4 Unit - Sell or Gut Renovate?

Question

I bought a 4 unit building in Bridgeport Chicago for 430k. I made some repairs and increased rents to 4500 a month. However, random things keep breaking down and it really needs a gut renovation. I can't afford to keep making repairs so my question is: Should I just sell at a loss or find a loan that can over the cost of an entire gut renovation (if there is such a loan)?

Jonathan Klemm · Answer

Hey There @Kevin L. - Sorry to hear you are running into some troubles.  I've been there and am there currently with a couple of my Chicago buildings.  Real estate seemed so cool and sexy when I was getting into it, but after a couple of dozen properties, now it's more of a pain and chore than anything.

In my opinion, you have options, but ultimately you have to lay out your long-term current goals and short-term needs.

If you wanted to do the renovation, you could likely do a 203k refinance or use a product like Renofi, which takes into account the after-repair value and lends on that.

Tj Floros · Answer

Hey Kevin I sent you a DM I think you have a lot of options here before you have to sell. As someone who house hacks in Bridgeport and grew up here the housing stock is pretty old. I just did a BRRRR on a 3 unit over on 31st and Princeton. Like I said I think you have options before you have to consider selling, happy to connect and discuss.

Kevin L. · Answer

Thanks for the feedback. Guess I'll just be selling it then.

Eudith Vacio · Answer

Hey @Kevin L.

Definitely DO NOT sell at a loss, sounds like you may have some options to explore. You can get a construction loan to make the renovations and then refinance, that or maybe you can update by unit and then increase the rent and get the money back overtime??

Sarita Scherpereel · Answer

Hi Kevin! You should reach out to @Tjfloros He's a licensed GC and Realtor. Who is also house hacking his SECOND house hack in Bridgeport. He can go over the best strategies for the condition and market. That way you can position yourself for the best ROI whenever you sell.

Henry Lazerow · Answer

@Kevin L. Bridgeport is a fantastic neighborhood, I would hold on to it if at all possible. But if want to sell feel free to PM me details/photos and I can let you know a current market value estimate, its likely worth high 500s as is.

Usually when owners see lots of repeat problems its due to old past its life plumbing or mechanicals. These items really are not that expensive to replace especially if do not need to replace all of it. Electrical is easy and relatively cheap to do. Not sure if you own any other buildings but could finance work with a HELOC and then do a cash out refi on the place once done assuming you also do kitchens/bath rehab to get the ARV high, a rehabbed 4 unit in Bridgeport at 3246 S Normal actually sold for $1,059,000 late last year.

David Krulac · Answer

@Kevin L.  We've owned several 1890 buildings, 1872 building and an 1840 building.  The key word is "owned".  In one of the 1890 buildings: we separated gas heat and electricity, we replaced 35 windows, finished 1,400 sq ft of previously unfinished area, stripped off the siding, added 1" rigid foam and new siding.  We did not gut the property and sold the property and sold the property for 2.1X.  We improved the property but did not do everything, did not gut, for example none of the properties had central air, mostly because they had hot water/steam heat and no existing duct work.  We also rented this property for over 20 years so also collected rent before selling.  Don't over improve especially if the the rest of the neighborhood is not also gut renovated and leave some work for the future owners to do.

Aaron Zimmerman · Answer

Kevin - what keeps breaking? How much do you have in reserves for projects?

Chicago has a lot of older buildings and some years are better than others for cash flow. If the building is cash flowing well and meets your investment objectives, id keep.

that said, I'd get connnected with an investor friendly realtor to maximize your sales price if you're looking to sell.

Richard F. · Answer

Sounds like a money pit, dig in deep on building systems, don't make guesses on costs. It will only get more expensive every year until properly updated. Elec, Plumb, HVAC, how many layers on roof, asbestos remediation and likely at least some lead piping as well to some extent. Likely has a lot of plaster and lath walls and ceilings, which are much more difficult than sheetrock to tear out, PLUS you have the added benefit of 140 year old dirt/dust/who knows filling the air while tearing out walls/ceilings. It might have drum traps in the bathrooms that are often all lead, and complicate slow draining issues.

You need a solid, experienced, Project Manager for a gut out, even if you try to do it one unit at a time due to the complexity and potential for surprises.

Kevin L. · Answer

1880s

4 Unit - Sell or Gut Renovate?

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