All Forum Posts by: Garfield M.

I have a building like this. First, you need to know its a risk. BUT, there are ways for you to mitigate the risk. 

The city doesn't find out unless they have a reason to enter the address. This can be prevented by not encouraging any tenant in the future to call 311. I think it's a good idea to Live in the basement yourself to start off. It'll give you the opportunity to find any things that need fixing prior to a potential tenant finding them. I'd start by modernizing it and making it an attractive place to live. I'd lean towards a building with larger windows in the basement to allow more light. That'll  attract better tenants. Ceiling height too, a low ceiling height will not attract the better renters. Its also less safe.  Take a look at how many electric meters there are, how it's heated and associated costs per month if not separately metered. Look for signs of sewer backup. Sewer backup or something like no heat is more likely to result in a 311 call. Have the sewer line scoped, if the illegal unit is in basement, the drain lines were probably saddle tapped so there's more risk of backup.  Research that and determine if you're comfortable with the risk. Basically, making it a nice and safe apartment will be better for your risk and the quality of any potential renter.

It's also important to consider location more keenly in this scenario. Finding a decent quality tenant for a basement apartment will be much easier when the location is good. I'f the area has a hard time attracting decent quality tenants, the likelihood of finding a quality tenant in a basement unit is even more difficult. 

All in all, it's not for everyone and there is risk to manage/mitigate. It's not for everyone but plenty of people make it work. 

Quote from @Henry Lazerow:

Chicago prices have now fallen 20.6% off their highs! Definitely will be some more opportunities out there this spring/summer. I have seen inventory drastically up since the holidays but have also had many buyers come back in the game over even just the last few weeks so not sure how far will really fall with so much capital out there chasing these deals (including you all haha). In the markets I focus on northside and nicer parts of south side (mckinley park/bridgeport/brighton park) market prices on 2-4 units seem to have fallen in the 10-15% range with Brighton Park multi units actually held almost same as before rates rose but that market was drastically increasing prior and rents are now about 10% higher there then a year ago. I am guessing higher end single family/condos and properties in higher crime areas may have fallen much further which brings the average to 20.6%. Either way will be an interesting year! I am not waiting and buying any deals that fit my criteria.

As for loan options I have reached out to many local lenders and rates are down significantly from their highs. The best so far I have found all from local banks mainly portfolio type products....

5.75% 20% down on 2 units owner occupant with 1 point on a fixed 30. Same rate but 25% down for 3/4 units 1 point.

5.625% 25% down owner occupant 2-4 units with a 5 year ARM and 1 point. Needs to be higher loan amounts not small deals.

6.0% non owner occupant on 2-4 units with a 5 year balloon. 5.875% on a 3 year balloon. 

5.875% 5+ units 5 year ARM with 1 point

7% owner occupant 2-4 units at 10% down. Was 6.5% a few weeks ago so will see what is at next week. Closed one with them in past month.

 I wouldn't make a guess at what happens but to stick straight to numbers, this post could have been made last year in January 2022 and made similar claims, except it'd be about a 15% decline instead of 20%. This data is not YoY so it does not account for seasonality.

Measurable data helps. There are also articles that use ACS (census) ESTIMATES instead of ACTUAL ACS data. The recent estimates leading up to the 2020 census were way off in Chicago. The estimates leading up to the delayed data release post-Covid claimed Chicago was losing population. Then when the actual data was released, the official data showed a gain of 51k residents. This is not easy stuff. 

Chicago has an incredible amount of affordability compared to other cities and the value is not matched when compared to major US cities. As noted above, the amount of 2-4 units with easy financing options are plentiful and many of these buildings will offer average to above-average appreciation. 

Another caveat with population growth is that broad metrics such as population growth don't always paint a full picture of the reality. For example, neighborhoods such as Logan square in Chicago have lost population in recent years but at the same time have experienced some of the highest increase in property prices over the past two decades. A more useful metric in this scenario would be "number of households." The "amount of households" correlates with the purchasing power of a given population. 

The following is from US ACS https://data.census.gov/

Change in $200K+ earning households from 2016 to 2021, *METRO AREA*. According to Census ACS 1 yr

NYC: +395,953
Los Angeles: +217,840
Washington DC: +171,778
Chicago: +159,354
Boston: +152,905
San Francisco: +150,428
Seattle: +148,384
Dallas: +123,826
Philadelphia: +123,103

2021 Bachelor's degree or higher percentages of population age 25+ for the top 15 biggest US cities

Austin: 59.9%
San Diego: 48.8%
San Jose: 45.8%
Chicago: 43.7%
NYC: 41%
Columbus, OH: 38.4%
Los Angeles: 37.3%
Dallas: 37.1%
Houston: 36.3%
Philadelphia: 34.8%
Indianapolis: 34.7%

Largest increases of this population from 2019 to 2021:

NYC: +149,223 people
Chicago: +50,953
Philadelphia: +41,321
Phoenix: +35,470
Houston: +34,034
Austin: +33,228
Jacksonville: +30,001
Indianapolis: +24,947
Los Angeles: +21,184
Dallas: +12,034
Fort Worth: +6780

You'll also find surprising trends about individual areas when you break it down to specific boundaries:
Near South Side, Community Area Chicago
Population: 28,795 ***(+34.6% from 2010)***
White: 44.39%
Black: 22.82%
Asian: 20.08%
Hispanic: 7.3%
Other: 5.42%

There's 77 official community areas in Chicago, and from 2010 to 2020, 40 out of 77 had population growth. Even southside neighborhoods such as; Chatham, Woodlawn, South Shore, Washington Park, Kenwood, Grand Boulevard, Hyde Park, Oakland, Douglas experienced population growth. And hoods on the SW Side like Archer Heights,Garfield Ridge,  McKinley Park, West Elsdon had population growth.

