Searching for my first deal in Chicago
Hello BP Chicago,
My name is Kevin and I live in the north side of Chicago. I have been educating myself about long term real estate investing through listening to BP podcasts, reading books (Kiyosaki, Keller), and attending the local meets. I am interested in 2-4 unit MF to buy/hold, and have been searching for my first deal since Feb. With that said, I wanted to get a temperature check on my approach and whether I should change it.
I have been working with an agent who set up an MLS search for 2-4 unit MF in McKinley Park, Bridgeport and Logan Sq area. Inventory is very low and properties vaporize! People are also buying at above list with multiple offers. There was a 3-flat (all 3/1) in Bridgeport that sold for 481K cash. One unit is owner occupied and the other two rent for 800 and 635. Are people making money at these prices? I'm guessing that everyone is speculating to sell on the back end of higher or living in one of the units. Recently, I expanded my search to Jefferson Pk, Albany Pk, Lincoln Sq , Ravenswood area, but those are even worse. Brick two flats are 350-400 and only rent out for ~2500 for both units.
- Do I need to go outside of Chicago (Tinley, Chicago Ridge, Indiana)?
- Are there no deals on MLS?
- Should I look for single families?
- Should I hunt for deals at the tax sales?
- Wait for the market to cool off?
- Is the criteria of 1% rent unrealistic in Chicago?
Looking forward to get some feedback and to learn from everyone. Thanks.
Kevin
Kevin Chen how's it going. Just GO is my model. Your going make mistakes regardless but you can't be scared to make investments. Although you do need to be careful and think twice about your decisions. Moving on to the deals and MLS.....yes deals are going very very fast when they do appear. The areas you mention on the north side honestly wouldn't make you any money(might even lose money) with properties out there. The north side is so well developed overall compared to the west and south side of chicago. There are good neighborhoods spread out across Chicago you just have to know about the areas. I'm
Not telling you not to pay attention to the north side because deals do appear once in awhile. We actually just sold a flip in a good area on the north side. The north side is really good for flips(if you can catch them). Whenever an investor invests with me I try to get them the best possible ROI. My minimum return for a flip is 20% and it's 11-12% for buy and hold rentals. Overall my investors are pleased with the results with offer. We have our own rehab crew, property managers, and a couple of realtors we deal with. You mentioned Indiana. We have deals that pop up in Indiana as well and overall our investors like the state because of the low taxes and overall it's a more investor friendly state compared to Illinois. I don't want to make this post too long so if you want me to elaborate on anymore details I mentioned send me a PM.
@Elbert D. is right there are still a lot of deals here in the chicagoland area.
Try one of the following methods. But stick to one and become an expert before opening up too many strategies.
Pre - Foreclosure
1. Pre-Foreclosure (With Equity 40% or more)
2. Pre-Foreclosures (30 Days from Auction)
3. Pre-Foreclosures (Short Sales not listed in the MLS)
Probates
Out of town owners
Bandit Signs
Shadow Inventory (Bank owned properties not yet listed on the bank)
Originally posted by @Kevin Chen:
Hello BP Chicago,
My name is Kevin and I live in the north side of Chicago. I have been educating myself about long term real estate investing through listening to BP podcasts, reading books (Kiyosaki, Keller), and attending the local meets. I am interested in 2-4 unit MF to buy/hold, and have been searching for my first deal since Feb. With that said, I wanted to get a temperature check on my approach and whether I should change it.
I have been working with an agent who set up an MLS search for 2-4 unit MF in McKinley Park, Bridgeport and Logan Sq area. Inventory is very low and properties vaporize! People are also buying at above list with multiple offers. There was a 3-flat (all 3/1) in Bridgeport that sold for 481K cash. One unit is owner occupied and the other two rent for 800 and 635. Are people making money at these prices? I'm guessing that everyone is speculating to sell on the back end of higher or living in one of the units. Recently, I expanded my search to Jefferson Pk, Albany Pk, Lincoln Sq , Ravenswood area, but those are even worse. Brick two flats are 350-400 and only rent out for ~2500 for both units.
