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Didem Greco
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Chicago, IL  60625

More than just your home
What do I need to know about multi-unit, owner occupied buildings and should I buy one?

Long ago, Chicago’s storied development made available a unique living and investment opportunity, the residential multi-unit building.  Separate from its much larger cousin the commercial apartment building, the residential multi-unit building is consider four or less separate apartments in one building.  However, most common in our Chicago neighborhoods is the three or two flat.  By far, the two flat is the most prevalent.  In fact, over 30% of Chicago’s residential housing stock are two-unit buildings and in some of our vibrant north side neighborhoods the two flat accounts for nearly two thirds of the buildings.  The two and three flats rival the bungalow for iconic status and their handsome early 19th century architecture is often displayed as grey, red or even brownstones. 

Most residential multi-unit properties were developed and built in the early 19th century to serve the up and coming middle class as Chicago led into the age of industry.  They offered an opportunity for the individual working class person of both “a comfortable home and a good income on the investment”.  They were in most cases a bridge to the “better life”, a way up from tenant living to ownership on one’s path to single family residence with its more complete benefits of solitude.
Today, Chicago’s north side multi-unit residences, especially the iconic two flat, offer the same opportunity and for some maybe even more benefit and flexibility.  At DCG Realty we routinely counsel home buyers to consider the owner occupied, multi-unit residential opportunity.  As one considers home ownership not only as their shelter and location but also as their joy, their investment, their security and their future, the multi-unit building offers much in return.

Its greatest advantage over the condo or single family home is undoubtedly the increased return on investment.  Not only can one who finances their home expect relatively strong appreciation, they can also expect a much faster increase in equity.  This is because essentially the renter is helping to pay the mortgage.  At low interest rates and a 20% down payment, this can become quite the boon for the owner occupant of a multi-unit building.  Consider the numbers.  In 2017, many two flats in Chicago’s north side Lincoln Square neighborhood sold for around 600K.  At the same time a two bedroom apartment in Lincoln Square had a median rental price of $2000.  A conservative figure for interest rates from banks loaning money on multi-unit buildings these days is 4.25% on a 30 year fixed.  At 20% down, that’s a monthly mortgage payment of $2460.  That means that the nice folks that rents the two bedroom upstairs is paying nearly 80% of your mortgage every month and the longer they do that the more of the house they buy -  for you!  But, you say, there are taxes, they are horrendous and they keep going up especially in Chicago’s north side neighborhoods.  What better tax shelter to have than one in which you live.  That typical 600K two flat may come with $8500 yearly tax assessment, add on the cost of insurance – about another grand a year and that gives a fully loaded monthly living cost of $3251.  So, on a cash flow basis the owner(s) is living downstairs in their  two bedroom apartment for $1251 per month – 38% less than those nice folks upstairs, who by the way,  are helping to buy you a home.  And, as taxes increase rents will increase.  

There are other real costs to multi-unit home owning that at first glance may seem unruly like maintenance, after all relative to a modest single family home or condominium, one has another whole apartment to maintain.  From this perspective, it’s the do it yourselfer home owner that really benefits.  If one is willing and able to tackle the ever present maintenance and repair requirements of any building they can minimize costs.  However, all considered, there is a lot of room in the multi-unit numbers to cover the extra cost of maintenance relative to the other types of real estate.  And, when considering maintenance costs also consider the favorable tax implications.  Depending on one’s tax situation and their accounting preferences, revenues from rental income can be offset with things like costs of repairs, maintenance, capital improvements and depreciation on the rental portion itself. 
But, all is not perfect in the world of owner occupied multi-units; else everyone would be doing it.  There is a definite quality of life component that comes down to one’s own living objectives and constraints.  Simply considered, being a landlord is another job.  It’s not completely accurate to say that the tenants upstairs are paying for you to live.  Rather, the home owner is earning it through the service of being a good property manager: fixing things when they break, keeping common areas clean, being a thoughtful neighbor and finding and keeping good tenants.  One thing is for sure as a landlord, payback is directly related and the work is made easier by the efforts to find and maintain good tenants.  At DCG Realty we have direct experience with property management and investing and can help navigate the process of being a landlord.  The sharing aspect must also be considered.  In an owner occupied building, the folks upstairs are not just your tenants, they are your neighbors and they literally live on top of you (or below you if you so choose.)  In this regard, the single family home has the multi-unit beat.  You may not always feel like sharing that pretty little urban backyard.  Conversely, you may not feel good about limiting your neighbor’s outdoor space to their small back porch.

This brings us to the last beneficial consideration, flexibility without addition.  With urban living, adding more space or repurposing use can be impractical or often legally forbidden.   But with the multi-unit building, especially the two flats of Chicago’s north side neighborhoods, duplexing down into the basement area is a common practice albeit a costly one and when the bridge has been crossed and your own family wants that single family solitude, it is absolutely a legally acceptable process to convert into a single family home.  Both scenarios directly add to the marketability and equity of the property.

DCG Realty has experience in all of the aspects of multi-unit home ownerships discussed above because it’s not only our business, it’s been our lives and we’ve lived it here in Chicago’s storied and energetic north side neighborhoods.   Contact DCG , bring your thoughts and ideas and we’ll counsel with you to reach objectives in real estate you may never have thought possible.

Charlie Greco
Managing Broker
DCG Realty