First House (Almost) debating if it's worth it.

9 Replies

Hello BP!

I've been looking at my first house (well, 1 of many) and decided to move in on it after really digging around.

Trulia rates other houses in the area a little high ($120K+), I was able to bargain for $100,500. 

Low crime rate, near zero, located south of Chicago, IL. Rents in the area are $1500+

(Queue the laughing of buying in Illinois)

The house already has a tenant, but they will be moving out. 

I'm using a PM, as I am investing OOS and actually living overseas. 

My PM performed the home inspection, and like most, I freaked out at the amount of issues that are shown on the spreadsheet, with pictures and such as well as pricing to fix/rehab. My PM said that if the property does not cash flow positive, they won't even bother with going through with the deal and would advise me to dump it (after already sinking in $1500 for the LPOA (Power of Attorney) and the home inspection.

Anyways, the repair costs will be about $12,600 all said and done. They are recommending I replace a 22 year old HVAC system (~$5000). The house is still in very good shape, the inspector said according to their findings that it's just needs some proper maintenance and fixing up. (All this does scare me of course as some of this I could probably do myself, but than why would I need a PM. And I believe this is the age old question of to Do or Not Do (yourself)), but I can't as I'm over the ocean. 

I expect to rent it for $1600, with close to $400 in cash flow. According to the loan, insurance and tax, PM fee, $1600 would cover it all and leave me with $375-$400 

I expect to put down $20,000 (20%) and have a reserve of about $10K for vacancy and maintenance reserves. 

So all in all... $42,600 initial... for a $100,200K home. 

Anyone who does out of state investing can chime in? Is that normal? About what you would find and expect? Thoughts? Advice? Is my Math wrong?

I want to pull the plug on it and go through with it, but something in the back of my mind is saying "ask BP". 

I'm originally from Boston, but my PM doesn't operate out of Boston. Plus, Boston area is like buying several Park Place and Boardwalks. I'm looking to start with the Connecticut Avenues and Charles Places on the monopoly board. 

To tack on --

The biggest concern of all is the roof. The inspector performed ... the inspection? and found that there was frost on the sheathing which indicates a lack of an ice shield. I'm scare that will cost a pretty penny...

They said that can give the possibility of microbial growth (mold?). 

If it will truly cash flow like you think , it should be a decent deal , just make sure to account for all your expenses etc and I like to overestimate those .
Assuming Trulia has the right comps , I personally wouldn’t pay what amounts to market price . By the time you add the repair costs , price , closing costs, and those little extras that always creep in , you will basically have purchased it at market value , that can be okay , but I’d prefer to have more equity in it after repairs . Could still work though .
The OOS investing is something that would worry me ( I haven’t done any ) and I’d be sure to check out the management company as thoroughly as you can .
Hope you do well with it !

@Yuuj V. , you wrote: "Low crime rate, near zero, located south of Chicago, IL. Rents in the area are $1500+ (Cue the laughing of buying in Illinois)".

I take it that you are expecting locals from South Chicago to laugh at (both) your "low crime rate" and "Rents in the area are $1500+" comments?

Based on what I've read about South Chicago, I won't be surprised if they do!

Are you sure about those statistics, for that exact area? [It changes from block to block!]

By the way, I hope you're only looking at sold comparisons, rather than list prices!

Who's feeding you the narrative? Representatives of the Seller? [Warning, warning!]

And I reckon, if you end up needing to replace the roof, that'll end its bargain potential...

Originally posted by @Brent Coombs :

@Yuuj V., you wrote: "Low crime rate, near zero, located south of Chicago, IL. Rents in the area are $1500+ (Cue the laughing of buying in Illinois)".

I take it that you are expecting locals from South Chicago to laugh at (both) your "low crime rate" and "Rents in the area are $1500+" comments?

Based on what I've read about South Chicago, I won't be surprised if they do!

Are you sure about those statistics, for that exact area? [It changes from block to block!]

By the way, I hope you're only looking at sold comparisons, rather than list prices!

Who's feeding you the narrative? Representatives of the Seller? [Warning, warning!]

And I reckon, if you end up needing to replace the roof, that'll end its bargain potential...

Hey Brent! Always appreciate the insight. 

Laughing as in "People here on BP" :P. I know Chicago doesn't have the best reputation, and I've talk to another whom has property in Texas, and he laughed at investing in IL and another who just gauked at the thought of Chicago. So maybe I should heed their warnings. 

The Statistics I got were from Trulia/Zillow and reading about several websites throughout my research. The area is Country Club Hills in Cook County. 

I was  looking at both the list prices and sold prices. :), glad I did that too. 

As for estimating the rents, I used  Craigslist, Trulia and Zillow to get an idea of the rents in the area. (as well as a few random real estate websites)

That is a suburb south of Chicago, not an area on the south side of Chicago.  I don't know the area but I have family there so don't think of it as a high crime area

As an agent who works with investors, I always tell them that if they are up at night worrying if this is the right deal, or how they are going to pay for the work, or if they are overpaying, this isn't the deal for you.  

Brie Schmidt, Real Estate Agent in Illinois (#471.018287) and Wisconsin (#57846-90)
First I would want a good explanation for replacing a working furnace. What kind is it? is there a safety hazard? can you get more out of it? Roof you want a local roofing contractor to lo9k at. I love your comment about park place and board walk and living in MA I know boston is pricey, that said if you plan to stay in MA there are opportunities driving distance from boston. Based on your post you may be someone who needs to see a couple properties to feel comfortable with repairs. That said if you have ties to Chicago area go for that and fly out for the inspection.

@Yuuj V. If you are offshore and plan to continue to be offshore. This sounds like many headaches waiting for you each & every month - I would pass on this regardless of the money you have already sunk into the deal.  

512-633-3853

Everyone who replied,

Your insights were greatly appreciated.

I decided to go through with the deal, only for the deal to go under because the house was under 2 mortgages and a bankrupt LLC. (Go figure)

It was really a gem in the sand, but onto the next as they say. 

My PM said that's a first for them, but the seller had cancelled the agreement, not only because their mortgages, but because there are some other issues going on that they, the seller, won't release. (code violations and such). 

Ahh well. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.