Market Conditions: DePaul Study Highlights Distress on Multifamily Owners in Cook County
The DePaul Institute for Housing Studies released an interesting report on April 7 on the health of the multifamily housing market in Cook County.
Here are some highlights:
- Prices of large (7+ unit) rentals in Cook County have declined 26% from the third quarter of 2006 to the second quarter of 2009.
- Prices of small (2-6 unit) rentals in Cook County fell 46% from the second quarter of 2007 (when prices peaked) to the second quarter of 2009.
- 2-6 unit buildings have fallen further because they rose higher during the boom. From the first quarter of 2000 to the second quarter of 2007 (peak price), prices rose 61% on 2-6 unit buildings. Conversely, they rose only 43% on 7+ unit properties through the third quarter of 2006.
- As of the end of 2009, 42% of 2-6 unit buildings were underwater with another 21% at a loan-to-value ratio between 90% and 100%.
- The percentage of multifamily mortgage loans in foreclosure rose to 6.8% or $3 billion.
- In 2009, with the 2-6 unit properties, new foreclosure filings were between 1,900 to 2,100 per quarter.
- Foreclosure rates in 2009 for 2-6 unit buildings in high income submarkets was 4.2% versus 13.9% in low-income submarkets. The 4.2% rate was still the highest in the high income submarket in the last 10 years. The foreclosure rate didn’t go above 1% until 2007 in the high-income submarket.
- As of the end of 2009, there were 32,000 foreclosures on multifamily units in Cook County compared with 38,000 single family homes.
- Net rental revenues are currently at or below total operating costs for about 74,000 rental units in the City of Chicago.
- $15 billion of multifamily mortgage debt (or about 33% of the stock of oustanding debt) matures between 2010 and 2015.
- Value at risk for small 2-6 unit rentals is $12.6 billion. For 7+ rentals it is $747 million.
I urge everyone interested in the multifamily property and housing market scene in the city to read this interesting report.
The paper also argues that it is more attractive to own than to currently rent (due to price declines and government incentives like the tax credit.)
The Multifamily Housing Market and Value-at-Risk Implications for Multifamily Lending [DePaul Institute for Housing Studies, Working Paper, James Shilling, Ph.D, April 2010]
In the last few years we saw tons of POS 2 flat, SFH, shacks selling for ridiculous amounts. People were basically buy and tearing down or buying and holding, with the intent to sell to someone a year later for teardown purposes. I remember looking in 2005-06 for a decent live-in 3 flat. Impossible. Places that were in fall down condition were going for $400K-500K.
I finally started looking again in early 08. By then reality started settling in. We finally found a 3unit greystone in Logan that had been on the market for 9 months. The price had dropped about $180K from the original ask.
At one of our viewing, the current owner actually showed me an appraisal he had from 2006. The place appriased out for more than $200K then they were asking at the time. Found it humerous, but irrelavent to the value at the time.
Pricing of 4+ unit building will return to being a function of rental income. Previously these values jumped as well because these buildings would be torn down or converted to condo.
2-3 unit (especially 2 units) are not as tied to rental income. Those tend to be (more likely) owner occupied with supplemental income.
Now, a lot of people on this sit will bash and complain about how being a landlord sucks. However, none of those people have ever said that they own rental property or have ever been a landlord. I always find that funny.
As one of the few people here that own rental property (or at least one of the few that have mentioned it), its a huge benefit to me. I live in my unit for less than fair market rent, no hoa fess or rules, I get to pick my neighbors, I get a yard and a garage. Plus I get a lovely bonus from the IRS every spring. Thank you Congress for your ridiculously favorable tax laws.
No surprise here. During the boom everyone and their grandmother wanted to be a landlord and snapped up multi-unit properties whether the cash flowed or not. Investors and speculators are the real story behind the number of foreclosures across the board. Lenders lost their minds with the multi-unit financing for investors. I remember seeing high LTV financing for multi-unit investors with stated income. Disaster waiting to happen.
