that just isn't something that comes up much. Where I see this is more in the frame buildings. The areas by Pilsen, Little Village, McKinley Park, etc have a lot of frame houses with actual pieces of trees used... those are pretty tough. 

I would steer clear of those types of buildings or any of them that have real issues. A small slope in the floor wouldn't scare me on a 100 year old building, but clear signs of settling at the foundation in multiple spots would. This is where your team is so important as the people you have guiding you should know enough to help guide you away from the really tough buildings. 

[Tom Shallcross]

As @John Warren mentioned, the old-school timber posts and pier is best left for someone looking to gut the place. Below is a pic for reference and if you're just starting out you should punt on these.

Going back to the original question, if you do have issues with an older brick building, a lot of times running the steel I-beam across the basement in place of the old wooden one which has bent over time, gets the job done to minimize sagging on the first floor and sound-up the foundation. 

[John Warren]

@Tom Shallcross how much have you had to spend to run an I-beam in the past? 

At least in the areas I work in, a lot of the brick homes were built with the I-beams in place which is amazing. Most of the multiunits I sell have them as well, so I don't run into structural issues as often unless I am working in those pockets of the city where the inventory has the post and pier. 

[Tom Shallcross]

@John Warren - $7-9k

[Paul De Luca]

Quote from @Benjamin J Paoletti:

Quote from @Paul De Luca:

@Benjamin J Paoletti

If there is evidence of foundation issues after doing the inspection, yes I would be concerned. If you eliminate properties of that age from your search your options will likely be pretty limited though. As long as the bones of the property seem to be in good shape, it could be worth moving forward if the numbers make sense.

Going for more expensive properties is going to make it harder to cash flow, but it's your preference and it couldn't hurt to see what's out there.

@Paul De Luca I am having a tough time seeing direct foundation issues in these homes as the garden level units are surrounded by drywall and there is no clear visual on the foundation or floor joists so that just leaves me hoping a home inspector can point it out. 

Would you have a home inspector in general or someone specializing in structure that you would recommend? I know floor bowing is not a huge concern as long as it does not dip too deep in a small area.

But you are right, having a tough time finding good deals when I eliminate these older homes so seems like an issue that is going to have be addressed one way or the other. 

 In my experience home inspectors are generally good about calling out potential structural problems. If there's uncertainty about the problem and buyer is still interested in moving forward, it may be worth it to get a structural engineer's opinion before making a final decision.

[Michael K.]

Quote from @Benjamin J Paoletti:

Many of the multifamily properties listed in Chicago (in the $400k-$600k price range) are built between 1890-1920.

I noticed many of these foundations have settled, cracks in plaster, dips in the flooring, etc. 

If these homes are 100+ years should I be concerned with these issues and the foundation? I know some investors are considering them just tear downs at this point.

Should I increase my budget to $750k+ and try to find newer built homes or is it worth it to invest in these 100+ year old homes?

Bit of a generic question, but wanted to throw this out there for anyone seeing the same thing or who would have some insight. 

Thank you!

Generally speaking, you will not find many new multi-units. Most newer properties are sold as condos. When I do see new multi-units they tend to be on the Southside (i.e. Kenwood/Bronzeville/Woodlawn). 

I own one of those 100+ year old properties and I'm confident it can stand for another 100 years. That said, there are some big ticket items to keep an eye out for. #1 being tuckpointing. If the exterior needs a lot of repairs that can be a huge expense. Usually the top of the building, and chimneys, will fail first. So make sure you look up when visiting the property.  #2 Look for a building that has a basement, not a crawl space. If you ever have sagging in a building it will be a lot easier to remedy if you have basement where you can actually walk around and see what's going on.  #3 garden units can be the difference between a building cash flowing and not cash flowing, but most of the time they are not built very well. So if you can find something with an unfinished basement and decent ceiling height you will have the option to build out the garden unit the right way. And having some sort of water abatement system is ideal. 

[Crystal Smith]

Quote from @Benjamin J Paoletti:

Many of the multifamily properties listed in Chicago (in the $400k-$600k price range) are built between 1890-1920.

I noticed many of these foundations have settled, cracks in plaster, dips in the flooring, etc. 

If these homes are 100+ years should I be concerned with these issues and the foundation? I know some investors are considering them just tear downs at this point.

Should I increase my budget to $750k+ and try to find newer built homes or is it worth it to invest in these 100+ year old homes?

Bit of a generic question, but wanted to throw this out there for anyone seeing the same thing or who would have some insight. 

Thank you!

My partner has a little trick he does when going into an old building built Circa 1920 or older. He puts a marble in the middle of the floor to see how far it rolls. If it doesn't roll too far then he gives the building a thumbs up. It's a little bit of a joke. Back to your question- Should you be concerned with foundation issues, cracks in plaster, dips in flooring.....  My first reaction to your post was- Did you say plaster????   Yes, you should be concerned and you should budget renovating any building that is in these conditions.  But I submit if the building is in the right location, location, location, and large enough, you can take a $750K building and have it be worth X million.  

