Stepping up to multi-family, Chicago area

9 Replies

Hi All,

I'm a reasonably experienced SFR investor, having bought, renovated, and managed a dozen units in Atlanta for some years (started late 2007). Much of this was me personally, until having a family and then in early 2017, moving away. Since then I've hired a management company and fortunately, had a good experience.

Times change. After years of steady-state, property values have gone up substantially. Of course, taxes rose right along with them. Rents have increased nicely, but not nearly enough to preserve ROI.

This year we decided it was time to sell, and everything is under contract and set to close just prior to the new year. I'm doing a 1031 to avoid the brutal tax hit. Which brings me to... building a team (that's what we call it, right?)

For various reasons, I didn't get started on this as early as planned. At a minimum, there is:

1. Find a good agent to work with. Someone who knows the industry and can answer questions beyond just "how much have you got, what do you want?"

2. Ditto for a good lender.

3. An attorney for ownership structure, contract review, etc.

4. Contractors, but I've got some leads there and am not quite as pressured.

5. Ideally, to meet other investors with similar interests who're willing to chat. Naturally, Covid makes this tricky.

We live in the Chicago area now, and plan to stay long-term. I'd like to focus on property within a reasonable driving distance. I'm interested in "middle quality" commercial multifamily. By that, I mean properties which are currently occupied (though maybe not fully) and generally functional, but which have room for improvement. So nothing that isn't livable, but also no brand-new 5-caps in Lincoln Park.

What I'm looking for are helpful tips about making the contacts mentioned above (agents & lenders in particular), and general thoughts about making the step up. Clearly I won't be doing everything myself this time.

Any and all thoughts appreciated, especially from this area. Thanks!




Originally posted by @Allen B. :

Hi All,

I'm a reasonably experienced SFR investor, having bought, renovated, and managed a dozen units in Atlanta for some years (started late 2007). Much of this was me personally, until having a family and then in early 2017, moving away. Since then I've hired a management company and fortunately, had a good experience.

Times change. After years of steady-state, property values have gone up substantially. Of course, taxes rose right along with them. Rents have increased nicely, but not nearly enough to preserve ROI.

This year we decided it was time to sell, and everything is under contract and set to close just prior to the new year. I'm doing a 1031 to avoid the brutal tax hit. Which brings me to... building a team (that's what we call it, right?)

For various reasons, I didn't get started on this as early as planned. At a minimum, there is:

1. Find a good agent to work with. Someone who knows the industry and can answer questions beyond just "how much have you got, what do you want?"

2. Ditto for a good lender.

3. An attorney for ownership structure, contract review, etc.

4. Contractors, but I've got some leads there and am not quite as pressured.

5. Ideally, to meet other investors with similar interests who're willing to chat. Naturally, Covid makes this tricky.

We live in the Chicago area now, and plan to stay long-term. I'd like to focus on property within a reasonable driving distance. I'm interested in "middle quality" commercial multifamily. By that, I mean properties which are currently occupied (though maybe not fully) and generally functional, but which have room for improvement. So nothing that isn't livable, but also no brand-new 5-caps in Lincoln Park.

What I'm looking for are helpful tips about making the contacts mentioned above (agents & lenders in particular), and general thoughts about making the step up. Clearly I won't be doing everything myself this time.

Any and all thoughts appreciated, especially from this area. Thanks!







Chicago MSA is a big market. First step would be to determine the value of the exchange and what that will buy you in the market. Stepping up to multifamily triggers a different level of qualifications for financing so want start there and also educate yourself on the market first and narrow down the size, type and location of properties you qualify for and are interested in before reaching out to brokers as they specialize in certain asset sizes, types and classes and the first question will be if you are prequalified and experienced.

 

@Allen B. Great story/post!  I think most of us are happy to share anyone in our local Chicago network.  Give us a little better idea on maybe neighborhoods of interest or price point you are looking to roll into?

Like others have said, Chicago has various markets.  What are your target metrics?

@Allen B. - That's awesome that you are willing to make the jump from sfr to multi-family.  You are definitely on the right path by building your team.  You've already got a ton of smart Chicago investors on this thread so let us know a few more things like:

How much capital you'll have from your 1031 exchange?

Where you want to invest?

How many units?

How extensive of a rehab?

What's your why for investing?

@Allen B.   Sounds like you are on the right track.  Step 1 if you have not already is to find a mentor or coach.  Then be prepared to reach out to as many brokers, owners and property managers as possible. The latter of those three may be the best resource in this never-ending sellers market?

Hi All, thanks for the great suggestions!

@Greg Dickerson , you've hit on something I'm a bit concerned about, the "experience" requirement. I'll be talking to a few lenders in the next several days and plan to dig on that subject a bit. 

@Mark Ainley , somewhere in the B-C range but haven't learned enough to narrow that down. I live on the north side of town near the lake, so closer to that is a plus, but willing to make a longer drive for the right opportunities. Learning about neighborhoods right now.

@Brie Schmidt , believe I spoke with a colleague of yours today! My focus is on income first, with a secondary focus on adding value and ultimately expanding. My goal is to reach 10% leveraged cash-on-cash but still have too many unknowns to understand whether that's possible at a reasonable cap rate with real-world financing. Talking to lenders and doing some math should answer that question soon.

@Jonathan Klemm , wasn't sure if it was wise to post numbers. I've seen people get scolded for announcing that they've got $50k to invest and asking how to get into REI :-) This is enough to look at one fairly large purchase or several moderate ones. Happy to detail via PM.

In the past, I bought mostly uninhabitable SFRs but that feels like too much to bite off at this level. For now, I'm looking at occupied buildings that could be improved. A few units in a larger property needing serious rehab would be OK, but not the whole building.

@Colby Fryar , if I could find someone to learn the Chicago multi-family ropes from directly, that would be ideal, but no clue how to make that happen. Suggestions definitely appreciated here.

Thanks again,
Allen


Originally posted by @Allen B. :


For various reasons, I didn't get started on this as early as planned. At a minimum, there is:

1. Find a good agent to work with. Someone who knows the industry and can answer questions beyond just "how much have you got, what do you want?"

2. Ditto for a good lender.

3. An attorney for ownership structure, contract review, etc.

4. Contractors, but I've got some leads there and am not quite as pressured.

5. Ideally, to meet other investors with similar interests who're willing to chat. Naturally, Covid makes this tricky.


Any and all thoughts appreciated, especially from this area. Thanks!

I'll send you a PM with some attorney & lender recommendations. I'll also introduce you to VP at Midland Trust if you haven't chosen someone for the 1031. Regarding the rest- Many of the networks to meet investors have gone virtual. I won't name them all here but I recommend you check out Chicago Creative Investors Associations (CCIA).