From Abandoned Shell to $1.1+ Million Valuation in 4 Years

67 Replies

I started investing back in the bottom of the recession or, as I like to call it, the Great Turkey Shoot of 2010. I was snagging some pretty incredible deals back then, but the jewel of them all was a beautiful brick six unit building that had been abandoned mid-construction. This property was actually damaged in a fire in the 2000's at which point the owner decided to take the money and complete a totally unpermitted renovation and expansion. Of course the project involved adding a masonry addition to the rear of the building within a few feet of an active Elevated (Chicago "L") train line. Naturally the city isn't too keen on this kind of behavior and the owner was slapped with a stop work order. As if that weren't enough, the bank followed suit by foreclosing and then totally neglecting to secure the property. It quickly became a drug den inhabited by homeless people who proceeded to literally crap all over the place. 

About this time I was scouting the area knowing that Lagunitas Brewery, Cinespace Film Studios, and a few other big name businesses were about to redevelop a nearby abandoned steel mill and improve the area. I ran across the building (which at the time had a beautiful copper cornice) and was obsessed. The asking price was $125,000 which was pretty steep considering the all the hair on the deal. Then, a few weeks later, I noticed a price drop to $25,000 which really piqued my interest. I drove by and noticed that all the windows had been smashed (to get the aluminum frames), the cornice was stolen, and apparently all the plumbing was gone as well. I called the broker and he said "make us any offer", So I did, I gave him an offer for $5,000, quick close. They countered at ZERO dollars if I was willing to let them quit-claim it to me and transfer all the liabilities from the city court cases to me. Best negotiation of my life.

The reason the bank was so motivated to sell was that the city had moved the building to demolition court and basically told them either fix it up, sell it, or demolish it or we will demo it for you and send you the bill. The property had multiple building court cases against it and was basically totally open to the elements and vagrants.

I spent the last four years repositioning the property and doing just about every legal maneuver you could possibly have to do to the building. I first had to get all the court cases under control which meant totally buttoning the building up and literally shoveling foot tall by three foot in diameter piles of dried feces out of the place. If you know anything about Chicago, the city is, well, less than helpful. So the next step was to attempt to get permits. Of course the zoning no longer allowed commercial spaces (and this building has a wonderful brick garage and corner retail space) despite the fact that my building had a commercial space since 1893. So I had to go through the process of securing a zoning change which in Chicago is a monumental task. That took almost a year to complete. After the zoning was taken care of I finally worked my way through the permit process which took 364 days as I had to clear both the stop work order and all other city complaints along the way. Finally I secured the permits and was able to close a hard money loan with only this property and one other I owned as collateral, no cash in. I've spent the last six months finishing rehab and, low an behold, my baby is no longer a terrifying abandoned crackhouse, but has emerged as a beautiful mixed use rental asset. 

I spent over $500,000 on construction, but now have a $2,000/mo NNN lease on the comercial space which takes almost a third of my taxes off my hand. I am getting upwards of $1400 for 2BD units and as high as $1750 for 3 BD units. My monthly NOI is just shy of $10,000 and, given the total gut job, my expenses are super low. At an 8 cap the property is now valued in excess of $1.1 million and I am in the process of refinancing to a longer term commercial loan to lock in these low rates for at least the next five years.

Great story and beautiful building. You should use some of the connections you've made along the way down at the city and ask, "Know of any others you'd be interested in me taking a look at?"

Hey Joe, this story is absolutely great. Such an inspirational thing to read; gives me motivation to try and pull off something like this. Congratulations on this one my man you did a phenomenal job!

@Joe H. , congratulations on doing an excellent job while getting a degree from the school of hard knocks.

Did you have any prior experience in construction or rezoning? Did you have to engage an attorney for it?

Originally posted by @Percy N. :

Joe H. , congratulations on doing an excellent job while getting a degree from the school of hard knocks.

Did you have any prior experience in construction or rezoning? Did you have to engage an attorney for it?

 A degree from the school of hard knocks is an understatement, I dealt with just about every real estate problem you can in Chicago which is not an easy place to do business to begin with. I think the degree is probably a masters, lol.

