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Author: Mark Ainely | Partner GC Realty & Development & Co-Host Straight Up Chicago Investor Podcast
On a recent Straight Up Chicago Investor podcast with Jason Wagner, we dug into who should actually be buying right now. The episode felt timely because I have been getting this exact question nonstop. People want to know if they should be aggressive and chase deals, or sit on the sidelines until they have more clarity.
I get some version of this every year. But I am hearing it way more right now because the market feels funky. Inventory is tight, rates have been bouncing around, and a lot of folks are frozen waiting for some kind of sign.
So let me give you my honest read. I am going to break this into the two groups of people who ask me the most: house hackers and pure investors. And I am going to tell you straight who should be buying and who should probably sit this one out.
Key Takeaways
Chicago two to four unit prices were up almost 9% year over year as of May, and that was the 30th straight month of gains. This is not a one month blip.
Supply is sitting under four months, which still makes this a seller's market. For perspective, we hit 12 or 13 months of supply back in 2008.
House hacking still works if you have a long term horizon and real reserves. It does not work as a short term play.
The fastest way to get burned right now is overpaying for a property with hidden deferred maintenance just to get a deal done.
Sitting on the sidelines another full year is itself a decision, and it is usually a costly one.
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The Market Is Funky, But the Fundamentals Have Not Changed
Statistics can move in a heartbeat. Rates can jump. Something can happen overseas. None of this is a guarantee. But the numbers should still be the foundation of how you make a decision, not a feeling you got from one bad listing.
Like I said, a lot of the data I am leaning on here comes from Jason Wagner and the Wagner Report over at Greystone. He has it dialed in now where you can drill into specific neighborhoods that actually interest you. If you are serious about Chicago, go subscribe.
Here is what the two to four unit space looks like. Going back to May, prices were up almost 9% year over year. And that is not an anomaly. That was the 30th consecutive month of positive growth. For two and a half years straight, prices in this segment have just kept creeping up.
Will they ever come down? Sure, that is possible. It is in the cards. But right now there is still a massive gap between supply and demand. Months of supply on these buildings is under four months. It is a little over three. That means it would take roughly three months for everything on the market to clear if nothing new got listed. That is a seller's market, plain and simple. When you start seeing six or seven months of supply, that is when things shift. In 2008 we topped out around 12 or 13 months. We are nowhere near that.
And if you are house hunting in the neighborhoods house hackers love, North Center, Lincoln Square, that type of pocket, you are looking at more like one to one and a half months of supply. It hits the market and it is gone.
I do not see that changing in a big way. It can cool off. But the core fact is we have far more demand than supply. So if you ask me whether the price will be higher or lower a year from now, I would bet a lot of money it is higher. The inventory problem is not going away. Nobody is building a bunch of new two to four units. And no seller sitting on a 2.5% interest rate is rushing to give that up. Those things do not change quickly.
House Hackers: Who Should Buy
House hackers have an advantage almost nobody else gets. You can buy with 5% down. You can get into a million dollar building for around 50 grand out of pocket. That is a powerful entry point.
The flip side is you are highly leveraged. You are probably not cash flowing on day one. So this only works if you have a long term horizon and you can ride out whatever comes your way.
If you buy in an A plus location and you do not overpay, the building will perform for you. Your tenants pay down your debt. Time does the heavy lifting. That is the whole game. You just have to be able to weather the storm long enough to let it play out.
One more thing in your favor right now. These house hacking loans are fixed rate. Back in 2008 you had negative amortization, you had wild adjustable rate products, you had programs where you literally picked your payment every single month. One lender was handing out more than the value of the house on day one. That is not what is happening today. Your rate is locked. That stability matters.
House Hackers: Who Should Not Buy
Here is who I would tell to wait.
If you are planning to move in a year or two and you do not intend to hold the asset, do not do this. Treating a house hack like a short term play, almost like a quick flip, does not work. The numbers need years to mature.
The other person who gets hurt is the one who goes in way too thin. No reserves. Banking on "I'll just refi in two years." Usually it is someone in their twenties with no cushion, and then they get slapped with a $20,000 expense they did not see coming. That is exactly where this falls apart. If you have to partner with someone to build a reserve cushion, do it. Just do not go in with nothing.
The Condition Trap Nobody Is Talking About
This is the part I want you to really hear, because I have already watched it almost happen a few times in the last couple weeks.
Because inventory is so tight, sellers can get away with charging more, and they can also unload their dog properties at prices those buildings do not deserve. I watched a couple of house hackers get things under contract recently. Luckily we talked first and walked the inspection together, and they backed out. One of those buildings had roughly $70,000 to $75,000 in deferred maintenance that was going to hit inside the first 12 months. Old hot water heaters. A boiler on its last legs. A roof where you could already see shingles going, which usually means more problems right behind them.
Maybe "crap hole" is too strong a word. But they were about to buy a pile of problems they had not priced in. Your equity next year will not make up for the $40,000 in tuckpointing you turned a blind eye to during the inspection. Ignoring a problem does not make it disappear. That parapet wall is still there waiting for you.
