Before you buy a two flat, you should consider some of the various factors that will make it a stable long-term cash flo

Before you buy a two flat, you should consider some of the various factors that will make it a stable long-term cash flowingproperty. I have highlighted some of the more important ones for you below:

Property Taxes – Your two biggest expenses every year will be property taxes and interest expense. If you pay cash, then yes, you will not have to pay interest expense. Property taxes will vary greatly depending on the area you purchase in. So what I recommend doing before buying a two flat is to look at comparable neighbor’s properties to find out what they are paying. You must have an apple’s to apple’s comparison, so try to find another property with a similar floor plan, size, finish level, number of bedrooms and bathrooms as well as basement/attic (finished or unfinished). Also, you’ll need to check if there are exemptions affecting the tax amounts such as homeowner’s, seniors or senior freeze. If there are, you must add back the amount of the exemption for comparison.

If the comparable neighbor is paying a lot less, such as $1,000 or more, then this will affect your return each year. Check the subject properties’ tax appeal history to see if any tax appeals were made recently. If not, you may be able to appeal the taxes and have them lowered to a fair amount given the comparables but there is no guarantee.

Beyond checking your neighbor’s taxes, you should also compare taxes, listing prices and rents together when choosing which area to buy in. For example, if you are looking to buy a brick two-flat in Logan Square vs. Lincoln Square, you’ll see some very similar prices for a similar property. If prices are the same, then you should look at the rents. If rents are similar, then it comes down to property taxes. Once you know which neighborhood is better based on these factors, you can dig deeper into these other factors to be considered.

Distance from Public Transportation - Chicago is a great city for many reasons and one of the best reasons is access to public transportation. Public transportation in Chicago is important because it quickly connects it’s residents to different areas of the city. Being able to choose a neighborhood away from the central business district but still having easy access to it without having to own a car is a wonderful thing. That’s why buying property close to the CTAor Metra train stops can be a great investment. Your tenants will love to live close to the train stop. Each time one of your tenants moves out, you’ll be able to easily find others take their place. Not only will your apartments be easier to rent, they’ll also rent for more money.

In addition to that, development tends to occur most near the veins of the train tracks throughout the city. This means that if you buy property close to a train station in a gentrifying area, you will likely see bars, restaurants, grocery stores etc. come in close to the stop and close to your home increasing your properties’ desirability and rents. When I say close to the CTA and Metra trains, you should think three blocks. Five blocks away is still good, but ten blocks is about a fifteen minute walk and that can be tough in the winter.

Micro Market Trends - Before you buy a property, you’ll need to do some research on various neighborhoods that you may be interested in. Try to find out if crime is a problem, if it’s increasing or decreasing in that area. Look at permits for new construction if any. Look at the commercial tenants that have moved or are going to be moving into the area. Research household incomes, where are those trending? Talk to your alderman and community leaders about new developments or initiatives in the prospective neighborhood. Attend CAPS meetings. Give yourself the most amount of knowledge about that community before you jump in. Many people don’t do this which gives you a competitive advantage.

Tenant Base - Choose who you make money from. Do some research on who the typical tenants are in the area you are interested in. Find out where they work, what they want in a house and most importantly are they the kind of tenants that you want to rent to? Then, once you know who you are going to rent to, find out how to market to them effectively in your online advertisements, signs and or fliers. Be mindful of fair housing laws and follow them.

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