Entry to Chicago RE market

[Sung Park]

Hi, I am currently a college student working in Chicago next year. I want to start my RE journey from where I work, so I have been studying how to enter the market. I have been mainly looking into Zillow for a duplex(for myself and to rent) and was not sure of the average price. How would I start tackling the market? Any tips for a newbie? My budget is looking to be around 40k to 100k(If I squeeze a lot)

[John Clark]

What kind of economic neighborhood are you willing to live in? What areas of Chicago are you looking at for those neighborhoods? 

Based on your budget, you need a place that would cash flow if you were not living there and had two renters. So you're probably looking at a pace where you'd be living in it "at a reduced rent," not one where the tenant is paying the full mortgage, all expenses, etc.

So in looking at Zillow, what are your search parameters? Are you looking solely on the North side?

It's important to start, it's not important to get big quickly.

[Sung Park]

Hi John, I was looking into a bit west from the west loop( around garfield park). From my understanding, if I do a househack, despite cash flow being very low, it should cover the expenses since I will be residing in one of the duplex. I heard the prices on zillow were not always accurate so what I thought was to get a hold of real estate agent and start from there. I have time until next year August so I have time. Thank you for your detailed response!

[Stephen Garmon]

@Sung Park have you every been to Chicago and have you visited the areas you are considering?

[Sung Park]

@Stephen Garmon Hi, go to school in Illinois and been to Chicago couple of times. I have yet to visit the places that I am currently looking. There is no way I will be able to afford a housing in the loop so I am looking more towards the outskirts(west and north) of the loop and hopefully find a good duplex. What is your take?

[Stephen Garmon]

@Sung Park I totally understand. I am looking outside the loop as well. There are few neighborhoods that are easy to afford and finding a cash flow property immediately is tough. My take is that you need to go drive by these properties that you’re interested in. If you’ve been in the neighborhoods of Chicago then you know how drastically the neighborhoods change block by block. If you’re looking to house hack you have to consider the level of rent you’re looking to ask and the caliber of tenant you hope to attract. East Garfield park has been gentrifying recently, but it’s still sketchy at times West Garfield tends to be more affordable but heavier on section 8 tenants if you want higher rents otherwise the rent for non section 8 tends to be significantly lower. I’m sure you know section 8 tenants can be hit or miss. Then Illinois is very tenant friendly. All things to consider.

A house hack is a great way to cut your living costs significantly and earn appreciation, but just make sure you consider these variables. Also you’ll be living there so you have to feel secured yourself and have the resources available to you that are important to you. What’s important to me may not be important to you. I just recommend you run the numbers and make sure you know what it’s going to take to make that happen and make sure you know what block you’re looking at.

[Sung Park]

Thanks, @Stephen Garmon I heard the Garfield area was a bit dangerous but saw couple of decent duplexes. The thing is it seems like all the houses are around 250k to 300k and the rent is about 1000$ for a 1 bedroom and rent gap is not that significant from the loop despite the property being couple times more expensive. Correct me if I am wrong. Also, aren't duplexes usually very low on cash flows? I assume it would be deadly if the vacancy is longer than expected. 

[Stephen Garmon]

@Sung Park it all depends. Like I said the block will determine if you can get that 1000 or not. Also, are those 1000 rentals section 8 or not? Are you ok renting section 8 or not? Everything in investing is relative. There are 100 different ways to approach the same property and make it a good deal to you. For me, I would invest in Garfield if I could afford it as a pure investment property, however I would look for properties where I can get some forced appreciation. My approach would be to purely rent section 8. 250k-300k I would say the appreciation is already built in to that price for most of the Garfield area but there are pockets where that may be a good price.

I just recommend you go visit these blocks before you jump in unless you have surplus capital and can afford the property without the other unit renting in case you can’t find a tenant you are comfortable with.

[Crystal Smith]

Originally posted by @Sung Park:

Hi, I am currently a college student working in Chicago next year. I want to start my RE journey from where I work, so I have been studying how to enter the market. I have been mainly looking into Zillow for a duplex(for myself and to rent) and was not sure of the average price. How would I start tackling the market? Any tips for a newbie? My budget is looking to be around 40k to 100k(If I squeeze a lot)

The first thing to do to tackle the market is to try and find some partners. $40K to $100K is enough for a downpayment on a loan to purchase a property that you can move in to. It's not enough to purchase a property that you can move right into. Anything you purchase at that price point needs to be renovated.

[Jonathan Klemm]

@Sung Park - I think you should start by connecting with a really good real estate agent like @Eudith Vacio who can help walk you through the steps of purchasing a home.  That way you can identify the right neighborhood based on your purchasing power.

