Chicago Multi-Family Homes For Sale
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One of the best decisions you can make starting out in real estate investing is buying a multi-family home as a first-time buyer. Sounds counter-intuitive? In this guide to Chicago multi-family real estate for sale, we’ll walk you through the steps in finding multi family properties for sale, including how to do a preliminary analysis on multi family real estate before crunching the numbers, visiting the property, and making an offer.
You may have some reservations about diving into multi family real estate. The life of a landlord can be challenging: broken pipes or tenants who refuse to pay their rent can ruin your entire day. The logic goes that if one rental unit is a headache, a multi family property with two, three, or four units can give you a headache for life. However, multi family real estate can be financially rewarding beyond your wildest dreams. Before we get into our Guide to Chicago multi-family Real estate for sale, let’s first touch on just a few reasons why being a multi-family unit landlord is a great idea:
- Create Wealth: Whether you live in the multi-unit or not, your tenants will help you save your money as their rent contributes to or exceeds your monthly mortgage payment. Hold onto your property long enough, and they may even pay off the entire multi unit property for you! Maintain the property as an investment and continue to collect rent each month or sell the property when you retire, and you’ll be seeing dollar signs from here to Tuesday 2075.
- Live-in and Save: Consider living in one of the units and you may qualify for owner-occupied financing with little money down, as opposed to an investor loan which requires 20% down.
- Multi-family vs. Single-family: A manageable multi-family property is the best of both worlds, as mortgage-wise its treated as a single-family home, while investment-wise it can generate mega bucks as an investment property.
- Buffer Against Higher Rents: Rents are going up, up, up – be on the right side of this equation. As the economy becomes more challenging, buyers are reluctant to plunk money down on a home purchase. The result? People must live somewhere, making residential rents uber strong. Stay a renter and be vulnerable to your landlords raising the rents on you; or, you can be on the other side and collect extra money as the rents naturally are raised in a competitive rental market.
- Meet Interesting People: The stories of renters who don’t pay their bills or trash your home are few and far between. The majority of renters are hardworking people who pay their bills and want to be on good terms with their landlord. Many renters and landlord even become friends and stay in contact beyond the sale of a multi-family property or a renter’s move.
Guide To Chicago Multi-Family Real Estate For Sale: Where To Start?
How do you research multi family real estate? Can you distinguish a good multi-unit property from a bad multi-unit property? Once you find a good prospect, how do you check out the home before making an offer? Let’s continue our guide to Chicago multi family real estate for sale and answer these questions, step-by-step.
Step 1: Before crunching the numbers, when you see a multi-family property listing first try to eyeball a few things, including:
- How many units? Is it a duplex, or four-unit property?
- How much rent? How much would you be able to charge per unit per month? If the units are occupied, even better as you’ll be able to count on those rent checks to subsidize your mortgage from the get-go. What’s more, the bank will use a portion of those monies as prospective income to help you qualify for a higher recurring mortgage payment (allowing you to snag a larger investment).
- Evaluate the fair market value: Multi-family units are not valued price per square foot as single-family homes, rather they are evaluated based on income and return on investment generated. Tally up the rental income and expenses and see what’s leftover. This is called the “operating income.” Divide the operating income by the rate of return for the market area. This figure is called the “capitalization rate.” This will give you the fair market value.
Step 2: Once you’ve done the cursory check above and you deem the listing has potential, it’s time to visit the property. If there is a vacant unit, great – call up your agent and check out the unit. If tenants occupy all units, you will need to provide a heads-up (usually 24-hours) before viewing the property.
When you view the property, try to determine if your rental estimates align. Perhaps the condition of the property is better than you expect, in which case you may get even more rental income than you previously thought. If the building or units seem to need some repair, factor this into your expenses – do the math to see if it’s still a worthwhile investment.
Step 3: If you’re ready to move forward, consider your financing options. If you plan to live in the property, you may qualify for an owner-occupied mortgage. With an FHA loan, this could be as little as 3.5% down. Otherwise, if you plan to rent out all units you may qualify for a mortgage that requires 20% down.
Final Notes About Buying Multi Family Homes For Sale Chicago
Multi-family properties are a fantastic investment, particularly for first-time home buyers who plan to live in a unit on the property. It’s important to consider a few points before jumping in to ensure you get the most out of the investment possible.
Keep adequate cash reserves: Instead of one furnace, you may have three. Instead of 4 doors within a home, you may have 25. Prepare for unexpected repairs and events by saving 10% of the monthly rent and putting aside to handle any issues that may crop up.
Professional management: You don’t have to be a handyman to be a landlord. If you would rather not deal with landlord stuff, consider professional management. A property manager can take care of all the day-to-day issues that come up, often taking 3-10% of the rental income in return. Depending on your circumstances and desires, this could save you a bit of time and headache.
We hope this guide has been helpful to you. Check out our collection of multi family homes for sale Chicago to get started on the road to multi family ownership.