All Forum Posts by: Mason B.

There is a 6 unit multi-family building in Chicago's Douglas Park (subpar) neighborhood that advertises a "14%" cap rate as a "guaranteed subsidy." Aka section 8. It's also on the MLS. The building is $380k. Fully occupied. Annual rent collection is 55k, or around 4400 per month. The mortgage would be around $2k... too good to be true? There have been some smaller Improvements (furnaces, porch, Plumbing, Fence) but still room to value add.

Is section 8 that bad? - No.

If the income is “guaranteed” isn’t is less risky? The income is guaranteed as long as you maintain the building to the standards required by Section 8 & your tenants comply with the lease.

Doesn’t it attract longer term tenants? - Section 8 doesn't attract long term tenants, good landlords with quality products attract long term tenants.

Can’t i still pick and choose future tenants? - Once a unit is vacant you can pick and choose tenant to fill that vacancy

How do you add value if you cant raise rent if the rent is based on averages? - I'm not sure why you believe you can't raise rent. CHA cannot dictate what rent you charge. CHA has established guidelines on what rent they will pay based on the location of a property. A tenant may have to pay the difference between what you charge and what CHA will pay.

Aka, where can i learn EVERYTHING I’d need to know?

Review the Section 8 Housing Quality Standards. It's not just about the voucher; It's about the building & surrounding area. Voucher holders often have to move because the building and/or area around the building no longer meets Section 8 standards. Review the standards so that when you go look at the building you know what to look for & what you may have to fix or ask the seller to fix if you purchase the building. Here's an overview:
1. Sanitary Facilities
- The bathroom must be located in a private room within the residence.
- The bathroom must contain a flushing toilet, a shower or tub and a sink.
- The shower or tub and the sink must have functioning hot and cold water.
2. Food Preparation and Refuse Disposal
- The unit must have an oven and a stove or a range. A microwave oven can be substituted.
- The unit must have a kitchen sink with hot and cold water and a proper sink trap.
3. Space and Security
- The unit must have a living room, a kitchen, and a bathroom.
- Any doors or windows that are accessible from the outside must be able to be locked.
4. Thermal Environment
- The heating system must safely provide heat to each room. The local PHA will determine what temperature is considered adequate during each month of the year.
- The cooling system must safely cool each room.
5. Illumination and Electricity
- The living room and each bedroom must have at least one window.
- The kitchen must have at least one working outlet.
- The living room and each bedroom must each have at least two working outlets.
6. Structure and Materials
- All ceilings, walls, and floors must not show any signs of bulging or buckling and must not contain large holes.
- The roof must be structurally sound.
- Handrails are required when there are four or more steps.
7. Interior Air Quality
- Bathrooms must have a window that can be opened or must have other adequate ventilation.
- The unit must be free from dangerous pollutants, such as carbon monoxide.
8. Water Supply
- The water supply must be free from contamination.
- Plumbing pipes and fixtures must be free from leaks.
9. Lead-Based Paint
- Units constructed before 1978 must be free from lead-based paint hazards.
- There must be no chipping, cracking or peeling paint or other hazards.
10. Access
- There must be two ways to exit the unit. A fire escape is considered an alternate means of exit.
- The fire escape or other emergency exit cannot be blocked.
11. Site and Neighborhood
- There must not be excessive noise or trash accumulation in the neighborhood.
- There must not be an abnormal amount of air pollution.
12. Sanitary Conditions
- There must not be a rodent or vermin infestation
13. Smoke Detectors
- There must be at least one working smoke detector on each level of the unit, including the basement. Local codes may have stricter requirements, such as placing a smoke detector outside of each bedroom.
- All smoke detectors must be operational.
If you're not scared off after you see the building & you get it under contract then use your attorney review & inspection period & request rent role, deposits, leases, vouchers..... Also, ask for copies of the original tenant applications. (If it's a long term tenant often they will not have the original application) A seller should be prepared to turn all of this over within 24 hours of your request. You want to see the CHA rents going straight into a bank account. You also want evidence that the tenant is paying their portion of the rent. (By the way- This applies to all deals whether it's Section 8 or not) Ask your inspector to document anything that may be non-compliant with Section 8 housing quality standards.

Thank you,
you are wonderful.

0 Votes

Chicago, Illinois

Is section 8 that bad? If the income is “guaranteed” isn’t is less risky? Doesn’t it attract longer term tenants? Can’t i still pick and choose future tenants? How do you add value if you cant raise rent if the rent is based on averages?

Aka, where can i learn EVERYTHING I’d need to know?

0 Votes

Chicago, Illinois

Originally posted by @Spence Kal:

@Mason Barnard

you could always join a local real estate meetup to learn first before spending money on education. REIA has a few groups in my area, possibly yours, there's one group run by a bigger pockets member by me also. Search on nationalreia.org. I like in person but with covid lots are online, even so there are some incredibly knowledgeable speakers at some, and lots of people who know far more than me, it's humbling and informative, the few I've attended are awesome and cheap if not free.

Nothing beats experience, I jumped right in but my first deal there was basically no way I could lose money. If you know a trustworthy flipper/landlord offer to work for them for free for a month, who doesn’t love free work and you’ll learn a ton behind the scenes. Just my thoughts

I will do that for sure, thanks. I have a meeting planned with family friends who own a few buildings as well, the difference is they had 100% down, and six figure salaries... Trying to find people in similar situations or a trustworthy flipper on a similar scale to gain experience with.

