Chicago housing has busiest March in 5 years

[Lookout Kid]

Originally Posted by ParkerP

Does anyone think 2-3 flat buildings will make a comeback as a viable option for families?

I live in one now. It was purchased by some friends of ours who wanted to rent out the top unit to pay down the mortgage, with the eventual plan to convert it SFH a few years down the road. I'm not sure what the ROI will be, if any. But the location is great, and they paid a premium for that.

Back in the early 00s I read an analysis of rental property ROIs in Chicago that made two-flats out to be a bad investment. The author claimed that six or more units were typically needed for "positve cashflow". But prices were higher then, and the article made no mention of the two-flat to SFH conversion that is often popular.

[chet everett]

Originally Posted by Lookout Kid

I live in one now. It was purchased by some friends of ours who wanted to rent out the top unit to pay down the mortgage, with the eventual plan to convert it SFH a few years down the road. I'm not sure what the ROI will be, if any. But the location is great, and they paid a premium for that.

Back in the early 00s I read an analysis of rental property ROIs in Chicago that made two-flats out to be a bad investment. The author claimed that six or more units were typically needed for "positve cashflow". But prices were higher then, and the article made no mention of the two-flat to SFH conversion that is often popular.

Unless you really lucked into the dumbest seller in the region odds are that a two flat or even three flat that is owner occupied does little more than reduce your own living costs by a minor amount. Depending on how aggressively you decide to apply the income from the rental unit(s) toward your mortgage you could shave some years off your payoff, though honestly with super low mortgage rates and pretty healthy returns on some dividend paying investments (or even REITs...) the real value of doing that is questionable. Heck when you start to use the "what if" scenarios that are pretty easy to do with financial calculators the "extra cost" of any building with rentable space and live-in landlord options is questionable BUT the amount of direct control you have over the direction of a small owner occupied building is tremendous AND the standards for lenders to qualify even some one of relatively modest means does give "little guy" real estate investors a nice entry into property ownership. Whle costs for some things are double or triple (every unit needs its own kitchen, baths, frontdoor, etc...) fact is these kinds of things are pretty easy to DIY and upgrading the crummier unit first gives you experience to do a better job on the nicer unit(s). It is not exactly a "quick buck" but if you take a creepy little pre-color TV era apartment and bring it up-to-date you really do open yourself up to a whole new pool of potential renters. It is not so much "gentrifaction" in the classic "urban pioneer / starving artist/ working middle class / yuppie " cycle so much as going from something that might have been a "related living? inlaw suite" thing to something that you can at least can "market rate" tenants into. As one gets accustomed to the ups and downs of ownership AND being a landlord one decide to either sell and get a single family home or PERHAPS have a better understanding of the risks / rewards of dealing with residential tenants...

[ChiNaan]

I've seen a few three flats turned into single family homes. There's one near me in Pilsen, actually, and a year or two ago I watched an extremely large one in McKinley Park being turned into a house that would be considered pretty big even by suburban standards. The thing is, though, that both of these look like they've had hundreds of thousands of dollars put into them. Usually people wanting to spend that much (when you include the purchase and rehab costs) would rather be in a ritzy neighborhood, an outer neighborhood (if they want a bigger house and yard), or a suburb. It takes someone with a real affinity for the neighborhood (often cultural or family ties) to want to spend that much on a place in a more affordable neighborhood. They're also only likely to do it if they don't have kids or plan to send their kids to private schools.

[Attrill]

I know plenty of people who've converted 2 or 3 flats into SFHs. In many areas it started to get tough to do in the late 90's, since developers would usually outbid any DIY homeowners and just tear the place down. Also, a lot of stick frame 2 and 3 flats have some major structural problems as well. My wife and I looked into doing it about 10 years ago, but couldn't find a solid building to fix up.

I have 3 friends who bought 2 flats in Logan Square and Lincoln Square about 15 years ago and have done very well financially with the investments. Two of them lived in one unit and rented the other until they had kids, then they converted their places into SFHs. In retrospect that made a lot more sense than people who bought condos and planned to sell and buy a SFH with the profit from their condo sale.

[ParkerP]

lol trust me Chet my borders for cracktown are more lenient then most people's. Thanks everyone for answering. I brought up the 2 flats because I was just wondering what they city could offer families that don't necessarily want condos but not an altogether single family either since they are typically way more expensive. The suburbs offer condos, townhomes and singe family homes. Since the city doesn't really have townhome communities, I figured 2-3 flats could be a townhome-like equivalent but, ah well.

[chet everett]

One of my best finish carpentery contractors did this way way way back in the late 80s in the area south of DePaul. Back then there is almost no "premium" for two flats or single family homes as things were not getting torn down just "fixed up" and having to "undo" or "redo" two kitchens vs one was a wash...

