New Member out of Chicago

29 Replies

Hello everyone I am out of the Chicago-land area and am excited to start investing in 2020.  I am selling a single family rental next year and from that I will have a good size down payment for a great multi-family.  I have a family member that wants to go in with me so I need to make a great decision for our first investment.

I am happily married with 2 1/2 kids, as we are expecting in late May 2020.  I am 50 (yes younger wife!!) and want to retire replacing my current salary+ by the time I am 59.  

The current single family rental was my house for which I could not find a buyer in time to close on my current house so I just rented it out.  Which worked out well however with the new tax law I have to sell by eoy 2020 or get hit with a 15% tax when I do sell it.  It is renting at a loss but has sufficient equity to sell.

Looking to get into large multi-family property.  Looking forward to learning about the financing aspect of all of this.  Right now that is my biggest uncertainty but am learning as I go along.  

Very excited to be here and learn from everyone!!

I hope this post is in-line with forum expectations for the intro portion.  Moderators be merciful! :)

Welcome to the BP community! I think apart from 1031 Exchange you should look into Opportunity Zone Funds that help you null the long term capital gains of the sale of the property. 

@Bryan Darge excited to see what you with all of these 1031 suggestions. As you dive in it would be cool to follow your thought process in the decision! I'm sure there are tons of people that are in similar situations that would benefit! 

What markets are you looking into? 

Thanks @Lauren Juarez !

Per your suggestion I looked into the 1031 exchange.

Based on my cursory review and limited knowledge I think I’m missing the benefit for my situation, however, I welcome further insight!!

So at a mid year of my taxes with my accountant who strongly recommends off load the rental house (my former residence less than 5 years ago) by the of 2020 or get hit with 15% capital gains tax.

I looked at my overall yearly expenses NOI and I am in the red. The new tax law is no longer bridging that gap of loss if you will.

However with the available equity in the house at the sale I will have sufficient to invest in one or possibly 2 multi family properties.

So as a practice I have been looking at properties that would be very promising and they are getting sold within a week so I think so far I may be selecting good properties!

Oh and one more thing. The contract for my renters is done at the end of February and I’m listing it the house at what is apparently the hottest time to sell which is right after the Super Bowl!

Long winded here I know but just wanted to provide better context around my confusion on the benefits of the 1031. My rental is in a really hot hot market so I’m anticipating a fast sell. By the time it sells I want to hit the ground running with investing in real estate.

I am very excited about starting to invest in multi family properties.

Looking forward to your input and thank you in advance!!!

@Michael Facchini would love to jump into the deep end with a commercial financed 5+ unit but will probably have to stay in the shallow end for a bit with 4 unit or less. I have great credit (have to for the line of work I am in).  I see several 5+ units I would just love to get into but realize it is a totally different investment with the commercial lending and may be a bit more costly with a potential for much downside.  The 5+ would be my goal.

I'm hoping to get about $70k from the sale some time in Feb/March 2020.  With a full time job I hope to have these managed and be arm chair, which will cut into the cash flow but couldn't imagine trying to do it on my own.  The single family I did manage on my own and it worked out well as we developed a good relationship right out of the gate.  We had a couple of bumps and bruises along the way but we worked through them and I have learned much from this experience and it really helped to decrease the anxieties about getting into this.

Do you have units yourself or do you focus on the lending?

@Kiera Underwood I have looked in the Illinois market, however the re taxes here are very high here and they have a tendency to increase quite a bit yearly lately.  I haven't ruled out my neighboring states or even south.  

Do you stay focused in Oklahoma?  How many units do you have?

@Bryan Darge , very exciting and however I can help you along the way please let me know!  To answer your question, I have been a lender for 19 years, but also been investing for 16 years, and in the past few years now doing some rehab and new construction development.  

I hear ya on the bumps and bruises!  Part of the deal!  But this all creates valuable learning that catapults you forward.  As for next steps, and I'd be happy to chime in more, but often getting into a 3-4 unit to start off is an easier entry.  More straightforward lending options, better rates, and easier to qualify.  With commercial, you'll need to show that you have some experience with ownership/management on an apartment building...and a 3-4unit helps you get that.  

Doing deals with friends and family can cost you more than the deal. One of my students partnered with a long time friend. They had no written agreement on who would do what or what could be spent on materials. They have not spoken in 10 years. The house is still unfinished and my student is still paying the insurance and taxes.

As a real estate investor who both flips and has long term rentals I NEVER rent or do business with friends or family. My other rule with tenants is address them as Mr. Mrs. or Miss and use their last name. When it comes to tenants my rule is always friendly, NEVER friends.

In Chicago check out the Creative Investors Association run by Jane Garvey. They meet in Lombard one Sunday night each month. Next meeting is Sunday.

To avoid paying income tax on the sale you must have occupied the property in two of the last five years. Both you and your spouse can take up to a $250,000 deduction for sale of a primary residence. That is a total Capital gain write off of $500,000 against the profit. Your basis in the property is not subject to income tax. 

If you can sell the property in the 5 year window do so. Avoid tying it up in a 1031 exchange. Walk away clean and free. 

@Bryan Darge

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Wishing you the best!

Thanks @George Skidis I spoke with my account she said I would just make that window and have to sell by eod 12/31/2020 so I should be good! Thanks I was looking at that 1031 and it just didn't resonate with me for my current situation and glad you said something regarding that.

Also thank you for your sound advice about the investing with family members.  I had seen others on the forum who pooled their money together and started their re investing adventure.  Was not sure how it played out. But nonetheless thank you!

Can you PM where and what time Sunday night in Lombard? If I can get Mrs clearance I would like to check that out!

Thanks again!!

@Bryan Darge - Welcome to BP Chicago!  Happy to have you join the community.   You'll come to find out its a small tight-knit group that are all looking out for each other.

Where's your single-family and where are you looking into multi-family properties?

I am originally from Elgin so I know the Pingree grove area.

Hi @Jonathan Klemm Thank you!! I am finding it is a strong community, I have never seen this type of support before, I really appreciate being apart of this! Oh yeah Elgin, pass through it often for work!

So the single family is in Bartlett, and honestly I have not really restricted myself to any one single area or state really.  However, that may all change as I get better educated on off this.

Would be great to have coffee some time! 

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