One of the more interesting ways to look at local data in Chicago is by using CMAP data. 

https://www.cmap.illinois.gov/...

I always like to look at the particular subsection of the community data snapshots which states "change over time," this gives you an idea of the demographic changes occurring in the city and gives you a shot at making a more educated guess about what happens in the future. It's science and art, get out in the neighborhood and explore the city, you can see and learn a lot. 

"Men are more apt to be mistaken in their generalizations than in their particular observations." ~ Niccolo Machiavelli

I have a building built in 1920 with original cast iron drain lines. That's 122 years. When I moved in I power rodded the 2 inch pipe sections and flushed them with boiling water and green gobbler solution and i havent had any issue since i moved in about 18 months ago. 

For cast iron drain lines, you may want to replace portions that are 2 inch diameter as these are the portions more likely to give you a backup or clog issue. If it's larger pipe (usually 4 or 6 inch), it should be fine. The inside diameter of the pipe will narrow over time as the cast iron corrodes. This poses a bigger draining problem the narrower the pipe. It makes rodding or snaking the line more difficult also if you get a clog. 

If its not leaking and it is draining without backup, why replace? Anyway, hope it works out.

At some level, crime is already baked into the equation when people choose to invest in Chicago. I don't expect the SAFE-T Act to increase or decrease that in any drastic way. The nonviolent criminal stays in the county jails are already brief and have been for some time. 

The perception and reality of crime in Chicago have existed for a long time. The national media has been focused on Chicago as the epicenter of crime nationally and that is not likely to change anytime soon. I don't expect a surge in crime due to this act.

This is not to dismiss the issue of crime in Chicago as it is a huge concern of any resident here, including me. But I wouldn't be too concerned
(from a real estate perspective) with the opinions of people who admit to not even wanting to visit here. @Mike Gagnon above says that he won't visit Chicago, but the SAFE-T Act is a state law which means that southern Illinois where he lives will also have to deal with this law. Perhaps he's concerned with how crime is prosecuted jurisdictionally at a county level but that's a separate issue. He does not "understand the appeal of Chicago," but plenty of other investors do.

As far as your concern of "investors leaving in droves," I don't see any evidence this will happen. People have been proclaiming that Chicago and NYC "are over" for decades.  Some of the concerns in the media are focused on corporations like Citadel leaving the market. That's not good but that's all the media focuses on. However, there have been plenty of big-name investors relocating to Chicago.

https://www.prnewswire.com/new...

All in all, plenty of people will continue to invest in Chicago despite the crime issue. Instead of media narratives, I'd focus on measurable population shifts and trends.

https://actionnetwork.org/peti...

For those interested in seeing an expansion of the ADU ordinance citywide, consider signing the petition in the link above as this initiative seems to be gaining some steam in city council with a new proposed ordinance.

I did this with a condo in the city. I think you'll have more consistent clientele for rent by the room in the city. Condos could be your best bet with similar purchase price as single family in suburbs. 

Regardless of where, you want to have at least two bathrooms and maybe 3-4 bedrooms. This will most likely make it work financially. Having 2 bathrooms makes it much easier, ie at busy work times etc. I had a 3 bed 2 bath condo where i put up a wall and made a 4th bedroom and was charging $500 per room and this was back in 2014 so you could maybe do more now. I also did airbnb in the rooms when I had the time.

The good thing about suburbs is you can rent by the room on airbnb, just be sure to check legality of airbnb in your suburb. That could make it work out for you. It can be a pain in the *** living with others but can always put an e-lock on bedroom doors for safety. 

If you're looking to just get started with the lowest purchase price possible then it's a great starting point. I did it for a few years and it definitely paid off. This is what helped me pay off student loans and a car loan using that exact method. If you get yourself a 5 year plan, the immediate annoyance of renting out rooms in your home becomes more worthwhile and puts it into perspective about where you want to be long term. 

if you're in the suburbs, I'd prefer somewhere near a university or something like that. Or a teaching hospital. Something that gives people a reason to want to rent a room on a  temporary basis. Screen any tenants thoroughly. 

Good luck, i hope it works out for you

 I usually use this site when trying to find useful credit cards, you might be able to find something there that works for you

https://www.doctorofcredit.com...

 Yes, midterms are becoming more and more popular, biggest emerging trend in the rental market is monthly furnished stays. 

Airbnb pretty much owns the market but it's difficult to operate within the law in Chicago. You'll still need to be approved by BACP to make a posting. A platform like Furnished Finder does not need to conform to these laws. Profit will be a bit less than airbnb but it's significantly less work and turnover. Might be similar profit to airbnb in the winter in chicago but I don't know firsthand. 

There's a podcast called "The Landlord Diaries" which is strictly about investing in the midterm furnished market.  Listening to the first episode with Jesse Vasquez will give you pretty much all of the info you'll need to get started if it's something you want to do.