Before the mortgage meltdown, many Chicago 'investors' purchased 3-unit buildings for six hundred thousand dollars or more as investments. Even though the rents were a measly $40,000 - if there were no vacancies. Even though the interest rates on such properties was 7.5% or higher.
Because these investors were not investors but speculators. Or, else, they did not understand investing. I once spoke with a guy who was buying this kind of property. His philosophy: losing money the first two or three years is not a problem as you'll start cash-flowing afterwards. Me, I never understood why it was okay to lose money when there were other investment opportunities that made money from the beginning.
The guy I talked to lost a lot of money when values were increasing. Did cash flow a few years later. Unfortunately, the market turned sour before he could break even on his properties.
Things have changed. You can now buy for four hundred thousand to four hundred and seventy-five thousand dollars 3-unit buildings in the same neighborhood where they used to cost upwards of six hundred thousand. Better yet, rents are higher now, about 10%.
And the situation is even better if you buy a 4-unit building. In other words, there are some good Chicago neighborhoods where it really makes sense to invest in 3-4 unit buildings. Edgewater is one such neighborhood.
Yet that fact is lost on many investors, who insist on buying single family houses. And, in the same neighborhoods, single family houses that can be rented with little work, cost $250,000-$300,000 and rents are $18,000-$24,000/year. Yes, a lot more per unit.
With houses, every month your house is vacant you have total loss of revenue. If one of your apartments in your 3-unit building is vacant, you only lose one third of your revenue stream.
Besides, if the roof of your house investment needs replacing, the cost per unit is a lot higher than if your 3 or 4-unit building roof needed replacement. And the same goes on with a few other costly items.
So, more is better. So, if you can afford to buy a 10-unit building, buy one. Or a 20-unit one. True, you won't find them in Rogers Park or Edgewater. But it's still a great idea and you should consider it.
During the real estate boom, especially towards the end, you could find building with 10 units or more only far, far away from Chicago. Things have changed for larger buildings too. You can find larger buildings that cash flow from the beginning a lot closer to Chicago now. For the price of a 3 or 4-unit in Chicago, you can get a fine 10-12 unit buildings in one of the farther suburbs, one that will cash flow better.
Author Resource:
Good investement properties are plentiful. So go for one, even if that means you have to remortgage . Remortgages can be obtained inexpensively these days.
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