I have plenty of clients that are landlords, those who own mutil-units to those who own two flats. Being a landlord sucks for most people. I don’t have to be a criminal to know that prison sucks, just like I don’t need to own a two-flat to know that for a large number of people, landlording sucks too. And the laws in chicago totally favor tenants. look at the harsh provisions of the chicago residential landlord tenant ordinance and see who has to pay all the fines. have you ever been to housing court? oh that place sucks too. $500 bucks everytime you get summoned to that place.
“Now, a lot of people on this sit will bash and complain about how being a landlord sucks. However, none of those people have ever said that they own rental property or have ever been a landlord. I always find that funny.”
I suppose if you own a two or three flat, you have *excellent* tenants who pay on time, don’t complain, are not litigious, are quiet, and the rent subsidizes the mortgage, then yes, landlording is a good thing. however, I think in more cases than not during the boom, being a landlord was less than a perfect situation. But for most people, being a landlord is like anything, it has a sharp learning curve, but if you can get over that and get good tenants, you’ll do OK.
If you buy the arguments in this paper, it’s a good time to pick up cheap 2-3 flats in decent areas and convert them to SFH.
Dr. Shilling missed the impact of rising property taxes in his analysis. I purchased a 2-unit in Humboldt Park that was in foreclosure. The prior owner’s property taxes had gone from $1200 to $4500 over three years and they could not afford it. They had other problems too, but there was no doubt from them that rising property taxes were a contributor.
@hd,
been to housing court once before, for my dad’s building. And yes it does suck. His building is in a decent but not that great area so we get not that great tenants there.
The key is due diligence and excessive screening. The learning curve is steep. Luckily for me I’ve been fortunate to grow up learning. I actually grew up in on one the buildings that my parents owned, and still do own. Not everyone can get that kind of free education.
I’ll say it again, screening is key. I screen like crazy. Credit check, work & rental history. I also get a crimial background check, I check the sex offender registry, have a lawyer-friend pull Lexus/Nexus. Compare previous addresses, etc. One thing I get everyone once in a while is a bogus previous address/landloard.
I always cross check the address against CCRD to confirm the owner, and double check against whitepages for phone numbers, etc. ZABBAsearch also helps, it shows any addresses for individuals based on credit inquiries. Hell, I’ve even checked facebook/myspace before. Had a guy once that had a photo album called ‘move out party’; I turned him down.
At my dad’s building I had someone pop on a sex offender registry. It was quite awkward having to listen to the guy try to explain and justify it.
HD is right, lots of people thought they could be the next donald trump during the bubble. It will take a long time for “real landlords” to scoop up all this inventory
Tom(tfo), with your experience, i’m not surprised that being a landlord has worked out well for you. I’m glad it does because without people like you there wouldn’t be good quality rentals over the city.
But you’re right, screening is key. My landlord screens like hell too, but I bet he’s probably dangerously close to running afoul of fair housing laws. On the otherhand he claims only one eviction in 25 years of owning his building and he rarely has tenants who are behind (except now in this economy he has a handful who are a month or so behind).
The other issue right now is the large number of rentals available. Investors are snapping up two and three flats like hot cakes, all over the north side 2-flats are selling in the $200’s in places like rogers, albany, portgage, irving, etc. So those units are just going back on to the rental market, depressing rentals even further. These are interesting times we live in.
“My landlord screens like hell too, but I bet he’s probably dangerously close to running afoul of fair housing laws.”
For a smaller landlord, how would you ever prove it? If someone has 1 or 2 vacancies at most a year to rent, how would you ever prove discrimination? No one with the resources to do so ever bother with smaller landlords but even if they did, it would be nearly impossible to prove.
In some of the places around where we live, landlords rely extensively on word of mouth as well, which also has a disparate racial impact given who they know. I don’t know how much discrimination goes on, but it has always struck me that a small landlord could do this with impunity as long as s/he did not make any outward statements.
My landlord screened a lot too. I’m also fairly convinced our rent is significantly below market because we are pretty ideal tenants.
“I bet he’s probably dangerously close to running afoul of fair housing laws.”
As long as he’s a total hard-ass on everyone, and doesn’t reject (black/orange/green) people or parents while approving DINK-WASPs with exactly the same income/credit/rental history, there shouldn’t be any issue.
