Who said you can’t hit 1% on north side? Well almost!

27 Replies | Chicago, Illinois

First off congratulations @Brian N. on your first investment property! I see a lot of posts on here about how the north side A and B class areas don’t cash flow, etc. I want to show that you can find cashflow in nice areas of the north side if you look hard and get creative.

I just brokered a 3 unit in the neighborhood SW of north and western intersection in walking distance to the 606 trail and Western Blue Line stop. Technically Humboldt Park but right on edge of Bucktown/Logan Square. This property was 3 units with an old not in use attic unit which when we saw our eyes lit up and instantly thought of opportunities. Duplex up the 3rd floor 2br 1ba into a 3br 2ba duplex unit refinishing the attic into a master suite with a spiral stair case oh and sky lights yes everyone loves sky lights that was a must haha 

Market rate rents as per MLS comps and personal experience leasing in neighborhood. What I really like about this neighborhood is properties are cheaper but it's still close enough to western you can pull the same quality/millennial tenants as properties just east of western that cost nearly twice as much.

2br 1ba 1st floor unit: $1300 – Keep as-is

2br 1ba 2nd floor unit: $1550 (Will try $1600 first but to be conservative) – Keep as-is

3br 2ba duplex unit: $2200 conservative depending how luxurious comps go up to $2500ish – Rehab

Parking: $75x2 = $150

Total rents: $5200

Purchase price: $530,000 with a $7500 closing credit + $20-25k for spiral stair case install and remodeling of attic = $542,500 at $5200 = .95% + added equity being a legal 3 with 3br 2ba now. The equity/appreciation play is also huge part of analysis in the class A/B areas. 

The advantage of a closing credit is that it minimizes your capital in the deal. This is something everyone should try to get when buying a property and most sellers/lenders are willing to allow up to a few %.

A large dilemma for my client was should I put 20% down and erase PMI/increase cashflow or put 5% down and do a little bit of value add. We ran all the numbers and decided the 5% down with some left over for the value add on the 3br 2ba unit was the most profitable option.

Will share some photos once the rehab is done! Happy investing everyone 😉 

@Henry Lazerow

Awesome and informative post recapping the deal you helped me with. I appreciate how you are data driven and our investment style meshed well together. Glad I took a chance calling you after seeing one of your posts here in the forum about another deal.

I’ll take some before photos when I get back inside and post some after photos as well for those who are curious. Will try to update with actual rent numbers as well.

Please feel free to reach out  with any questions/advice, looking to share and learn! 

Project update... @Brian N. absolutely awesome job! Excited to see your many more successful projects :)

Ended up doing some rehab of #G and #1 while owner occupying in #2. Installed granite counter top and managed to save original cabinets, refinished floors, added in unit laundry which I think made a huge difference. New paint, etc. 

Garden 2br 1ba: $1500 just signed lease. Had a $1550 offer but was too far along with the $1500 tenant. 

Unit 1 2br 1ba: $1750 just signed lease. 

Quick update:

As @Henry Lazerow mentioned, both units are now leased out and tenants have moved in. I'm finishing up the duplex which I approximate should take about 1-2 more weeks. Definitely learned loads about the timeline of rehabbing a place and can't wait to get through the next part of "BRRRR" method. Refi!

Some improvements to the property are:

  • Exterior steps and walkways
  • Washer dryer added in all units
  • New stainless steel appliances: dishwasher, microwavehood, fridge, stove  (all the old tenants owned their own)
  • Flooring for the garden unit, refinished the other units
  • Granite counter tops
  • Patch drywall and fresh paint on walls and trim

Unexpected items list to name a few:

  • Foundation cracks - fixed now
  • Bathroom vents not actually venting - fixed now
  • Roof leak patch - heavy rains following closing made it apparent
  • Attic plumbing came apart in the walls - previous contractor may not have properly glued?
  • Catch basin clogged due to heavy grease + t shirt 

Here are a few more photos:

Before Garden:

After Garden:

Before Unit 1:

After Unit 1:

Before (other areas):

After:

cc: @Landon Hoon , @David Des , @Mitchell J. , @Spencer Blaney

"$20-25k for spiral stair case install and remodeling of attic = $542,500"

Details please: What were your costs to repair/rehab each apartment, common areas, and top floor/attic apartment? Carrying costs on improvement loans? That 's the only way I know how to run your ROI.

@John Clark

Purchase: 530k

Down: 5% (conventional)

Seller credit: 7.5k

Closing: 10K

Rehab: 70k (Cash, no improvement loan)

Rough 70k breakdown (high level / bigger ticket items):

25K Labor
10K Landscaping
10K Appliances
3K Staircases spiral
3K Paint
3K Counter tops
2K Gutters
2K Vinyl floor
2K Porch/fence/steps


Remaining 10k include materials from Home Depot/ Menards / Lowes... lots of receipts on my end. Smaller ticket items, think water heaters, toilets, vanities, shower fans, light bulbs, switches, river rock, vent covers etc etc.

