Opinions Please - Lincoln Park, Chicago

11 Replies

Greetings BP,

Long time lurker, first time poster. I've been renting in Chicago for 3 years, and I am ready to make the move into a home purchase.

Objectives:

  • Buy multiunit building and hold for ~10 years
  • Stay near lakeshore in Lincoln Park
  • Keep personal costs near current rental ($2000/m)

Could you give me a quick opinion on numbers, please?

Income: $145k

Current Downpayment: $60k

Target home price: $600k

I've found this two-flat that fits my target.  The neighboring single story (with curb appeal) just sold for $800k.  Mine definitely needs some cosmetic work, but appears that the big tasks (plumbing/electric/hvac) have already been completed.

https://www.redfin.com/IL/Chicago/223-W-Menomonee-St-60614/home/13345194

Monthly balance

Mortgage payment: $3000

Taxes/Insurance: $1000

Rental income from 2nd unit: $2000

Do my numbers sound sensible? Would you recommend any other property types?  I am personally attached to the Lincoln Park neighborhood.  Should I keep renting here and buy a specific investment property in a cheaper neighborhood?  

Totally open to your feedback.  Thanks for all of the great resources on here!

Ed

@Ed S.

I think you're missing several important factors here. First, your purchase price of $600,000 is nearly $100,000 less than asking.  If you're going to use the recent home sale of $800,000 to justify buying on that block, you can bet the seller will use it to contest lowering the sale price as well. And I think you're being overly optimistic to assume that in Lincoln Park, with that home's proximity to the Lake and Park, you'll be able to knock too much off the purchase price. 

That said, you may get lucky and find a motivated seller who will agree, but you're still going to pay more than the $3,000/month you've posted. You're also going to have to deal with repairs, capital expenditures, and vacancies, all of which will eat into your income and take you above $2,000 per month you're interested in spending. And keep in mind the city's push to raise property taxes above current rates to help with the budget  That'll cut into your numbers as well. Additionally, the rental units are currently leased for $1,700 or less, so you'll have to justify raising them to your hoped for $2,000/month.

I moved out of a Lincoln Park apartment last year to buy my two-flat in Ukranian Villiage. As much as you love living near the Lake, consider moving to another nice neighborhood in Chicago. I promise that the money you save in monthly costs will more than offset the Uber fares you'll end up paying for. ;)

Whatever you decide, good luck!

Hi Brian,

Appreciate your honest feedback.  I think I see many of the same factors, but I don't want to admit it!  Hearing it from a 3rd party helps me solidify those feelings. 

Perhaps it does make more sense to continue renting here and consider a separate investment property in another neighborhood like Ukrainian Village.  I am not personally ready to move, though I certainly see the value in rental cashflows.

Originally posted by @Ed S. :

Greetings BP,

Long time lurker, first time poster. I've been renting in Chicago for 3 years, and I am ready to make the move into a home purchase.

Objectives:

  • Buy multiunit building and hold for ~10 years
  • Stay near lakeshore in Lincoln Park
  • Keep personal costs near current rental ($2000/m)

Could you give me a quick opinion on numbers, please?

Income: $145k

Current Downpayment: $60k

Target home price: $600k

I've found this two-flat that fits my target.  The neighboring single story (with curb appeal) just sold for $800k.  Mine definitely needs some cosmetic work, but appears that the big tasks (plumbing/electric/hvac) have already been completed.

https://www.redfin.com/IL/Chicago/223-W-Menomonee-...

Monthly balance

Mortgage payment: $3000

Taxes/Insurance: $1000

Rental income from 2nd unit: $2000

Do my numbers sound sensible? Would you recommend any other property types?  I am personally attached to the Lincoln Park neighborhood.  Should I keep renting here and buy a specific investment property in a cheaper neighborhood?  

Totally open to your feedback.  Thanks for all of the great resources on here!