Just prior to checking today’s CC posts I was talking to someone about rental property in Chicago. They had been a landlord in another part of the country before and it had made good financial sense for them. When they moved here they couldn’t get the numbers to work. As I explained it to them…Chicago has this landlord bias – it’s part of the culture and that elevated prices. Everyone thinks (at least used to) that being a landlord was the key to financial success.
Its a tough business, I’ve got a few buildings and it is literally a part time job.
Screening is key. Credit and Background but the biggest screening is checking previous landlord and rental history. Waiting on the right tenant is worth it rather than just trying to fill a vacancy.
@ johnny
‘Dr. Shilling missed the impact of rising property taxes in his analysis… property taxes had gone from $1200 to $4500 over three years…’
Well put! I just don’t get it why that elephant in the room never gets the much needed attention it deserves. Property taxes in Crook County are some of the highest in the nation, and a property owner NEVER knows what they’re going to be paying after a reassessment or two; it’s a total crap shoot that leaves you in total darkness with your financial future. Over the 20 years I’ve been in my house, I’ve gone from $2800 per year, to $14,000 per year. True the value of my place has gone up considerably in that time, but that’s meaningless number unless I plan on selling now, which I don’t. If your property is taxed at $4500 now, could it reach $7k, $9k, $10k, over the next several years? Of course it can and will. That’s real money you pay each year for the REST OF YOUR LIFE while you own… and it only goes up from there.
It will be interesting to see how property taxes play out here during the November election of county assessor, now that the temporary 7% tax caps have expired. CS may be more applicable to places like LA for example, where there are permanent caps in place (something like 3%), and the playing field seems much more level when coming up with their statistics; in Chicago it’s a meaningless study with too many flaws, but the media and government use it as gospel all the time. Very sad.
Dr. Shilling…. not CS. My mistake
“CS may be more applicable to places like LA for example, where there are permanent caps in place (something like 3%)”
Cali has a statewide cap of 1% (there are service districts that can bump up taxes a bit) of last sale price, subject to 1% annual increases in assessed value. So you wind up with the unfairness of a 10,000 SF house on 4 acres paying $4000 (based on a last sale in 1973 of $300k or something) while a neighbor with a 3000 SF house on 1/4 acre (who bought in 2006) is paying $20,000 (having paid $2mm). And, yes, altho those are made up numbers, there are *tons* of circumstances like that.
@HD
“The other issue right now is the large number of rentals available. Investors are snapping up two and three flats like hot cakes, all over the north side 2-flats are selling in the $200’s in places like rogers, albany, portgage, irving, etc. So those units are just going back on to the rental market, depressing rentals even further. ”
these $200K 2-flats usually need alot of work, thus alot of money, thus increasing the final cost and the likely rental rates that need to be charged to cash-flow. If not then they are crap-holes. I’m not competing with crap-holes. Though on economic principle, an increase in even crap-hole inventory will have some impact on nicer rental. Though one could argue that there in an increase in demand due to all the foreclosed owners now in the rental market.
I myself am looking for one of these crap-holes. Though I’m looking for the
@gocubs
‘Waiting on the right tenant is worth it rather than just trying to fill a vacancy.’
I think that taking the first person interested in the biggest mistake that people make. I have a few freinds and co-worker thinking about renting out their place so they can move. For the most part I urge them not to.
Sometimes two months rent is the difference between breaking even and losing money as a small scale landlord.
Personally, I don’t know what’s unfair anon (tfo) about using the purchase price of your house, regardless of when it was purchased, as your tax base.
I have a good friend who bought a modest ranch house (a dump at the time, and not prime location) in the Hollywood Hills about 15 years ago for $380k or something like that. Along comes the bubble, and neighbors are buying similar places (all highly leveraged naturally) for $1.8 – $2.3mm. Insane amounts, not really their money, but if it weren’t for caps (he tells me they are around 3%), he’d be taxed out of this house. All those years of fixing up your place, making the neighborhood a better place, and you’re forced to leave your home because some dude gets no-obligation financing and then walks away from the mess when it implodes.
Similar situation in MI where I have a cottage. We have caps of 3% give or take, and every year I know what to budget for taxes, regardless if drunk-on-credit buys a similar place for another insane amount and then jacks up the taxes (it happen all the time when things were too hot).
