buying a multi unit building (Chicago, Avon: HOA fees, mortgage, loan)

[richb]

Originally Posted by urbanlife78

Wow that place sold for $115K in 2004 and is now selling for that price? People must of really had their butts handed to them when that market fell out. From what I remember when I was looking at the architecture program at IIT, that area wasn't great, but wasn't the worst either.

Due note that the HOA is $409 a month on that property. That is a very high fee for a unit worth only $32,000. It will be more then the mortgage.

[cump]

Originally Posted by koctail

Why not just get your feet wet with something like this:

2941 S MICHIGAN Ave #509, CHICAGO, IL 60616 | MLS# 07922614

Assessments of $409 are pretty high and taxes around $140 and insurance around $15 gives you a nut of $564. Factor in your vacancy and maintenance expense there might not be a lot left to reward you for your capital.

[rparz]

As a landlord myself, you're greatly over simplifying things. (Wish you weren't I'd make a killing)

First, any building at that low of a purchase price is going to need some work done to make it habitable. I haven't looked into it lately, but I would not be surprised if construction loans are very difficult to come by in this market.

Secondly, if you're going to be an absent landlord, you can almost guarantee the place will be messed up, possibly trashed. Not just being in a bad area, but any area. If you're not around, it's what happens. Much better to be a live-in landlord.

Think your savior will be section 8? Not so fast, they are not messing around. In order to be eligible your unit has to pass quite a rigorous safety inspection. I'm talking recently built condo-quality type of unit. Absolutely clean, all appliances in good, clean order, two safe methods of enter and egress. Rickety old porches on the back need not apply.

Buildings with three or more units are classified as commercial property. Loans have different requirements along with higher rates. Your personal income and credit are secondary. Most important will be if the building will 'rent-roll' itself. Take the projected rents of all units and multiply that by .75. (Or .70, can't remember) Add mortgage, property tax, add insurance (PMI if applicable) and it has to less than the first number or you won't get the loan. Yes, you have to cough up more down payment, plus side, it's idiot proof to make money.


Why did I give the third example? Well, unless you have cash to buy a fixer-upper, and cash to fix it up, you're going to pay more for a rent-ready building and that's where you have to juggle the numbers to make sure it'll work.

[urbanlife78]

Originally Posted by cump

There are condos out there that can be purchased at a fraction of the prices they sold for before the bubble burst. You need to know what you are doing and you need to have a good agent who works in your interest. Look at some, run the numbers and see if you agree.

Oh yes, that is definitely true. I have had my fair share of dealing with a condo, but it has been a while. I have had the fortune of growing up with a mom who was a real estate agent and have known a number of developers and how that industry functions...plus I have always had this fascination with real estate.

Buying a couple consistent might be a good way to start out small before going for a small 2-4 unit building. I believe that once a building goes over 4 units, then it becomes a business loan and requires me to have a history of being a landlord or something to back up the investment.

[urbanlife78]

Originally Posted by rparz

As a landlord myself, you're greatly over simplifying things. (Wish you weren't I'd make a killing)

First, any building at that low of a purchase price is going to need some work done to make it habitable. I haven't looked into it lately, but I would not be surprised if construction loans are very difficult to come by in this market.

Secondly, if you're going to be an absent landlord, you can almost guarantee the place will be messed up, possibly trashed. Not just being in a bad area, but any area. If you're not around, it's what happens. Much better to be a live-in landlord.

Think your savior will be section 8? Not so fast, they are not messing around. In order to be eligible your unit has to pass quite a rigorous safety inspection. I'm talking recently built condo-quality type of unit. Absolutely clean, all appliances in good, clean order, two safe methods of enter and egress. Rickety old porches on the back need not apply.

Buildings with three or more units are classified as commercial property. Loans have different requirements along with higher rates. Your personal income and credit are secondary. Most important will be if the building will 'rent-roll' itself. Take the projected rents of all units and multiply that by .75. (Or .70, can't remember) Add mortgage, property tax, add insurance (PMI if applicable) and it has to less than the first number or you won't get the loan. Yes, you have to cough up more down payment, plus side, it's idiot proof to make money.


