BRRR - Does it work with single Chicago condo units?

13 Replies

Hi BP,

I'm a young professional ready to buy my first piece of property in Chicago. I don't have the funds to buy an entire 2 flat or 3 flat (yet), but I COULD buy just one condo unit if I found the right one.

My question: is buying a single condo unit in Chicago a financially sound decision that fits into the BRRR mentality, or should I continue saving and renting until I can buy an entire building? As someone who would always prefer to DIY first, the idea of answering to an HOAdoes not sound fun. I'm also afraid it would sap my cash flow. However, I would love to start building equity and pay rent towards a mortgage rather than burn it on rent, and a condo seems like a good beginner property.

Thanks! 

@Luke Shaw great question!! As a vet in the industry of 13 years now, i get this a lot from first time buyers and always have the same response to them: "what makes you think you can only afford a condo and not a multi-unit?" If you have conversed with a mortgage broker to get pre-approved, then you definitely have taken the correct steps to homeownership for sure, but if not, that's gotta be your first move here. No question!

These days, you can use an FHA loan to buy a multi-unit and use the rents existing in the building(if there are any) to bump up your max purchase price!! In essence, it might be more expensive to buy a building over a condo, but if you offset the current leases in there, it might be more than viable.

That's the simple answer but of course there are a million potholes along the way so find someone to guide you through the transaction from contract to close. Your first bet is definitely finding someone that knows mortgages though because for all you know, you might be ready to buy that multi-unit now and not be "cash poor" after purchase! I bought a condo as my first purchase in 2006 and realllllllly wish i house hacked that first deal. I learned a lot from buying a condo and seeing the downturn, so learned a lot, but always regret that first move personally.

DM me if you ever have any Chicago based RE questions. Definitely here to assist. Best of luck...

Ted Kuhlmann, Real Estate Agent in Illinois (#475.122470)

@Ted Kuhlmann , that's great information! I'm in a similar situation with my significant other. We purchased a home about 18 months ago, and we house-hacked for a little bit--had a roommate paying for a room, but now I wish we would've bought a multi-unit. 

We're leaving that option open, for the next purchase, which may be sooner than later because our home value has increased in our area.

There are several factors involved.  If you are looking at buying a condo with a mortgage in a nice neighborhood and renting it out, you'll probably get a decent return on investment and stable income.  However, I think you'll find it tough to scale up to a building as those mortgages will affect your debt to income ratio.

I've found some investors have had luck purchasing small condos for cash on the south side.  If you can get a 2 bed or 3 bed for around $50K and rent it out, you'll have a very nice rental stream and it will make your debt to income ratio shoot up.  The units themselves appreciate very little and can be a headache if the association has problems, but if you purchase in the right building, it can give you a start and something to leverage.  


I wouldn't recommend it as a long term plan, unless you are playing the long game to buy all the units in the building, but it can be a way to get in the game.

Bob Floss II

    @Carl Lee ha, i did the same thing in 2006!! Bought a 2 bed condo with my GF at the time and rented the second bedroom to her friend for $600/month. Worked ok until the market tanked and the roommate split on us. Ouch!! :)

    Ted Kuhlmann, Real Estate Agent in Illinois (#475.122470)

    Big thing to consider is your availability to attend to maintenance and tenant needs. With a condo most likely won't see that appreciation, especially with where we are in the cycle, but it's a relatively headache-less investment as far as time commitment and operating expenses goes. Sure you may have to replace the fridge once in a blue moon, but you're not dealing with HVAC or plumbing issues. At the end of the day a) do you have cash reserves for an entire building b) do you have the time availability to DIY property manage?

    @Luke Shaw I am not a huge fan of condos for an investment. Especially in the city, you will have trouble getting any kind of appreciation right now as prices are so high. Yes you can rent a bedroom or do air bnb, but in five years you will be looking to sell the condo because it is a cash flow negative investment when you factor in high HOA fees, maintenance, turnover, etc. Have you spoken to @Brie Schmidt ? She does a lot of work with people who want to house hack. 

    Luke,

    As others have mentioned, it's a personal preference because condos and multi-family buildings have different cons and pros and we all have different goals.  In general, condos don't appreciate as much but you may spend less time on maintenance plus they may be easier to sell (bigger buyer pool, less $ down, etc). You have much more control over the building and costs when it comes to multi family but they usually require more of your time (unless you hire a PM) and can be harder to sell (probably not that much harder in this market but the market will change). Another thing to note is if you buy a building, all of your units are in one building in one area, whereas with condos you can diversify.