- Do I need to go outside of Chicago (Tinley, Chicago Ridge, Indiana)?
- Are there no deals on MLS?
- Should I look for single families?
- Should I hunt for deals at the tax sales?
- Wait for the market to cool off?
- Is the criteria of 1% rent unrealistic in Chicago?
Looking forward to get some feedback and to learn from everyone. Thanks.
Kevin
What is your price range? Deals are tough to find right now. The market is hot and multiple offers/selling over list seems to be the norm right now.
I think McKinley Park(much better than the other neighborhoods you listed) is a great place to look if you're trying to achieve high cash flow. I see 12 properties on the market there for under 400K. And 7 under 300K.
I don't think looking at single families would make sense if you're looking for cash flow. You'll almost always have better cash flow with a MF.
1% rule is not unrealistic in the right neighborhood. But it is very hard to find in a lot of the neighborhoods you listed. I'd keep looking in McKinley Park and add some other south side neighborhoods(Little Village, Brighton Park, Gage Park, maybe some others) to your search.
@Kevin Chen I'd look at Indiana side if you were going to focus on SFR, but 2-4 units probably better off on Illinois side.
Originally posted by @Kevin Chen:
Are people making money at these prices?
The majority of buyers in the locations you started out in are owner occupants who in a sense are making money by having a large percentage of their mortage financed by tenants. Others may be betting on additional appreciation based on location.
- Do I need to go outside of Chicago (Tinley, Chicago Ridge, Indiana)?- Yes - Expand your search area & No- Don't give up in your current search area. You can't take advantage of a good deal in the area if you're not in the game.
- Are there no deals on MLS?- There are deals but it requires patience & maybe a change in your strategy of approaching MLS deals
- Should I look for single families?- The market for singles to buy & hold is just as competitive as multi's. The potential for cash flow in the areas you originally targeted will actually be worse. If you expand to other areas the potential for cash flow on singles can actually be pretty good. Much depends however on your risk tolerance.
- Should I hunt for deals at the tax sales?- Study up before
- Wait for the market to cool off?- If you're going to do this you'll have to develop a metric to predict the next crash. Current conditions almost match those of the last crash so maybe you stay out until there's a crash. I'm being a little facitieous here. If this is really a concern there are some indicators that you may want to make part of your business plan for when to get in & out of the market.
- Is the criteria of 1% rent unrealistic in Chicago?- Chicago propery has 77 communities. Chicagoland (which includes all the suburbs, out to Naperville) has over 100 communities. Each of these communites are submarkets w/ their own features. Some where such a criteria works, Others where such a criteria doesn't make sense.
-
Real Estate Agent Illinois (#475. 112189)
- 3126817487
- https://www.chicagodiscountproperties.com/
@Kevin Chen If you don't like the deals on the MLS, @Andrew Holmes gave you several good strategies to finding a property that fits your criteria. I would say a maximum of 25% of our acquisitions in the past year were on the MLS, and most of those were HUD properties.
Like he said, pick one strategy for now and develop your own process. You need a team to attack every lead source and not get overwhelmed. You can fall down a rabbit hole of too much information and not enough action.
@Kevin Chen Seeing as you're currently looking in McKinley Park, Bridgeport and Logan, it seems like you are interested in higher-end rentals rather than "slumlording". I was looking for the same thing and just closed on my first rental property a week ago in Pilsen after a few months of searching. I was looking in mostly the same areas as you were in the months before (also Avondale, Irving Park, etc.) and you are exactly right - it's hard enough finding good cap rates and the ones that do pop up go FAST.
Generally, if you're looking for good cash flow (7% cap and above), you're basically limited to 3-4 flats in B-C class areas. I've heard that cash flow can be pretty reasonable in the 'crappier' areas (i.e. the hood), but personally would not want to invest in an area that I would be scared to visit - especially if it was my first property (which it sounds like it is).
Feel free to shoot me a message if you want to talk more about this, I'm more than happy to share my experiences.
