Diary of a Bulk Buy

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Diary of a Bulk Buy

Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes

I am looking to do another bulk buy and wanted to document my experiences here. I already have a commercial lender in place who did our previous loan.  The challenge is that I am looking to buy 6 - 10 properties that for the most part are 2-4 units, so valued as residential.  But my loan is commercial and valued on Cap Rate and DSCR so I need to look at them both ways and make sure the numbers work all around.  

I used www.rentometer.com to determine the market rents based on the bedroom make up and location.

I saw all these properties about 2 weeks ago:

The first one is a good property. It is a 4 bedroom top unit and a 2 bedroom basement unit. The basement unit has mold on the drywall and the bathroom layout requires you to squeeze by the sink to get to the toilet. The numbers work on this with just the top unit so I made an offer. This is a short sale and they are negotiating with the bank right now on the price, so technically they are not accepting offers, so I made an open ended offer at $28k assuming $10k of work.

The second one is in a great area and the units are rentable, but there is a huge foundation crack along the side wall and the top floor unit in back has a bad slope (but not the unit below, weird) I offered $45k because of the amount of work and they countered at $60k and I walked.

The third one my PM said was in a bad area so we did not see it.

The fourth one was in good condition. It is a 5 bedroom front building and a 2 bedroom (easily converted to a 3) back cottage. It does not need any immediate work and we are under contract for $59k with a 1 year home warranty. I have a $10k reno budget to add laminate when the tenants move out and create the third bedroom in the coach house.

The fifth one had a huge updated upper unit but the lower is what they call a "Polish Flat" where the bottom of the window sills are right at grade and cause water to constantly come in. My PM had actually seen the property a few months ago and said there was mold everywhere. They had just painted right over it. Yikes! Between that and the fact that the basement unit had the furnace in the middle of the living room, we passed.

The sixth one was in a great area. It had a duplex front and coach house in the back. Apparently the previous owner illegally converted the attic to a unit and it is currently condemned. The property is bank owned so they have little information but after talking to the inspector it seems it was condemned because the only form of egress is a staircase that is not built to code. We did make an offer and plan to move the staircase and duplex it up, but I either need to get it at a low price or see the attic unit so I know how much the rehab will cost. My reno budget right now is $15k without seeing the unit and we are awaiting word from the bank.

The seventh property I did not get to see as the agent had the wrong lockbox code and it took a few days for him to get it. But I trust his judgement to look at it without me. This was a big 4 unit in front with a back cottage. It needs a lot of work and I think I can make the numbers work... but I am looking to buy 6-10 properties right now and don't think I can handle it all with a major rehab included, so I might come back to this one later.

The eighth property went under contract that day so we did not get to see it.

The ninth property was an ok duplex. The units needed paint and carpet but it is fully occupied right now so we can do that later. The front wall in the basement had some cracks between the cinder blocks. We did go under contract for this one at $31k and are waiting on the inspection and contractor bids to do the work on it. I have a $15k reno budget on it.

The tenth one is a duplex, then a shared parking lot for 14 cars, then a large property with 2 vacant commercial units on the first floor and four 1 bedroom units above. The duplex was in pretty good condition and the one 1 bedroom we saw was in good condition, but the outside was a disaster. In Milwaukee when you transfer title you pay for a mandatory code inspection. Having already been through this before I know they will hit is for missing siding, the whole said of the front building needs to be re-graded, the roof needed replacement and is causing water damage. I estimated at least $70k of work so I offered $30k and they rejected it, so I walked

Here is where I am at with the four I am hoping to get (2 under contract and 2 pending)

I have identified some more properties but the cap rates are nothing too exciting so I have decided to do a Direct Mail campaign first to see if I get any good leads. Our loan is a commercial loan and they prefer to do multiple properties at one time so we set a closing date 6 weeks out so I have time to find more properties and add them to the loan.  So I am going to give it a week or two before scheduling showings for these if nothing comes from the direct mail campaign.