    If you can qualify for a condo, you can qualify for a loan for a 4-unit building (treated as residential loan if you live in one and the net rents of the other 3 will count toward your income, as someone mentioned previously). I can send you a referral for a loan officer who is amazing at figuring this stuff out.  In general for a 6+ unit building, you will need a commercial loan and lenders will want you to have experience.  

    Not to scare you but either way you go, there is a lot to learn in this industry and there are a lot of pitfalls. It is a personal preference if you want to start out small while you learn or jump into the deep end. Hopefully, this gives you a better understanding.

    I'm in the Condo business and I will be the first to say I passionately hate condo associations and the politics (I used to run one so I know more than the average person) but I haven't had the kind of problems I know others are having and am extremely picky about what I buy.  In all fairness, condo associations would not be so bad if they all didn't have that one crazy owner who feels entitled, does not pay his/her assessments, and breaks all the rules.  Every building has one and they enjoy making others miserable.  The other issue is that most owners do not care about even coming to the meetings and if they do, it's hard to get any consensus on anything.   If you'd like to hear more about the kinds of issues that can come up, PM me.

    If you do decide to get a condo, make sure you can rent it out, most of them don't allow rentals (and for good reason).

    Thanks so much to everyone for this post. My wife and I own a two flat in North Center, rent out the upstairs and have been wondering about how we could buy another investment property (hopefully in the city) and what type of investment property that might be. I am in the education phase at present and still trying to figure out how to finance a deal. I've listened to some of the podcasts and have completely been convinced that the numbers on any deal have to make sense. I will be checking the Chicago related posts on a regular basis.

    Gerald Joyce

      Luke, 

      I would advise against getting a condo for first-time investment purposes as well. Again, this is mostly a matter of preference and risk aversion. Based on what you've shared about yourself, you might be able to qualify for an FHA loan or FHA 203k (financing for the purchase & rehab). I would recommend talking to a loan officer about those FHA options. You would "have to" live in one of the units, but you could rent the other units out.

      Any time you manage more than a couple units, you're basically running a business. It could suck up a ton of your time but given due diligence and research, you can easily find a property that is currently cash flowing and has tenants in the building. 

      I hope this helps! 

      @ Brie Schmidt.. Hi my name is Connie I retired to Vegas in April from Chicago. Would love your opinion on purchasing single families in south suburban area for passive income. (50-$60,000) cash purchases. I know the areas will not appreciate but thinking to section 8 and sit on. Appreciate your professional opinion!!!

      Connie Griffin

        Hi Everyone, 

        Thanks so much to everyone for the wise words. I'm always amazed by the wealth of knowledge on this site. A little update here (I personally love it when the OP posts updates on threads, it makes the thread feel so much more complete)! 

        I do believe that a 2 flat would be the best option for me, and the best option to BRRR here in Chicago in general. I want to avoid HOA's at all costs. Like everyone on BP, that's just not my scene or style. However I don't think I can afford anything more than a 2 Flat, and I'm most interested in an FHA loan like @Cristina Gonzalez mentioned above. I don't have the cash to put the 20% down on a traditional mortgage. I'm 26 and I've been saving for the past few years while working a good 9 - 5, but I don't have a ton of wealth built up. 

        My follow-up question to the group would be this: in this market, are there any affordable 2 flats left of on the north side? Or is the market too hot? I'm thinking Rogers Park or Andersonville... maybe even Edgewater might be affordable? I know @Brie Schmidt is a North Side BP expert.  I really enjoy living in the Lakeview area, and while I'm not completely against the idea of moving to the south or west side to gain financial freedom, I would prefer to stay in or near the neighborhood and friends that have been home for the past few years. Thanks! 

        @Luke Shaw - I would look at the 5% down program over FHA. It will save you thousands and worth exploring with your lender.

        "Good deal" depends on what you consider a good deal.  For some that is reducing their housing and staying in their neighborhood, for others is it living for free in an up and coming neighborhood.  What I think you need to define first is what is your goal, and then is that goal realistic.  

        Brie Schmidt, Real Estate Agent in Wisconsin (#57846-90) and Illinois (#471.018287)

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