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The collapse of the Chicago two-flat

filed under: Buyers, Market conditions, Sellers, Two-flats posted on September 30th, 2009

This two-flat, on Rosemont Ave. in Edgewater, has been for sale for more than a year. Once priced at $669,900, it is now being offered at $549,900. Joshua Katz of Prudential Rubloff has the listing.

This two-flat, on Rosemont Ave. in Edgewater, has been for sale for more than a year. Once priced at $669,900, it is now being offered at $549,900. Joshua Katz of Prudential Rubloff has the listing.

Why do so many people like two-flats? If you live in one, it’s usually not much different from living in one of Chicago’s multitude of narrow, vintage rental apartments… but somehow many buyers have this fantasy that a two-flat is a great investment because it provides rental income.

What they don’t realize is that, in many cases, you can’t charge anywhere near enough rent to cover your mortgage. And that, in a nutshell, is why prices for two-flats in Chicago have completely nose-dived in the last two years. There are now hundreds of two-flat owners, particularly on the North Side, who have almost no hope of selling for the price — often $500,000 to $800,000 — that they paid for their homes.

In late September 2007, the median price paid for a 2 to 4-unit building in the city of Chicago was $315,000. During that same week in September of 2009, the median price COMPLETELY PLUMMETED to $49,000, according to figures collected by Midwest Real Estate Data LLC.

Of course, this is citywide data, which includes all sorts of distressed, boarded-up buildings in ravaged neighborhoods. Many areas like Edgewater, Lincoln Square, Andersonville, Lakeview and Lincoln Park still have plenty of two-flats for sale for half a million and up. The problem is, virtually nobody is buying them.

It’s a matter of math: If you take out a mortgage for $500,000, you’re going to be on the hook for at least $4,000 a month, including taxes and insurance. And since you’re probably only collecting $1,200 or $1,300 in rent on your second unit, you’re stuck with a big, cash-swallowing alligator.

Two-flats are only a good investment when they can be had for far less money. Which is why their prices are now falling and falling.

A few months ago, the Chicago Tribune ran a story heralding a “Two-flat comeback.” That’s because two-flats are now getting so cheap that the numbers actually make sense again… in some neighborhoods. One of the buyers mentioned in the story, for example, paid $265,000 for a Logan Square two-flat that he is rehabbing himself (read the full story here.)

It’s relatively easy to figure out whether buying a two-flat makes sense. Just do the math, calculating how much the mortgage, taxes and insurance will cost each month and how much you can likely charge in rent. If you can’t cover the total costs by renting out both units, don’t buy it.

Please check out my other blog posts at www.hometochicago.com!

Written by Sue Fox //

  1. Tnelson

    Hey, I read a lot of blogs on a daily basis and for the most part, people lack substance but, I just wanted to make a quick comment to say GREAT blog!…..I”ll be checking in on a regularly now….Keep up the good work! 🙂

  2. ChaNell

    Good, insightful read. Thanks.

  3. Chicago two-flat prices continue downward spiral « Home to Chicago

    […] written about this phenomenon before (see my Sept. 30, 2009 post, “The collapse of the Chicago two-flat”), but I keep seeing more sales data showing major price declines. Of the 47 multi-unit properties […]

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