House Hacking Multi Units in Chicago too competitive?

Question

Hey BP!

I spoke to my first realtor today, and told him that my goal was to buy a multi(2-4) unit building in a neighborhood like Humboldt Park, Avondale, or Bridgeport in downtown Chicago.  Both he and the mortgage broker I'm talking to warned me that it would probably be very hard to find a property like that, because the areas are "flooded with investors" making cash offers, and coming in with an offer, planning to pay with FHA loan with 3.5% down, it would be really hard for me to close a deal.  They were much happier with the idea of me buying an attached apartment/condo in one of the "hot" downtown neighborhoods(west loop, lincoln park, river north).

I'd love to hear the opinion of some seasoned and knowledgeable Chicago area investors, or anybody who could lend some insight.  Is it true that I'll have trouble closing on a cashflowing multi-family property, even if it's in an area of Chicago that hasn't blown up yet?  I'm going to be coming in with a 3.5% down FHA offer. I don't have trouble coming up with listings from zillow, realtor.com, etc...

Nick Patterson · Answer

I invest in Bridgeport and love the area.

There are plenty of 2-3 flats on the market for a fair price.  The best deals are the ones that need a little TLC.  Don't be afraid of those.

Concentrate on that area and you will be able to find something that fits your needs.

Jeremy Cohen · Answer

Hi Nicholas,

You're on the right track to be looking for a multi-unit property. I would do the same ten times out of ten. Your realtor is not wrong - your method of financing will make the search more difficult. Your willingness to move away from the hottest areas shows that you want this.

Your realtor may be lazy - they are steering you toward a simpler deal that they believe can be closed in less time and with less work (or one that falls within their comfort zone). If the realtor doesn't share your vision and is not adding value I would find a new realtor. It can take time to build the right team. Good luck!

Logan Allec · Answer

@Nicholas Pascullo, people told me the same thing about L.A., but I still did it late last year.  Just keep looking, my friend.

Crystal Smith · Answer

My 1st comment, independent of where you're looking for a property, is if your agent & mortgage broker would be happier w/ the idea of you buying an attached apartment condo, but you want to house hack, then you need to find a new agent &/ mortgage broker.

W/ that said- Your competition will be fierce when looking in any hot neighborhood.  What you need to do is gather data to determine what you need to compete.  Coming up w/ listings from on line services like Zillow won't help.  You need data showing Sales Price/List price; average days on Market;  # of cash sales versus finance sales....  Then evaluate if your funding source allows you to compete or if you need a new & different type of funding source & what your bidding strategy should be for  neighborhood.  You may even need to consider looking in a different neighborhood or @ the edges of the neighborhoods you're now considering.  Example:  Humboldt Park has hot sections & some not so hot sections that are on the edge of the hot sections.  A few years ago the Hot sections weren't so hot.  What made them hot?  Investors.  It's a calculated risk but that's what investors do.

Brie Schmidt · Answer

it depends on what your idea of cashflowing is.  Will it cash flow with you living in one unit for free? probably not.  Will it cash flow without you living there (after vacancy, capx, repairs) yes.  they aren't always easy to find, but they are out there.

Here are some properties I analyzed for clients the first half of 2015.  I haven't had time to update it since summer, but it is still a pretty good ballpark of what to expect.

https://www.biggerpockets.com/files/user/chicagobr...

Account Closed · Answer

Hey Nick! Those areas you mentioned in your post are class A ,B , an C+ areas. Because of the increased prices, they don't cashflow very well even if you win a bid. I've been investing in class C and D areas where the numbers work in terms of cashflow . please feel free to PM me for more info.

Nicholas Pascullo · Answer

@Brie Schmidt thanks for the reality check, I'll make sure to calculate cash flow numbers including rent from the unit I'd be living in!  Also thank you for the spreadsheet, it's informative.

@Crystal Smith thanks for your reply! Do you have any suggestions as to where I could look to get data about cash sales vs. finance sales, sales price/list price, etc??

Logan Allec thanks for the encouragement! if you could do it in LA that makes me feel better about my chances in Chicago.

Marvin Anaya · Answer

Hi Nicholas,

I can connect you with an investor friendly realtor,  who himself started as a house hacker and owns multi-families. He is familiar with the areas you're looking at. If interested I'll send you his info.

Marvin

Brett G. · Answer

I can't speak personally for the area you're looking at in re: to multifamily -- but I know when I was looking at property back in summer, I just flat out wasn't moving fast enough -- and I was an all cash buyer. I was looking at distressed attached units that needed some work, but were in good buildings in a good area. I'm not local (I live in Arizona) so that made the process harder for me, so I stopped looking. I started to re-visit it again a couple of weeks ago but the property tax increases are making me second guess everything. Good luck!

Nicholas Pascullo · Answer

@Jeremy Cohen Thanks for the encouragement and advice.  What you're saying makes sense.  I'll have to ask around and look for an investor-friendly Realtor.

House Hacking Multi Units in Chicago too competitive?

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