I also spent all hours outside of my W2 working on some aspect of the project from Jul 1 to Aug 15 (spent my birthday dinner sanding floors). I paid for materials + labors separately vs. a draw schedule by completed milestones since it was my first time and I wanted to be hands on. I'm going to definitely structure it using a draw schedule next time around to free up my time. Also I went and rehabbed a lot more than planned. I now have a better idea of my level of tolerance for risk, i.e. addressing certain items vs. leaving as-is. 

To share what I'm projecting for Monthly Income/Expenses:

Income:

Unit 1: 1500 (leased til 9/19) originally projected 1300

Unit 2: 1750 (leased til 9/19) originally projected 1550

Unit 3: 2400 (currently owner occupied, 2400 is about the going rate for 3BD/2BA in my area in similar condition)

Expenses:

PITI: 3800

Utilities: 250

Property Management (future): 280

Reserves (Vacancy, Repairs + Maintenance, Capex): 500

Next steps:

  1. Refi on 12/1/18 (need 6 month waiting period) 
  2. Get an appraisal soon since it will be valid to my lender for 3 months. @Henry Lazerow has pulled some visually accurate comps with similar rent rolls.
  3. Figure out how to pull out the most amount of cash to throw into the next deal.
    1. HELOC: My lender has a 95% LTV HELOC at prime +1 with a 5 year draw period and 10 year repayment period.
    2. Cash out refi
  4. Once the appraisal comes back and hopefully with more research I can figure out the most optimal next steps.

@Amir Haq , @David Des@Mitchell J. , @Spencer Blaney - Tagging you guys because you may be interested in the numbers.

@Brian N.

great Summary and when you say 95% HELOC - you can lend up to 95% of the value of the property . For ex if ARV of property is 700K . 95% of that = 665K

And Lets assume you already borrowed 530K So far , then you can essentially use that 135K for next deal .

"

Rough 70k breakdown (high level / bigger ticket items):

25K Labor
10K Landscaping
10K Appliances
3K Staircases spiral
3K Paint
3K Counter tops
2K Gutters
2K Vinyl floor
2K Porch/fence/steps

Remaining 10k include materials from Home Depot/ Menards / Lowes..."

Nice, but vague. Until you allocate your expenses to each apartment, nobody can tell what your ROI is other than in gross, which means you cannot improve on your performance and estimating. You have to recognize where your weak spots are to improve on them. Having a great apartment that covers a multitude of sins on other apartments is no more than a craps shoot. Can you figure your basis allocation per income producing unit?

Originally posted by @David Des :

@Brian N.

great Summary and when you say 95% HELOC - you can lend up to 95% of the value of the property . For ex if ARV of property is 700K . 95% of that = 665K

And Lets assume you already borrowed 530K So far , then you can essentially use that 135K for next deal .

Any recommendations on where to get 95% HELOC?

hi 

@Amir Haq -- look up landon hoon , Not sure if he can do this in all scenarios but so far during my interaction with him , he ie very knowledgeable and responsive - I have spoken to many loan brokers who just say "hey its your first property ? get an FHA 3.5% down " an expert is some one who can see past the obvious path and help

If you are going to open market , try to get referrals from your agent , contractor or any body who is in real estate business - Also keep in mind  that there are lot of lenders/brokers who change the terms at the last moment , so even if you hear what you want to hear initially - make sure you have references and a solid backup

Quick update:

Got my appraisal back last Friday 11/2/18 (actual appraisal happened 10/27) at 750k!

mini recap on the numbers:

530k purchase, 5% down, 7.5k seller credit.

Cash used was: 80k rehab + 30k down and closing costs + 11.4k holding costs = 121.4k 

Current loan balance is ~502k

Looking for my next steps with @Landon Hoon on how to best use the equity gain. We're thinking the rate and term refi with a next day HELOC with access to 210.5k.

(750k* .95) -502k = 210.5k

Let me know your thoughts, excited for this to snowball!

cc:

@Henry Lazerow , @Amir Haq , @David Des , @Ibn Abney , @Albert Cheng , @Spencer Blaney , @Fernando Angelucci , @George Bailey , @Joshua Roy , @John Clark  

Congrats @Brian N. , looks great!!! I have just kicked off my search for a 3 or 4 unit in a similar area and on the north side looking to do something very similar to what you just did. I plan to owner occupy and rent the other units using BURR... @Henry Lazerow, please let me know if you find anything similar

@Brian N. thanks for the update and congrats on the outcome!  That's a big win. I know how hard you worked on this, and it's a well deserved achievement.  I look forward to seeing what's next.

I think the key here is what the property didn't need; a gut.  I've been trying to get a brrrr project up and running for a couple months here in chicago and I keep running into the same problem, which is contract scope of works coming in multiple thousands above what I'm projecting.  Great work man.

Jim , construction costs are up and Labor is up up and away !  Your so correct on Gut rehab .  A Total  Gut Rehab is expensive compared to 2,3 years ago !