Chicago 2-Flat Investors: How do you make the numbers work?

Question

Chicago area investors buying 2-flats -

There’s no shortage of classic Chicago 2-flats for sale around the city’s many neighborhoods, and if you’re willing & able to buy and renovate in a rougher area I can see how the finances may work, but I’m having loads of trouble making the numbers work in more desirable areas.

Are there any Chicago BP users buying 2-flats in areas like Wicker or Humboldt Park, Bucktown, the Milwaukee corridor up through Avondale, or West Town/Ukrainian Village?

The numbers seem way too tight for so many of these small, two unit buildings.

If you’re out there and willing to share, I’d love to hear your strategy or process for these properties.

Brie Schmidt · Answer

@Bradley Austin - don't buy a 2 flat, the numbers don't work. Not only that, in most of the areas you mentioned the loan limit would require too much upfront capital.

Kevin Coleman · Answer

A couple of years ago I looked in those areas and couldn’t find anything that worked for me. I think you should define what you mean by “making the numbers work” for you specifically. That will help others tailor their comments to your requirements.

In my opinion those areas now are appreciation plays. I think you will make big money on your exit(when you sell) and less month to month when you account for maintenance, potential vacancy’s and capex. If you renovate capex will be low for some time so you will make money then but if you hold it for a long period of time your capex will start to creep up and eat into the cash flow. Hopefully rising rents will help out there. I suspect your payday will be when you sell down the road.

I ended up buyjng a 3 flat in Bronzeville in 2015 due to the same concerns you described(cash flow). It has worked out well. Hindsight...I think I would have been fine buying in the areas you are focusing on now back then.

Chris Bernard · Answer

I’m in the same boat Bradley!! Finding a decent deal in a decent neighborhood is challenging. Hopefully someone can provide some insight.

Aaron Vaughn · Answer

There have been quite a few discussions on trying to make cashflow numbers work in class alA and B neighborhoods. It simply does not work. Cash flow works in class C and D neighborhoods. I’ve done many investments in C and D areas. There’s a real estate market in every neighborhood. You simply have to know how to navigate them .then you’ll get your desired cashflow

Eric M. · Answer

What are your criteria for making it work? People have VERY different criteria.

On the North side the common investment approach is to accept low single digit cap rates in order to get price appreciation. So working could mean zero cash flow and 10% appreciation.

On the South side, appreciation can't be counted on so higher cash flow is required. Different areas will work for different strategies but most areas won't work for all strategies.

Chicago 2-Flat Investors: How do you make the numbers work?

Chicago 2-Flat Investors: How do you make the numbers work?

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