I pity the people who buy in up and coming Chicago neighborhoods, work their asses off to make it a better place, only to be taxed out of their home… or left tenantless.
I own a couple units also that I’m renting out. Purchase a place where you can basically screen by income (not a protected class under fair housing laws). If your have a property which commands a high rental price, you’re already screening out many of the deadbeats. Still have to do a credit check though. I’ve come accross a couple doctors and lawyers with high incomes but horrible credit.
“At one of our viewing, the current owner actually showed me an appraisal he had from 2006”
Showing an appraisal from 2006 is like if you’re middle aged putting a college pic of you on your online dating profile.
I think this data is hilarious as we frequently see wannabe landlords on here of two-flats wanting to buy a place and rent out the other unit for “mortgage help” even though the rent doesn’t come close to half the expected mortgage. Gary hit the nail on the head as well:
“Everyone thinks (at least used to) that being a landlord was the key to financial success.”
Too many clueless idiots with day jobs think being a landlord is easy as its mostly blue collar work and the people buying these places are mostly white collar professionals with desk jobs. They have no freaking clue what they’re getting into and they’re in for a financial & lifestyle downgrade (yeah if you’re on vacation in Cabo, or asleep at 3am on x-mas day and the hot water heater goes out it is your responsibility to get that fixed).
I am smiling watching people with these idiotic ideas and paradigms regarding owning multi’s get taken to the cleaners for their poor decision making abilities. Being a landlord should’ve NEVER become a status symbol, but for some reason in the perverted logic of the bubble many thought it was one. Ce la vie!
Bob – being a landowner has been a status symbol for thousands of years.
“As long as he’s a total hard-ass on everyone, and doesn’t reject (black/orange/green) people or parents while approving DINK-WASPs with exactly the same income/credit/rental history, there shouldn’t be any issue.”
Even if he were running afoul of the law, as long as he is QUIET and doesn’t make racial remarks to anyone nobody can prove that he is running afoul of fair housing laws. The only time I see landlords getting popped for that is when they let their tongues slip and make racial remarks. Its my guess the fair housing agency, like other government agencies, is reactive and not pro-active.
This also means going through the full process to verify the identities of the agents the fair housing agency might send out–as they have been known to do this.
Wicker – well then the people who adopt that paradigm in Chicago aren’t too smart. Especially if they have a mortgage against that land. They’re a debt slave as opposed to land owner.
@Bob
‘Too many clueless idiots with day jobs think being a landlord is easy as its mostly blue collar work and the people buying these places are mostly white collar professionals with desk jobs. ‘
totally agree; you can’t be an accountant that doesn’t know how to fix a leaking faucet and be successful. You’ll get killed by basic maintenance and repair issues.
being a landloard is not a make money quick and easy scheme…its work and it requires intelect and skill. But like anything in our society that requires intelect and skill, it has its benefits.
Having said that, I DO completely agree that in the last few years tons of idiots got into the ‘landlord businees’ with out a clue or a prayer. What they were counting on was a never ending appriciation. They didn;t care about loosing $300-$400 a month if they could sell for $100K a year or 2 later. Same as all those people who would overpay for cracker-box condos, expecting to make a killing at resale.
“he tells me they are around 3%”
They aren’t; they are around 1% of assessed value. And yes, I am (1) certain that I know better than your friend, w/o seeing his tax bill, (2) realize how that looks, and (3) still certain that I know better than your friend. If they are *actually* 3% of assessed value**, he needs a property tax lawyer.
*one caveat: They do increase assessments for some improvements. If he’s saying 3% of his $380k purchase price ($11,400/year), then his assessed value is around $1mm, b/t the 1% annual base increase and re-assessment for major improvements. This is certainly plausible.
**not possible. Assessed value may be wrong, but the tax rate isn’t.
“They didn;t care about loosing $300-$400 a month if they could sell for $100K a year or 2 later. Same as all those people who would overpay for cracker-box condos, expecting to make a killing at resale.”
I had a friend who bought 3 houses in florida (100% financed mind you) with this expectation… I told him to rent out his place but he said he couldn’t due to neighborhood law or whatever and he’ll just put it on the market when he can (366 days after purchase)
I knew this wasn’t going to end well, and it didn’t.
