Advice on first investment property in Chicago

Chicago, Illinois
Chicago Real Estate Forum
7yFollow

Advice on first investment property in Chicago

Mark Gast
Member since 2019 · 2 posts · 0 votes

Hi, I am currently searching for my first investment property in Chicago and as far as I can tell it is hard to generate cashflow in the city.  It feels like most properties in the more 'hip' and even 'up and coming' neighborhoods have already accounted for significant appreciation in the asking prices.   I have lived in Chicago for 3 years now and I know that need to do more research so it would be greatly appreciated if anyone can point me in the right direction.  For what it is worth, I don't have a ton of experience in real estate.  I have owned one investment property in Michigan but currently I just have my primary residence in WP / Bucktown, no rentals.  

Also, I would love to hear any opinions on a property like the one linked below.  Ideally, I am looking for a cheaper multi-unit like this or I would be willing to start out with a cheaper single unit (<$300K) if it can generate cash flow.   

https://www.redfin.com/IL/Chicago/2049-N-Kedzie-Ave-60647/unit-1/home/13418191  

0Reply
26 views

Most Popular Reply

Jake FugmanBusiness Member
Real Estate Broker · Chicago, IL · Member since 2016 · 256 posts · 250 votes
7y

@Mark Gast  Are you planning on living in the property or operating at a pure investment?  A lot of "house hackers" in Chicago find it hard to sacrifice location in exchange for better returns.  For example, multi family properties in Wicker Park often have a very low cap rate since most buyers are counting on longer term appreciating VS immediate cash flow.  

If you dont plan to live in the property and thus are less sensitive on location I would recommend searching slightly further west/NW if you want to stay on this side of the city.    There are properties in Avondale, Hermosa, Irving Park, Jefferson Park that you can purchase for $500-600k and see positive cash flow of about $200/unit.  These returns can improve if you have the capital to do some value add repairs as well. 

The Kedzie unit you mentioned would be more of a long term appreciation play since you would likely break even after all expenses + debt service.  Additionally, since it looks to be turn key you arent leaving any room for forced appreciation.  I would recommend a property like this to someone that is planning to leverage a low down payment by house hacking to mitigate their cost of living. 

The Axon Group4.981 Reviews
WebsiteView Page
4Reply
See this reply in the discussion

7 Replies

Jump to latestLatest
  • Jake FugmanBusiness Member
    Real Estate Broker · Chicago, IL · Member since 2016 · 256 posts · 250 votes
    7y

    @Mark Gast  Are you planning on living in the property or operating at a pure investment?  A lot of "house hackers" in Chicago find it hard to sacrifice location in exchange for better returns.  For example, multi family properties in Wicker Park often have a very low cap rate since most buyers are counting on longer term appreciating VS immediate cash flow.  

    If you dont plan to live in the property and thus are less sensitive on location I would recommend searching slightly further west/NW if you want to stay on this side of the city.    There are properties in Avondale, Hermosa, Irving Park, Jefferson Park that you can purchase for $500-600k and see positive cash flow of about $200/unit.  These returns can improve if you have the capital to do some value add repairs as well. 

    The Kedzie unit you mentioned would be more of a long term appreciation play since you would likely break even after all expenses + debt service.  Additionally, since it looks to be turn key you arent leaving any room for forced appreciation.  I would recommend a property like this to someone that is planning to leverage a low down payment by house hacking to mitigate their cost of living. 

    The Axon Group4.981 Reviews
    WebsiteView Page
    4Reply
  • John Clark
    Member since 2018 · 1k+ posts · 1k+ votes
    7y

    As you no doubt know, housing and transportation costs are interchangeable. Take the L to areas on the South and West sides of town. Find a decent looking neighborhood, get off, and check it out. Take notes and then research opportunities in the area. Then decide whether you want cash flow or appreciation (can't have both). South and West sides will give you more opportunities for cash flow, since prices tend to be lower.

