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Conrad Kostrzewa
  • Denver, CO
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Buying a condo in the West Loop for long hold to return to

Conrad Kostrzewa
  • Denver, CO
Posted Jun 8 2018, 10:54

Work has me moving back to the Chicagoland area for about 6 months to 1 year. I'm originally from the area, and always consider Chicago "home". I currently have a place in Denver that I'll be renting out, and rather than just paying rent in Chicago, I thought it may be a good time to buy, live in for about a year, and then rent out once I come back to Denver. One of the biggest appeals to me though is also always having a place to come back to in Chicago for the future. So this decsion plays a little into both trying to build a portfolio, but also finally having a place in where I'm originally from and often visit.

I know I'd likely not see any cashflow from a Westloop condo, but I'm curious if anyone has any recommendations to lower my risk for the area. At this current time I'm looking at a 2bd/1ba w/ 1 parking spot. Considering the BRRR method after living in the unit for a year. At the very least, I'd like to try and match up my mortagage/hoa fees/insurance/tax to what I can rent it for. I know that'd net me $0 w/ needing to fill a security fund on the side.

So I'm curious. Am I being crazy and putting too much emotion/desire into this? Or, if I'm truly looking to hold for 15 years +, take a shot and go for it?

Appreciate any and all feedback.

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Jake Fugman
  • Real Estate Broker
  • Chicago, IL
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Jake Fugman
  • Real Estate Broker
  • Chicago, IL
Replied Jun 8 2018, 11:03

@Conrad Kostrzewa I lived in, and now rent out condo in Wicker Park that I has shown be some healthy cash flow. Like you mentioned, its hard right now to find something in a "A" neighborhood like West Loop that will cash flow after all your costs considered (PITI). But if you are looking to hold it long term and just cover your mortgage there are still some good locations to buy in that will likely appreciate well. I like Avondale, Logan Square and Humboldt Park areas where you can find 2 bed units around $250,000 that will rent for $1700 - 1900.

Shoot me a message and Id be happy to send you a few examples and assist with your upcoming move.

Good luck!

  • Real Estate Agent ILLINOIS (#475.181407)

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Ibn Abney
  • Rental Property Investor
  • Chicago, IL
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Ibn Abney
  • Rental Property Investor
  • Chicago, IL
Replied Jun 8 2018, 12:25

@Conrad Kostrzewa IMO i wouldn't buy a west loop condo for 1 yr. We both know you wont cash flow as a rental (maybe via airbnb/STR, but those HOA fees in the loop are a deal breaker) and too much new inventory is being built. Also, I dont see you making much money flipping a condo in a 1yr (unless you really do find a good BRRR deal).

If you want to rent a condo in chicago, I would go further North. Uptown, Edgewater, Rodgers park. Area is safe and you can get $100-$300 bare minimum as a rental. More if you BRRRR.

But if you have the budget for a West loop condo, why not just buy a 2-3 flat with 5% down?  

Best of luck!

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Bob Floss II
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Bob Floss II
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Replied Jun 8 2018, 13:13

@Conrad Kostrzewa It's not a bad plan but I don't think West Loop will work. You need a condo with a low monthly assessment and West Loop doesn't have many options.  The assessment is one of the biggest obstacles to keep condos from cash flowing as a rental. You can go down to South Loop, up to River North, or slide over to Humboldt Parka and Logan Square to find something that will work for your model.

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Ted Kuhlmann
  • Real Estate Broker
  • Chicago, IL
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Ted Kuhlmann
  • Real Estate Broker
  • Chicago, IL
Replied Jun 8 2018, 22:39

Conrad Kostrzewa have to agree with the populous here. West Loop is so crazy priced out that there’s no way to BRRR anything there. 90% of the WL is transplants that bought new(er) construction in the past 5-10 years, so there’s not much old inventory there to even touch for you.

Mistily definitely take your money into another neighborhood and buy a 2-3 unit. Ibn Abney had the right idea for sure. Good luck

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John Warren
  • Real Estate Broker
  • 1658 N. Milwaukee Ave Ste B PMP 18969 Chicago, IL 60647
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John Warren
  • Real Estate Broker
  • 1658 N. Milwaukee Ave Ste B PMP 18969 Chicago, IL 60647
Replied Jun 9 2018, 03:37

@Conrad Kostrzewa you should touch base with @Brie Schmidt about some areas that might be trending up but not all the way there yet. I think it is almost always better to buy in an up and coming neighborhood than one that has arrived already. You get the appreciation, but you also will see actual cash flow too. 