I got my start doing two to three flats, but I picked this up after I had only been doing it for about a year, so I was pretty green. You have to use an attorney in Chicago and they have to be friends with the alderman or you are going to get nowhere.

Originally posted by @Mindy Jensen :

@Joe H., what neighborhood is this property in?

 It's technically in South Lawndale (not North Lawndale, the scary Lawndale) which is now called Little Village. It's right on the edge of Pilsen which is extremely hot right now. The immediate area actually used to be called Marshall Square which, for obvious marketing reasons, I am hoping to bring back into vernacular use to piggy back on the whole "Logan Square" thing.

Nice! Can I ask if that's by 21st St and Fairfield? I'm on 21st place between Washtenaw and Rockwell. I just closed my first deal and I'm house hacking a 2-flat there. The area is changing fast and there's a ton if construction all around me. And I feel like I walk by that building every morning on the way to the L. 

@Lucas Hammer

Yes you do walk by it every day, good call on the area, I think it's one of the best kept secrets in Chicago right now. Feel free to come by some time, I'll give you a tour.

@Joe H. Fantastic job with this property. I hate to see properties like this with so much character and potential left to just crumble. This property is an inspiration for me. Im new to wholesaling in Chicago and hope to complete work like this in the near future!

Originally posted by @Matt Boyle :

@Joe H. Fantastic job with this property. I hate to see properties like this with so much character and potential left to just crumble. This property is an inspiration for me. Im new to wholesaling in Chicago and hope to complete work like this in the near future!

 It's all about finding the right property for the right price and, most importantly, picking a business pland and sticking to it no matter what it takes. Good luck and happy hunting!

Tremendous! Before pictures would be awesome! That's quite the turnaround!

@Marco G. Well I was a bit apprehensive about getting before shots in here because they weren't that great and were done on an old film camera, but here are a few I managed to "scan" using my cell phone:

Above Left: the vacant lot behind the garage was a total jungle, the rear wall of the garage and roof was collapsing. 

Above Right: This one is titled "oh ****, what have I done" and features me staring up at the abandoned hulk.

Above Two shots of the state of the interior, you can see piles of debris and the hobo camp that I had to disassemble.

Above: Most of the clumps you see are actual dried human waste, just piles of it everywhere. See in the back left of the lower photo.

Anyhow, a bit of an improvement over the original condition I think... :D

Nicely done. Similar situation I have now. I would like your help on this one. 20,000 sq. ft. Used to be an old factory. Asking $327k, hasn't sold in almost 2 years. Realtor said they are considering lowering the price as it is in the man's estate.

Looks great!

In addition to $500k how much time do you think you expended? I have to imagine a ton of hours spent on it!?

Originally posted by @John P. :

Looks great!

In addition to $500k how much time do you think you expended? I have to imagine a ton of hours spent on it!?

 Hard to say exactly. Tough to tease out the difference between time spent physically working on it or doing paper work from time spent thinking about it or worrying about it. I would say I've put in at least 500 "hard" hours of work and spent countless more fretting about it.

Originally posted by @Joe H. :
Originally posted by @John P.:

Looks great!

In addition to $500k how much time do you think you expended? I have to imagine a ton of hours spent on it!?

 Hard to say exactly. Tough to tease out the difference between time spent physically working on it or doing paper work from time spent thinking about it or worrying about it. I would say I've put in at least 500 "hard" hours of work and spent countless more fretting about it.

I hear ya. A lot of time but worth it in the end!  I am glad it worked out for you. Really looks great! Congrats.

The moment I saw the turret I knew this was a Sweet Home Chicago story! Nice job indeed!

$500k for a 6 family shell is pretty good. Is that including all hard and soft costs?

Pics look great. Building looks really nice!

Originally posted by @Ariel Cohen :

$500k for a 6 family shell is pretty good. Is that including all hard and soft costs?

Pics look great. Building looks really nice!

 My all in will be about $600,000. It's easy to get a good per-door cost when you have no aquisition costs.

Love this! Nice to read first thing in the morning. Thanks for the inspiration. 

310-266-8438

Love this! Nice to read first thing in the morning. Thanks for the inspiration. 

310-266-8438

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