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Robert Taylor
Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes
11y

For the illegal attic unit, I'm assuming you mean a city inspector told you that's why it is condemned, correct? What were your plans for that as for the rehab you mentioned? If it is to keep it as a separate unit, DEFINITELY check with them on that one, I know from personal experience that at least on the east side where those attic units popped up everywhere maybe during the 70s and 80s the city's been doing everything they can to eliminate those 3rd units, they either can be combined with upper unit for a "super unit" or must be abandoned. They'll let the existing ones stay but even then I've heard at least second hand that even then they'll sometimes use various reasons to shut down the separate unit even if its not sold or anything. That's in the priciest part of town but I'm not sure if they're doing it citywide, but I doubt anyone now can add a 3rd attic unit anywhere in the city from scratch. 

If its already condemned, you'll need a code compliance cert before you can rent it so I'm curious if they'll allow you to rehab it and rent out the attic as a separate unit there, I know they wont on the east side. 

Also, what is the zoning there for that property? Its probably RT4 or RT2, which means a maximum of four units or two units per property respectively, but of course all sorts of other rules come into play too like setbacks, etc.

Definitely be careful when buying this bulk purchase as far as taking on properties with code violations, which nearly any REO at least in the city will have because they inspect them all and meeting exterior code to the letter is essentially a like new house. The part to be careful about is that you're buying a bunch at once, which even in a city that size will certainly pop up on someone's radar at the inspector's office. They've done it before more than once where someone gets a, for lack of a better term, bug up their butt about the new landlord making a big purchase and they'll want to let them know that even if the rest of the block isnt the greatest, that they want you to know they still enforce the codes and being from out of town, Chicago none the less, makes it even more likely. Not trying to scare you, things should work out just fine, but letting the inspectors know you take them very seriously is a very good idea because with the banks, they adopted a new policy the last few years where they enforce the codes to the letter on any bank owned house anywhere in the city rigorously. I know a bunch of contractors personally who have picked up work sometimes a lot of work, where they'll end up doing 15 or 20 thousand dollars worth of work just on the exterior, of a house in a neighborhood where even the nicest house would be lucky to sell for more than 60 grand. I forget what the maximum fine per day per violation is but even if it's only 10 dollars multiply that by the number of violations by the number of units or properties actually then multiply that by each day, you'll end up with quite a big number! They've already sunk a few people who are pretty big, including an old friend of mine, who was not a slumlord by any means!

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  • Jonathan Pliszka
    Financial Advisor · Lexington, KY · Member since 2012 · 150 posts · 66 votes
    11y

    @Brie Schmidt Awesome, Brie! Look forward to following along. Is this in Chicago or Milwaukee? Cheers!

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    11y

    @Jonathan Pliszka - I wish I could buy a duplex for $20k in Chi-Town!

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  • Jason James
    Investor · Louisville, KY · Member since 2014 · 202 posts · 111 votes
    11y

    @Brie Schmidt I too look forward to following along. I am looking at a package deal of 21 SFR properties in southern Indiana though a different animal it will be interesting to see how your deals play out. Good luck.

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  • Jonathan Pliszka
    Financial Advisor · Lexington, KY · Member since 2012 · 150 posts · 66 votes
    11y

    Wasn't sure if you were experimenting down on the Southside, @Brie Schmidt !  ;-)

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  • Robert Taylor
    Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes
    11y

    For the illegal attic unit, I'm assuming you mean a city inspector told you that's why it is condemned, correct? What were your plans for that as for the rehab you mentioned? If it is to keep it as a separate unit, DEFINITELY check with them on that one, I know from personal experience that at least on the east side where those attic units popped up everywhere maybe during the 70s and 80s the city's been doing everything they can to eliminate those 3rd units, they either can be combined with upper unit for a "super unit" or must be abandoned. They'll let the existing ones stay but even then I've heard at least second hand that even then they'll sometimes use various reasons to shut down the separate unit even if its not sold or anything. That's in the priciest part of town but I'm not sure if they're doing it citywide, but I doubt anyone now can add a 3rd attic unit anywhere in the city from scratch. 

    If its already condemned, you'll need a code compliance cert before you can rent it so I'm curious if they'll allow you to rehab it and rent out the attic as a separate unit there, I know they wont on the east side. 

    Also, what is the zoning there for that property? Its probably RT4 or RT2, which means a maximum of four units or two units per property respectively, but of course all sorts of other rules come into play too like setbacks, etc.