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Brie Schmidt
  • Real Estate Broker
  • Chicago, IL
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Brie Schmidt
  • Real Estate Broker
  • Chicago, IL
ModeratorReplied Jun 9 2018, 05:39

If you are looking for a 2-4 unit I will gladly help.  

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Conrad Kostrzewa
  • Denver, CO
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Conrad Kostrzewa
  • Denver, CO
Replied Jun 9 2018, 11:25

Thank you @Jake Fugman , @Ibn Abney , @Bob Floss II , @Ted Kuhlmann ,& @John Warren 

Really appreciate all the input and feedback, and have some things to consider. 

I was originally looking at the West Loop, and condos that have a sub $350 HOA. I'm completely open to the idea of having a location in an "up and coming" neighborhood, but at the same time want to be in an area that I'll enjoy living in on the weekends that's fairly walkable and will be able to commute to work (west suburbs) fairly easily.

I've met many people whom have stated multi-units were the way to their success. I guess I never thought about trying that in Chicago for the year I'll live there. I'd obviously need to hire a property management company when I move back to Denver, but maybe it's in the budget (currently looking at condos $300k or less w/ HOAs @ $350 or less)? @Brie Schmidt , reaching out to connect to see what options are available in 2-4 units.

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Brie Schmidt
  • Real Estate Broker
  • Chicago, IL
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Brie Schmidt
  • Real Estate Broker
  • Chicago, IL
ModeratorReplied Jun 9 2018, 12:10

@Conrad Kostrzewa - I have had plenty of clients buy in Chicago and move away.  only about 20% hire a PM - the rest still self manage from a distance 

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Bob Floss II
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Bob Floss II
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Replied Jun 9 2018, 13:47

@Conrad Kostrzewa Finding a condo with an hoa under $350 is great. You sound like you are on the right track. 

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John Warren
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John Warren
  • Real Estate Broker
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Replied Jun 9 2018, 16:25

@Conrad Kostrzewa I would personally purchase a multi unit (but I am biased!). You can always pay a management company the $350-400 to manage the property to, but you aren't locked into that if it ends up being simple to manage (A class properties are a breeze). 

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Federico Gutierrez#5 Classifieds Contributor
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  • Cleveland, OH
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Federico Gutierrez#5 Classifieds Contributor
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Replied Jun 9 2018, 17:34

At the end of the day if you make $0 look at the long run. You have an asset that in 5yrs time will be worth more (in theory) and you can always go to the bank to lend against.

Plenty of wealth in Chicago so if you buy right you should it should set you up for good appreciation growth. Also ensure that HOA are low. AS thats en extra expense that could eat into your investment

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Calvin Lipscomb
  • Brooklyn, NY
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Calvin Lipscomb
  • Brooklyn, NY
Replied Jun 9 2018, 18:34
Originally posted by @Bob Floss II:

@Conrad Kostrzewa It's not a bad plan but I don't think West Loop will work. You need a condo with a low monthly assessment and West Loop doesn't have many options.  The assessment is one of the biggest obstacles to keep condos from cash flowing as a rental. You can go down to South Loop, up to River North, or slide over to Humboldt Parka and Logan Square to find something that will work for your model.

 Would a 3-4 family work in one of the areas a bit further out? 

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Bob Floss II
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Bob Floss II
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Replied Jun 10 2018, 07:56

@Calvin Lipscomb From an investors perspective, there are better areas of the city for a good ROI. The key difference here is the buyer wants a property he can live in and enjoy for a period of time before converting to a rental. He's placing a value on the time for his personal enjoyment. For this investor, he's willing to break even on a monthly basis on the future rental and make a profit in 5 years on what looks like a still growing part of the city.

This is not the approach for a typical investor that is looking for returns. You want to be in a different area of the city where you get great monthly returns and appreciation is icing on the cake. I’ve never looked at appreciation as a stable investment strategy, only a byproduct of the overall investment. 

We have to keep in mind that every investor has different goals and they may not share our strategy. He’s not wrong, he’s just taking a different approach. 

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Calvin Lipscomb
  • Brooklyn, NY
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Calvin Lipscomb
  • Brooklyn, NY
Replied Jun 10 2018, 08:24
Originally posted by @Bob Floss II:

@Calvin Lipscomb From an investors perspective, there are better areas of the city for a good ROI. The key difference here is the buyer wants a property he can live in and enjoy for a period of time before converting to a rental. He's placing a value on the time for his personal enjoyment. For this investor, he's willing to break even on a monthly basis on the future rental and make a profit in 5 years on what looks like a still growing part of the city.

This is not the approach for a typical investor that is looking for returns. You want to be in a different area of the city where you get great monthly returns and appreciation is icing on the cake. I’ve never looked at appreciation as a stable investment strategy, only a byproduct of the overall investment. 

