Apartment buying: because college housing is expensive.
January 10, 2010 11:40 PM   Subscribe

I'm thinking of buying a cheap multi-bedroom apartment in the Chicago Hyde Park/north Woodlawn area to move into next year. I've never done anything like this before. Please give advice on how to search for and screen apartments and, if I went through with this, on the responsibilities I would face as resident and landlord.

I'm an undergraduate at the University of Chicago considering moving out of university housing next year. A plan my family and I are thinking about: my parents buy a multi-bedroom (probably 3?) apartment close to campus, I live in the apartment, and we rent the other bedrooms out at a price high enough to cover the mortgage on the apartment.

We'd like to buy a place no more expensive than $150,000, or cheap enough that having two tenants each paying ~$600-800 in monthly rent will cover expenses. I'm thinking somewhere in the rectangle created by S MLK Dr, E 51st St, S Stony Island/Lake Park Ave, and E 63rd St, the closer to campus the better. Screening tenants hopefully wouldn't a big issue because I'd be moving out with people I know and trust.

I don't quite know what I'm doing and I've just starting thinking about this, so please bear with me as I ask a number of stupid questions.

+ Is this a feasible/good idea?
+ What resources can I use to find apartments for sale? Most apartment-related web resources seem to focus more on renting. I'd like to avoid hitting the streets too often because it's damn cold outside.
+ What resources can I use to better get my head around the finances of this? How can I find out more about the exact responsibilities that this entails?
+ What challenges might buying a foreclosed property face?
+ When should I be doing things if I want to move in by early Sept 2010?

Thanks so much!
posted by flawsekno to Home & Garden (9 answers total) 2 users marked this as a favorite
Before everyone tells you what a terrible idea this is, let me just mention the following.

We live in a university neighbourhood. There are many, many students in the area in which we live. The house next door is pretty much what you describe. There is a very nice girl who lives there; the house is owned by her parents; she rents two rooms out to her friends. (Note: The house is empty during the summer, which is an issue you too will face.) But in general, I think it's working out for them although I have no idea what they'll do with the property when their daughter graduates and presumably moves in two years.

I have no idea if the money you're looking at is feasible, but I do not think doing this with no money down is possible these days. Do you have 30K? There are a lot of guides to buying a property; I'm sure more USians will have better links. Realtor.com has nationwide MLS listings and you can narrow that search by ZIP.

What I do know is that owning a house comes with many expenses above and beyond the mortgage. So this will work better if your parents see this as an investment into which they will need to pay ongoing monies. There will be insurance costs. When a plumber needs to be called, they have to pay for it. When a window needs to be replaced, they will have to pay for it. Never, ever assume the rental payments will cover the cost of the property.
posted by DarlingBri at 1:28 AM on January 11, 2010

Unless the apartment is super nice, $700-800 sounds way too high for a room in a 3 bedroom apartment in Hyde Park. Last year I lived in a 4 bedroom, 2 bath with heat included for $450/month, right next to the Treasure Island and the shops on 53rd St.
posted by puffin at 5:02 AM on January 11, 2010

Trulia is the best site out there for searching for real estate.
posted by thedanimal at 5:57 AM on January 11, 2010

no more expensive than $150,000, or cheap enough that having two tenants each paying ~$600-800 in monthly rent

I think this is the first part you need to research. I don't live in that area, but I imagine that you'd need a very nice place to get $600-800/month. I doubt that's the market rate for a $150k home, much less anything cheaper. You would probably be lucky to rent each room for 1/3 of your mortgage cost; 1/2 seems highly unlikely.
posted by pitseleh at 6:28 AM on January 11, 2010

A friend of mine did something similar while we were in college (his mom bought a ranch house near campus and he rented out the two other rooms). One thing you need to ask yourself is do you want to be a landlord and a student at the same time? These people might be your friends, they might just be random weirdos off of craigslist, but they will be your tenants and you are going to be adding all of that additional responsibility to your life. Also what will you do when you graduate? Are you definitely going to stay in Chicago, do you definitely want to stay in that part of Chicago? Granted it is not Greensboro (my example) but you are kind of tying yourself down pretty early in life by doing this.

Also keep in mind that college students are dirty and inconsiderate, your tenants will trash your place despite the best intentions of all parties involved, I suggest you just rent with friends.
posted by BobbyDigital at 6:52 AM on January 11, 2010

Seconding puffin's point that your imagined rent is extremely high-- I live in Hyde Park and pay just over $800 for a one bedroom apartment by myself. Take a look at marketplace.uchicago.edu. This should help you to gain a more reasonable idea of what rents in the area are like.

Think too about the responsibilities this will add to your life, and the way you'll feel about your home. The houses I lived in while I was in college were mostly places we felt very comfortable doing whatever we wanted, secure in the knowledge that they'd been college houses forever, and would continue to be so for a very long time. That meant that we knew it would be ok to paint walls ridiculous colors and write on them and we didn't panic when we accidentally poured almost a gallon of candle wax on the carpet. If these houses had been ours or our parents (especially if they'd been "investments"), we would have acted very differently and, I'll wager, had a lot less fun. Do you want to be the kid who is always trying to get everyone else to chill out because they might hurt the house? On the other hand, this might not be an issue, depending on your lifestyle and your parents' attitudes toward their property.
posted by dizziest at 8:03 AM on January 11, 2010

Hah. I'm you in about three years. Concidentally, I'm late for school because I'm waiting for a plumber to come to my house.

Finding reliable, honest, non-scuzzy roommates has been a lot harder and more stressful than I thought it would be. You may have some trustworthy friends who want to live with you right now, but are they still going to be there in a year? Two years from now? My experience has been that roommates can be counted upon for 8-12 months. Anything beyond that is gravy.

