No American city is more identified with small multifamily than Chicago. Brick two-flats, frame two-flats, greystone three-flats and the occasional four-unit building line block after block on the North, Northwest and Southwest Sides, and they remain the backbone of the city's rental housing.
In short: LendingStreet finances Chicago 2-4 unit rentals with DSCR loans that qualify on the combined rent of all legal units, with no W-2s or tax returns and LLC borrowers allowed. Loans start at $150,000, purchases go up to 80% LTV and cash-out refinances up to 75% LTV, with a 1.0x standard minimum DSCR. In Chicago, the legal unit count and the Cook County tax bill are the two items that most often change the answer.
Two-flats, with one unit stacked on another and often a basement below, are the most common type. Greystone two- and three-flats with limestone fronts were built in large numbers in the early 1900s, especially in Logan Square, North Lawndale, Woodlawn and Bronzeville. Frame two-flats and workers' cottages fill neighborhoods like Pilsen, Bridgeport and Back of the Yards.
Rents and prices vary widely. Renovated three-flats near the lake or in Logan Square command high prices, while two-flats on the Southwest and South Sides cost far less but may need more work and come with different tenant and tax profiles.
| Neighborhood group | Typical building | Rental profile |
|---|---|---|
| Logan Square, Avondale, Humboldt Park | Greystone and brick two- and three-flats | Young professionals, higher rents and prices |
| Pilsen, Bridgeport, McKinley Park | Frame and brick two-flats | Mixed tenant base, moderate prices |
| Albany Park, Rogers Park, Uptown | Two-flats, three-flats, some fourplexes | Dense rental demand near the CTA |
| Bronzeville, Woodlawn, North Lawndale | Greystones, some restored | Wide range of condition and rents |
| Brighton Park, Gage Park, Back of the Yards | Brick two-flats | Family tenants, lower entry prices |
Many Chicago two-flats have a finished basement, or garden unit, that has been rented for years. Some are legal; many are not. The same goes for attic units. Chicago zoning sets how many units a lot can hold, and plenty of older buildings are legal nonconforming, meaning they predate current zoning. Underwriters and appraisers generally count only legal units.
Ask for the building's zoning, any permits for the extra unit and the city's records on the legal unit count. The city's ADU ordinance allows new coach houses and basement units in certain areas with permits, but an unpermitted garden unit still may not count toward your rent.
Cook County assesses residential property using a 10% assessment ratio before the equalizer and local rates, and investors do not receive the homeowner exemption. If the seller lived in the building, the next bill may be higher. Budget on the full bill.
In most Chicago two- and three-flats, the owner pays the city water and sewer bill, and some older buildings have one boiler serving all units. Those costs are not part of the DSCR payment, but they reduce your cash flow, so check who pays what before you set your rent assumptions.
This example is illustrative and not a quote. An investor buys a renovated greystone three-flat in Avondale for $875,000. Each unit rents for $2,100, for $6,300 a month combined. Taxes are budgeted at $1,170 a month with no homeowner exemption, and insurance at $310.
At 80% LTV the loan is $700,000. Estimated principal and interest on a 30-year term is about $4,835, the total payment is about $6,315 and DSCR is just under 1.0x, short of the 1.0x standard minimum. At 75% LTV the loan is $656,250, estimated principal and interest is about $4,533, the total payment is about $6,013 and DSCR improves to about 1.05x.
| Item | 80% LTV | 75% LTV |
|---|---|---|
| Loan amount | $700,000 | $656,250 |
| Estimated principal and interest | $4,835 | $4,533 |
| Taxes and insurance | $1,480 | $1,480 |
| Total monthly payment | $6,315 | $6,013 |
| Combined rent | $6,300 | $6,300 |
| DSCR | Just under 1.0x | About 1.05x |
Most Chicago rentals are covered by the Residential Landlord and Tenant Ordinance, which has strict rules on security deposits, deposit interest, move-in disclosures and notices. Two- to four-unit buildings are exempt only when the owner lives in the building, which never applies to our loans. When you buy an occupied building, review each lease and deposit carefully.
Illinois prohibits local rent control, so rents follow the market, but Chicago tenant protections are extensive. A property manager familiar with the ordinance can be worth the cost.
Ask the seller for each tenant's lease, deposit amount and any deposit interest owed, and confirm how deposits will transfer at closing. Under the ordinance, the new owner generally becomes responsible for deposits held by the prior owner, so the closing statement should account for them.
We start with current leases for occupied units and use the appraiser's market rent for vacant ones. If one unit is leased well below market to a long-term tenant, the actual lease usually drives the ratio. For buildings that need renovation before units can be leased, a bridge loan can fund the work, followed by a DSCR refinance once the building is stabilized.
If you are converting a building from owner-occupied to fully rented, for example buying a two-flat where the seller lived on the first floor, the vacant owner unit is underwritten at market rent. Have a realistic estimate for that unit from recent nearby leases.
Chicago also has many six-flats and some five- and eight-unit buildings, especially in Rogers Park, Edgewater, Uptown and Albany Park. Buildings with 5 to 8 units are still residential for our DSCR programs, though max LTV can be lower and the review more detailed, varying by program. Our Chicago 5-8 unit page covers them. Courtyard buildings with nine or more units fall under commercial multifamily.
Send the address, price, unit mix, rents, current tax bill and target leverage through the form below, or call (877) 298-1001. We will run the ratio on the legal units, test a couple of leverage levels and tell you what the file needs.
Only if it is a legal unit. Unpermitted basement or attic units generally do not count, so confirm the legal unit count first.
Up to 80% LTV on a purchase, if the combined rent clears the program minimum. Cook County taxes often push the practical leverage lower.
No. Our investor loans are business-purpose loans on non-owner-occupied property.
Usually the owner. It is not part of the DSCR payment, but it reduces your cash flow.
For a non-owner-occupied building, generally yes. Review its deposit and notice rules before you take over tenants.
Yes. Cash-out goes up to 75% LTV and rate-and-term up to 80% on some programs, subject to DSCR and seasoning rules.
Buildings with 5 to 8 units are still residential for our DSCR programs, with leverage that varies by program. Six-flats are common in Rogers Park, Edgewater and Uptown, and our Chicago 5-8 unit page covers them in more detail.
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