We have to keep in mind that every investor has different goals and they may not share our strategy. He’s not wrong, he’s just taking a different approach. 

 Correct.  I am just curios about is there parts of the city that will enable him to do a bit both.  Something has to be sacrificed.  I am asking just in case I have a person looking to do something similar like that.  

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Conrad Kostrzewa
  • Denver, CO
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Conrad Kostrzewa
  • Denver, CO
Replied Jun 12 2018, 20:56

Thank you all for being so informative and providing guidance. Yes, as stated I know there are better locations if I'm purely looking at growth right now, but there is a personal side to this purchase. As it may be one of my only in Chicago for some time, I'd like it to be somewhere I want to live now, and that I'll be happy to return to.

I'm trying to dive into the idea of a mult-family more right now as well. The idea intrigues me greatly, but new to the concept and how to afford it.

Rough Example: https://www.redfin.com/IL/Chicago/2644-W-Cortez-St...

I was looking at this place, and thinking I would happily take the 2 bd / 1bth on the bottom, to rent out the top if it'd cover a majority of the mortgage. My concern though is if I try and do the 5% down route to be able to afford it, then I'm still looking at a $4,800 total monthly cost. As my currently month max is $1,800, it's hard to imagine someone renting the top for $3,000 currently.

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Henry Lazerow
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Henry Lazerow
  • Real Estate Agent
  • Chicago, IL
Replied Jun 12 2018, 21:19

@Conrad Kostrzewa Funny actually toured that deal on Cortez over the weekend beautiful property. It's not a cash flow deal or anything good for a "live cheap house hack" though. The whole point of these type of  deals is for someone who wants to live in the 3br 2ba luxurious duplex while amortizing a larger mortgage and owning land outright vs condo association while paying less out of pocket then the comparable sq ft condo costs after assessments, etc.

That top unit duplex pro-forma we figured $2750 w free parking spot. Bottom $1500 + $100 a spot 

Good house hacks tend to be 3 and 4 units in cheaper areas. A good quick way is look for .7+ when dividing the estimated market rents by price. For example with the above deal average $4350 on a 700k deal is only .62

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Conrad Kostrzewa
  • Denver, CO
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Conrad Kostrzewa
  • Denver, CO
Replied Jun 12 2018, 21:34

@Henry Lazerow - Thanks for the details. Starting to understand these multi units a little better. Was looking at something in Pilsen like this as well: https://www.redfin.com/IL/Chicago/1712-S-Morgan-St...

But I guess over my last 4 years away from the area, it's really become a trending area that has increased in costs substantially. Based on your quick rule, would it be fair to say if you could average ~$3,300 between the two units, then it'd be a start at a good house hack? ($3,300 on $460k = .71) Meaning, it's not an amazing deal, but it's a starting point worth investigating?

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Henry Lazerow
  • Real Estate Agent
  • Chicago, IL
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Henry Lazerow
  • Real Estate Agent
  • Chicago, IL
Replied Jun 12 2018, 21:49

It's going to vary from neighborhood to neighborhood what % is considered a good deal. Maybe someone on here could chime in about what they mainly see in Pilsen who does the neighborhood regularly? 

One thing I like is the 3br 2ba unit if that had nicer finishes would be money. The units with 2 baths are awesome for getting highest rents after they are rehabbed. You could probably shoot higher % though in that neighborhood. 

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Henry Lazerow
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Henry Lazerow
  • Real Estate Agent
  • Chicago, IL
Replied Jun 13 2018, 06:40

@Conrad Kostrzewa For example a "good" house hack I had offer previously on in Pilsen.... 302k with 5k closing credit. This was on the edge of Pilsen and an odd shaped lot so a little cheaper but these are the type of deals to look for the stuff with best numbers in area. Let the other deals with bad numbers go to the non Bigger Pockets member buyers lol 

Semi Rehabbed 3br = $1500

Older but decent 3br = $1350 

Ratio: .92

Mortgage w taxes/pmi = $1738 at 5 down = Even after cap/ex, etc. the point is you live cheaper then renting and pay down the larger mortgage. I have an amortization table built into my Excel sheet which is awesome for seeing 10 yrs out mortgage paydown. 

Amortization in year 1= $4507

Amortization in year 5 = $5426

Amortization in year 10 = $6843

Total mortgage pay down if decided to sell in 10 years = $56,031 

The other awesome thing about 2-4 units is you can put them on a 30 yr mortgage unlike a lot of commercial real estate. So as rents historically increase but your mortgage stays the same these deals get more and more profitable.