The rest of the landlordly duties have been ok-- admittedly expensive and time-consuming, but a worthwhile learning experience. But findig roommates sucks. Find a loft or a two bedroom place if at all possible.
posted by beepbeepboopboop at 8:36 AM on January 11, 2010

Something to consider--I wonder if you'll find tenants willing to pay $600-800 in rent on an apartment without amenities of the fancier high-rise options in the area (I'm thinking of Regents Park).

When I was an undergrad at U of C a couple years ago (class of 2007), I paid about $350 or $375 for my room in a 4-bedroom apartment on 57th, right by campus. Ours was on the cheaper end of the rent spectrum, but most of my friends who lived in typical Hyde Park apartments (older homes split into 4-6 apartments) seemed to pay between $400-500 in rent for their bedroom in a multi-bedroom apartment. The only people I knew who paid anywhere near $800 in rent were students who rented studio apartments or shared an extremely nice 2-bedroom apartment in a high-rise.
posted by Meg_Murry at 8:38 AM on January 11, 2010

Best answer: Owning several rental properties in Chicago, and being born and raised here, I'll try to go down the list of why this may or may not be a good idea.

To give a solid answer to your question "is this a good idea?", I guess I'd need to know a bit more about your situation, and where you're going after college, as well as where you and your family are from... if you're pretty close, and are willing to manage the place after you move on and graduate, then that would work.. If you're thinking that the market will rebound and you'll be able to get your equity out of the place, I'd give that some serious thought and have reservations on that end. Expect to be stuck to the property for the next 5-7 years. You MAY be able to sell earlier and come out even or possibly ahead, but I wouldn't count on it.

Screening tenants is going to be the trickiest aspect of this endeavor, assuming you get to that point. Most college-aged people don't have very good credit, and that's basically the only way you can screen.. That means, a lot of co-signers on leases, assuming you want to go that route. It's a LOT of work to do this in a manner that would protect yourself from damage, theft, and negligence. I never had a bad tenant until last year, when I had 2. Evicting someone is a horrible experience that I don't wish on anyone, but you may be called to do it to protect yourself and your investment.

Additionally, as someone else pointed out already, 6-800 for a room in Hyde Park is probably really pushing it to the absolutely high end of market rates. Everyone that I know that has lived there has paid 6-800 for their own one bedroom, so why would they pay the same to live with two room-mates? You'll have to do something to really make it worth someone's while... Including (but not limited to), the following; no security deposit (I wouldn't recommend this one), free utilities (wi-fi is especially a good one), a furnished apartment, and/or free parking.

You also have to keep in mind that there are going to be additional costs and fees. Assuming this is a condo, you're going to have association fees. You'll also have taxes and insurance to cover, you'll be responsible for maintenance and upkeep, and it can all be a pain in the ass, especially if you're not familiar with what it entails.

Hitting the streets is the best way to find good deals and once something has hit the MLS it's probably not that great of a deal anymore. Talk to people. You never know who will be looking to sell. There are also bank auctions and estate sales if you're serious about looking into foreclosures. If you go that route, you will need the full cost of the property up front, or have financing already arranged with the bank in question...

With a foreclosed property, you won't have any disclosures, which can mean absolutely nothing, or it can mean you just bought a rat and termite infested hole with rotting floors and asbestos.

I wouldn't recommend a foreclosed property as your first investment property. If your parents have experience with it, then it might not be an issue, but I would be wary...

You will just about always want a home inspection, I would highly recommend Barry Kreiter at Building Knowledge, Inc., I've used him multiple times, and he's as thorough as they come, which is exactly what you want. He'll spend several hours on a place, and really inspect it and walk you through the place piece by piece. Whomever you use, make sure they are impartial. Don't get someone from the sellers' (or your) agent. If you are using an agent, they will help write up a contact, if you don't have one, you will probably want a lawyer to help write it up, which will cost probably $500-1000, plus you'll need a lawyer to represent you at closing, which will probably be around another $700. I'd recommend either Thea Pazen @ 773/ 725 - 4349, or Ivan Puljik @ ipuljic at huffandgaines dot com

If you want to move by sept of 2010, you'll need to have a closing date of anywhere from may to august of 2010, depending on the condition of the place and what needs to be done to it. The foreclosures are going to be cheaper, but are going to tend to need more work, although that's not always the case.

Additionally, being a land-lord is not easy. You don't sit back and rake in the cash for doing nothing. It is a job, and occasionally it becomes a full time job, and you have little-to-no control over when it does. You probably won't have this happen in your situation, since it sounds like you're dealing with a condo, but if the heater goes out in the middle of the night, you're going to have to be there to fix it. Places flood, pipes burst or break, toilets break, etc etc...

Now, hopefully this isn't all discouraging. I'm sort of giving you worst case scenarios just to indicate what CAN happen, but it's not necessarily what will happen. You may find smooth sailing and no issues. If you want to move forward, I'd recommend the following:

I would sit down and find a place that works for you, based on market rents, work out your expenses, and see if you can cover your monthly nut with renting out the two rooms. You may not be able to find a place where this can happen, but even if not, you might find someplace where you're only coming out of pocket $100 or $200 after renting the two rooms. That's where you'll have to figure out if that's a good deal for you or not.

From there, you'll need to write up an offer, work through the process, close, move in, and then find tenants. You can theoretically work on finding tenants before you close, but I wouldn't recommend it. You never know if the deal is done until the paperwork is all signed, so you probably want to close with a month or two to spare.

Good luck! it can all be very rewarding, but it's certainly not without it's hard work.
posted by getupandgo at 8:48 AM on January 11, 2010 [3 favorites]

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