New Investor looking for advice - Logan Square, Chicago

Buying & Selling Real Estate
10yFollow

New Investor looking for advice - Logan Square, Chicago

Lindsey Matejak
Chicago, IL · Member since 2016 · 4 posts · 0 votes

I'm a new investor and have been crunching the numbers for weeks on a property we want to close on, but realized this week I had some calculations wrong that are making my numbers significantly different than I thought. The goal was to rent three of the units and live in the 4th--ideally having the rents cover our mortgage and expenses completely.

The property was completely renovated this year, so there shouldn't be any significant maintenance costs, but insurance and taxes are quite high because this is a 3 unit plus additional coach house with garage on first floor and unit on top floor. From my research, these are top rents we could get in the area as the market currently stands.

Could someone look at our calculations for a property and give us some insight if this is a good deal for Chicago? The property value will likely go up in the next few years because Logan Square is a hot market and so should rents but want to make sure its a good deal now. Please help. Thanks in advance!

Please click here to review: HERE

0Reply
36 views

Most Popular Reply

Frank S.
Specialist · Chicago, IL · Member since 2015 · 870 posts · 345 votes
10y

"The property value will likely go up in the next few years because Logan Square is a hot market and so should rents but want to make sure its a good deal now

 It sounds like your crystal ball is better than mine.  Will it be a good deal in 5 years? 

http://chicagotonight.wttw.com/2016/03/29/why-seco...

It seems you covered most expenses.  Do you have gas or electricity expenses?

Will the maintenance and repairs at 3,294 account for future capital expenses like furnaces, roof, tuck-pointing, etc? 

Check $1,600 for water, it may be higher?

Check garbage collection fees for +3 units.

It seems the average income is $1,525 per unit ( x4). Is this accurate?  Did you confirm the income will be as assumed?

If everything clears, it looks fine for a city dweller.  If you love the area and want to stay there for many years.  Are you staying there for a long time?

Congrats, 

Frank

1Reply
See this reply in the discussion

11 Replies

Jump to latestLatest
  • Frank S.
    Specialist · Chicago, IL · Member since 2015 · 870 posts · 345 votes
    10y

    "The property value will likely go up in the next few years because Logan Square is a hot market and so should rents but want to make sure its a good deal now

     It sounds like your crystal ball is better than mine.  Will it be a good deal in 5 years? 

    http://chicagotonight.wttw.com/2016/03/29/why-seco...

    It seems you covered most expenses.  Do you have gas or electricity expenses?

    Will the maintenance and repairs at 3,294 account for future capital expenses like furnaces, roof, tuck-pointing, etc? 

    Check $1,600 for water, it may be higher?

    Check garbage collection fees for +3 units.

    It seems the average income is $1,525 per unit ( x4). Is this accurate?  Did you confirm the income will be as assumed?

    If everything clears, it looks fine for a city dweller.  If you love the area and want to stay there for many years.  Are you staying there for a long time?

    Congrats, 

    Frank

    1Reply
  • Lindsey Matejak
    OP
    Chicago, IL · Member since 2016 · 4 posts · 0 votes
    10y

    Thanks for your input, Frank! I have definitely seen articles about the declining population but have also seen as we've looked for property in Logan Square that property is being bought up as fast as it can be listed. It seems that most are being bought up in order to flip, but I guess I don't know that for sure. As a new investor I'm not sure what conclusions I should be drawing from what seems like conflicting information.

    Gas & Electric are paid by tenants.

    Maintenance, repairs, trash and water...I am working on more specifics on these costs before moving forward.

    Rents are proven. New tenants just signed on for April 1 at these rates.

    We plan to stay there for a number of years...I would imagine 5-6 years at the most due to plans of starting a family.

    Thanks again for your advice!

    0Reply
  • David Fitch
    Investor · Westlake Village, CA · Member since 2015 · 73 posts · 70 votes
    10y

    I have a friend that started exactly as you are, but about 12 years ago. He bought a 3-flat in Wicker Park, which at the time was probably similar to Logan Square now - still a bit sketchy, but definitely on the upswing. He lived in one of the units, rented out the others. He actually rented out the other bedrooms in his own unit as well to maximize income (wasn't married with kids at the time). There were the same concerns then - a lot of folks said people in Lincoln Park would never consider moving to some place gritty like Wicker Park. Well, fast forward to 2016 and WP / Bucktown is yuppie central, and is now more expensive / desirable than LP. 

    Now he has 6 separate buildings, all 3-flats. I think he does about $30k/mo in rental income. The units are all 3 or 4 bd, so assume $500k avg each (probably a low estimate ), or $1.5M per building, so maybe $9M in value. I'm guessing $3M in mortgages, so pretty good chunk of equity. 

    Good luck! 

    0Reply
  • Frank S.
    Specialist · Chicago, IL · Member since 2015 · 870 posts · 345 votes
    10y
    Originally posted by @Lindsey Matejak:

    Thanks for your input, Frank! I have definitely seen articles about the declining population but have also seen as we've looked for property in Logan Square that property is being bought up as fast as it can be listed. It seems that most are being bought up in order to flip, but I guess I don't know that for sure. As a new investor I'm not sure what conclusions I should be drawing from what seems like conflicting information.

    Gas & Electric are paid by tenants.

    Maintenance, repairs, trash and water...I am working on more specifics on these costs before moving forward.

    Rents are proven. New tenants just signed on for April 1 at these rates.

    We plan to stay there for a number of years...I would imagine 5-6 years at the most due to plans of starting a family.

    Thanks again for your advice!

    The market is hot.  A fairly priced property won't last two showings. I keep finding myself bidding against 10 offers on day one. 

