Gut rehabs the next wave in Chicago Real Estate?

New construction condos in Chicago are few and far between. Large scale new developments were mostly halted in 2008 and even though demand for new construction is high in Chicago banks are not willing to take the risk and offer developers construction loans on a 300 or 400 unit condo project. With the majority of new buildings in Chicago at least 5 years old the question is “What is next for Chicago condos?”

Gut Rehabs

With no new construction condos in the downtown neighborhoods many are turning to older buildings and buying “dated” units with the plans of gutting and rehabbing the units with all of today’s modern finishes and conveniences. Newer construction buildings (built between 2003 and 2008) are still selling at a premium as the finishes are “nice” and still acceptable. However, over the past decade tastes in finishes have changed a great deal. Those wanting the most updated and modern look in the downtown neighborhoods are really left with only one option: Do It Yourself….well hire it out but still “rehab your unit.”

Many older buildings have also started modernizing their hallways, amenity floors, lobbies and elevators. These capital improvements along with a cheaper price point, which allows buyers to customize their own units, are allowing old buildings to give new ones a run for their money.

If I am thinking of buying in an older building and customizing a condo; what should I look for? What should I watch out for?

 

Buy in a building that is not afraid to spend money:

It is important to buy into a building that is constantly modernizing itself. Buildings that haven’t completed any capital improvements in over 20 or 30 years are not and will not be able to compete in the market place. Updated hallways, lobbies and amenities are key. While these updates do cost money and may mean higher assessments, you will see a greater return on your investment in such buildings. Buildings that choose not to update will eventually have to (at some point new elevators and new fitness equipment will be a must) and that cost may come as a special assessment anyway. In the meantime however those buildings start to develop a reputation of “old and tired.”

Structural obsolescence caused functional obsolescence!

Consult the building engineer, an architect and a great contractor on exactly what you are able to do with your unit before buying. Many older buildings may have large living spaces but small bathrooms and small kitchens. Current trends are open, expansive kitchen spaces, large closets and well sized bathrooms. Make sure plumbing, electrical and structural walls are able to be modified to allow the reconstruction you so desire. You can update a unit all you want, but if the floor plan is poor then you will not see a good return on your investment. Many times a small change in the floor plan will earn you your greatest return.

Take advantage of what old buildings have to offer!

Location, Location, Location. Many times older buildings have some of the absolute BEST locations and BEST views in the city. Take advantage of this! If you are interested in a building on Lake Shore Drive then make sure you have a great view of the lake. If you are interested in a building in the heart of the Gold Coast then get a south view so you can see the entire skyline and the lake. This may seem like a no-brainer but you’d be amazed at how many people look at only the price tag when they’re rehabbing a unit versus looking at the entire package of what a unit has to offer.

Wider is better!

One of the biggest downside to some of the newer construction buildings are the long and narrow floor plans. Many times this is done to maximize the number of units in a building. Many older buildings have wide floor plans. Wide floor plans are almost always preferred as they offer much more window space. In addition, newer buildings have taller ceilings (9 or 10ft) whereas many older buildings only have 8ft ceilings. A wider floor plan, which allows for much more light will make ceiling height feel taller versus a long narrow floor plan which will make a unit feel “closed in.”

Assessments

Older buildings typically have higher assessments simply because they are less efficient and more costly to maintain. It is very important to see how an association is spending their money. High assessments are not necessarily bad so long as you are getting something in return such as a building that is constantly updating and modernizing itself. A building that has high assessments because they are always “fixing things” versus “improving things” is a building that you will likely want to stay away from.

 

Paul Blackburn is a licensed Illinois Realtor and Broker with @ Properties in Chicago. He can always be reached via phone or e-mail at Paul@PKBlackburn.com

Cheap Condos on Lake Shore Drive?

Everyone wants a Lake Shore Drive address and of course everyone wants to buy a condo cheap right? The question is: “How cheap are condos on Lake Shore Drive, really?” While many condos may appear to be inexpensive at first glance, there are many more costs involved besides just your mortgage payment. There are even more costs than your taxes…there are assessments. If you are used to assessments in your newer condo buildings or in a walk up or recent condo conversion then you’ll be surprised at what you might have to pay to live on the famous drive. Lets take a look.

First lets start in Lakeview, as they have some of the largest buildings along the drive. If we do a search for current condos on the market along LSD in Lakeview we get 155 places. Some are as cheap as $75,000. A studio in 3600 N. Lake Shore Drive for instance is available at that price and the assessment is actually reasonable at only $287/mo. But lets check out some other “Great Deals.”

1 Bedroom at 3900 Lake Shore Drive on the market at only $95,000! Assessment….a whopping $531. This means that if you take out a 30yr mortgage on this property, at current interest rates, your mortgage payment would be less than your Home Owners Association (HOA) assessment and this doesn’t include your taxes.

2 Bedroom at 3950 Lake Shore Drive on the market at only $139,900 and it is actually updated! Assessments though are $597/mo.

Now check out this one

2 Bed / 2 Bath at 3430 N. Lake Shore Drive. Nice sized unit, but it is pretty dated. Price: $175,000. Assessment $833/mo!

Why are assessments so high? The majority of these buildings are older buildings. The older things get the more problems they have. Fixing problems in older buildings are extremely expensive and usually not a one time thing. Replacing elevators for instance can easily cost $250,000 PER Elevator. Replacing windows can cost over $10,000 just for a studio. But then there are other costs as well such as the cost to heat the building (many of these assessments include heat). Since many times the windows are older and the heating systems are inefficient the costs go up.

I am not saying do not buy in these buildings (although there are some with problems that I always do caution against). All I am saying is to KNOW WHAT THE TOTAL COSTS ARE. The reason why many of these buildings have depressed prices are because the assessments are so high.