Thinking about buying multi family property in Chicago? Multi-unit properties, such as a 2 or a 3 flat, are a great way to make some passive income while building wealth through the equity of the property at the same time! However, to make sure that you are able to buy a good property, here is what you need to do BEFORE you start looking at properties.
Save Money
In order to invest in real estate, you first need to get the money together to invest. While there are a lot of things out there (from conventions to commercials) promising to show you how to buy property with no money down, the truth is the money needs to come from somewhere. Either it is coming from you or it is coming from someone else. If you can convince someone to give you the money to buy a multi-unit property, then good for you! Otherwise, like most people starting out, you are going to have to get the money together yourself.
To buy a multi-family property in Chicago that is in move in ready condition, I recommend that you should save at least 10,000. While this number isn’t set in stone, having this amount on hand will make the process a lot easier for you, and can save you money in the long run in the form of lower mortgage payments.
For one, having that amount of money will make you look a lot better to your lenders. The more money you have in the bank, the less risk you are to the lender. The less risk you are to them, the more money they will lend you.
Next, in order to buy a good multi-unit, chances it will cost you at least 200,000 in the Chicagoland area, no matter what neighborhood you in. In order to get a loan for 200,000, you will need at least 3.5% of the purchase price, which is 7000. That only leaves you with 3000 left over, which can disappear very quickly when dealing with real estate. Now do you get why you need to save up the money? And that’s not even including closing costs!
Lastly, the more money you can put in as a down payment, the less your mortgage payment is going to be. Over a 30 year span, during your mortgage you will be paying the lender a lot of money in the form of interest. Therefore, the more money you use as a down payment, the less you owe the lender over this 30 year span. Cutting your mortgage payment by 100 a month can save you 10’s of thousands of dollars over time!
Build Your Credit
The next thing you need to do is make sure that you look good to your lender. Lenders love to look at not only your credit score, but how much debt you have overall. A good way to take care of both of those at a same time is to work on paying off any debt you have, such as credit cards & any loans.
What does your credit score need to be in order to qualify? For an FHA loan, you need at least a 580 credit score. However, they will give you a very high interest rate, which means a higher mortgage payment. The better your credit score, the lower your mortgage payments will be.
How can you increase your credit score? The biggest thing you need to do is pay off all of your outstanding debt, and make sure that you have no late payments. Once you have the late payments caught up, start focusing on paying off all the balances of your credit cards or other loans. Also, here’s something that you may not have thought about: Do not cancel any of your credit cards once you pay them off. Canceling any credits cards will actually hurt your credit more than it will help it. Creditors & lenders want to see that you can handle having access to the debt and not go overboard with it. Crazy how that works, right?
Please feel free to reach out to me here with any questions or comments. Thanks and have a great day!
I was looking to buy a 2 flat in like a year or two and I am unsure about the process I have the money and credit.
Hi Corey, Your very first step should be to find a mortgage lender (such as your bank) and work on getting a loan. Feel free to contact me at 773-520-2318 and we can talk more about the steps, thanks!