The worst outcome I see in this business is someone buying a bad property, getting discouraged, and quitting the game entirely. Often it is not even their fault. They had a bad broker who did not educate them. Do not let that be you. Sellers get to list their dog properties at a premium right now. That does not mean you have to be the one who buys them.
Forget Dating the Rate
I never bought into "marry the house, date the rate," and I still do not. My reasoning is simple. Rates are far more volatile than pricing. I know that sounds funny because the two are tied together. When rates move, pricing moves. But if you ask me where rates will be a year from now, I am not confident. Where I am confident is on the supply and demand side.
Honestly, interest rates are no different than your taxes going up next year, or a wave of insurance adjustments, or some catastrophe nobody predicted. You are always going to be dealing with something. That is real estate. You do not stand on the sidelines forever waiting for a year with zero variables, because that year does not exist.
And one more reason I am not panicking about a crash. Rents are stable, and I think they still have room to run. Going into 2008 and 2009, there was barely a rental market because everyone was buying. That is not today. On top of that, the credit markets are still responsible. Lenders are not handing loans to just any Yahoo who walks in. I am sure defaults tick up the longer a bull market runs, but the irresponsible lending I see today is maybe 10% of what I saw in 2008, and I was in the middle of that mess. Tight lending also dictates who defaults and which areas actually get hit if things turn.
Pure Investors: Be Honest About the Deal
This one gets harder.
I am still a believer in value add. But I do not think everyone needs to chase the home run. If this is your first project, level set your expectations. Find something that may not deliver the big BRRRR pop where you pull every dollar back out, but gets you in the game so you can start learning and work your way up. Too many people freeze because they think "if I can't get all my money back, I won't do it." That mindset keeps you on the sidelines forever.
There are so many ways to make a deal work. I was going back through some of my own deals to prep for this, and the list is long. Zoning changes. Clearing violations. Adding an addition. Adding a bathroom. Some of those are riskier than others, but plenty of them are light lifts you can handle for under $100,000 of work.
The point of a BRRRR is to create equity so you can recycle your cash and scale faster. There are deals out there right now where you could BRRRR and leave 10% in all day long. And even if you leave a little money in, remember you should have built real equity through the rehab. You are not in the same position as someone who just put 10% down and walked away with nothing.
If inventory is so tight that you cannot find the perfect deal, maybe you leave more money in on a different deal. Maybe you do two this year instead of ten. That is fine. Zoom out. Where do you want to be in five years? In ten? Then work backwards. Because if you sit out another year, and then another, you are not helping yourself get there.
You Can Almost Always Refinance Residential
Here is the reframe. If you are chasing 100% of your money back on every BRRRR but you buy nothing this year, you are actually worse off than the person who bought one or two properties, left 10% of their cash in, and figured out the rest next year.
The beautiful thing about residential lending, unlike commercial, is you can almost always refinance later. Maybe you negotiate a friendly prepayment if you are using a DSCR loan. But with traditional lending you can refi at basically any point down the road. That flexibility is a gift. Use it.
So, Should You Buy?
If you have a long term horizon, real reserves, and you are disciplined on condition and price, the play is still very much there. If you are short term, thin on cash, or about to overpay for a building full of hidden problems, slow down.
Do not buy a bad deal just to say you did something. And do not freeze forever waiting for a perfect market that is not coming. Both of those are how people lose.
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Frequently Asked Questions
Is now a good time to buy a two to four unit in Chicago? If you have a long term horizon and reserves, yes, the fundamentals still favor buyers. Prices have climbed for 30 straight months and supply is under four months, which keeps it a seller's market. The catch is you have to buy the right building at the right price, not just any building to get in.
Should I wait for interest rates to drop before I buy? I would not build my decision around rates. Rates are more volatile than pricing, and waiting for the perfect rate usually means missing the lower price you could have locked in today. Your loan is fixed, and you can refinance later if rates fall.
How much do I need to house hack in Chicago? With a house hacking loan you can put as little as 5% down, which can mean roughly 50 grand on a million dollar building. The bigger number to plan for is your reserve cushion, because going in too thin is the most common way people get hurt.
What is the biggest mistake buyers are making right now? Overpaying for a property with hidden deferred maintenance. Tight inventory lets sellers move their worst buildings at a premium. A building with $70,000 in problems coming in year one is not a deal, no matter how good the equity story sounds.
What if I cannot find a deal because inventory is so tight? Adjust the expectation, not the goal. Maybe you leave a little more money in, take a lighter value add, or do fewer deals this year. Sitting on the sidelines for another full year is the one move that almost never pays off.
Don't Go At This Alone!
Buying right in this market is part numbers and part knowing what you are walking into. That is exactly what we do every day. At GC Realty & Development we manage around 1,500 units across Chicagoland, and we have walked thousands of inspections, run the deferred maintenance math, and helped investors avoid the buildings that look like a deal until you open the boiler room. Whether you are house hacking your first two to four unit or scaling a portfolio, you do not have to figure it out by yourself.
