Originally posted by @Anthony Fecarotta:
Hello BP. Been listening to the podcast for a longtime and new to the thread. Been reading a lot of books, doing a lot of homework and I have some questions. I'd like to preface these by saying that I'm in the Chicago market and from the research I've done it seems it is much more difficult to cash flow going the multi-family building route with an FHA loan, which is what I'm trying to do. Here's what I got though.
1. Is it concerning that I'm starting to invest when the market is at a peak and facing a correction?
2. My top budget is $400k, and in this market can only afford me a 2 unit multi-family building. So should I start with a 2-unit multi family building (at $400k or less) or buy a $200k single family property that is in my budget , rehab it, and hold it until I have enough cash saved & equityto afford a 3 unit multi family that can give me a positive cash flow?
3. Assuming I don't buy a house in turn-key condition, what type of loan do I get to be able to afford the rehab that is required?
I know these are very specific questions, but I'm just trying to avoid as many first time mistakes as possible. I look forward to networking with people from my area, and I will definitely be at the meet ups!
Hey Anthony. Welcome to BP. I am a fellow investor in the city. Which areas of Chicagoland are you looking at? City or suburbs?
We don't necessarily know that the market is at the top and facing a correction. While that is possible, trying to predict the market is a fool's errand IMO. How long term are you planning to invest? If you invest for the long term and are cash flow positive, you can wait out any sort of market correction.
Only you can decide which path you want to take, but if I were in your situation, I'd buy a MF for under 400K and rent out the other units for cash flow. You can find a 'live for free' type of situation, which will help you save cash for future investments. I also disagree that you can't get a 3 unit for under 400K. There are many in my experience. Very often they're two flats with a garden unit...but as far as rents go, they're three units.
Houses don't have to be in turn key condition to get a loan. But they do have to be inhabitable. Lenders have certain requirements in terms of the condition of the property. I'd look for properties that are inhabitable but very dated. Find the place with the ugly kitchens from the 70's or 80's. Then do cosmetic remodeling and add value. If you find a place that is not currently inhabitable but is a great deal, look into the FHA 203K loan program. They'll give you a loan for both the purchase and the rehab.
Let me know if you'd like to discuss further.
