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Vaster Funded: Chicago Multifamily Development Financing

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Multifamily investing is arguably the best form of residential investing overall. Through multifamily investing in apartment complexes, condominium networks, and even duplexes, investors can significantly improve their profits while benefiting from economies of scale.

However, some areas are better for multifamily investing than others. Chicago multifamily opportunities are well known as excellent means of investing excess cash. This trend has been a known factor for some time, inspiring many investors to look for their first multifamily opportunities and break into this market.

Today, let’s break down why Chicago multifamily opportunities are so popular. We’ll also look at a case study of a successful investment aided by timely financing from Vaster.

Multifamily Investments Explained

In a nutshell, multifamily investments are any real estate investments for properties that house several families. A multifamily residential property is any property with more than one housing unit. Each housing unit also has to have its own bathroom and kitchen. This contrasts with single-family properties, which can only legally house one family at a time.

Examples of multifamily residential investments include:

  • Duplexes
  • Condominiums
  • Apartment buildings
  • Townhomes

Many multifamily investment opportunities are found in major metropolitan areas, like Downtown Chicago. That said, suburban areas surrounding cities like Chicago are also excellent areas to invest in multifamily properties.

As cities continue to grow and suburbs become more developed, multifamily properties are becoming more popular at the same time. Multifamily properties solve the problem of constricting space while also allowing individuals to move to areas that benefit their families, such as suburbs with nice schools, public amenities, and so on.

Why Invest in Multifamily Properties?

Investing in multifamily properties is often a wise financial decision. Why?

  • Multifamily properties are comparatively profitable. Purchasing one apartment building with ten units, for instance, allows the property owner to collect ten streams of income over time (once all the units are filled). They’ll pay back the mortgage loan faster in many cases. In contrast, single-family properties only provide landlords with one stream of income each.
  • Multifamily properties are also significantly easier to finance in many cases. They aren’t as risky for traditional lenders. A single-family home can be unoccupied for some time, resulting in no cash flow. In multifamily properties, there are more opportunities for incoming rent payments.
  • Multifamily properties are good for expanding one’s investment portfolio. It enables investors to grow their wealth more quickly and switch to commercial real investing in the future.
  • Investing in multifamily properties sometimes comes with many tax benefits depending on one’s area. Investors may also take advantage of depreciation for their multifamily residential properties.
  • Property management companies can handle communication with tenants, maintenance, and other concerns. This enables property owners to earn passive income just by holding multiple multifamily properties at once.
  • Investing in multifamily real estate is fairly straightforward compared to single-family rentals, like multiple houses.

Due to all these advantages, both novice and experienced investors alike often look for quality multifamily investment opportunities. For several years at this point, Chicago has been a top choice to look for those opportunities due to a variety of economic and geographic factors. 

Chicago’s Status as a Multifamily Investment Hotspot

While investing in multifamily properties can be profitable anywhere, Chicago is one of the best cities to do so for a variety of reasons. Chicago’s unique location, surrounded by expandable land, means that new multifamily developments are possible almost in perpetuity.

Furthermore, migration patterns within the Chicago metropolitan area have led to the growth of a diverse multifamily market. For example, the COVID-19 pandemic led many workers and their families to escape dense city areas for the suburban neighborhoods surrounding major metros like Chicago.

As remote work continues to be an important part of the modern economy, this trend may continue, leading to additional multifamily developments in and around Chicago itself. Even with the advent of COVID-19 vaccines, many companies are opting for hybrid work models or allowing certain employees to work from home. Chicago may never see a rebound of family moves back into the city.

Indeed, the suburbs continue to thrive even as some individuals move back into urban areas. For instance, Chicago is still the third most populous city in the US, even without immigration throughout 2020 and beyond.

Investment Challenges Despite Available Land

Although multifamily investing in Chicago can be wise, there are some challenges to keep in mind. According to some sources, cap rates — measures of total rental income after expenses and accounting for property purchase prices — are up to 8% for some Chicago multifamily properties.

These caps rates are well above the national average, even compared to other major cities, such as Salt Lake City and Phoenix. But for every rise in the cost of living Chicago experiences, it's matched or surpassed elsewhere throughout the country.

For example, the double-digit rent growth seen throughout Chicago in 2021 was not as high as the rent growth seen from the national average. Considered in this light, it’s possible that Chicago’s status as a great multifamily investment location will remain, despite some road bumps in the near future.

How Vaster Helps With Chicago Multifamily Opportunities

Multifamily investors have multiple avenues for funding when necessary. Government-backed loans like Fannie Mae and Freddie Mac can prove difficult to get, especially for those without a consistent history of W-2 forms, high credit scores, and other traditional facts. 

As government-backed loans can prove challenging or time-consuming to apply for, investors turn to commercial lenders like Vaster. Commercial and private loans are viable alternatives for investors looking to take advantage of the current market and make major profits.

For example, Vaster recently assisted with financing a land deal for future multifamily development in Villa Park. Let’s take a look at how Vaster helped this deal resolve after the borrower’s initial financing solution fell through.

The Villa Park Deal

Vaster’s client purchased approximately 3.4 acres of land in Villa Park, Illinois. The intention was and is to construct a mixed-use building with up to 348 residential units.

The development is expected to impact the local community positively by offering new avenues for commercial space development and various Class A residential units. Furthermore, as a transit-oriented development, it will be ideal for working families. Residential units constructed next to open metro stations can ease financial and time constraints to working or traveling for fun. 

What Happens When Traditional Loans Fall Through?

Originally, Vaster’s client borrowed money through a construction lender. Unfortunately, the construction lender backed out of the deal right before land development was to begin.

Our client was unable to secure long-term financing after the construction lender’s withdrawal. This was a major problem as our borrower faced an approaching permitting deadline. They needed to start the construction process for their residential development quickly.

How Vaster Assisted With This Deal

To solve this problem, our borrower leveraged a short-term private loan. This allowed them to purchase all the necessary proceeds to start demolition and construction for the upcoming property. Then they contacted Vaster.

Our experienced commercial lenders got to work finding a custom-tailored financing solution. We were able to close the deal very quickly using a white glove process, offering competitive terms to our client in the end. In a matter of one month, we closed the deal and settled the issue with an expected construction loan to be taken out by the end of the year.

At $3 million in total, this refinancing loan should allow our borrower to complete the multifamily property development and improve their community. 

Contact Vaster Today

Taking full advantage of the booming Chicago multifamily investment market means having the resources you need when you need them. Whether you’re interested in an opportunity like the example case described above or a different investment property, Vaster might be able to help.

As a private lender for residential and commercial properties, plus land for real estate development, we’re well-equipped to give you the financing flexibility you need to thrive. We can rapidly finance transactions for you using specialized criteria to accurately assess property values. More than that, we’re backed by the Fortune International Group and The Related Group. That gives us deep insights into marketplace dynamics.

With our team on your side, you’ll have the financing choices you need to make your investment opportunities realities. Don’t wait or settle for a subpar loan with terms that don’t work for your budget or timeline. Contact Vaster today and get the financing solution you need fast.

Sources:

Not just a national surge: Chicago-area multifamily market soaring, too | REJournals

 

City of Chicago :: Facts & Statistics | Chicago.gov

 

Chicago Multifamily Investors Look Beyond City's Strong Cash Flows | The Real Deal

 

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