The key was that 30 years ago (phew I feel old...) it was kind of a no brainer that stuff along Racine was going to be very appealing to a whole lot of people -- DePaul was actively putting money into improving their campus and shops were bustling where once there were only industrial sites

Area around DePaul benefitted greatly from the influx of what really were second-wave yuppies who "displaced" the hold out old world immigrants and the "first wave" boomer urban pioneers.

The dynamics are different now and expectations of where these "not cracktown" homes might be is also a lot harder to predict. City payroll is shrinking -- the cops and firefighters on the NW and SW sides are not going to overlook an opportunity on their block BUT they also know that Rahm is thinning their ranks too...

I tend to agree that in the right area it may seem to make sense to "move the tenants out make the whole space our own" but I also know (from direct experience...) that often when there is signficant appreciation and you have been in a place for 5 or more years the best way to really climb the property ladder is to SELL your fully staged little money making machine to get all your equity AND appreciation fully liquid THEN find the a "rough" house (or two flat) and buy that under the going rate... Of course if even the "rough" buildings have your outpriced then you might have to look to the "next place to pop" but that generally is a wiser financial strategy that overspending to remain in same spot... And believe me it is CRAZY easy to get carried away on high end kitchens and baths AND THEN REALLY miss the income stream from tenants!

Originally Posted by Attrill

I know plenty of people who've converted 2 or 3 flats into SFHs. In many areas it started to get tough to do in the late 90's, since developers would usually outbid any DIY homeowners and just tear the place down. Also, a lot of stick frame 2 and 3 flats have some major structural problems as well. My wife and I looked into doing it about 10 years ago, but couldn't find a solid building to fix up.

I have 3 friends who bought 2 flats in Logan Square and Lincoln Square about 15 years ago and have done very well financially with the investments. Two of them lived in one unit and rented the other until they had kids, then they converted their places into SFHs. In retrospect that made a lot more sense than people who bought condos and planned to sell and buy a SFH with the profit from their condo sale.

[Chi-town Native]

Originally Posted by Attrill

I know plenty of people who've converted 2 or 3 flats into SFHs. In many areas it started to get tough to do in the late 90's, since developers would usually outbid any DIY homeowners and just tear the place down. Also, a lot of stick frame 2 and 3 flats have some major structural problems as well. My wife and I looked into doing it about 10 years ago, but couldn't find a solid building to fix up.

I have 3 friends who bought 2 flats in Logan Square and Lincoln Square about 15 years ago and have done very well financially with the investments. Two of them lived in one unit and rented the other until they had kids, then they converted their places into SFHs. In retrospect that made a lot more sense than people who bought condos and planned to sell and buy a SFH with the profit from their condo sale.

We just converted ours to a SFH, definitely preferable IMO to the condo path as we've had all that time to improve the landscaping (which takes years to get established to the point it's enjoyable) and establish roots right where we are.

[Chi-town Native]

Originally Posted by ParkerP

lol trust me Chet my borders for cracktown are more lenient then most people's. Thanks everyone for answering. I brought up the 2 flats because I was just wondering what they city could offer families that don't necessarily want condos but not an altogether single family either since they are typically way more expensive. The suburbs offer condos, townhomes and singe family homes. Since the city doesn't really have townhome communities, I figured 2-3 flats could be a townhome-like equivalent but, ah well.

I think the buy-a-2-flat-and-later-convert-to-a-SFH program is a wise one, but it really only makes sense for people who are pretty sure they want to stay in one spot (and Chicago) for a lo-o-o-o-ong time.

This is actually an excellent time to do that IMO, as changing demand has totally flip-flopped the market and 2 flats are often cheaper than SFHs these days (or at least are available in greater numbers).

When we went househunting in 2001/2002, we were approved for $50K more for a 2-flat due to the rental income, so it was a no-brainer back then for us.

I think the interesting stuff is yet to come, which is when prices recover to the point that the people who bought in the Oughts surface from being underwater & start putting homes back on the market. I suspect when the economy improves the market is going to go pretty crazy, there seems to be a lot of suppressed action on both sides, demand and supply.

[chet everett]

I think owning a two flat gives one a heckuva lot more options than owning a condo, and in most parts of Chicaago, more options than even owning a single family home. The key is cost and location. If you over pay or get a place that has too many negatives it can be a "wipe out" if you need to sell. If the extra cost of the building is still well within your "I can afford this even when I don't have a tenant" comfort zone that goes along way to ensuring the thing does not bleed you dry... Just becuase a lender approves you for more (which is not really the case these days...) does not mean you ought to spend more.