“Even if he were running afoul of the law, as long as he is QUIET and doesn’t make racial remarks to anyone nobody can prove that he is running afoul of fair housing laws. ”
Sure, sure. Especially for the landlord with 2 or 3 units.
But that wasn’t my point. I was assuming that someone in the appropriate enforcement office had a total hard-on for the landlord and was looking to trap him because of complaints about the hardass application process. Even in that case, if he’s a hardass to everyone and those rejected were affirmatively worse prospects than the accepted ones, w/o regard to race/ethnicity/children, then landlord would still be clear.
@anon
Proper documentation is key. Each application is assessed against a clearly defined (and most importantly written) criteria. If someone were to ever try to bring a fairhousing case against me, I actual have something to show that there was no bias in my leasing practices.
Plus it also helps that I’m not a racist prick in the first place.
“Showing an appraisal from 2006 is like if you’re middle aged putting a college pic of you on your online dating profile.”
Yep, it’s also like me showing off a December 2006 E*Trade statement before AIG and Citibank blew a hole in my portfolio (I am a moron) and using that to qualify for a loan in 2010. Sure, at one point the account was worth a lot, but its only value today is to offset capital gains. At least I didn’t buy on margin.
as for families/kids:
when I have a unit listed, I will get a call or 2 asking, ‘if I accept kids’. I’m always stunned by this. I didn’t realize that there was really that big of a problem for families looking for an apartment.
I’d rather have a couple with a kid instead of 2 lincoln-park trixies.
Yea,
What you really need to have as a landlord is good common sense, good people skills and great communication skills. Do unto others….
Realistic expectations are very important too.
We have great people in our building right now. Our kids play together and there is a really nice vibe. Plus my tenants are paying the mortgage.
I think Tom (tfo) contributed a lot of info to this conversation that I agree with.
Also Whoever mentioned the dip in multiunit value combined with insanely increasing property taxes is right on the money.
I don’t think it’s blatant racism when people violate the fair housing act – at least on the north side; it’s more for socio-economic reasons.
“I’d rather have a couple with a kid instead of 2 lincoln-park trixies.”
You obviously haven’t met too many misbehaved kids. When I was a kid I used to like to write on the walls, punch holes in the walls, and start fires, among other things. There’s always a gamble that you’re going to get an ADD kid like Bob used to be.
I’d MUCH, MUCH rather have the yuppie Trixie/Chad set because honestly people still living their college years can’t put nearly as much wear and tear on a unit as a misbehaved kid.
“I don’t think it’s blatant racism when people violate the fair housing act – at least on the north side; it’s more for socio-economic reasons.”
The economic part of socio-economic is not a violation of fair housing laws unless you’re a complete idiot about it and make it seem pre-textual. And the socio part just sounds like code (whether or not it actually is), like calling someone “urban”.
@anon (tfo) –
1% or 3% whatever… I guess the exact percentage doesn’t matter at this point. What matters is that LA has caps and Chicago doesn’t. Good luck to those that lack deep pockets.
Just don’t post your rentals on craigslist with disclaimers like “Blacks & Mexicans need not apply” and you should be fine… seriously…
Not quite that simple Sonies, although mostly on point. If word gets around to the government bureaucrats that a landlord is racist, they’ll send undercover black agents to ask about the unit. If then the landlord says the unit is no longer available upon seeing them or speaking with them on the phone they’ll send in undercover upstanding white agents to ask about the same unit. If it magically becomes available the landlord better have a good story as to why that is.
Best case scenario is as Tom said: have really stringent criteria. And if someone sounds ghetto on the phone you still might have to allow them to pay the application fee and then get declined via the criteria. Its easy enough to get ghetto people to not even apply: say things like “fax it in” and “$75 fee for application and CLEAN BACKGROUND CHECK” and “$1,000 security deposit”. And trust me these are a lot to a ghetto person so they’ll just go somewhere else.
The landlords that cater to the ghetto demographic do things like waiving the application fee and security deposit, etc.
I had no idea that families had protected status.
