2 or 3 unit apartment buildings (Chicago, Albany: foreclosures, renters, condo)

[Brahern02]

I am interested in buying a 2 or 3 flat in the city in the very near future. I have some money saved for a down payment, plus the equity in my East Lakeview condo, which I will be selling. My biggest question is where to buy? I do not want to pay half a million dollars for a place, but I don't want to live in englewood either. One area I have been interested in is Albany Park. 2 flats start in the upper 200's and can get pricey. I do know that this is not the greatest area of the city and I have driven around there at night. My question is, would this be a good investment. I have not done much research as of yet. I will check clearmap and all that, along with what the rental market is and how much you can get a month per unit. I will definitely be living in one unit. My ideal situation would be a 3 flat or a 2 flat with a garden apartment for me to live in. I just do not want to get in over my head.

[chicagocubs]

Try a HUD foreclosure unit. You can get them very affordably and, if you can do the work to fix it up yourself, it would be even a greater bonus!

[Humboldt1]

I too am looking to buy 2-4 unit owner occupied apartment building. I see prices continuing to drop for the next 12-18 months.

At a minimum you will need 10 percent down. For best terms on a 2 unit you need 20 percent down. For best terms on 3-4 unit you will need 25 percent down.

I would advise you not to sell your lakeview place and look at renting it out if that makes sense and taking out an equity loan to finance your down payment. Now is not the time to be selling.

I would look in Logan Square. To minimize maintenance I recommend brick or stone exterior. I don't think you will find anything decent less than 300K. Your entry point for a nice building in an decent area will be 350-400K. I personally am looking at 2-4 unit buildings near california and fullerton and near armitage and western, as they both have L stops and have decent renters.

I think Albany Park is okay but Logan Square is better long-term. I think Wicker Park and Bucktown are better but may be out of your price range. I like West Town as well and just east of Humboldt Park you may be able to get a good building at a fair price with decent rental income.

Unless you are a contractor DO NOT do a fixer upper as it will be a money pit. Also, it is your first building so buy a place that is rent ready. Be careful with foreclosures. I am getting ready to buy my third place and even I am not sure I want to buy a foreclosure.

My best advice. Ignore realtors and only buy when you are ready.

[ProfWatson]

the 3-flats in good Chicago neighborhoods DO NOT CASH FLOW. You cannot successfully bid on one and expect it to produce a positive return.

So, how did this situation occur? There were too many buyers out there who were willing to feed a negative every single month, as long as they were confident that the "appreciation" was there to cover them.

So, you had some owners willing to fund a $800 negative each month, totalling $10,000 per year negative cash flow, because they knew that the property appreciated by, say, $40K during that year.

What happened?

The market stopped going up by $40K (or more) per year for 3-flats, so now these people are stuck feeding a negative each month with no end in sight. Lose a tenant? That's even more hurt. Don't also forget the large increase in chicago RE taxes to futher compound the negative cash flow.

Don't buy a property with negative cash flow expecting "appreciation" to cover you. The music has stopped.

The big problem is that 3-flats in chicago sell at such high prices that they do not produce a positive cash return.

[Lookout Kid]

Originally Posted by ProfWatson

the 3-flats in good Chicago neighborhoods DO NOT CASH FLOW. You cannot successfully bid on one and expect it to produce a positive return.

So, how did this situation occur? There were too many buyers out there who were willing to feed a negative every single month, as long as they were confident that the "appreciation" was there to cover them.

So, you had some owners willing to fund a $800 negative each month, totalling $10,000 per year negative cash flow, because they knew that the property appreciated by, say, $40K during that year.

What happened?

The market stopped going up by $40K (or more) per year for 3-flats, so now these people are stuck feeding a negative each month with no end in sight. Lose a tenant? That's even more hurt. Don't also forget the large increase in chicago RE taxes to futher compound the negative cash flow.

Don't buy a property with negative cash flow expecting "appreciation" to cover you. The music has stopped.

The big problem is that 3-flats in chicago sell at such high prices that they do not produce a positive cash return.

I have also heard and read this about North Side rental buildings. Apparently six-flats are sometimes just barely profitable as rentals, but 2- and 3-flats bleed money. I would only look into a 2- or 3-flat if (1) I was going to live there myself and rent the other units, (2) planned to convert it into a single-family home in the future, and (3) didn't plan to leave for at least a decade. Some people will occupy a unit in their 2-flat and use the renters to pay their mortage down until they are ready to convert it into a single-family house for themselves.

[Humboldt1]

My 4 flat in Humboldt Park cashflows and I live there with my 3 tenants covering all my expenses.

I think you will start seeing more and more 3 and 4 flats that cashflow in the next 12 - 18 months as prices drop, even in the nicer neighborhoods. 2 flats just don't cashflow in my experience unless you are able to rent out the garden unit.

2713 w medill is my fallback example. When this legal 2 with garden unit sold in Nov 05 for 550m it did not cashflow but now in Feb 08 it sold for 390m. I believe if you rented the top two units for 1200 a piece and the garden for 800 and the garage for 150 it would cashflow. If you were willing to live in the basement and assuming utilities were separate it could still cashflow.

[lincolnparker]

So I am pondering about purchasing a 320k condo (3k annual tax, 200 monthly assessment) in lincoln park as an investment property. address is 600 w drummond pl 60614. I know for sure that I can rent it out for at least 1500 a month. does this produce positive cashflow, considering appreciation?