2nd Chicago Wholesale Lead - Is this a deal?

[Ana N.]

Hi all, I got another lead in that I'd like to make an offer on tomorrow.
Any advice on these #s would be appreciated Thanks!

4/2 Frame 2 flat
Each unit is 2 bed/ 1 bath (w/ 1 extra bedroom on 1st fl- sectioned off part of living room for a makeshift bedroom!)
No Garage, Unfinished attic
No Central Heat/ No A/C: (1FL has space heaters, 2nd FL has radiators)
Smaller bedrooms w/ no closets! -only 1 large closet in the back of each unit -off the kitchen

Repairs Estimate: 46k
2 kitchens
2 bathrooms
Roof
15 windows
Central A/C / Heat
Garage
Floors: (1st FL: need kitchen bath, and hallway-rest has newer carpet -2nd FL -needs kitchen, bath, refinish hardwood in other rooms.)
Paint Interior
Doors x 2 -4
Dry wall - 2-4 rooms - repair
20% misc

Comps Note: Until I get MLS access, doing the best I can with sites like ziprealty, redfin, and realtor.com for sold comps.

Best Comp: unfortunately not perfect, but I made adjustments below
6/2 FR 2 FL Sold for $130k 1880 sqft 2 car detached 0.4 miles away Sold 12/13 (4 months ago) Rehabbed 2 flat w/ 3 bedrooms per unit. New windows, floors, kitchens, baths, appliances. Deck and 2 car garage

Adjusted Comp Value: (minus 10k for 1-2 bedrooms, minus 10k for central heat/ac, minus 10k-12 for garage/deck = 100k w/ no garage and no central heat/ac, 115k-118k with garage, heat, ac)

ARV: 115k w/ new garage, central ac/heat

70% Rule MAO for my cash buyers 115k x 70% - 46k = 34k - my wholesale fee = my MAO

What do you all think? Do these #s look ok? Is this a deal? Am I WAY off lol?

[John Weidner]

your repair costs are light given the work you described....

Just for reference a 2 car garage with concrete is about $12K in Chicago

I would look into the rents in the neighborhood to make sure you can offload this.

[Brie Schmidt]

yea, I think your numbers are off. I just installed 2 AC and 2 furnaces and it was 10k for units. Adding ducts could be $15-$20k from my experience if they are not existing.

I would guess $15k for 2 kitchens and baths

Roof $5k

Garage $12k

Windows $5k

I'm already at $62

[Ana N.]

Wow thanks @Brie Schmidt !

Looks like I was already off and I forgot about the ducts!

And Seller is asking 45k!

Using your numbers of 62k + 20% misc - we're at 75k in repairs.

At 120k ARV: MAO = 9k using the 70% rule and there's pretty much no room for a wholesale fee.

Is this a dead deal lol?

[Ana N.]

@John Weidner

This area seems to be much more of a fix and flip than buy and hold area.

According to Rent-ometer:

3 bedrooms rent for..Median: $1000 Avg: $1042

2 bedrooms rent for...Median: $700 Avg: $860

Thanks for the reference for a new garage! I was using a lower #

[Brie Schmidt]

I have only done 1 rehab so I am no expert...

[Ana N.]

Awesome @Brie Schmidt !

What area was your rehab in?

Do you guys think there's much of a difference in estimating repairs when it comes to southside vs northside properties?

My guess would be that you can get away with spending less on the southside..less granite and marble?

[Brie Schmidt]

@Ana N. North Center. Rehabbing is not my area of expertise and I know nothing about the South Side...

[Ana N.]

Gotcha @Brie Schmidt Thank you for sharing your experience about your rehab and congrats on doing one!

For all you Chicago Investors...how do you determine if you're going to flip vs hold a property? What criteria do you look for?

Do you use any of the rules of thumb ex/ 2% rule? 70% rule?

This might help me better figure out what's a good deal.

[Ana N.]

Do you experienced rehabbers out there....

put in a new garage in investment grade/blue-collar (low-moderate income) neighborhoods if there isn't one?

put in central ac /heat if the property doesn't have it in these areas?

These two costs, along with the typical kitchens, windows, floors, and baths that it looks like most rehabs need seemingly drops the 70% rule MAO really low - almost to zero or even negative numbers when ARVs are in the sub 130k range.

[Luis Toledo]

Consider mini-splits instead of central A/C. Installation should be far cheaper and faster. I'm not sure if they'll work to heat a home in Chicago, but if you have a radiator they will cool a room well in the summer. No ducting required. They're basically high tech wall units and are really popular in Japan and Europe. They're just catching on here because it's way easier to retrofit a space with splits than to install HVAC after the fact.

[John Weidner]

Southside is not my area of focus but where I'm targeting up North a Garage and Central AC is a basic. If you have ducts your looking at about $4K for a new furnace and AC condenser.

[Nathan Baumgart]

It's really going to depend on your comparable properties. If they all have garages then a rehabbed property without one will be at a disadvantage. Remember, your rehabbed property should ideally be in the mid or mid-high range for your area. If your improvements put you at or near the top price for the area, you may have trouble selling the property when you get into turn around.

Consider also that you have a few different exit strategies in terms of buyers. Lower income neighborhoods have less market for high end rehabs but a larger market for landlords looking for rentals. Rentals will have much lower costs overall in rehabbing but also lower overall sale prices. When searching for comps look for things in medium condition or properties marketed as great cashflow properties.

[Ana N.]

Thank you for the tip @Luis Toledo

I don't know of any rehabbers that use those in Chicago, but it could be a great alternative to the high cost of putting in ducts!

[Ana N.]

Thanks @John Weidner !

I'm not sure if garage and central ac are as important in this area of the southside. I'm going to work on finding some southside investors and investigate that.

Good points @Nathan Baumgart !

I should probably look into who the landlords are in this area and look for more comps in medium condition.

Does anyone know if the Section 8 offices in Chicago will give you a list of Section 8 landlords?

[Shara Carlton]

Hi Ana. Even if your MAO comes out to be as low as 6-7k, I would explain to the seller how I came to such a low offer ( and, depending on what part of the southside you are dealing with, they should understand why a person would have to be crazy to pay that much (45k asking price+ 75k in repairs) for a property in that area.

Double check the comps, like Nathan Baumgart said.

What area is it in? I'm very familiar with the southside.

[Ana N.]

Hi @Shara Carlton ,

This property is in the Back of the Yards / New City area.

What areas do you wholesale in?

Thanks for the tips!

Going to recheck comps and try to come up with an offer anyway. It'll be good practice making low ball offers lol!

[Shara Carlton]

Yep @Ana N. You also have to get a little nosey and get into the seller's business. Why do they need to sell? How much is owed on the property? Whats the least they are willing (or can afford) to accept (in cash)? You may be able to come up with another solution like a lease option or trade of services in exchange for a lower price...

[Shara Carlton]

BTW, I work mostly around South shore, 60619, just sold a property rather quickly in Roseland area so I will be working that area more often (60628), and I'm working on locking up a few properties in Jeffery Manor area (E. 83rd and 94St.)... and thats just in Chicago.

I do Lake County, IN too.

[Ana N.]

Awesome @Shara Carlton ! Congrats on selling your property and thank you for the vote!

How many wholesales do you have under your belt now?

I keep hearing great things about those areas you mentioned, although they're a little far out of my way.

Are you familiar with 60609 or 60632?

Hopefully we can help each other out with some "co-opetition", as

@Wendell De Guzman describes. It would be nice to work with other wholesalers to leverage our buyer's lists and get more deals done!