Bob, in this rental market, if your criteria is too stringent, you’re going to be waiting a while to find a good tenant. obviously some buildings and neighborhoods are better than others; but outside the green zone, in places where the two-flats are going in the 200’s like rogers, or albany, or brighton park, or portgage; at some point you’re going to have to balance quality tenant and rental price. People are doubling up this recession and moving in with friends, family, etc. there are an excess of rental units, and, lots of delayed household formation.
I found my tenant be looking around the craigslist housing wanted section. I didn’t even post.
I never thought to do that when I was renting.
I just found a listing for 2-flat with finished basement (front and back exits). 1449 N Springfield. I own a building on that same block that I bought in July 06 at the height of the market. Springfield is just a couple blocks east of Pulaski and this block is about 1 block south of North, so not the best area, but not the worst.
They are asking $185K for the building, which sold in 2006 for $380K. Owner is doing short sale and also has 2nd mortgage out for like $60K. What do you guys think it is worth and is it worth it for me to buy another building on the block. It is a relatively quiet block with mostly, lower income families, mostly hispanic.
The building is pretty nice from what I saw living on the block for 4 years (just moved to Oak Park in January). Rents are $900 for 1st and 2nd floor and basement rents for $700. The top 2 units are 3 bedroom and the basement is 2 bedroom. It is separately metered and has central air and heating. No garage.
My building is slightly smaller and has 3 bdrm 2nd floor renting for $900 and 2 bdrm 1st floor renting for $750 and basement renting for $600 (going to $650 in June). I pay the utilities for all. I also have 2 car garage which basement tenants get.
I should be able to qualify as owner-occupied and would put 20-25% down. Is this a buy and does it makes sense given my familiarity with the area?
“I should be able to qualify as owner-occupied”
You should be able to commit mortgage fraud?
Sure, why the hell not.
“I should be able to qualify as owner-occupied and would put 20-25% down. Is this a buy and does it makes sense given my familiarity with the area?”
Humboldt1–Yes. Also if you can get this building and it being cash flow positive you are effectively diversifying your cost basis, adding a winner to the current (assuming) loser. So yeah it makes sense.
If you’re really underwater on the 2006 purchase what I’d do is qualify & buy this one then default on the other one. Some call this unethical I call this business.
Oh and obviously Humboldt1 you’re going to need two separate LLCs if you’re going the default thing after buying the second building. But you should have a separate LLC for each building anyway.
Humboldt: How are you going to qualify as owner occupied if you live in Oak Park?
Sounds like it might cash flow. $185k x 75% = $138,750. Assume 6% gives P&I of $832/month. Depending on taxes, insurance, and utilities it may be ok. Rents are $1600 so that leaves around $800/month to cover taxes, insurance, and utilities.
“Also if you can get this building and it being cash flow positive you are effectively diversifying your cost basis, adding a winner to the current (assuming) loser. So yeah it makes sense.”
Common fallacy. These are two separate transactions. Each one stands on its own merits. Nothing can make up for the prior bad investment.
Rent is 2500 per month, not 1600. There are 3 units. I would occupy the basement for the necessary period and then rent it out. I am not looking to commit mortgage fraud or default on my other building. I honor my debts, no matter how stupid the situation.
Bob,
I have too many things going with my family financially to default without really lawyering up and as I noted above I am an honest guy, sometimes to my detriment.
“as I noted above I am an honest guy”
Actually, as you noted above, you’re a DIShonest guy–in case you forgot, you “just moved to Oak Park in January” and “should be able to qualify as owner-occupied” for the place on Springfield, while collecting rent on all three units. So you’re apparently willing to commit fraud, which is definitely DIShonest.
“Screening is key. Credit and Background but the biggest screening is checking previous landlord and rental history. Waiting on the right tenant is worth it rather than just trying to fill a vacancy.”
I would be very interested to know how you can accurately check previous landlord and rental history? For example, if a landlord has a terrible tenant who doesn’t pay and trashes the place, wouldn’t he give a glowing recommendation to a prospective new landlord in order to get rid of the tenant?
@ Bob –
“I’d MUCH, MUCH rather have the yuppie Trixie/Chad set because honestly people still living their college years can’t put nearly as much wear and tear on a unit as a misbehaved kid.”