Are you looking off the market at all? I'm house hacking a "1.2% rule" property in McKinley. Bought off the market from a rehabber. Have you looked at 203(k) at all?
@Art Maydan what bank did you get your 203k loan through?
@Byron W. I've never done a 203K. I went conventional on my duplex. But I do know @Michael Facchini is one of the largest rehab lenders in the country and does 203Ks.
Yes, we do a lot of FHA 203k rehab as well as conventional Fannie rehab. Happy to answer any questions!
@Andrew Holmes How would I go about searching finding the shadow inventory?
@Jeff Burdick My cursory criteria was 300K for a 3-units and 400K for 4-units. I'm continuing to look in McKinley Park.
@Crystal Smith Thank you for the detailed answers!
@Art Maydan I have not pursued off market yet. Will have to learn how to do that on my next one.
@Michael Facchini Do 203k require the property to be owner occupied? Going through a big bank on my current deal and they require 25% down for Fannie. What are alternatives to get in at 20%?
Thank you for everyones input! I really appreciate it. I'm actually under contract for a 4-unit building in McKinley Park now.
@Jeff Burdick Hi Jeff, I'm curious to learn more about McKinley Park. It is a bit difficult to determine the market values of the properties out there. My price range is under $300K but I want to house hack a multifamily. I would do an FHA so I have to stay 4 units or less. This is a pretty broad question, but what do you think I can get for that price range?
@Kevin Chen Congratulations on getting a property under contract in McKinley Park! Do you mind sharing any details like rental values of the units, purchase price, crossroads, etc?
Originally posted by @Sean Graham:
@Jeff Burdick Hi Jeff, I'm curious to learn more about McKinley Park. It is a bit difficult to determine the market values of the properties out there. My price range is under $300K but I want to house hack a multifamily. I would do an FHA so I have to stay 4 units or less. This is a pretty broad question, but what do you think I can get for that price range?
@Kevin Chen Congratulations on getting a property under contract in McKinley Park! Do you mind sharing any details like rental values of the units, purchase price, crossroads, etc?
I think you could get a multifamily in McKinley Park for that price range. There are currently 9 MFs on the market in McKinley Park for less than 300K.
Hi @Kevin Chen!
Welcome to BP!
Here are a few answers for you:
1. There ARE deals on the MLS, but you have to be willing to be glued to it so that as soon as the deal hits, you're ready to act. Or, better yet, you'll need to look at deals on the MLS with this mindset: "I'm going to offer on 20 properties on the MLS per week, knowing that I may only buy ONE property anywhere from 2-4 months after my initial offer." There are deals out there, I've seen them. But the likelihood that you're going to buy one the first week that it's listed, without competition, is slim to none. Competition is high. You'll need to learn to offer on a deal, and TRACK your offer for weeks (and sometimes months) in order to get it where you need it.
2. I think looking for SFR's is not a bad idea for passive income. It's tougher to scale than MFR, but they're more plentiful deals, AND you can still get a great return on your investment.
3. I don't have a whole lot of experience with the tax sales. Perhaps another BP member might be able to shed light on that. However, I do know people that purchase tax sales, so I know that it can be lucrative IF you know what you're doing.
4. Why wait for the market to "cool off"? The time to act is NOW. The truth is, it will never be the "perfect" time to invest. People make money in up-markets and down-markets. It could be 10 years before the market cools down enough for you. The secret is to know which investments are good in an up-market, and which ones are good in a down-market. Your strategy will change depending on where the market is in the cycle. Even though the time to act is now, you still will need patience. I'm not saying to buy the first thing you see. But, you need to start offering on deals (a lot of deals) now, and then track them so that you can buy them at the number it makes sense at later. Make sense?
5. 1% rule is not unrealistic in Chicago. Depending on the area, you can get much higher than 1%. It's just that, most of those markets that do better than 1% are in the south side of Chicago. I'm positive that there are good returns in many other areas, but I've seen some ridiculous numbers down there. But you HAVE to do your research. The deals are out there, the HARDEST thing that you're going to learn in RE investing is that finding them is the TOUGHEST part of the job.
