For those investing in Chicago and I'm just gonna blank it is, you know, the whole MSA. What are you know, you mentioned the house. He's going to be a very good strategy. What are other things that you've seen work in the city that you think man compared to other MSA is this is a great market for strategy X?
- Chicago has more two to four units than at least per capita than I think almost every other city. I've seen a stat somewhere that that's you know, it just has a ton of two to four units compared to most cities.
- Two to four units is a ripe opportunity. Now, I know a lot of people look at MSA level data.
- I'm a big data guy myself. But if you are investing in two to four units, I think that is probably the best opportunity because, one, you have small landlords.
OK. So you have landlords who are not as sophisticated. And what I mean by that is you have mom pop everyday people who are, you know, landlords and at a certain point maybe they get burned out. Maybe they have a kid. Their lifestyle changes, they move. Whatever the case may be, they're no longer interested in being a landlord. So there's a there's a lot of opportunity to get good deals and find properties. So part of it is just inventory and understanding what's out there, because there are a lot of two to four units.
- Not everyone wants to be a landlord
- There's opportunities to grow from that perspective because you can house had that gives you even more flexibility as far as options to get into real estate.
- The two to four units because from a financing standpoint, you can still qualify for those residential loans.
FHA loans, you can get 30 year terms as far as the length of the loan, you can get really attractive financing. So if you can go in, lock up a property for 30 years, especially today, where interest rates are in the 3s, if you can go and get a 30 year loan with a three point four percent interest rate or something like that, that's crazy. And lock that up for the next 30 years. That gives you a lot of flexibility in your strategy when you sell what you want to do to the property, you can do. You know, when I talk about the strategy, part of it is the the actual property.
And then the second part is what's your business plan? So in this case, I'll go back to the first property, you know, our first property. We recognize that rents were below market value. And the reason I know this is even as a newbie, when I'm starting out, the thing it was really clear to me was the first or had two bedrooms. The second floor had three bedrooms and the first floor was renting for one hour for fourteen hundred and a second was renting for twelve twenty five. So I said so a three bedroom in the same duplex is renting for less than a two bedroom. Pretty sure that one is undervalued. Right. And they both need a little bit of work, but the upstairs needed more work. So we went in, we put in central heating air, renovated the kitchen. You know, we did some different work to it. And when we lived in, it was owner occupied unit. So by the time we we moved out, we were renting it like nineteen hundred I think, or just under two thousand dollars. And then the first where we were again sixteen fifty for that. So you know we created equity, we created value there as well as buying in the right location. So you know, all those things really helped us, but not one.
We knew we were going to invest some money to renovate the property in the second property we bought, which was a three unit and a video. We did not do that. There we looked at the rents and we also realized that in comparing the rents in place to other rents in the area, we felt the rents were a little below market value as is. So we didn't do anything. We waited for one of the units to move out. We just painted the unit and we advertise it for one hundred fifty dollars higher rent and we got it. And that was it. You know, we got it off market from our from our agent and from just knowing that just doing our market research and holding it, we're able to create equity because we're able to buy it.
Sometimes your business plan is really important, too, because the second property, I didn't have to inject a whole bunch of capital. I think we spent over a life of owning that property. I don't think we put in more than five thousand dollars into it and we were able to sell it for, I think, one hundred and forty thousand dollars increase over what we bought it for. So, you know, just to give you some context on how important strategy is being able to recognize an opportunity and a molding the two together.
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