    Is there room for appreciation in Logan Square? Perhaps/ very likely is my opinion. It would take a black swan event to change the neighborhood course for there is a lot of money invested in restaurants, bars, and RE.

    If you like it there and can comfortably pay for the mortgage - without one or two tenants - then, no worries. If not, plan ahead and keep a cash reserve. What if you go through an eviction? They last 4/6 months. Note that I'm not saying this to discourage you. Can you survive without the income?

    Many people share great successful stories, very few brag about their tragic bankruptcies. Ignore the noise and look at your numbers.  

    What's your exit strategy? Is this a buy and hold forever or are you getting out in 6 years?  Are you buying more buildings?  It seems you are locking $135K or so.  Can you get a greater return by using your money in some other investment? 

    I would create a list of future capex and plan ahead.   With those rents you should be in good shape. I'm surprised how expensive Logan Square is getting. 

    Congrats!

    0Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    10y
    Originally posted by @Lindsey Matejak:

    I'm a new investor and have been crunching the numbers for weeks on a property we want to close on, but realized this week I had some calculations wrong that are making my numbers significantly different than I thought. The goal was to rent three of the units and live in the 4th--ideally having the rents cover our mortgage and expenses completely.

    The property was completely renovated this year, so there shouldn't be any significant maintenance costs, but insurance and taxes are quite high because this is a 3 unit plus additional coach house with garage on first floor and unit on top floor. From my research, these are top rents we could get in the area as the market currently stands.

    Could someone look at our calculations for a property and give us some insight if this is a good deal for Chicago? The property value will likely go up in the next few years because Logan Square is a hot market and so should rents but want to make sure its a good deal now. Please help. Thanks in advance!

    Please click here to review: HERE

     Couple of things... Your vacancy is high for Logan.  It is not hard to rent out units there, in my almost 5 years of being a landlord in Chicago I have only ever had one 2 week vacancy and that was because I was putting in new floors.  You really have to be lazy or renting a dump to have 10%.  Mine is less than 1% over the last 5 years but I still run my numbers at 3%

    Your water and sewer are way off.  You have $3200 and for 4 units and I think a conservative estimate is $1200.  Last year each of my three units averaged $750 for the year (for the whole building).  

    I don't understand your lease up or renewal costs.  If you use an agent the cost is 1 month's rent and tenants stay about 2 years.  Though I feel anyone is capable of renting out their own unit in that area

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
    WebsiteView Page
    1Reply
  • Frank S.
    Specialist · Chicago, IL · Member since 2015 · 870 posts · 345 votes
    10y
    Originally posted by @Brie Schmidt:

    RE

    Your water and sewer are way off. You have $3200 and for 4 units and I think a conservative estimate is $1200. Last year each of my three units averaged $750 for the year (for the whole building).Your water and sewer are way off. You have $3200 and for 4 units and I think a conservative estimate is $1200. Last year each of my three units averaged $750 for the year (for the whole building).

    I'm curious about this.  I've seen charges at $800 per unit in areas like Pilsen and Little village.  E.g., two flat 2/1 with a finished attic billed at $1,600.  This is calculated on the  number of plumbing fixtures.  I think your units are in much better areas.  

    Is your water/sewer bill calculated based on the number of plumbing fixtures?  Does the City use different rates for different areas?  How can one lower the bill?

    Thanks!

    UPDATE:

    $400 per water and $400 per sewer every 6 months, 1,600 total per year. Two flat with finished attic ( 3 set of bathrooms)

    0Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    10y

    @Frank S. - if they are being billed twice a year it means they are not metered.  When you do not install a meter the city charges you for unlimited water (one of my properties I bought 5 years ago and it was not metered, I think my bill was $700 for 6 months)

    To have a meter installed it is free, and you only pay for what you use.  Plus the city guaranteed your metered bill will not exceed what you were paying for unlimited for 7 years.  With metered accounts you pay twice a month.  www.metersave.org

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
    WebsiteView Page
    0Reply
  • Frank S.
    Specialist · Chicago, IL · Member since 2015 · 870 posts · 345 votes
    10y
    Originally posted by @Brie Schmidt:

    @Frank S. - if they are being billed twice a year it means they are not metered.  When you do not install a meter the city charges you for unlimited water (one of my properties I bought 5 years ago and it was not metered, I think my bill was $700 for 6 months)

    To have a meter installed it is free, and you only pay for what you use.  Plus the city guaranteed your metered bill will not exceed what you were paying for unlimited for 7 years.  With metered accounts you pay twice a month.  www.metersave.org

    Thanks a lot for the tip. 

    0Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    10y

    I mean you pay every other month

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
    WebsiteView Page
    0Reply
  • Lindsey Matejak
    OP
    Chicago, IL · Member since 2016 · 4 posts · 0 votes
    10y

    Thanks everyone for your advice--it's very helpful in running numbers. We just went on the inspection and learned that although the building had been renovated to look nice, they left quite a mess in the bones of the place. We are looking at a number of major capex over the next 5 years, so we will need to rework all our numbers and either renegotiate or walk away. So disappointing how many places in this city are being bought, quickly and crappily flipped, and then sold for way more than they are worth. I guess a lot of people can be fooled by slapping some lipstick on a pig and charging a premium for a brand new remod. 

    0Reply
  • Keith Ellis
    Investor · Chicago, IL · Member since 2016 · 35 posts · 20 votes
    10y
    Originally posted by @Lindsey Matejak:

    Please click here to review: HERE

     Lindsey, would you mind sharing that spreadsheet? I'm a new investor in Logan Square as well and feel your pain about how quickly properties are selling around here.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free