Thinking about house-hacking in Logan Square but not sure whether a two-flat or a three-flat is the smarter move? You are not alone. With classic Chicago walk-ups and steady renter demand, both options can work if you run the numbers and plan ahead. In this guide, you will compare building types, financing options, rental math, due diligence, and resale considerations so you can buy with confidence. Let’s dive in.
What is a two-flat?
A two-flat is a single building with two self-contained apartments, often one per floor. In Logan Square, many were built in the late 19th and early 20th centuries with brick or greystone facades, hardwood floors, and bay windows. You will often see two 2-bedroom units, or one 3-bedroom and one 2-bedroom.
Two-flats appeal to owner-occupants because you can live in one unit and rent the other. They often come with a lower purchase price and more accessible financing than larger buildings. The resale pool usually includes buyers who want to live in one unit, which can help marketability.
What is a three-flat?
A three-flat has three separate apartments in one building. In Logan Square, common mixes include two 2-bedroom units plus a 1-bedroom, or three 1–2 bedroom units. Layouts are typically stacked walk-ups with shared stairs, porches, and roof systems.
Three-flats provide higher total rent and more diversified income. If one unit is vacant, two rents may still cover a significant portion of your costs. The tradeoff is a higher purchase price and, in many cases, more investor-oriented financing and a narrower owner-occupant buyer pool at resale.
Building systems to check
Older Chicago flats often share vertical systems and may have deferred maintenance. Pay close attention to:
- Masonry and tuckpointing, roof, gutters, porches, and foundations.
- Mechanical systems like boilers or hydronic heat, water heaters, and any older electrical (such as knob-and-tube).
- Utility metering for gas, electric, and water; some older flats still have shared meters.
- Lead paint considerations in pre-1978 units if you plan to renovate.
Financing basics for 2–4 units
Many buyers finance 2–4 unit properties with owner-occupied loan products. Key points to discuss with your lender:
- FHA: Owner-occupants can buy 1–4 unit properties with low down payment, subject to qualification. FHA 203(k) can finance certain rehab costs.
- Conventional: Fannie Mae and Freddie Mac allow 2–4 unit owner-occupied loans. Some affordable products can offer lower down payments with income-based rules.
- Portfolio loans: Community banks and local lenders may offer custom products for 2–4 units.
Practical underwriting notes:
- Occupancy requirements often apply. Many programs require you to live in a unit as your primary residence within a set period.
- Lenders may count a portion of rental income to help qualify, often around 75% of market or in-place rents.
- Down payment, interest rates, and reserve requirements for multi-unit properties can be higher than for single-family homes.
Taxes, licensing, and permits in Chicago
Operating a rental property in the City of Chicago comes with rules and costs. Plan for:
- Cook County property taxes. Review the parcel’s current tax bill and assessed value before you write an offer.
- Potential homeowner exemptions if you occupy a unit. Confirm eligibility with the Cook County Assessor.
- Transfer taxes and recording at closing.
- Rental licensing and local inspection compliance through city agencies.
- Building permits for renovations and any unit or porch work through the Department of Buildings.
- Lead paint disclosure requirements for pre-1978 properties.
Rental math: the metrics that matter
Use the same framework for two-flats and three-flats so you can compare apples to apples.
- Gross Potential Rent (GPR) = total market rent if fully occupied.
- Effective Gross Income (EGI) = GPR − vacancy and credit loss.
- Net Operating Income (NOI) = EGI − operating expenses (not including the mortgage).
- Cap Rate = NOI / Purchase Price.
- Debt Service Coverage Ratio (DSCR) = NOI / Annual Debt Service.
- Cash-on-Cash Return = Annual pre-tax cash flow / Cash invested.
- Gross Rent Multiplier (GRM) = Purchase Price / GPR.
Assumptions to start with in Chicago:
- Vacancy: 5–8% depending on unit mix and location.
- Property management: 6–10% of collected rent if you outsource; lower if you self-manage.
- Maintenance and repairs: 5–10% of rents, plus a 3–5% reserve for capital projects.
- Insurance, owner-paid utilities, and water/sewer: budget per unit.
- Property taxes: use the actual parcel’s tax history. This is often a swing factor.
Logan Square examples (illustrative)
These examples are for illustration only. Always verify current prices, rents, taxes, and interest rates before making a decision.
Example A: Two-flat
- Purchase price: $650,000
- Unit mix: two 2-bedroom units
- Market rent per unit: $2,200 and $2,200
- GPR: $4,400 per month or $52,800 per year
- Vacancy: 6% → EGI = $49,632
- Operating expenses: 35% of EGI = $17,361
- NOI: $32,271
- Mortgage: 80% LTV, 30-year at 6% → annual debt service ≈ $37,900
- Cash flow before reserves: ≈ −$5,629
- Cap rate: 4.97%
What this shows: A two-flat can still make sense for owner-occupiers who value reduced housing cost and principal paydown, even if cash flow is tight today.