    Definitely be careful when buying this bulk purchase as far as taking on properties with code violations, which nearly any REO at least in the city will have because they inspect them all and meeting exterior code to the letter is essentially a like new house. The part to be careful about is that you're buying a bunch at once, which even in a city that size will certainly pop up on someone's radar at the inspector's office. They've done it before more than once where someone gets a, for lack of a better term, bug up their butt about the new landlord making a big purchase and they'll want to let them know that even if the rest of the block isnt the greatest, that they want you to know they still enforce the codes and being from out of town, Chicago none the less, makes it even more likely. Not trying to scare you, things should work out just fine, but letting the inspectors know you take them very seriously is a very good idea because with the banks, they adopted a new policy the last few years where they enforce the codes to the letter on any bank owned house anywhere in the city rigorously. I know a bunch of contractors personally who have picked up work sometimes a lot of work, where they'll end up doing 15 or 20 thousand dollars worth of work just on the exterior, of a house in a neighborhood where even the nicest house would be lucky to sell for more than 60 grand. I forget what the maximum fine per day per violation is but even if it's only 10 dollars multiply that by the number of violations by the number of units or properties actually then multiply that by each day, you'll end up with quite a big number! They've already sunk a few people who are pretty big, including an old friend of mine, who was not a slumlord by any means!

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    11y

    Oh @Robert Taylor never a short answer from you :)

    The first floor is a 3 bedroom but the rooms are small so I plan on moving the staircase that is the problem to one of the bedrooms and laying it out like a SFH. It is zoned as a 3 unit and from talking to the city inspector moving the staircase and adding stairs to the back balcony will solve our problems if we want to keep it as a separate unit. But then I am losing a bedroom downstairs and think 1 big 4 bedroom property is going to be better than 2 small 2 bedrooms.

    As far as the city code inspections, we got hit with our last bulk buy.  Overall it wasn't that bad but I did not know about it and it was a surprise.  Now as I am looking at properties I am looking for things that will come up on a code inspection.  So far the vast majority of the properties are not bank / city owned.  

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  • Robert Taylor
    Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes
    11y

    I tried to bang out the longest answer I could and I wasn't sure if they'd let anyone keep an existing separate attic unit at all, I don't think they would but I don't know if they're as tough as they are on the Eastside all over the city or not. That's not your plan though so that issue is moot! You will still need as they told you, apparently 2 exits from the attic and they have to be a certain number of feet apart whatever that is for that place, but you already know that I'm sure if it's a city inspector.

    Yes be prepared for the inspections, especially after the next big buy, most of the inspectors I have dealt with or nearly all of them at least decent and some are even nice, but just keep that in mind about not like you have to kiss the ring or anything like that, but just being from somewhere else, but especially Chicago you never know what someone somewhere in that huge department might very well have a chip on his shoulder about landlords! it makes me think of a situation I was in about 5 years ago,when I was running a restaurant bar that's we open with two of my brothers in one of the western suburbs, its still there and doing great but I've had enough of that business. 

    We ran into a situation that we had no clue what was going on, until one of the aldermen who is pretty cool, talked to me and one of my brothers and said hey don't ever mention anything as to how they do things in Milwaukee, because unbeknownst to us some of the other council members apparently thought that we thought we were the greatest things since sliced bread, which wasn't the case at all! Yet, we had no clue they were thinking that! luckily told us that before anything bad happened and everything turned out just fine. I just don't want the same type of thing they happen to you where someone might think, well here's the Chicago big shot again making another purchase, she better not think she's going to get away with a fast one on me! I'm going to enforce this one to the letter and I'm telling my supervisor! It's not likely, but it has happened before and Milwaukee govt isnt known as being too landlord friendly. 

    That doesn't mean one bit that people from out of town don't make great money here, lots of them do. of course, it also helps a lot that the Bears keep hanging on to Jay Cutler, because if they had a quarterback that could actually possibly come even close to beating the Packers, then those inspectors might really get rough when anyone from Chicago! Well, just keep your fingers crossed Aaron Rodgers doesn't get hurt this year and everything should be fine!

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    11y

    @Robert Taylor Yea, we were told because our LLC is in WI but our address is in IL we might get hit a little harder on the inspections... what do you guys call us? FIB's? :)

    Don't even get me started on the Bears.  My poor dogs run to me with their tail between their legs cause my husband is yelling so loud they think they are in trouble.  