Hope some of these answers help! Feel free to contact me if you need anything else! Would be happy to help you out.
Best,
Van
Originally posted by @Kevin Chen:
Hello BP Chicago,
My name is Kevin and I live in the north side of Chicago. I have been educating myself about long term real estate investing through listening to BP podcasts, reading books (Kiyosaki, Keller), and attending the local meets. I am interested in 2-4 unit MF to buy/hold, and have been searching for my first deal since Feb. With that said, I wanted to get a temperature check on my approach and whether I should change it.
I have been working with an agent who set up an MLS search for 2-4 unit MF in McKinley Park, Bridgeport and Logan Sq area. Inventory is very low and properties vaporize! People are also buying at above list with multiple offers. There was a 3-flat (all 3/1) in Bridgeport that sold for 481K cash. One unit is owner occupied and the other two rent for 800 and 635. Are people making money at these prices? I'm guessing that everyone is speculating to sell on the back end of higher or living in one of the units. Recently, I expanded my search to Jefferson Pk, Albany Pk, Lincoln Sq , Ravenswood area, but those are even worse. Brick two flats are 350-400 and only rent out for ~2500 for both units.
- Do I need to go outside of Chicago (Tinley, Chicago Ridge, Indiana)?
- Are there no deals on MLS?
- Should I look for single families?
- Should I hunt for deals at the tax sales?
- Wait for the market to cool off?
- Is the criteria of 1% rent unrealistic in Chicago?
Looking forward to get some feedback and to learn from everyone. Thanks.
Kevin
Hey Kevin, I just closed on my first multifamily (in Chicago a few months ago. I bought in Avondale. The building has five units (one is non-conforming) and ability to convert the attic into an additional unit. I found the building through the MLS using a realtor. A couple of thoughts:
- Understand the numbers and be ready to pounce when you find a deal. While MLS usually has rents listed sometimes a non-confirming unit won't have the rent listed. You may not know that unless you go see the building (not sure if you just browsing the MLS or also visiting the properties). I have a very detailed spreadsheet to evaluate a property so I can quickly asses the viability of the property today and model out a 5 years of income/expenses.
- The market is hot. The building I purchased had been on the market for 9 days, I made an offer (25% down payment and 75% financed) at the ask price. The contract my realtor sent required a response by 5p of the day it was sent (not sure if this is standard but that is what he did)
- Ask yourself what you can do to improve the building, raise rents, putting in coin-op washer/dryer, basement unit, etc. You will find that in a lot neighborhoods when buildings have long time owners/tenants rents can be below market. A 2bed/1bath unit was renting for $1095 (it had been rented for a decade). Those tenants have moved out and it should rent closer $1600.
- The building I purchased was cash flow positive at purchase (and would meet your 1% rule) but I wanted to raise rents, do renovations, etc to build more value. I built in a cushion of cash as part of the money set aside for purchase so I could make the changes needed. The building will be cash flow positive by October/November.
Hope this helps.
Congrats @Kevin Chen @Michael Gellar I'm looking in the same area and expect to close on 2-3 properties by the end of the year if everything pans out. My strategy currently has been to scour the MLS for deals and I've probably seen just about every multifamily unit available in my desired areas. I'll plan to move in one of the properties which should get me an FHA loan while the others will likely be 20-25% down but can do more on the rehab side with those. Wish all of us luck!
What are the opinions on the Woodlawn neighborhood? I’ve visited at night and it seemed safe enough. My sister and I will be living in an owner occupied building and our Irish asses will stick out but if the area is safe, that doesn’t bother us.
Hi @Kevin Chen, I am looking to buy a multi-unit in McKinley Park. How has your experience been? How is the neighborhood/tenants? Section 8? Good cash flow?
Hi @Tara T., McKinley Park is a good area with B class tenants and the area is still priced well to cash flow. I did not explore Section 8 since it's another animal and don't think I have the appetite for that type of investment. However, I've heard that the people who do have very good cash flow with Section 8.