Chicago Real Estate Investing
Before the mortgage meltdown, many Chicago ‘investors’ bought 3-unit buildings for six hundred thousand dollars or more as investments. Even though the rents were a measly $40,000 – if there were no vacancies. Even though the interest rates on such properties was 7.5% or higher.
Because these investors were not investors but speculators. Or, else, they did not understand investing. I once spoke with a guy who was buying this kind of property. His philosophy: losing money the first two or three years is not a problem as you’ll start cash-flowing afterwards. Me, I never understood why it was okay to lose money when there were other investment opportunities that made money from the beginning.
When values are increasing, you can make money even on properties that don’t cash flow from the beginning. But it’s betting, not investing.
Things have change in those Chicago neighborhoods where a 3-unit building cost you $600,000 to $700,000. You now can find 3-units buildings, in similar condition, at $400,000 to $475,000. And interest rates are still about the same. However, rents are $42,000 to $45,000 a year (assuming no vacancies).
And the situation is even better if you invest in a 4-unit building. In other words, it really makes sense again to invest in some 3-4 unit buildings in Chicago neighborhoods where only a few years ago it did not. Rogers Park and West Ridge are two of the neighborhoods where you can now invest not speculate. They are not the only ones.
Yet most investors and would-be investors buy single family houses as investments. In the same neighborhoods where you can buy a 3-unit building for $400,000 to $475,000 and rents are $43,000-45,000 a year. Yes, houses get you more per unit. But you’ve only got one unit.
With houses, if your investment is vacant for one month, you’ve lost one hundred percent of your income. If you have a vacancy in a 3-unit, you lose 1/3 of your income, 25% in a 4-unit building.
Besides, you save on some expenses with a 3 or 4-unit building (roof, for instance) if you have a building.
If two units are better than one and three better than two, it stands to reason that 10 is better than four and 20 better than 10. True, you won’t find them in Rogers Park or Edgewater. But it’s still a great idea and you should consider it.
A few years ago, during the boom time, before the mortgage meltdown, people who wanted to invest in such buildings had to go far, far away from Chicago. Things have changed for larger buildings too. You can find larger buildings that cash flow from the beginning a lot closer to Chicago now. You can find them for the price of a 4-unit building in Rogers Park. But they make you more money.
Good investement properties are plentiful. Get one, even if that means you have to remortgage. Remortgages can be obtained inexpensively these days.
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