    Luckily my PM and his family have been investing in the area for over 50 years and have great relationships set up so it has not been that bad.  

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  • Robert Taylor
    Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes
    11y

    I think everything should be fine, I can only think of one out of the many inspectors I've dealt with from the city that I honestly had a problem with or that I thought was being unfair or irrational at all, and I know that person is now gone, this was maybe 8 or 9 years ago.

    Since you're coming in and already planning on spending money on these places, that's a world of difference from some who come in and just want to suck every possible last cent out and put nothing in, so that should be a big help too. One of the people I knew personally who was sort of "targeted" by the city was also buying multiple properties and did fix many up without a doubt, but also broke a lot of rules, some minor and some major, like playing fast and loose with tenants security deposits, which is usually "landlord suicide" here. We have fairly decent landlord/tenant laws here and they just fixed some of the loopholes and improved them a couple years ago, it isn't as bad as some states where a clever tenant who learns a few tricks can really screw over a landlord badly, but especially in this county, you have to know the rules and play by them because most of the judges are politically biased towards the "tenant good/landlord bad" side of things and will sometimes use any error to the tenant's favor. If you're here and they know you're good for the neighborhoods you're buying in, that goes a long way! If you can build a little friendship with some of the inspectors, it won't get you out of some major offense, but it can't hurt.

    Plus, the Packers already won the Soldier Field game (which for people around the country, is ironically considerably CLOSER to Milwaukee than Lambeau Field is, but the team that plays there has sucked horribly for decades! hahaha!) so now the Bears have to go to Green Bay and we know how that always goes, so you won't have to worry about any hard feelings from inspectors or anyone else in city gov't, even if Cutler has a rare accurate day! So, things look great overall!

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  • Ramon Jenkins
    Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes
    11y

    “ Well, just keep your fingers crossed Aaron Rodgers doesn't

    get hurt this year and everything should be fine! “    LOL

    My I ask what provider are you using for property insurance?

    I would suggest you create separate payment/checks for each 

    property and keep receipts.    ( property taxes )

    Make sure payments are made way before 12/31, if possible. 

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  • Robert Taylor
    Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes
    11y

    I know, those are cheap shots about the Bears, I should be nicer considering the hell those Bear fans have been through since early 86! Although future hall of famer Rex Grossman did at least somehow get them to that one Super Bowl where they got run over by the Colts, but other than that its been rough while we go from Favre to Rodgers without missing a beat! Other than that though, we don't get to talk too much smack about Chicago, so might as well ride the Packers/Bears thing for all its worth!

    I'm curious though, why would she want to pay her taxes early? Not saying to pay late either, although everyone knows that its the magic 3 years of not paying when they'll snatch it through tax foreclosure in the city of Milwaukee. Although they might sue you for it first and considering the ridiculous inventory they now have of 1300+ homes, mostly ones that aren't worth touching, even for $1 due to heavy damage and being in areas where the max possible value wouldn't cover the repairs needed, I bet they'll be doing more lawsuits and less foreclosure soon, who knows. Curious about benefit of paying early though, wouldn't that be giving the city a free loan?

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  • Ramon Jenkins
    Real Estate Agent · Milwaukee County, WI · Member since 2009 · 3k+ posts · 525 votes
    11y

    @Robert Taylor 

    Not early, but me personally gives a comfort level knowing

    on 12/31 property taxes are paid.

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  • Robert Taylor
    Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes
    11y

    Ok, I can't argue with that, it would make me feel good too! At least until I thought again about just how much they charge us, then I often don't feel too well for a while!

    1Reply
  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
    11y

    I prefer to use the monthly payment option.

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  • Robert Taylor
    Broker, Investor, Property Restorer · Fox Point, WI · Member since 2012 · 288 posts · 120 votes
    11y

    The monthly payment is nice since then you're paying them off after the fact, so then they're giving YOU a free loan in essence. I see the value in both ideas!

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  • Kimberly Land
    Investor · Chicago, IL · Member since 2014 · 39 posts · 13 votes
    11y

    @Brie Schmidt You are doing it girl!  Nice...and thanks for such wonderfully detailed info.  Newbies like myself learn from these posts.  Thank you.  

    Since you are a fellow Chicagoan, how did you find the contractors, that you apparently trust, to do the work in Milwaukee?  