Why did I give the third example? Well, unless you have cash to buy a fixer-upper, and cash to fix it up, you're going to pay more for a rent-ready building and that's where you have to juggle the numbers to make sure it'll work.

Didn't realize my thread had already jumped to page two, almost missed this post. Thank you for all the info, we are still plenty of years away from ever actually doing anything like this, but I do enjoy research and can definitely spend my time doing as much as possible. Ideally when it came time to do something like this we would already be living in Chicago, but who knows, we still have a long time to go and an adventure with living in NYC and going to grad school.

As for the making money, I would be getting into it less for the making money part and more for the owning buildings and having things to work with. It is like architecture for me, that isn't an industry I want to get into to make money, it is just something I find myself passionate for.

Right now, I am just killing time learning about different neighborhoods and real estate in Chicago to learn more about the housing trends there, and hopefully getting to have conversations with guys like you in here to help learn more.

[emathias]

Originally Posted by urbanlife78

Okay, I have been playing with redfin.com lately and one of my favorite time waster things to do is look for real estate. Hopefully in the future I would like to get into building owning and being a small time landlord and developer. Something that could go along with my architecture background. Anyway Chicago is one of the cities that I could end up living in in the future.

I was wondering what people on here would do, if you were looking for an affordable building 2-6 units that was under 250K (just ballparking a figure) what neighborhood would you be looking in and why?

Cincinnati?

[urbanlife78]

Originally Posted by emathias

Cincinnati?

doubtful, and not helpful.

[ToriaT]

There are some buys to be had now. Probably in "fringe" areas that are not the greatest areas but might be in ten or more years. Here is an example of something:
3412 W. Lemoyne Ave This is a really cheap price and its clear it needs some fix up work. How this area will fare in five to ten years I do not know but many are saying Logan Square and Humboldt Park may be fruitful for buying in for future appreciation. Here is another one: 639 N. Hamlin
These are amazing prices but the areas are dicey and there are most likely gang activity. Nevertheless, it might be worth it to fix them up and rent them out especially if you do not plan on living in the unit. Any time you could get a multi family building on the north side for under 200K, that would be a good price. There would be lots of buildings to be had on the south side in bad areas but you would not want to go there even as a landload. Others on the board will chime in and say what exactly these places are like now, they are in Humboldt Park, which does not get a lot of love here generally, with a few exceptions. Thats why everyone keeps asking about the west of western ave. question as everyone is trying to figure out where these neighborhoods are going and whether cheap rent or real estate buys can be had there. Most of the other popular neighborhoods have gotten too expensive even now with the drop in prices. It will be very hard if not impossible to make any concrete plans to buy something without actually being here in chicago. and who knows how things will change in five to ten years.

[richb]

Originally Posted by urbanlife78

As for the making money, I would be getting into it less for the making money part and more for the owning buildings and having things to work with. It is like architecture for me, that isn't an industry I want to get into to make money, it is just something I find myself passionate for.

Well, you have to "watch the money" in real estate, that isn't really an option to not do so, especially in a expensive city like Chicago. It will become a very expensive "hobby" that will bankrupt you if you don't. A passion for real estate is a good thing, but you have to watch the bottom line or you are going to have problems. Plus if you don't you will never have more then one building, ha, ha!! It's a business, and if that isn't for you, I don't recommend buying investment property.

[urbanlife78]

Originally Posted by richb

Well, you have to "watch the money" in real estate, that isn't really an option to not do so, especially in a expensive city like Chicago. It will become a very expensive "hobby" that will bankrupt you if you don't. A passion for real estate is a good thing, but you have to watch the bottom line or you are going to have problems. Plus if you don't you will never have more then one building, ha, ha!! It's a business, and if that isn't for you, I don't recommend buying investment property.

You read too much into that, I meant to say, I won't be getting into it "to become rich" or anything like that. Obviously the bottom line is important and you want to turn a profit. If I can get to a point where the rental properties help pay for my own mortgage on a place I love and have enough left over to do any repairs or upgrades to the property I would own then I would be happy with that.