Chicago, IL · Member since 2021 · 37 posts · 9 votes
I’m interested in purchasing an investment property in Calumet City, Illinois. The property is a 3-bedroom, 1-bathroom single-family home that appears to need only minor renovations. It is currently occupied by a Section 8 tenant, and according to the owner, the property is up to code.
The owner would also like to complete the transaction as a For Sale By Owner (FSBO), without using a real estate agent.
Given these circumstances, what real estate investment strategy would you recommend for this particular property? My goal is to determine the best approach for acquiring the property, making any necessary improvements, and maximizing its long-term cash flow and return on investment.
Additionally, what type of financing would you recommend for this deal? I would like to compare options such as conventional investment-property financing, DSCR loans, seller financing, and other financing strategies that may be appropriate for an occupied Section 8 rental property.
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
6d
Jamarius, with a property like this, I'd probably start by underwriting it as a stabilized buy-and-hold first, then see whether the renovation creates enough additional value to make a BRRRR worthwhile.
Since it already has a Section 8 tenant and is reportedly up to code, I wouldn’t automatically disturb a producing tenancy just to force a value-add strategy. I’d first verify the current lease, rent amount, tenant portion versus housing-assistance payment, payment history, inspection status, security deposit, and whether the existing tenancy transfers cleanly with the sale.
Then I'd compare the current rent to realistic market rent and determine what the minor renovations would actually accomplish. If you spend $20K improving the property but the rent and appraised value barely move, that may not be a great BRRRR. If the rehab materially increases value while the tenant income supports the new debt, then refinancing becomes more interesting.
Because this is FSBO, I'd also make sure an attorney reviews the contract, title, prorations, tenant documentation, security deposit transfer, and any seller representations. Skipping an agent does not mean skipping due diligence.
For financing, I'd price conventional investment financing, DSCR, and seller financing side by side. Conventional may be cheaper if you qualify personally. DSCR can be useful if the property's income is strong enough and you value entity ownership or easier qualification. Seller financing can be very attractive if the seller is flexible on rate, amortization, or down payment, but I'd still make sure the property works under a realistic refinance scenario later.
From the tax side, once you acquire the rental, I’d establish the correct basis, separate land from building, track the renovation costs carefully, and evaluate depreciation. Cost segregation may be worth considering depending on the purchase price, improvements, and whether the resulting losses would actually be usable.
Feel free to DM me, I'd be happy to send over a few resources that might help with BRRRR underwriting, rental analysis, and comparing the financing options.
Real Estate Broker · Chicago and Kansas City · Member since 2016 · 78 posts · 61 votes
5d
You already picked the strategy without realizing it. A rented single family that needs only minor work is a buy and hold. BRRRR only works when a big rehab forces the value up, and minor renovations will not move the appraisal enough to refinance your cash back out.
Before you talk price, get four documents: the lease, the HAP contract (the paper that shows what the housing authority pays versus what the tenant pays), 12 months of the rent ledger, and the most recent housing authority inspection report. Section 8 units get re-inspected on a schedule, so "up to code" should have a paper trail. Ask for it instead of taking it on faith.
Two Calumet City specifics. The city runs its own rental licensing and inspection program, and a sale can trigger a city inspection. Call the city before you write your offer and ask what transfers and what gets inspected. And pull the actual property tax bill from the Cook County site. In the south suburbs the tax line moves the math more than any other number, so use the real bill, not an estimate.
FSBO is fine on the buy side. In Illinois you will each have an attorney at closing anyway, so let yours paper the deal, and pay for your own inspection no matter how clean the place looks.
On financing, ask the seller first. A FSBO seller has no agent to pay and may be open to carrying the note, and it costs nothing to ask. Otherwise compare a conventional investment loan against a DSCR loan (a loan sized off the property's rent instead of your paycheck). With a paying tenant and a documented ledger, that ledger is exactly what a DSCR lender wants to see.
Rental Property Investor · Belleville, IL · Member since 2017 · 875 posts · 529 votes
4d
There are at multiple reasons the seller wants to FSBO. First is to save on the agent's commission. Second, the contract may have holes in it that would be spotted by a licensed realtor. Third it may be a scam, and you end up with nothing. Fourth the real estate taxes are unpaid. Fifth, the contract they drafted may not be legal under state law. There will be other reasons, but this is off the top of my head.
Steps you can take:
A. INSIST the closing be done at a reputable title company.
B. Contact a local realtor and ask them what they would charge to serve as a buyer's agent on a done deal. I have done this for $500 to $1,000 per deal.
C. Perform your due diligence. Check county records to make sure who is on title, is there a mortgage and if real estate taxes are paid.
D. Get a cop of the occupancy permit.
E Verify that permit with the code enforcement officer. while asking about any violations.
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