Saint Charles, IL · Member since 2017 · 12 posts · 3 votes
Based on the current economy with rising taxes and a slow exodus, what would your investment strategy be and why? Is it still a good opportunity for rentals or should we be looking to get in and get out (flips) as fast as possible? I know the play is different in the city vs rural areas, but I'm curious where everyone thinks Illinois is going.
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
9y
My strategy never changes based on the economy- I buy and hold, only consider 1% or better deals within a certain area and price range. If you change your strategy based on the economy, you are bound to have problems. I don't have any idea about the market in Illinois, but for me, when the economy changes, the only thing than changes for me is how many of those deals I can find; In a "hot" market or economy, fewer deals, more competition, easier to get money. Everything is opposite in a cooler market climate.
Chicago, IL · Member since 2017 · 57 posts · 5 votes
9y
What is some advice you guys can offer to a new comer like myself about buying a rental property here in Illinois? I'm 23 years of age and know nothing really about the ins and out of rental property. Anyone willing to mentor?
Downers Grove, IL · Member since 2017 · 366 posts · 165 votes
9y
Interesting replies from everyone, great topic! I am okay with changing plans along the way. Purchased first rental with intent to flip within a year ended up with over 10% ROI first tax year and close to 15% second tax year so the question became, where the hell else am I going to make a this high of return this easy. 3 years later my default rental is worth double what I paid for it, so I say be flexible bend with the wind and be willing to admit your original plan might not have been the best, no matter how thing play out. Full disclosure I spent way too much time searching for my first flip/rental, and would have been far better off financially investing that time in other business activities.
Saint Charles, IL · Member since 2017 · 12 posts · 3 votes
9y
@Account Closed what caused your initial strategy on this property to change? Did you recalculate the numbers or did something else happen to turn it into a rental?
Downers Grove, IL · Member since 2017 · 366 posts · 165 votes
9y
My initial intent was to rent it for a year and put up for sale at end of lease. Finding other properties I wanted to purchase was way to time consuming, took to much time off work, in the interum rental outperformed all my expectations. Still have the same tenant since the day I closed on property, find him very easy to get along with. He initially thought I was a complete azzhole. People often warm up to me over time.
Based on the current economy with rising taxes and a slow exodus, what would your investment strategy be and why? Is it still a good opportunity for rentals or should we be looking to get in and get out (flips) as fast as possible? I know the play is different in the city vs rural areas, but I'm curious where everyone thinks Illinois is going.
I think Illinois has MAJOR issues. I think this last budget and increased property taxes merely punted the situation down the road. The state would likely default if there is another downturn. Unless I had a place near a really trendy area, I would get out of Illinois all together.
Chicago is the only metro area of the top 25 that lost population.
If I was going to do anything, I would look to NW Indiana, lake or porter county.
Investor · Chicago, IL · Member since 2017 · 14 posts · 5 votes
9y
John Kraakevik from Wheaton, IL
@Account Closed
have a HELOC on my primary residence and substantial equity on my rental, my former residence 20 years ago. Because nearly all my depreciation is gone, I am looking to the next step. With the last subject to with 225,00 and taking over the loan with the existing loan, won't most deals end up with a higher existing payment and higher liability? I'm not sure how that works.
Thanks for your understanding. I'm completely new to BP and the financial end. Ideally, I'd like to take a HELOC on my rental or do a 1031exchange to avoid the taxes on capital gains. Thoughts?
have a HELOC on my primary residence and substantial equity on my rental, my former residence 20 years ago. Because nearly all my depreciation is gone, I am looking to the next step. With the last subject to with 225,00 and taking over the loan with the existing loan, won't most deals end up with a higher existing payment and higher liability? I'm not sure how that works.
Thanks for your understanding. I'm completely new to BP and the financial end. Ideally, I'd like to take a HELOC on my rental or do a 1031exchange to avoid the taxes on capital gains. Thoughts?
Thanks
If you like the property, have you thought about either refinancing it to lower the interest rate or refinancing it to pull out equity to make another investment?
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
@John Kraakevik Hi John. This is only generalized info since general economic conditions, income, being self employed vs W2, experience, knowledge, spouse, risk tolerance, amounts owed on properties, reserves, interest rates, terms, equity & goals and so on, all play a role in the moving parts world of real estate investing.
I don't like putting my residence at risk, so I don't. I think HELOCs are putting properties at risk. Most HELOCS can be closed or called on short notice. It typically happens when you need it most. So, I would plan my investing as though the HELOC wasn't there, and since it is there in your case, I would use it sparingly.
When buying Subject To, you are taking over the interest rate of the existing loan. If the loan was taken out at 3.75%, that is what you are paying. If the loan was 8% (as it often would be when I first started some twenty years ago) then that is the rate you are paying. Generally, going to a mortgage broker and refinancing a loan, costs you more than you save when using Subject To and it defeats the whole purpose of Subject To anyway. A refinance pays off the Subject To.
Depending on the specifics of your rental, actual cash flow, what it would sell for etc, my inclination would be to sell it (or maybe refinance the rental) and take the equity and buy several other properties using Subject To, selling them to Tenant Buyers who would each give me $10,000 to $25,000 down to buy the properties from me. I tend to cash flow my Subject To's on average, at about $500 per month after making the underlying mortgage payment that I took over in the Subject To plus I get to keep the $10,000 to $25,000 down payment and I reinvest that into additional properties (or I can spend it ;-). I know that is packed information, but you get the general idea.
Saint Charles, IL · Member since 2017 · 12 posts · 3 votes
9y
@Account Closed - I'm still learning Subject To so please bear with me. Are you holding the Note for the new buyer? If so, how extensive are you with vetting the new buyer? What happens if they can eventually refinance and buy you out? How does that process look?
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
@Casey Wohl Those are all good questions. PM me for details, but here is how it generally looks. When I buy SubJect To I make the payment on the seller's note. I have disclosures and authorization and all of that. Then, I mark up the property and create a new note for a new amount. When I sell to a Tenant Buyer, I do a Dodd-Frank compliance check, they make a down payment or option payment to me, I get to keep that money, and I increase the monthly payment to reflect the note I've created (actually my attorney does the paperwork) and I get to keep the difference. If they refinance or sell, the original seller's loan gets paid off out of that money and I get paid off my equity with the remaining, all at escrow.
Here is a list. I have a spread sheet as well. When you buy a house conventionally, you put 20% down so a $200,000 house means you are into it for $40,000 plus closing costs and carrying costs.
When I buy a $200,000 house with Subject To, I am into to it $100 down, maybe $5,000 to the seller for "walking money" and some closing costs. I'd much rather rather risk about $7,000 than $40,000 etc.,
OPTION 1:
OPTION 2:
When Seller Uses RE Agent & Your’e Using Property For a Rental
When Buying Subject To & Selling to Tenant Buyer
Pro:
Doesn't require specialized knowledge
Pro:
Little competition
"Adequate" cash flow - Nothing Exciting
Can be little $ down
You get appreciation if property goes up
Can do Unlimited number
Can Get Started Much Sooner
Get down payment (Cash $) back immediately
Great Cash Flow
No Bank Approval Needed
No Maintenance or Repairs
Con:
Have To Have $45,000 Cash for Down Payment
Con:
Have To Have $15,000 Cash For Reserves (just in Case)
Have To Have $15,000 Cash for Closing & Carrying Costs
Saint Charles, IL · Member since 2017 · 12 posts · 3 votes
9y
@Alex Bok - Why change your approach? Isn't flipping a better short term play in an unstable market? I understand the long term hold strategy but if you're into flipping, I would think you're more into the get in, get out approach.