    Also, did the lender require that you already own property in order to get a commercial loan.  

    I admire you Brie.  Keep up the awesome work. 

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    11y

    @Robert Taylor - I appreciate you looking out.  I have heard stories about the city being salty with out of area investors wanting to do deals there.  I try to be conservative and plan for worst case and I do need to be cautious.  

    @Dawn Anastasi and @Ramon Jenkins our loan is commercial so no escrow for taxes and insurance (ins is through Auto Owners) so I have a separate savings account that I transfer money into each month).  Since we just aquired in July and taxes were paid through 2014 at closing and I am putting enough in to pay monthly for 2015 and then for 2016 I was planing on paying in full so I added extra now.  I just got a letter to set up the eft for taxes and I might change my mind and pay monthly and reduce the amount I put in savings.   Our only option in Chicago is Bi-Annual so having the monthly option is a welcome surprise 

    @Kimberly Land - The contractors are though our PM.  We are his only client (he was the seller of our July buy) and his family owns 80+ properties in the area and have been investing there for over 50 years.  We put a ton of trust in him and so far have been very pleased with him and the work that was done.  This next buy might be a little tricky.  It is one thing to ask him to keep managing properties that he already owns and tenants he has been working with for years, it is another to ask him to take on new properties.  So far he seems willing but we have given him an out if he wants.  

    As far as the loan, these are purchase loans so we do not need to own them first. The ones we looked at with big rehab budgets we would need to buy in cash, rehab, and then they will put a 80% LTV loan on our all in costs. But we passed on those for now and the rest should all be small rehab amounts. I am using Chicago rehab costs for my estimates which seem to be much more than Milwaukee from my experience. I would rather be cautious.

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    11y

    The first property we have not heard back yet, but I knew they were working with the bank on a approved short sale price and they were not accepting offers at this time.  I am still hoping my above list price offer will get them moving.  

    The fourth one we are under contract for $59k The seller had a offer on it a few months ago and the financing fell through so he had a inspection report and receipts showing all the major items completed.  I am going to do a walk through tomorrow before releasing the inspection contingency.  He has already provided us with all the leases, rent roll, and Schedule E for the loan so this one seems good to go.

    The 6th one with the condemned unit we are going to see tomorrow.  Surprisingly, @Robert Taylor the city told us we could remove the 2x4 across the door and go up in the unit as long as we put the 2x4 back.  So we will see that tomorrow and hopefully continue negotiations.

    The ninth unit we have an inspection scheduled for Tuesday so my PM and contractor can be there.  My main concern is the basement foundation wall.  It looks like an easy fix of tuck pointing but I want to make sure before moving forward 

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  • Dawn AnastasiPro Member
    Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
    11y
    Originally posted by @Brie Schmidt:
    Our only option in Chicago is Bi-Annual so having the monthly option is a welcome surprise 

    "Monthly" is a tiny bit of a mis-nomer.  Technically, the payments are made only January - October.  November and December there are no payments.

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
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    @Dawn Anastasi - Good to know, thanks!  I am still learning all the little things with the market up there.  

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  • Kimberly Land
    Investor · Chicago, IL · Member since 2014 · 39 posts · 13 votes
    11y

    Hi @Brie Schmidt I'm sorry I wasn't very clear with my question.  I meant to say--Did the bank require that you already own 'other' property, as in you were already a landlord, with cash flow, before they approved you for a commercial loan?  

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
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    @Kimberly Land Yes they did require us to have previous landlord experience.  The commercial side is a bit different.  The approval is mainly based on the deal you are buying but you still have reserve requirements and net worth requirements you must meet.  

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  • Michael Garcia
    Investor · Chicago, IL · Member since 2013 · 59 posts · 6 votes
    11y

    Time for some clueless questions...What is the advantage  of buying multiple properties together rather than appart? And do you buy them form differant sellers? If so how do they like the closing explination?

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  • Timothy Riley
    Investor · Chicago, IL · Member since 2013 · 451 posts · 96 votes
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    @Brie Schmidt 

    Fabulous!!!

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  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
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    @Michael Garcia - It is because of my loan.  We have a commercial loan but with the price points so low they do not want to be submitting deals to underwriting once a month so they strongly suggest for me to buy more than one and submit 1 file to underwriting about once a quarter

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