Multifamily Investment in Chicago Pros and Cons

Chicago, Illinois
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Multifamily Investment in Chicago Pros and Cons

Pranshu Adavadkar
Naperville, IL · Member since 2018 · 12 posts · 6 votes

Hi, I was accidental investor of a townhouse in Chicago north suburb for 7-8 years and finally sold it last year with no loss. Fortunately didn't have any bad experience. Now, I am looking to be a deliberate investor. Looking for something which is already remodeled or need minor cosmetic repairs (not looking for extensive work).

Multifamily houses with 2-3 units make sense to me compared to SFH. Based on some basic research, for 250k SFH the rent is around $1400-$2000. But for $400k multifamily with 3 units in Pilsen or Lawndale or east Garfield or surrounding areas may get more than $4000 rent. Of course, it all depends on individual property, location and many other things, but does it make sense? If I were to pursue multifamily, what are the things I should be aware of while investing in multifamily properties in Chicago.

1. Is it better to have current tenants or no? 2. Any areas preferred and any areas to be careful about? 3. Any hidden costs or legal things to be aware of? 4. any good neighborhoods in north or northwest Chicagoland? 5. Any quick and dirty techniques during preliminary screening?


Any thoughts or suggestions are appreciated. 

TIA

Prad

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Jake FugmanBusiness Member
Real Estate Broker · Chicago, IL · Member since 2016 · 256 posts · 250 votes
3y

1. Is it better to have current tenants or no?  -  FOR FIRST TIME INVESTORS I RECOMMEND TARGETING PROPERTIES THAT HAVE AT LEAST PARTIAL OCCUPANCY SO YOU HAVE PROOF OF CONCEPT FOR RENTAL AMOUNTS.  100% VACANT PROPERTIES ALSO RUN THE HIGHER RISK OF THEFT/VANDALISM. 

2. Any areas preferred and any areas to be careful about?  - THIS DEPENDS ON YOUR THRESHOLD FOR RISK/REWARD

3. Any hidden costs or legal things to be aware of?  -  TYPICALLY THE LARGEST COST THAT INVESTORS FORGET TO UNDERWITE IS LEASING EXPENSE. IF YOU USE AN AGENT OR PROPERTY MANAGER THEY WILL CHARGE YOU 1 MONTHS RENT.  ASSUME UNITS WILL TURN EVERY 18 MONTHS ON AVERAGE. 

4. any good neighborhoods in north or northwest Chicagoland? - THERE ARE A LOT OF GREAT AREAS ON THE NORTH AND NW SIDE THAT CAN STILL OFFER GREAT UPSIDE BUT ARE ALSO STILL "AFFORDABLE"

5. Any quick and dirty techniques during preliminary screening?  - FOR A VERY HIGH LEVEL TAX CHECK I TELL PEOPLE THAT IF THE CURRENT TAXES ARE <1% OF ESTIMATED PURCHASE PRICE THEY WILL LIKELY GO UP. 

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  • Eudith VacioPro Member
    Real Estate Agent · Chicago & NWI · Member since 2015 · 860 posts · 521 votes
    3y

    Hey @Pranshu Adavadkar, I definitely agree that multi-family is the way to go considering economies of scale (the more units, the less risky), greater cashflow, and potential upside for appreciation especially in the Chicago market. 

    As far as tenants, I always look at their lease, and when your under contract obtain the rent roll, and check to see during the inspection how they live & if they’re present, even better. I will usually ask of they’ve had any problems, etc. But it’s always great to find a property with tenants because it’s guaranteed immediate cash until you can figure out next steps. 

    As far as neighborhoods, I would start with where you want to live OR where you currently live to stay within distance. 


    1Reply
  • Jake FugmanBusiness Member
    Real Estate Broker · Chicago, IL · Member since 2016 · 256 posts · 250 votes
    3y

    1. Is it better to have current tenants or no?  -  FOR FIRST TIME INVESTORS I RECOMMEND TARGETING PROPERTIES THAT HAVE AT LEAST PARTIAL OCCUPANCY SO YOU HAVE PROOF OF CONCEPT FOR RENTAL AMOUNTS.  100% VACANT PROPERTIES ALSO RUN THE HIGHER RISK OF THEFT/VANDALISM. 