I agree. I’d rather rent to tenants with pets than kids anyday.
And especially no single moms. (And I’m a woman, so go figure!)
I’m curious. Why no single moms? Would single dads be better?
Anon,
I would kick out the basement tenant and live in the place for the necessary months to qualify as owner-occupied. I lived on the block for 4 years, a few more months will not kill me.
I lived in my building and then rented out the unit I was living in.
I would look to do the same with this building. At a minimum, I would be taking in $1800/mth and then $2500/mth once I move out and rent out the basement unit.
I also have a tonwhome in Itasca that I lived in for 3 years and have rented out for the past 4 years.
Nothing dishonest about any of this.
What is dishonest is the many tenants I have had to kick out for non-payment and force out thru eviction, which has cost me thousands of dollars.
With good tenants and in a building for a reasonable price, I am looking to avoid much of this, though obviously you have some pain in areas like Humboldt Park, just part of dealing with poor people who have little incentive to pay their bills other than pride.
Also, my building is a 3-flat legally with the city, though it was sold to me as a 2-flat.
This place would qualify as a legal-3 due to front and rear access for basement unit. Many 2-flats do not have front and rear access in the basement.
@ CK
“I’m curious. Why no single moms? Would single dads be better?”
Through my own observations and empirical data, I’ve found single moms to have much worse habits such as:
– the revolving door of “boyfriends”
– lack of gainful employment
– poor credit
– cigarette-smoking
– general poor decision-making skills and poor judgment
– undisciplined kids – especially if they have multiple children by multiple baby daddies.
“Nothing dishonest about any of this.”
Be happy that I have nothing to do with your potential lender(s). I believe that what you are doing is dishonest. But you don’t have to care what I think.
“Also, my building is a 3-flat legally with the city, though it was sold to me as a 2-flat.
This place would qualify as a legal-3 due to front and rear access for basement unit. Many 2-flats do not have front and rear access in the basement.”
It’s not a “legal” 3 flat until the city says it is, and until you’re paying taxes on a 3 flat, not a 2 flat.
Can the owner live in the basement, if it’s an illegally converted basement unit, that’s not on the books as a living unit, and still consider it to be “owner occupied”?
I’ve really got problems with dubious “legal” basement units. We saw guy in our area buy a 2-flat with unfinished basement. A few months later, we see a front door to the basement and concrete steps appear, with no permits, so we report it as an illegal conversion. City looks at it, alderman gets involved, and we find the new owner somehow got a document from the previous owner verifying that there was a 3rd unit, and thus it was deemed legal. We still wonder how much the new owner paid the old one to lie about that.
The main elephant in the room ladies and gentleman when investing in Chicago rental units is—— the excess amount of condos that were built during the real estate bubble years.
Even if a small percentage of condos (like 20%) come back as rentals, it is going to add to the rental market inventory. At the same time, Chicago’s population is not growing. Thus rent prices are going to go down and stay down for a long time. Any thoughts on this from the professional investors on this board?
Nick,
You have a good point regarding the high-end condo rental market, but this does not affect landlords like me in the poorer areas nearly as much.
We are buying properties for cashflow, not to flip. Even my 2006 purchase cashflows, albeit barely.
This is why the prospect of buying a better building on the same block (without a garage though) is very appealing to me.
I am looking to occupy basement to meet the law (Anon) but would look to move out and rent the 3rd unit once I am allowed, which I believe is a few months. I actually lived in my other building’s basement for 4 years before moving.
I don’t expect to be able to sell this building anytime soon but am excited about the prospect of making 1000 per month net after taxes, insurance, maintenance and P and I payments.
I know the blocks and the people. I would prefer Logan Square but have not been able to find anything that comes close to this cashflow.
Again, what do others think of buying building for 185k that has 2500 per month in rent? Taxes are 3500 btw. Even without basement, it still generates 1800 per month. Utilities except for basement are paid by tenants.
“I am looking to occupy basement to meet the law (Anon) but would look to move out and rent the 3rd unit once I am allowed, which I believe is a few months.”
