By Heidi Stevens
June 28, 2009
Bhattarai, 34, just bought a two-flat in Logan Square for $265,000, which he's rehabbing himself: repairing leaky pipes, patching drywall, pulling up old carpet. "I have no training whatsoever," Bhattarai acknowledges. "YouTube has videos for everything. I just watch and go along."
Once upon a time, two-flats were a popular way for new buyers, such as Bhattarai, to get their feet wet in Chicago real estate. Buy a building that stretches your budget a bit, rent out one floor to help pay your mortgage, sit back and watch your property appreciate. Then came the late-'90s, when speculative buyers started gobbling them up and renting out both units, looking to turn a profit -- short- or long-term -- on their investment. And when the bubble burst?
"Those were some of the first buildings people were willing to walk away from," says David Hanna, president of the Chicago Association of Realtors. "The number of foreclosures on those buildings has really been high."
Leaving prices relatively low. "You've got some two-flats selling today for the same price they sold for in 2000, 2001," Hanna says.
Financing a two-flat, meanwhile, is relatively easy, especially for owner-occupants. A Federal Housing Administration loan (only available to purchasers who plan to live in the building) allows you to put less than 5 percent down and apply the prospective rental income to your own income, so you may qualify for a higher loan than you would buying a condo or single family home.
Are two-flats emerging as real estate's comeback kid?
"They're a phenomenal investment right now," says Stephen Northey, Koenig & Strey Realtor and owner of an Edgewater two-flat. "It's a great way to get a leg into a better neighborhood than you could ordinarily afford."
Northey and his wife, Debra, have owned their two-flat for five years. Within that time, they've rented the top floor to three different tenants.
"It's a much more flexible investment than a condo or single-family home," Northey says. "You live there and collect rent, and even if you outgrow it, you can rent out both floors and still borrow against it to buy a single-family or something bigger."
For now, even with the addition of their daughter, Annika, 3, to the mix, Northey says the arrangement works well.
"It has the vibe of a single family home, rather than some 40-unit building with 40 people using the same front door," he says. "And it's an excellent community for us."
Back in 1994, Steve Hobbs bought a Wicker Park two-flat for $150,000, fixed up the first floor and quickly found a renter.
"I rented out the first floor for $900 a month and my mortgage was $1,300," Hobbs says. "My wife and I were living in the top floor for $400 a month."
They've since moved to Sauganash, but he and his wife held onto the Wicker Park two-flat as a rental property. "Now it generates about $3,200 a month, so it's sort of been a little ATM for me," he says.
"I have no control over my 401(k) or mutual funds," says Hobbs, who works as a Baird & Warner Realtor. "These guys are managing my money for me. Over the next 20 to 30 years, quite frankly, I feel like I have more control over my property investments than I do with my money at TIAA-CREF."
And when his kids enter high school in a few years, Hobbs and his wife are planning to rent out their Sauganash house and return to the two-flat as their main residence so the kids can take the CTA to Latin School, where his wife is employed and his kids are enrolled.
"I personally would not spend my money on a condo if I had the ability to buy a two-flat," Hobbs contends. "If I'm looking to spend 200 grand, I don't want to live in a condo where people are going to tell me how to live. I'd rather pay 265 or 350 and get a tenant to cover the difference and me be the person who tells them how to live."
Of course, the landlord role comes with responsibilities as well. But that's never bothered Hobbs.
"The reality is, if you have a condo and your toilet backs up, you still have to call a plumber," he says. "So maybe you're calling a plumber for two toilets now."
Northey takes a similar approach. "I'm definitely not handy," he says. "I'm willing to try anything, but really, it's not brain surgery.
"A lot of it you can teach yourself or you get out and meet your neighbors," he says. "I'm really fortunate because the guy down the block is an electrician for ComEd. The guy across the alley is a union plumber."
And there's always YouTube, as Bhattarai is learning. While his immediate concerns are drywall and functional plumbing, he hopes to eventually turn the attic into a master bedroom for himself and his girlfriend, rehab the first floor and take advantage of the building's "huge" basement.
He plans to rent out the first floor beginning in August or September. Living three blocks from the Blue Line and walking distance to the Bucktown bars, he's confident he'll have no trouble finding tenants.
"When I bought this place I didn't look at what is, I looked at what could be," Bhattarai says. "I saw a lot of potential."
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