Then, link up with a lender like @Michael Facchini to get pre-approved and then start making some offers!  

[John Warren]

@Sung Park congrats on getting ready to start your real estate journey! The big thing to do if you are a newer investor and also new to Chicago is to drive the neighborhoods and get to know them. Some neighborhoods that look good on paper are rough enough where you won't want to stop the car! 

I also would think through your needs in terms of transit. Will you take the L? Will you take Metra? Will you drive? Each neighborhood has a lot to offer, but make sure you think through neighborhoods that will fit your life style. 

A lot of our clients have been picking up good deals on the east end of Little Village recently. We have sold several nice three units that I think will appreciate quite a bit if gentrification keeps happening. You also might consider parts of Humboldt Park as well. 

[Frank S.]

Originally posted by @Sung Park:

Hi, I am currently a college student working in Chicago next year. I want to start my RE journey from where I work, so I have been studying how to enter the market. I have been mainly looking into Zillow for a duplex(for myself and to rent) and was not sure of the average price. How would I start tackling the market? Any tips for a newbie? My budget is looking to be around 40k to 100k(If I squeeze a lot)

 Is your budget "cash on hand" or "purchase price".  If $40K to $100K purchase price won't work in Chicago.  On the other hand, if $100K down payment, then you can get something decent, but by no means "investment" in current conditions.   Averages are $200K in south areas to $750K in near northeast areas -  vintage with some upgrades.  You can bump those prices up as much as you want, depending on finishes and rehab condition.

The market is ridiculously overpriced now, and a rehab will cost you an arm and a leg if you can't do it yourself or have contacts.  My advice, don't do it.  You are new to the area.

Ignore the finance porn and hype, rent for a few years in a nice area, it's cheaper and more fun for young people.  Focus on your job.  Keep your fingers crossed for a correction in a few years. 

Frank

[William Costello]

@Sung Park have you been to Chicago before? Great city to visit but the multifamily sector isn't necessarily owner friendly. Investing north near the gold coast up to Evanston would be a great place to look as well. Have you considered investing in other Midwest cities like Indianapolis, IN, Columbus, OH or Kansas City, MO? 

[John Clark]

"There is no way I will be able to afford a housing in the loop so I am looking more towards the outskirts(west and north) of the loop and hopefully find a good duplex."

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Loop is condominiums, not duplexes. Also, why are you looking only at the West and North sides? South and Southwest sides (follow the Orange line, Green line, and Red line) are much more affordable and just as stable.

[Marc Rice]

Just buy a duplex in Columbus and wait for the hyperloop to connect the cities.

[Michael Facchini]

@Sung Park, congrats on making the first step towards home ownership...and at such a young age!  That's fantastic.  Sounds like you have a lot of exciting things ahead.  From here I'd definitely recommend getting an idea of what you can qualify for, and thus you should contact a local lender to talk numbers, options, and start putting a strategy together from there.

[Sung Park]

Originally posted by @William Costello:

@Sung Park have you been to Chicago before? Great city to visit but the multifamily sector isn't necessarily owner friendly. Investing north near the gold coast up to Evanston would be a great place to look as well. Have you considered investing in other Midwest cities like Indianapolis, IN, Columbus, OH or Kansas City, MO? 

I go to school in illinois so I visited couple of times. Im new so I am kind if scared to venturing into other states.

[Forrest Williams]

If you're looking at Chicago, I wouldn't overlook the suburbs. That's what I did when I first moved to the area. Cheaper prices, less competitive markets, but still decent rental rates. I own a two-flat in Berwyn and just started closing on a SFH in Bolingbrook.

And to echo another commenter, you won't be able to find a house for under 100k that isn't a total teardown. If you have 40-100k for a down payment you'll be good, but finding a livable house for less than 100k is not feasible. 

[Jeremy Brody]

@Sung Park Look at Sold listings on Zillow, Realtor.com, etc. to get an idea of what 2 flats sell for in the various neighborhoods. Since you will be living there you should plan a trip to Chicago to walk the various neighborhoods and find an area where you will be comfortable living. If you go north or west of Logan Square or up north near Albany Park you will find some properties that might be in your price range. Definitely talk to a lender to find out what you can afford. FHA financing may be an option for you since you plan to owner occupy. Then crunch the numbers to understand if the numbers work for you while you are living there and after you move out. If you are going to put 25% or more down and are okay with a slightly higher interest rate, then you may want to consider just purchasing the two flat as an investment and then renting in the area you really want to live.

Jeremy Brody - Real Estate Agent in IL