Out of state turnkey investing in Chicago
I got a bunch of questions about a property I purchased in Chicago through Profit from Rentals (PFR), so I thought I'd put down some of the facts here. I'll attempt to keep this as a running post, so folks who are curious can see the history of a turnkey deal.
The basics:
Purchase price $185,000, 25% down, 4.875% interest rate
Closing costs $6000
Pre-pays (insurance/tax in escrow, pre-pay on interest) $5000
2-flat in Chicago south side, one 4 bed, 1 bath and another 3 bed, 1 bath
The neighborhood seemed OK, neighborhoodscout calls it the S King Dr / E 71st St neighborhood. The appraisal came back right at the purchase price. This home was rehabbed in 2015, and I was purchasing from another investor who had worked with PFR.
All seemed well until the property inspector (I used Rick Sabatino at Premium Home Inspections) couldn't get into the units during the first scheduled inspection. Something about the tenants not being available. Then, once inspection was completed, several issues were noted, mainly around a furnace that seemed close to 20 years old, a damaged vanity, deteriorated paint, a bad sewage smell coming from the basement, and some brickwork that was breaking down. Lesson # 1 - I probably should not have closed on this property without a better understanding for how much the repairs would cost.
Justin from PFR helped me work out a price reduction of $3700 to cover the cost of getting that work re-done, so that we could close on time (December)
After closing, I needed to get another inspector in the units for insurance purposes. When I contacted Letts Property Management, they pointed out I needed to set up a new property management agreement with them. Once that was done, they took care of the inspection, and got access to the Rentmanager portal that they use.
That's when I realized lesson # 2 - I should have asked for a profit and loss statement or actual collections versus expenses report or something on the property, since it had already been rented for close to a year. Turns out one unit had been under abatement since August, and there had been an on-going sewage and rodent issue for months.
On top of that, both units came up for CHA inspections - the one unit that had been under abatement for four months had actually lost its housing voucher, while the other unit was due for annual inspection. Sure enough, both failed in late January. Since that time, I have come to a greater appreciation of how the CHA system works, and gotten much more familiar with their website (I highly recommend reading through the landlord section of the website, for anyone wondering about how the program is supposed to work). Not sure that would have helped me, but at least all the words make sense now.
Story continues in next post.