Want to know how to buy multi-family homes in Chicago, but don’t want to risk going broke in the process? Well you’ve come to the right place! Using the experience of the investors I’ve worked with as a realtor (both good and bad), as well as my own personal experience, I’m going to give you 3 tips to make sure that any real estate that you invest in will become profitable.
Buy at a discount
My first tip may sound like common sense, but it is the biggest way that investors make sure that a deal is profitable no matter what happens after you buy. Make sure you buy the property at a discount! Remember that old saying when it comes to investing: Buy Low, Sell High. Buying at a discount will give you that cushion that you need just in case any unexpected expenses pop up out of nowhere.
Now, keep in mind that buying a property at a discount doesn’t mean that it has to be lower that the seller’s asking price. The reason I say this is because a lot of investors (both new and experienced) feel that in order to get a deal the have to bid far below the asking price, no matter what. If you do this when looking to buy multi family homes in Chicago, you will have a very tough time finding a deal. There is a lot of competition in Chicago for investment property, so it isn’t out of the ordinary to see properties sell for over their listing price.
For my first investment property, which was a foreclosure, I had to bid $20,000 over asking price to get it! To this day, that was still the best investment I ever did as far as profit, because all the properties in the area were selling at a discount. Now the market isn’t as crazy as it was when I did that, but you get the picture.
To make sure that you are getting a deal, have a realtor compare the price of the property you are interested in to similar properties in the area that are for sale, as well as properties that have already sold, so you can see what people in the past have paid for it. The prices of multi-family homes in Chicago can vary greatly from neighborhood to neighborhood, so make sure to look in the same neighborhood when searching for comparable properties. If the numbers look good, don’t be afraid to go after it, because believe me, someone else will.
Make Sure Property Has Positive Cash Flow
When looking for multi-family homes in Chicago, you want to make sure that your property has positive cash flow. Basically, you want to make sure that property putting money into your pocket instead of taking money out of your pocket. To do this, you just need to add up the rental income from your property, and subtract your expenses.
Your main expenses are going to be your mortgage, repairs, and any utilities you are responsible (such as the water bill). To estimate your monthly repairs, just take 1% of the purchase price and divide it by 12. For example, for a $200,000 2 flat, the monthly repairs will be 2000 /12 months, which is roughly $168 per month.
Once you put these numbers together and they work for you, then you are good to go. With multi-family homes in Chicago, while the cash flow for a 2 flat won’t be a ton (don’t expect to pocket over $1000 per month), you should still be clear a nice monthly amount.
Tenants
Last, you need to make sure that your source of income, which are your tenants, is good. No matter how nice your property is, tenants can be the difference between great rental property and that property being a constant headache.
There are ways to help you weed out a lot of potential bad tenants. First, make sure you are properly screening all potential tenants. I don’t care if they were recommended by friends or family, you should still screen them by running a credit & background check on everyone that wants to apply.
Running credit & background checks are very easy & painless to do, and requires no money out of your pocket. What I did was sign up for a free account at smartmove.com, which is ran by transunion. From there, I send any potential tenants a link for the credit & background check, and that’s it for your end. Your tenant then pays them the background fee directly, and you don’t have to worry about collecting any sensitive information.
What I have found is that most tenants who have something to hide won’t even bother to go through this process, because they don’t want to waste their money paying for the fee. This is great for you, because it weeds out the potential bad tenants and saves you a lot of time and money!
If you have any questions, or need any help buying multi-unit properties, feel free to reach out to me. Thanks and have a great day!