Ed

Your numbers are off a bit, if the purchase price is $600k you can put 3.5% down with FHA or 20% down with conventional (the 10% down conventional is only available on single units, not 2-4 units). In this scenario you would have to go conventional since the loan amount is above he FHA loan limit for a 2 unit ($456k)

So after 20% down ($120k) you would finance $480k - Your monthly P&I payment would be $2400 ($500 for every $100k financed with conventional, $575 per $100k financed for FHA)

2014 taxes were $7800 when the property was assessed at $456k but the whole city got reassessed this year and the new valuation is $659k so your taxes will be $11,309 based on the current rate (it is increasing next year, we don't know for sure but rumor is it is 12% so assume $12,666) so $1055 a month

Insurance - assume about $200/mo

Monthly PITI = $3,655

In the current condition I think $2000 a month is accurate.

So with $4000 gross rental income less 3% vacancy, 3% capex, 2% water, 5% repair your looking at $3480 a month. According to the MLS the gas bill is $117/mo so that brings it to $3,363. with a mortgage payment of $3,655 it will cost you about $300 to have the property if you didn't live there.

Being an agent who only works with investors, I can tell you 2 units never cash flow, and lincoln park will never cash flow.  You are going to have to move way west (Lakeview, Roscoe Village, most of Lincoln Square, Bucktown, Wicker park, all won't cash flow)

@Brie Schmidt ,


I have read on a few posts that multi units of 2 units never cash flow in Chicago. Can you expand on that? 

For a buy and hold investor that wants to receive cash flow should look for more units in a multi unit property? How many units do you recommend the least amount you should look for.

Investors that are buying 2 units in LP and other area's they are just banking on appreciation of the property?

@Syed Lateef - The rent generated from a 2 unit will barely cover the mortgage.  Properties with 3 units usually sell for about 10% more but bring in 50% more income.  

I have looked at every single listing from the loop to Rogers park - west to Humboldt Park and up to Portage park that has come on the market in the last 5 years.  Of the thousands of listings I have looked at I have only seen a 2 unit that the numbers worked on twice.  

@Syed Lateef - we have many legal 2 unit properties with a in-law apartment - those the numbers work on.  

But never in the areas I mentioned.  You want the property to at least break even ever month if you are banking on appreciation, you don't want to be putting your own money into it to pay the mortgage.  

Hi Brie,

Super informative, and I really appreciate the time you took out of your morning for me.

If the cashflows NEVER work out in Lincoln Park, then what is keeping the values up?

With your math, I see how living there will cost me around $300/month.  Now here's the crazy part.  I am almost consciously willing to take that additional expense in order to continue my lifestyle.  Are there just a bunch of idiots like me willing to purchase these homes even though the financing doesn't work?

If I am crazy enough to continue living here at a loss, would I be better buying a comparable $400k condo for myself and a cash flowing rental elsewhere?  Looking back at the two flat, I would consider my floor a $400k a "sunk cost" and value the second floor rental at a prospective cost of $200k?

Single flat - $400k

Two flat - $600k ($200k difference)

Please do set me straight.  I'm tired of paying rent to someone else, but not willing to part with my location.  If you wanted to get into the property game while personally living in Lincoln Park, how would you do it?

Originally posted by @Ed S. :

My opinion:   You should separate the decision on where you want to live (i.e. where you're attached to) from your real estate investment decisions.  If your plan is to live in the Lincoln Park property & you can afford the mortgage w/o a tenant then go for it.  Getting a tenant will be icing on the cake to reduce your expenses.  (Note:  This property appears to need some renovation- Do you have the cash for that?)

If your objective in purchasing a multifamily is to cash flow the property then you need to consider either looking in another area or, if you stuck on Lincoln Park, looking @ a larger multifamily.  

What's the easiest way to estimate the potential property tax increases when buying in Cook County? I'm looking at some properties which were last sold in 2010-2014. I see that the tax increases post-purchase were substantial.

Thanks!