Preserving 2- to 4-Unit Buildings

Small rental properties—buildings with 2- to 4-units—dot neighborhoods throughout the Chicagoland area, but nearly one-third all of these units located in low-income communities have been affected by foreclosure filings. 

Weak demand, restricted access to credit, and lack of financing for investors are combining to put these properties –  which make up one third of Cook County’s total rental stock – at risk. 


The Preservation Compact convened a working group to evaluate the challenges facing 2- to 4-unit properties and the people who want to purchase, rehab, and rent them. Buyers of 2- to 4-unit buildings face formidable challenges.

Scarce Loans. Financing is scarce for those interested in buying a 2- to 4-unit building. Loans with rehab components are nearly impossible to find. This is especially true for smaller investors, who are already paying a mortgage on their own homes. It also occurs because lenders don’t take rental income into account in loan underwriting.

Low Appraisals. In tougher markets, appraisals for 2- to 4-unit properties are very low, much lower than the total cost of purchase and rehab. The appraisals seem to be dominated by distressed sales activity, which accounts for the vast majority of recent sales.

Loan Gaps. Even when loans can be obtained, banks won’t finance more than 80 percent of the appraised value of a property, leaving a large gap between the total cost of acquisition and rehab and the amount that can be borrowed.

High Property Taxes.  Professional investors who might rehab and rent the properties say that property taxes are disproportionately high and don’t reflect the buildings’ use as rental housing in a distressed market.

No Takeout Financing. Professional investors also say that while they can obtain acquisition and construction financing, but long term takeout financing is not available.

Next Steps

The Preservation Compact is targeting two groups likely to purchase and manage 2- to 4-unit properties.

Owner Occupants. In today’s market, owner-occupants with sufficient credit and income to secure a loan have many options in many markets. Attracting these buyers will require financing programs that provide financial assistance and broaden credit availability. These owners are also inexperienced in rehab and property management and will need help learning these skills if they are to be successful investors.

Professional Investors. Many investors are already actively purchasing and rehabbing 2- to 4-unit properties throughout Chicago, but they don’t have options for takeout financing after the properties are stabilized.  As troubled properties come up for sale, investors need cash to be able to assemble a geographically concentrated portfolio of properties. The Preservation Compact is working to develop a financing tool to help good investors finance their stabilized properties, allowing them to purchase and rehab additional buildings.