Chicago, IL · Member since 2015 · 2 posts · 0 votes
Hey everyone, I'm looking to purchase a multi-unit building (2-4 units) in Chicago (Logan Square / Bridgeport). The price range is in the 200K-400K range, and I'm having a major issue in my evaluations. To set my baseline, for a sale price I need one of two things to be accurate and i'm having issues with both.
Area cap rate - I have no way to accurately determine what cap rate should be for my areas. I've heard everything from 5%-6% to 8%-10%.
Comparables - There just doesn't seem to be any source online to generate an accurate comparable. Most sites have a far too small sample size and are often far different than my building.
How do people get passed this issue? If any of you have bought in these areas or Chicago in general what was your target cap rate and why?
Real Estate Agent · Chicago, IL · Member since 2013 · 386 posts · 218 votes
10y
For 2-4 flats your best option is the MLS. The national association of Realtors states that 88% of these properties are sold on the MLS. In addition, it gives you comparables quite easily. I would recommend using a Realtor or better yet getting your license for your own access.
Logan Square is virtually impossible, look at Avondale or surrounding areas.
Im very familiar with Bridgeport, looking right now there are 12 multi units under $400K. Mostly 2 flats, which are also impossible to get good cash flow on.
Real Estate Agent · Chicago, IL · Member since 2013 · 386 posts · 218 votes
10y
For 2-4 flats your best option is the MLS. The national association of Realtors states that 88% of these properties are sold on the MLS. In addition, it gives you comparables quite easily. I would recommend using a Realtor or better yet getting your license for your own access.
Logan Square is virtually impossible, look at Avondale or surrounding areas.
Im very familiar with Bridgeport, looking right now there are 12 multi units under $400K. Mostly 2 flats, which are also impossible to get good cash flow on.
Specialist · Chicago, IL · Member since 2015 · 870 posts · 345 votes
10y
Howdy,
Welcome to BP! This site rocks. 200-400 won't get you much in Logan.
What I've seen
Albany cap 4-6 / west higher
Arcadia cap 4 - 6
If you find something in a B area at cap 6, that's fair deal. Very little cash flow and a shot at appreciation. Interesting tax shelter, if you research.
However, watch out for the numbers: repairs can kill the deal.
2-4 units is a complete different market on it's own. 2 flats wont' cash flow. 4 units: You may be looking at $600K to $700K in Logan, not 200-400K.
How do people get passed this issue? If any of you have bought in these areas or Chicago in general what was your target cap rate and why?
We don't use CAP RATE for small multifamily, 2-4 units. Appraisals for small properties like this are not based on property income, they are based on sales comparables. We use the MLS for sales comparables on small multifamilies.
Investor · Chicago, IL · Member since 2016 · 35 posts · 20 votes
10y
Some of the replies to this post mention cap rates that might be good targets to shoot for in a particular neighborhood, but what is the process one uses to determine the desired cap rate for that area?
Lender · Western Springs, IL · Member since 2015 · 472 posts · 245 votes
9y
I would say you need to be working with a solid realtor that knows the area. There isn't going to be a substitute to find out what is a solid cap rate in a given area without having someone who is knowledgeable about that given area involved. This isn't an advertisement for realtors - most know very little. But good ones will know what cap rates should look like in a given area.
Real Estate Broker · Chicago, IL · Member since 2015 · 56 posts · 19 votes
9y
I agree with Jeff Dilla. Get yourself a competent active broker who can get you this info and knows his/her stuff. No way you're getting a 4 cap in Avondale nor Logan. We are not even seeing that in Lincoln Park or Lakeview. Last month I ran a report for Lakeview and it came in at 6.02 CAP average for 2 flats in the past 6 months. I'd put Avondale in the 7-8 range and I'm not familiar with Bridgeport but I'd guess it's similar.
Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes
9y
Based on my experiences selling property and analyzing rents in areas, you won't get more than a cap rate of 7 in a class A area of Chicago. Many times it is lower or non existent, you are betting on future values not cash flow.
In Logan Square, forget about it. People are buying 2 flats for a minimum of $550k, with the intent to owner occupy and rent out the other unit. If you find something priced lower, plan on spending big money to get it renovated. You will be competing with new construction rental options and Renters these days have very high expectations. Competition is fierce and while I haven't looked in a few months, earlier this year every 2-4 flat had multiple offers and sold in a week if it was priced right.
I'm not as familiar with Bridgeport, but what I do know is that the rents in that area are crazy low for 1 and 2 bedrooms. I would consider going for a single family to lease out instead of a 2-4 unit.