Example B: Three-flat
- Purchase price: $925,000
- Unit mix: 2 × 2-bedroom at $2,200 and 1 × 1-bedroom at $1,700
- GPR: $6,100 per month or $73,200 per year
- Vacancy: 6% → EGI = $68,808
- Operating expenses: 35% of EGI = $24,083
- NOI: $44,725
- Mortgage: 80% LTV, 30-year at 6% → annual debt service ≈ $53,900
- Cash flow: ≈ −$9,175
- Cap rate: 4.83%
What this shows: Higher gross rent does not guarantee positive cash flow. Purchase price, property taxes, and rate environment can drive outcomes more than the unit count.
Two-flat vs. three-flat: how to choose
Consider these practical tradeoffs in Logan Square:
- Entry cost and financing: Two-flats often have lower prices and more accessible owner-occupant loan options. Three-flats may require larger down payments and stronger reserves.
- Income diversification: Three-flats reduce the impact of a single vacancy. Two-flats rely on one rent when you live in the other unit.
- Unit mix: Two 2-bedroom units can be a sweet spot for rentability. Three-flats offer more mix options, such as 2 × 2-bedroom plus 1 × 1-bedroom.
- Management intensity: More units can mean more turnover to manage. Consider whether you will self-manage or hire a property manager.
- Resale: Two-flats often appeal to future owner-occupants. Three-flats tend to target investors unless one unit is especially well-suited for an owner to occupy.
Operating expenses to budget
In addition to the percentages above, build a line-item budget. In older Logan Square buildings, plan for:
- Tuckpointing and masonry repairs.
- Porch rebuilds and safety upgrades.
- Boiler or HVAC replacement and ongoing service.
- Electrical upgrades to modern panels.
- Roof replacement and drainage fixes.
- Window upgrades and insulation improvements.
- Lead-safe work practices if you renovate painted surfaces in pre-1978 buildings.
Due diligence checklist
Before you commit to a two-flat or three-flat, work through this list:
- Title and legal: order a title search; check for easements, violations, or special assessments.
- Tenancies: collect leases, rent rolls, security deposit records, and payment histories.
- Permits and code: review Department of Buildings records for permits, inspections, and open violations.
- Rental license: verify current or prior license status and any inspections on record.
- Utilities: confirm which utilities are separately metered and which are owner-paid. Ensure meters are legal and functional.
- Physical inspection: assess foundation, masonry, porches, roof, chimneys, windows, insulation, and all mechanicals.
- Sewer and plumbing: consider a camera scope if there are slow drains or backups.
- Environmental: evaluate for lead-based paint, possible asbestos around older boilers, moisture, and pests.
- Insurance: get pre-quotes for owner-occupied multi-unit coverage and confirm any required repairs for binding.
Build your Logan Square model
Follow these steps to test a specific property:
- Pull rental comps for the immediate area and unit sizes you plan to lease.
- Gather recent sales and current asking prices for 2–3 flats nearby.
- Retrieve the exact parcel’s current Cook County tax bill and assessed value.
- Get mortgage quotes for your credit profile and intended occupancy.
- Model GPR, vacancy, EGI, operating expenses, NOI, DSCR, cap rate, and cash-on-cash. Include reserves for capital items.
- Run sensitivity tests for vacancy, interest rates, and major repair costs to see your break-even points.
Resale and exit planning
Think about your exit while you buy. In Logan Square, a well-maintained two-flat with a large owner’s unit can attract both investors and owner-occupants. A three-flat may command stronger total rent, but the buyer pool often skews investor-heavy unless one unit fits comfortable owner living. Keep detailed records, keep up with maintenance, and aim for neutral, durable finishes to appeal to the widest audience at resale.
Quick next steps
- Define your target unit mix and monthly housing cost goal.
- Speak with a lender about owner-occupied 2–4 unit financing options.
- Pull current rental comps and verify the property’s exact tax bill.
- Walk the building with an inspector who knows older Chicago flats.
- Confirm licensing, permits, and any open violations before you finalize price.
- Update your model with real quotes for insurance, utilities, and management.
If you want a second set of eyes on a specific two-flat or three-flat in Logan Square, reach out to the local team that blends decades of perspective with modern advising. Connect with the Fogel Slate Group to map your plan and run the numbers together.
FAQs
What is the difference between a two-flat and a three-flat in Chicago?
- A two-flat has two self-contained units while a three-flat has three; both are common Logan Square walk-ups with stacked layouts and shared building systems.
How does financing work for owner-occupied 2–4 unit buildings?
- Many buyers use FHA or conventional programs that allow low down payments if you live in one unit, with some rental income counted toward qualification.
What operating expenses should I expect in Logan Square flats?
- Budget for vacancy, management, maintenance, insurance, water/sewer, property taxes, and reserves for capital items like roofs, porches, boilers, and masonry.
Do I need a Chicago rental license for a two-flat or three-flat?
- The city requires rental property owners to follow local licensing and inspection rules, so confirm current requirements and fees before leasing units.
How do I estimate cap rate and cash-on-cash return?
- Cap rate equals NOI divided by purchase price; cash-on-cash equals annual pre-tax cash flow divided by your total cash invested.