    2. Any areas preferred and any areas to be careful about?  - THIS DEPENDS ON YOUR THRESHOLD FOR RISK/REWARD

    3. Any hidden costs or legal things to be aware of?  -  TYPICALLY THE LARGEST COST THAT INVESTORS FORGET TO UNDERWITE IS LEASING EXPENSE. IF YOU USE AN AGENT OR PROPERTY MANAGER THEY WILL CHARGE YOU 1 MONTHS RENT.  ASSUME UNITS WILL TURN EVERY 18 MONTHS ON AVERAGE. 

    4. any good neighborhoods in north or northwest Chicagoland? - THERE ARE A LOT OF GREAT AREAS ON THE NORTH AND NW SIDE THAT CAN STILL OFFER GREAT UPSIDE BUT ARE ALSO STILL "AFFORDABLE"

    5. Any quick and dirty techniques during preliminary screening?  - FOR A VERY HIGH LEVEL TAX CHECK I TELL PEOPLE THAT IF THE CURRENT TAXES ARE <1% OF ESTIMATED PURCHASE PRICE THEY WILL LIKELY GO UP. 

    The Axon Group4.981 Reviews
    WebsiteView Page
    4Reply
  • Albert Bui
    Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
    3y
    Quote from @Pranshu Adavadkar:

    Hi, I was accidental investor of a townhouse in Chicago north suburb for 7-8 years and finally sold it last year with no loss. Fortunately didn't have any bad experience. Now, I am looking to be a deliberate investor. Looking for something which is already remodeled or need minor cosmetic repairs (not looking for extensive work).

    Multifamily houses with 2-3 units make sense to me compared to SFH. Based on some basic research, for 250k SFH the rent is around $1400-$2000. But for $400k multifamily with 3 units in Pilsen or Lawndale or east Garfield or surrounding areas may get more than $4000 rent. Of course, it all depends on individual property, location and many other things, but does it make sense? If I were to pursue multifamily, what are the things I should be aware of while investing in multifamily properties in Chicago.

    1. Is it better to have current tenants or no? 2. Any areas preferred and any areas to be careful about? 3. Any hidden costs or legal things to be aware of? 4. any good neighborhoods in north or northwest Chicagoland? 5. Any quick and dirty techniques during preliminary screening?


    Any thoughts or suggestions are appreciated. 

    TIA

    Prad 

    @Matthew Kwan

    @Matthew Kwan

    @Matthew Kwan

    @Matthew Kwan

    2Reply
  • Paul De Luca
    Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
    3y

    @Pranshu Adavadkar

    1. Is it better to have current tenants or no? There are tradeoffs with inheriting tenants vs having a vacant building when you purchase. Personally I like vacant buildings so I can rent to the tenants I have screened. When you inherit tenants you are also inheriting their habits/behavior, good or bad. The flip side is that when you inherit tenants you start collecting rent day one (hopefully).

    2. Any areas preferred and any areas to be careful about? Like @Jake Fugman said, it depends on your tolerance for risk. The majority of investors have talked to don't want to buy in D class areas, which are generally found on the south and west side.

    3. Any hidden costs or legal things to be aware of? Depends on how much you know already but I think it's important to always do a sewer scope inspection when you're buying a property. They're inexpensive and worth doing to mitigate a potentially large downside. Also be sure to know before you go under contract to buy a property you get confirmation from the listing agent how many legal units there are. You should also get the zoning cert before closing to confirm this.

    4. any good neighborhoods in north or northwest Chicagoland? 5. Any quick and dirty techniques during preliminary screening? I think Niche.com is a useful tool for getting an overview of a neighborhood/area. It even comes with letter grade rankings across multiple topics (crime, real estate values, schools, etc) - https://www.niche.com/places-t...

    4Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    3y

    Hey @Pranshu Adavadkar - It's funny how life throws us into things and we don't even realize the benefit of it til after, I know that holds true for me on a regular basis.

    1.  I would say vetting your own tenants is a better situation if you have a good process setup or can lean on someone for help. 

    2.  I like Pilsen, little village, and Bridgeport.  North Lawndale & Garfield park may be a little rougher.

    3.  Always hidden costs.  Make sure you have an investor-friendly attorney on your team.

    4.  Check out Belmont Craigton or Hermosa

    5.  Google good tenant screening techniques and you'll find a bunch of answers.  My favorite tip is doing a video call with them at their current place.