    1Reply
  • Mark Gast
    OP
    Member since 2019 · 2 posts · 0 votes
    7y

    @Jake Fugman  Thanks for the info.  I am not planning to live in the property, this would be a pure investment.  I will look around some more in the neighborhoods that you mentioned.    One more question... would you recommend any other tools besides sites like Redfin for searching investment properties?

    0Reply
  • Jeff Burdick
    Investor · Chicago, IL · Member since 2016 · 515 posts · 247 votes
    7y
    Originally posted by @Jake Fugman:

    @Mark Gast  Are you planning on living in the property or operating at a pure investment?  A lot of "house hackers" in Chicago find it hard to sacrifice location in exchange for better returns.  For example, multi family properties in Wicker Park often have a very low cap rate since most buyers are counting on longer term appreciating VS immediate cash flow.  

    If you dont plan to live in the property and thus are less sensitive on location I would recommend searching slightly further west/NW if you want to stay on this side of the city.    There are properties in Avondale, Hermosa, Irving Park, Jefferson Park that you can purchase for $500-600k and see positive cash flow of about $200/unit.  These returns can improve if you have the capital to do some value add repairs as well. 

    The Kedzie unit you mentioned would be more of a long term appreciation play since you would likely break even after all expenses + debt service.  Additionally, since it looks to be turn key you arent leaving any room for forced appreciation.  I would recommend a property like this to someone that is planning to leverage a low down payment by house hacking to mitigate their cost of living. 

     I agree with this.  My wife and I had a bit of a 'culture shock' when we went from a high rise in River North to our first investment property in Irving Park...but we eventually grew to really love Irving Park and found a ton of great local restaurants, etc.  

    The place he linked, I'd go a step further...I think it'd be a challenge to break even in that property.  Very good chance you're looking at negative cash flow there IMO...but I tend to be a bit conservative with my projections.  

    3Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    7y

    @Mark Gast you should go to some of the local REA groups. I have received a lot of value from several of the free ones that are posted here on BP. My favorite one in the city is hosted by @Brie Schmidt. You should check it out. It is pure networking, which is a great way to get 20-30 new, mostly educated opinions about sub markets within Chicago. 

    1Reply
  • Brandon Salinas
    Member since 2019 · 4 posts · 0 votes
    7y

    I agree that the Kedzie property linked in the first post is just priced too high it seems. At a 5% downpayment, the monthly total payment is ~5k and perhaps the rents could be increased a bit but even then, they'd only be around 5k total monthly gross rental income..after any expenses and repairs you're in negative territory. i don't really understand who would buy that property..I guess an owner occupant who doesn't mind having a higher personal monthly payment still, or someone just seriously banking on appreciation and willing to incur negatives during the meantime which seems silly..

    but i agree with the original poster that lots of multis in these areas (wicker/logan proper/humboldt) are priced like this kedzie one and basically aren't a good deal sadly, since they are the nicer properties (location and often turnkey wise). have to go further north/west to get the deals. im hunting for a 2-4 flat myself and wish it could be in prime palmer square location like the kedzie unit linked, but the numbers just dont work

    0Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    7y

    As @John Warren mentioned Brie's events are awesome. Also check out the Sullys House in Old Town meetups. Good way to network and learn strategies from the various speakers. 

    A lot of people buying these do 25% down that's the traditional investment property 2-4 unit mortgage. For 5% down check out further west in Logan Square (like by Central Park Ave.) it's still close enough to the action but a lot cheaper acquisition price. Avondale has deals that work well here and there + Albany Park, Humboldt Park, Hermosa, Pilsen, etc. 

    There are also legal 2 units with attic/basement unit that will work all over even in prime areas. I had a client recently buy a 2 unit in Albany Park + unzoned attic and then were able to legalize the attic on zoning doc from an old water bill ended up being a huge value add likely over six figures added now being a legal 3 unit. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free