It’s not “the law”, it’s your lender’s underwriting. I would bet that, if you read the terms of your mortgage carefully, occupying it with the *intent* to move out in less than a year would make it *not* eligible for “owner-occupied” financing terms. Honestly*, with the other building on the same block already as an investment property and you having moved out of that place *this year*, your lender would (almost) have to be being willfully ignorant to miss this.
But, as I said, you needn’t concern yourself with me, as I’m just some dude on the intertubez and not in the business of preventing anything.
*heh.
Most lenders are going to qualify it as an investment property. No u/w in this market is going to believe that you are moving from one multi unit to another multi unit on the same block/vicinity. What matters is the intent, not length of time in the property.
Occupancy fraud is one thing that banks are cracking down on harshly these days, especially on multi units.
Thanks, Russ, for the view from the front. Altho he would have a 6 month residency in OP intervening b/t his two stints in the basement, so maybe there’s a chance he slips it by.
And my point was that claiming “owner occupancy” for loan qualification purposes while your intent is to remain there only for the “minimum required” is not–strictly speaking–honest, whether or not one can get away with it.
Thanks Russ,
Makes me happy I did not lie about our ‘Intent’ to live in our more recent three flat purchase.
Humboldt1 has some interesting insights into investing in cheaper neighborhoods. I’ve never had to deal with an eviction in either of my buildings. Both came with one legacy problem tenant ( I used this fact to negotiate sellers down a bit). Luckily said tenants moved out of their own accord.
I don’t have the stomach to invest in buildings where one should expect to do evictions on a regular basis.
Anon,
Just be glad you don’t have to deal with poor people.
Just curious, the tenant that moved out still owes back rent of 500 and he is waiting on his tax return to be mailed to his former address. I would like to give him his check once he gives me my money and would meet him at some place like a police station with a cop buddy just to make sure there is no funny business.
If he doesn’t pay, when I get the check I will just send it back to the govt and let them reissue it which would really stick it to this guy as he would have to wait for it at his new address. I have changed mailbox key and have new tenants who forward any mail received to another tenant who manages the building for me. I am tempted just to drop it as 500 is not worth it for me.
What would you guys fo? This guy is a moron for not changing his address prior to moving out. Also, he gets in trouble with thestate if he files charges as technically he did not live there to allow his wife to qualify for 600 per month in food stamps. Talk about being not honest.
The guy agreed to give me 500 and then stole my stove after he moved out. I told him 500 and on saturday told his wife and son again 500 (at the same time I met the new tenants). I will stick to my word.
“Just curious …”
My advice is to be careful with anything relating to “interfering with US mail” (not a technical term), as that’s a federal crime. Even morons will get a bug up their ass and occasionally call the right person to cause you a problem. If I were doing that, I’d have *all* his mail in a box, not mention the check specifically, and step lightly.
As to the meeting at the police station, he’d have to be a major moron to do so, as you (theoretically) could have him arrested for theft of the stove.
And, from the sound of it, you seem to deal honestly with your tenants. But the lender is not “poor people” and how you deal with “poor people” doesn’t implicate your honesty with banks.
Humboldt1,
Your story just destroyed my preconceived romantic notions of landlording harmony. I thought that tenants were supposed to be quiet, pay their rent on time, and subsidize my mortgage. What gives?
@anon
-that’s the funny thing about ‘intent’, it can change and any moment.
This is the same guy who nearly blinded a guy when another man looked at her while he was drunk. The wife also called the police once for beating her, again while drunk. She later dropped the charges after he spent the night in the drunk tank.
Maybe I should just drop the $500 and return his mail to sender. I am not giving him his tax return unless he gives me $500. That is where my niceness ends. I will not be meeting him alone, whether it is at a police station or not. The last thing I want is some deranged former tenant starting a fight with me, though he is 5’6, 140lbs and I am 6’2, 190lbs. Even if I kick his ass I lose.
“Maybe I should just drop the $500 and return his mail to sender. I am not giving him his tax return unless he gives me $500. That is where my niceness ends. I will not be meeting him alone, whether it is at a police station or not.”
Yeah, you’d never get the dude to meet you at the popo house. Return to sender is prob your safest course, and holding his return check “hostage” is as much a loser for you as getting in a fight with him.