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The Two-Flat Conversion: A Favorite Chicago Pastime With Untold Hazards

Should the inexperienced buyer seriously consider taking on a two-flat-to-single-family conversion? Maybe, but it’s a big risk.

Two-flats in Roscoe Village, a popular area for conversions.   Photo: Ian Spula

Conversion of two-flats to single-family homes has been a longstanding practice in Chicago real estate. (For a great history of the city’s two-flats, read this WBEZ story.) The move is the sexier—and often cheaper—alternative to teardown, but it’s rarely the first choice of average homebuyers. Who then is doing the converting? And what are the practicalities for a novice?

Investors and developers take on the lion’s share of two-flat-to-single-family conversions. It comes down to vision and capital. “There are a lot of professionals to hire and hurdles to clear,” says Zev Solomon, principal at Ranquist Development Group, who lives in a former two-flat in Wrigleyville and has converted others. “I don’t think the process is too daunting, but it is a process…. One driver of conversions, and a reason they are in vogue in the post-recession world, is that there’s little spec product available to buyers other than at the high end.” Scarcity of buildable land in top school districts also has developers pursuing conversions.

Potential pitfalls for buyers multiply as you move deeper into a project. First, any conversion is subject to permitting delays, cost overruns, and engineering foibles. You may need to dig out a basement, move a staircase, reinforce the structure, reorient kitchens and bathrooms and their plumbing, or include an addition for a resale value that justifies the work.

For buyers with a little vision and a lot of patience, there are advantages. Vintage architectural details and any non-conforming conditions that can’t be reproduced (shorter setbacks to roads, for instance) are yours to keep and potentially create value.

In some instances it’s architects or those with a proclivity for design taking on a conversion for themselves. In 2014, Ken Schroeder, a principal architect with SMNG-A and past Director of Architecture at IIT, and architect-wife Ann Temple turned a Lincoln Park two-flat into their family home—the second time they’d done so on the same block of North Cleveland Avenue. Schroeder has worked on several client-directed conversions. An atypical two-flat hugging a corner and built as a blacksmith’s live-work in 1875, their property offered shortcuts to conversion.

The main level had never been chopped up—that wouldn’t have done much for Max Kahn, the venerable artist who kept a home and studio here for more than 50 years. It is clear span, 22 feet wide. Most two-flats have a bearing wall that runs the length of the structure, defining characteristically small Victorian rooms. “If you’re remodeling or converting,” says Schroeder, “it becomes a huge hindrance because most people want wall-to-wall spaces for family rooms. Limiting what you touch is important. As soon as you touch something it can escalate into all kinds of other things.”

Schroeder and Temple also brought an unfussy aesthetic that juxtaposed new appliances with raw surfaces and a weathered façade. “Usually on a modest budget you can afford space or finishes,” advises Schroeder. “You’re always balancing those things.”

It’s incredibly important to try and keep existing plumbing. New sewer and water systems can run $25,000 combined. Insulation can also be dicey (and pricey), depending on the structure’s age and condition. Here’s the catch: You won’t necessarily know what you’re up against until you get the work permit. Like it or not, by then the property is yours.

A quick accounting is in order. Assuming you can still find a two-flat fixer-upper in Albany Park, Avondale, or Rogers Park for under $400,000, a straightforward conversion without any major trip-ups will run $100-$125 a square foot, conservatively (new-builds are closer to $200/sf). Let’s say your two-flat is 3,000 square feet. Well, that’s another $300,000. FHA construction financing is what a lot of buyers will lean on, says Shroeder. The current max loan in Chicago is $417,000. This plus 10 percent down kind of sets the bar for how much a buyer can spend on the project without extra lines of credit or significant personal savings. But be warned, it’s not so easy to get a construction loan these days when you’re not in the business.

It’s smart to keep a rental income on one unit for as long as you can. If you have the fortitude to live in a work zone, do what’s needed on your floor while leasing the other. Then perform a swap, collecting rent on the refinished space while you work the second half. In three to five years, it might just come together. If you have the capital from the start and can avoid the transitional approach, a two-flat conversion will still take around a year from contract to move-in.

It took David Yocum 13 years to finish his first conversion. Now a seasoned investor and a broker with Redfin, in 1997 he was just a guy looking to move his family out of a 1,100-square-foot Wrigleyville apartment. He went north and found a place in a little pocket of two-flats at the Rogers Park/Edgewater border. “I paid $211,000 and probably spent another $200,000 on the conversion over time.” Similar to Schroeder and Temple’s experience, a prior owner had fortunately already taken out the main level’s bearing wall. Yocum also kept two of the main level’s bedrooms as guest rooms, which saved some of the hassle of configuring new living spaces.

Conversions are being done to a higher standard now than 10 years ago, says Yocum. It’s an issue of consumer demand for higher-end finishes. If this is what the market wants, it makes conversions an even tougher ask for buyers with limited means. And, warns Yocum, “I see young couples with kids struggling with the environmental issues of a conversion. Asbestos and lead abatement sometimes keeps them out of their house for long periods.”

In sum, it pays to bring your own expertise to the table.

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