    Feel free to reach out if I can help in any way, I am here on the North side of Chicago near logan square.

    [email protected]
    Quality Builders4.966 Reviews
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  • Pranshu Adavadkar
    OP
    Naperville, IL · Member since 2018 · 12 posts · 6 votes
    3y
    Quote from @Paul De Luca:

    @Pranshu Adavadkar

    1. Is it better to have current tenants or no? There are tradeoffs with inheriting tenants vs having a vacant building when you purchase. Personally I like vacant buildings so I can rent to the tenants I have screened. When you inherit tenants you are also inheriting their habits/behavior, good or bad. The flip side is that when you inherit tenants you start collecting rent day one (hopefully).

    2. Any areas preferred and any areas to be careful about? Like @Jake Fugman said, it depends on your tolerance for risk. The majority of investors have talked to don't want to buy in D class areas, which are generally found on the south and west side.

    3. Any hidden costs or legal things to be aware of? Depends on how much you know already but I think it's important to always do a sewer scope inspection when you're buying a property. They're inexpensive and worth doing to mitigate a potentially large downside. Also be sure to know before you go under contract to buy a property you get confirmation from the listing agent how many legal units there are. You should also get the zoning cert before closing to confirm this.

    4. any good neighborhoods in north or northwest Chicagoland? 5. Any quick and dirty techniques during preliminary screening? I think Niche.com is a useful tool for getting an overview of a neighborhood/area. It even comes with letter grade rankings across multiple topics (crime, real estate values, schools, etc) - https://www.niche.com/places-t...


     Thanks for the great tips. 
    sewer scope inspection, 
    the zoning cert before closing, and niche.com



    1Reply
  • Pranshu Adavadkar
    OP
    Naperville, IL · Member since 2018 · 12 posts · 6 votes
    3y
    Quote from @Jonathan Klemm:

    Hey @Pranshu Adavadkar - It's funny how life throws us into things and we don't even realize the benefit of it til after, I know that holds true for me on a regular basis.

    1.  I would say vetting your own tenants is a better situation if you have a good process setup or can lean on someone for help. 

    2.  I like Pilsen, little village, and Bridgeport.  North Lawndale & Garfield park may be a little rougher.

    3.  Always hidden costs.  Make sure you have an investor-friendly attorney on your team.

    4.  Check out Belmont Craigton or Hermosa

    5.  Google good tenant screening techniques and you'll find a bunch of answers.  My favorite tip is doing a video call with them at their current place.

    Feel free to reach out if I can help in any way, I am here on the North side of Chicago near logan square.


     Thanks for your reply and great tips. will check out Belmont Craigton and Hermosa. 

    1Reply
  • Paul De Luca
    Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
    3y
    Quote from @Pranshu Adavadkar:
    Quote from @Jonathan Klemm:

    Hey @Pranshu Adavadkar - It's funny how life throws us into things and we don't even realize the benefit of it til after, I know that holds true for me on a regular basis.

    1.  I would say vetting your own tenants is a better situation if you have a good process setup or can lean on someone for help. 

    2.  I like Pilsen, little village, and Bridgeport.  North Lawndale & Garfield park may be a little rougher.

    3.  Always hidden costs.  Make sure you have an investor-friendly attorney on your team.

    4.  Check out Belmont Craigton or Hermosa

    5.  Google good tenant screening techniques and you'll find a bunch of answers.  My favorite tip is doing a video call with them at their current place.

    Feel free to reach out if I can help in any way, I am here on the North side of Chicago near logan square.


     Thanks for your reply and great tips. will check out Belmont Craigton and Hermosa. 


     I'm currently house hacking in Belmont Cragin and happy to share my experience so far if you have any questions.

    1Reply
  • Jonathan KlemmBusiness Member
    Moderator
    Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
    3y

    Definitely share @Paul De Luca, what are the metrics (purchase price, rent, rehab, etc.) of your deal?  Chicago still has so many great 2-4 unit buildings in these great neighborhoods.

    [email protected]
    Quality Builders4.966 Reviews
    WebsiteView Page
    1Reply
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