Renting Section 8, Flipping in Today's Market

15 Replies

Hi guys,

I’ve been doing some extensive reading and doing property analytics in Garfield park (East/West) and Hegewisch, and have been seeing a lot of investor activity in terms of rehabbed Section 8 rentals as well as conventional Fix and Flips.

In the current market, is it better to acquire rentals or to start out with a Fix and Flip? My goal is to obtain the cheapest property, however being in reasonable condition for a basic rehab to minimize risk..

It seems like section 8 rentals are popular. There seems to be some uncertainty in the housing market, and therefore this could be the reason?

Thanks so much!

Hi @Alexei Proskourine - I have clients that own property (& are buying more) in East Garfield Park. 

To address your question about fix & flip vs. rentals (to hold) -- in my opinion, and I think most would agree, fix & flip is considerably riskier because when you flip you have to be able to accurately estimate the following.... 1) the actual rehab costs 2) the time frame that it will take to complete the work and 3) what you will sell the property for when the work is complete.  

With buy & hold properties we can pretty accurately estimate the rents that you will collect and the actual operating expenses are (generally) already known.  Therefore you can predict and understand  you return on investment before buying.

If you would like to discuss in more detail, please let me know - happy to lend a hand.

It depends what your goal is. Fix and flips are fine but you will pay short term capital gains and then you must go to the next one. In other words, you have a job. Rentals give you long term income assuming you bought it correctly and have a positive cash flow and your tenant is paying down your mortgage every month. Rentals are the way to wealth. Why not do both? You can do flips to give you cash for rentals.

Good luck

Originally posted by @Rick Stein :

It depends what your goal is. Fix and flips are fine but you will pay short term capital gains and then you must go to the next one. In other words, you have a job. Rentals give you long term income assuming you bought it correctly and have a positive cash flow and your tenant is paying down your mortgage every month. Rentals are the way to wealth. Why not do both? You can do flips to give you cash for rentals.

Good luck

I definitely agree with this, nevertheless I feel rentals are somewhat slower in terms of building wealth due to the mortgage and other fees eating away into the positive monthly cash slow. Once the mortgage is paid off, then the real difference sets in.

I’m trying to create a plan, to either do a flip first, or to renovate a rental property first, and at this point I’m leaning toward a Section 8 multi family rental, then later on concentrate on a cosmetic flip.

Thank you Rick

Originally posted by @Ashley Carter :

Hi @Alexei Proskourine - I have clients that own property (& are buying more) in East Garfield Park. 

To address your question about fix & flip vs. rentals (to hold) -- in my opinion, and I think most would agree, fix & flip is considerably riskier because when you flip you have to be able to accurately estimate the following.... 1) the actual rehab costs 2) the time frame that it will take to complete the work and 3) what you will sell the property for when the work is complete.  

With buy & hold properties we can pretty accurately estimate the rents that you will collect and the actual operating expenses are (generally) already known.  Therefore you can predict and understand  you return on investment before buying.

If you would like to discuss in more detail, please let me know - happy to lend a hand.

 Thank you so much for your input Ashley, I will PM you soon- I am looking closely at Garfield park, and will most likely be making a purchase this Spring.

I just leased up two units in East Garfield Park and would be happy to share our experience. The area has gentrified in terms of economic class and has a strong demand due to its proximity to the train line. On our penthouse unit in the 2900 block of washington we had multiple applications even one with 3 college students who had co-signers. We ended up taking a non-section 8 renter with great credit 720 and a stable job. Our less nice unit in the 2800 block we had a lot of showings and got some applicants in the high 600's about to accept them. 

I have seen some great flips going on over there and single family conversions out of old 2 flat graystones. The area also cashflows nice for a hold so really just depends what your goals are.

Originally posted by @Henry Lazerow :

I just leased up two units in East Garfield Park and would be happy to share our experience. The area has gentrified in terms of economic class and has a strong demand due to its proximity to the train line. On our penthouse unit in the 2900 block of washington we had multiple applications even one with 3 college students who had co-signers. We ended up taking a non-section 8 renter with great credit 720 and a stable job. Our less nice unit in the 2800 block we had a lot of showings and got some applicants in the high 600's about to accept them. 