With that said if you're looking for something move-in ready & your budget is $750K there are lots of opportunities to find a property circa 1890 to 1920 along with newer properties.  Honestly, it's just a matter of style.  I think you should be looking at both the new properties along with the old ones and decide style-wise what you like.

[Jonathan Klemm]

Hey @Benjamin J Paoletti - My simple opinion is yes, invest in old homes.   Just find the right one, but because you are right some of these old Chicago homes can come with some major issues.

We've found when we are adding additions and floors there are ALWAYS unknown surprises so it's probably a good idea to increase your budget.

[Benjamin J Paoletti]

Quote from @Tom Shallcross:

As @John Warren mentioned, the old-school timber posts and pier is best left for someone looking to gut the place. Below is a pic for reference and if you're just starting out you should punt on these.

Going back to the original question, if you do have issues with an older brick building, a lot of times running the steel I-beam across the basement in place of the old wooden one which has bent over time, gets the job done to minimize sagging on the first floor and sound-up the foundation. 

Great picture. I appreciate the insights into these older frame buildings as @John Warren mentioned as well - unless going for a gut rehab. Great to know on the price of the i-beam install. Thank you guys!

[Benjamin J Paoletti]

Quote from @Michael K.:

Quote from @Benjamin J Paoletti:

Many of the multifamily properties listed in Chicago (in the $400k-$600k price range) are built between 1890-1920.

I noticed many of these foundations have settled, cracks in plaster, dips in the flooring, etc. 

If these homes are 100+ years should I be concerned with these issues and the foundation? I know some investors are considering them just tear downs at this point.

Should I increase my budget to $750k+ and try to find newer built homes or is it worth it to invest in these 100+ year old homes?

Bit of a generic question, but wanted to throw this out there for anyone seeing the same thing or who would have some insight. 

Thank you!

Generally speaking, you will not find many new multi-units. Most newer properties are sold as condos. When I do see new multi-units they tend to be on the Southside (i.e. Kenwood/Bronzeville/Woodlawn). 

I own one of those 100+ year old properties and I'm confident it can stand for another 100 years. That said, there are some big ticket items to keep an eye out for. #1 being tuckpointing. If the exterior needs a lot of repairs that can be a huge expense. Usually the top of the building, and chimneys, will fail first. So make sure you look up when visiting the property.  #2 Look for a building that has a basement, not a crawl space. If you ever have sagging in a building it will be a lot easier to remedy if you have basement where you can actually walk around and see what's going on.  #3 garden units can be the difference between a building cash flowing and not cash flowing, but most of the time they are not built very well. So if you can find something with an unfinished basement and decent ceiling height you will have the option to build out the garden unit the right way. And having some sort of water abatement system is ideal. 

 Great point on the newer properties being sold as condos and the garden units being key to cash flow. I see a lot of 2 units with restrictions on 3 units, so 3 units seem harder to come by in the city - limiting options. I have been wondering if duplexes in the suburbs have more potential.

[Benjamin J Paoletti]

@Crystal Smith @Jonathan Klemm seems like $750k deals have more potential for equity increase than the $400-$500k deals? Also dependent on the right location and financing a renovation. Any experience with a $750k BRRR like that?

[Crystal Smith]

Quote from @Benjamin J Paoletti:

@Crystal Smith @Jonathan Klemm seems like $750k deals have more potential for equity increase than the $400-$500k deals? Also dependent on the right location and financing a renovation. Any experience with a $750k BRRR like that?

I'd have to run the numbers for a specific location but intuitively I do not believe there is more potential for equity increase in a $750K deal in the same area than a $400K deal.  Why?  Forced appreciation.  If you're able to find the right older home at the right price that requires a renovation to modernize it; you can force the home to appreciate and end up having less $ in the home than purchasing one for $750K.   If you do nothing to the $400K home to modernize it then you're correct, the modern home will appreciate more.

[John Warren]

@Benjamin J Paoletti you hit on something that isn't talked about enough. In the city, it is fairly common practice for units of unknown legality to be rented out. In the suburbs, most suburbs will do an inspection when a property sells, so you will know if something is legal or illegal. Most of the suburbs are also very, very tough on folks running known illegal units. I would not bank on finding a duplex plus garden in the burbs versus finding the same setup in the city which is pretty common. 

[Jonathan Klemm]

Hey @Benjamin J Paoletti - I think everything is relative in real estate and life.  Bigger risk, (typically) bigger reward.  There are tons of old properties here in Chicago so you don't have any shortage of that.

I think the number you really want to be looking at is your cash-on-cash return....if you aren't getting a much larger return on bigger deals then it probably doesn't make sense to do them.  

In my opinion, it is all a matter of personal preference and risk tolerance....