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Brie Schmidt
  • Real Estate Broker
  • Chicago, IL
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Diary of a Bulk Buy

Brie Schmidt
  • Real Estate Broker
  • Chicago, IL
ModeratorPosted Oct 8 2014, 10:07

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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