I have seen some great flips going on over there and single family conversions out of old 2 flat graystones. The area also cashflows nice for a hold so really just depends what your goals are.

 That sounds really exciting, I PM'd you recently. I will for sure be making an investment there in the early Spring.

@Henry Lazerow Interesting to hear you mention that it is gentrifying. I had my eye on this area, but didn't know when it would start to actually turn.

As far as flip vs. hold, one of the best strategies is to rehab and pull out the equity. Flipping is taxed at a higher tax bracket and does not provide many of the advantages that rentals offer. 

Originally posted by @Henry Lazerow :

I just leased up two units in East Garfield Park and would be happy to share our experience. The area has gentrified in terms of economic class and has a strong demand due to its proximity to the train line. On our penthouse unit in the 2900 block of washington we had multiple applications even one with 3 college students who had co-signers. We ended up taking a non-section 8 renter with great credit 720 and a stable job. Our less nice unit in the 2800 block we had a lot of showings and got some applicants in the high 600's about to accept them. 

I have seen some great flips going on over there and single family conversions out of old 2 flat graystones. The area also cashflows nice for a hold so really just depends what your goals are.

 I'm curious as to why you say EGP has gentrified.  This is an area I've followed for quite some time now.  My W-2 job sends me there fairly often and has for years so I've been watching it.  I think the fact that it is a 15-20 minute train ride to the loop certainly gives it gentrification potential, but I don't feel like it really has yet...there is still a lot of rift raft that runs that neighborhood at night.  Which college did your three applicants attend?  UIC?  

@Jeff Burdick Yes UIC. PM me your email and I can send a photo of the units to show you the layout/quality. I think the trick in this area is to make the units the quality of Near West for cheaper and then you can get the same tenants from near west who want quality but for a lower price. 

I actually do not think this area will ever fully gentrify as statistically african american majority neighborhoods do not gentrify fully in Chicago there is a lot of research into this. What I do see is it being like the Near West with lower and lower crime rates over time as price increases. 

@Alexei Proskourine , buy and hold seems to be a slower way to build wealth, however, it is the best and most safe way to create wealth. Until you own a rental property for some years, is hard to see all the benefits besides cash flow: extra tax deductions due to depreciation that can add up to 8K per year, principal paid off, appreciation, etc.

If you don't own properties right now, buy a 3-4 flat for cash flow with low down payment, and after you stabilize that property you can go ahead and buy flips to build more down payments. 

Let me know if you want to talk about this strategy! 

@Henry Lazerow Without trying to hijack this forum, what areas in East/West Garfield Park would you say are being gentrified. I want to make my first investment into multi-units with an FHA loan, and the nicer north side neighborhoods are a bit out of my current price range, so I've looked west. My girlfriend is very reluctant to move there though based on what she has heard/seen on the news.

Thanks in advance!

 @Brian Medansky Funny I am also from Northbrook originally. 

The northeast most part and the farther east parts have seen gentrification or in better words allow you to pull the quality of tenants Near West has if the price is a little lower then Near West for a comparable quality unit. Farther west is very differant area and the difference can be seen on the chicago shooting report maps. 

https://data.cityofchicago.org/Public-Safety/Gun-Crimes-Heat-Map/iinq-m3rg/data

@Henry Lazerow  

Thanks for that data, that's going to be a huge help for me when I'm looking in areas that I'm a little less familiar with. 

@Alexei Proskourine for a beginner, you'd probably wanna start with a rental first. You can get comfortable being inside a home with opened walls, dust flying, having to hire (and fire) contractors. You'll be able to learn the prices of material, labor, and some of the basic and standard things about the structure of a home, while also not having to learn the finances of closings, and agency at the same time, and also be worried about a sale date.

Learning everything about fixing a house as well as learning the gamesmanship of brokerage--all on the fly-- will be a bit much in my opinion. Make contact and learn how to hit a single before you go for a home run. At the end of even an imperfect or flawed rehab for a rental, there is the reward of completion at the end of placing a renter.

The mistakes you're going to make as a novice flipper in judgment and prices you pay for material, who you hire to do work, broker the sale of your home, schedule your closing, and so on, is a bit much for one to learn all at once--and I'm speaking from experience. 

Do a rental first brother.

Hi, Rachell and thanks for the vote. Good luck

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