0 Votes

Chicago, Illinois

Originally posted by @Andy Nathan:

@Mason Barnard i would take 3-5% of that money if not more on education. I can tell you from the school of hard knocks that is always better to learn as much as possible before starting.

Then when you are educated put a team together. Connect with quality contractors, lawyers, CPAs, realtors, and lenders. $100k is a lot but not enough to do everything yourself.

Plus, needing financing for your first few deals will hopefully prevent you picking up bad deals. The lender doesn't want to give you money on a lemon.

Then start making offers on multis. Let me know if this helps.

Andy

i should of said i'm trying to learn ASAP, not throw the money in something ASAP. I dont mind spending time or money learning, as long as i am learning a real process / strategy that works...
What are real sources to learn from? not trying to buy a furu course selling pipe dreams and risky strategies that dont really work.

trying to get the ball rolling

0 Votes

Chicago, Illinois

Long story short, will have about 100k. I have ZERO experience but want to get started ASAP. I have a burning desire to own multi-family properties but don't know where to start. I've listened to a lot of podcasts, i understand most the concepts, i look around the MLS and loop net for fun... and i have a lot of free time, so i dont need to hire property managers at first. I would do this full time if i knew how.

Not sure if i should learn how to flip... is that too risky for a noob? should i simply put 20%-50% down on a Multi fam building... FHA with 10% down on a mil building... ? is that possible to be cash flow positive on? Should i do a light rehab... should i BRRRR? should i house hack and try to live for free... Very overwhelmed and in such a privileged situation and really don't want to blow it. I want to make this a REAL life changing situation...

What would you do if you were me... (28, male, self-employed, introvert)

2 Votes

Chicago, Illinois

Also in the same position. Been wondering about the Austin neighborhood bordering Oak Park. Oak Park is a great neighborhood, and stretching out. Austin is cheap, and class C buildings for sure which has their risks. but Ive seen a few claiming is 9-13% Caprates on 200-500k buildings around there.

0 Votes

NOTE: I also am not expecting or trying to get a 30% return. I know that's a ridiculous target. And of course i would set aside whatever amount necessary.

What is the best way to for someone in their mid twenties to invest $75k-100k, into realestate, with the goal of scale-ability, and to generate somewhat passive cash flow (I do have time, it doesn't need to be passive at first) with relatively low risk (trying not to lose money)... The idea of multi unit buildings, in Chicago, makes a lot of sense to me, ive always lived in them, all my landlords have been successful, i have the time, i think i have the capital, and i want to get the experience, and want to better understand this... What can i do to get the ball rolling. I think i would be in over my head doing a heavy duty rehab (at first) or flip...

0 Votes

I know Chicago's geography very well, and I understand avoiding section 8 housing and the blocks that are total trash, especially as a first time investor. but Chicago is gentrifying every neighborhood, especially around the Oak Park, Austin, Garfield park area. Hipsters and yuppis are already migrating to them, and the same surrounding blocks already have people doing rehabs.

Again, not saying to id buy in the center of the hood, but i don't know if they should be entirely avoided. If its on a main street, near Oak park, highway, there's other investors in the area, and the surrounding blocks are decent, then maybe?

You would of said the same thing about Wicker park, Logan Square, River North (Cabrini Green), Fulton Market, South Loop, Hyde Park, humboldt park, or Pilsen 15-20 years ago... Now these are the hottest neighborhoods in Chicago.

There aren't even buildings left in the areas you would want ideally want to own a building in (for 350-450k budget)

1 Vote

Most of the listings have all of the expenses broken down. no rehab costs assuming they are near turn key investments. I wouldn't get property management until it was scaled beyond 1 person capability.
would have cushion for expenses going in.

Building: $500,000
Rent income: $76,000.
expenses: $18,500... (electric $400, Water: 5,000, scavenger: $2,000, taxes: $3500, insurance: $3600, maitenence: $4,000)

Occupancy: 95%, long term tenants.

Net Income: $57,000 (11% cap rate)
annual Mortgage (20-25% down:) $18,000

Annual Profit: $39,000 (again, around 25-30% return on 125k down)

0 Votes

Hello from Chicago,
New to real-estate and potentially interested in starting with multi-unit properties here in Chicago. I been doing some light searching around and found some pretty impressive numbers with relatively low capital needed to achieve.

Example: one of many with similar numbers.
https://www.loopnet.com/Listing/5902-W-Ohio-St-Chicago-IL/13763945/

This 9 unit building is $425k and generates $49k net income. With $125,000 down the mortgage is $1500 month. $1,500 x 12(months) = $18,000 annually.

$49,000(net income) - 18,000(mortgage expenses) = 31,000 profit.

that's a 30% return... (excluding appreciation) What am i missing? There seems to be many buildings producing these numbers, and why doesn't everybody just buy them all...?

*** I have free time and want to start a real-estate business. Goal is scale-ability and to re-invest cash flow into more properties, compounding the processes.

1 Vote

All Forum Posts by: Mason B.

Mason B. has started 3 posts and replied 10 times.

Post: 6 unit section 8. what to know

Post: 6 unit section 8. what to know

Post: Best way to maximize my privileged situation... overwhelmed

Post: Best way to maximize my privileged situation... overwhelmed

Post: Best way to maximize my privileged situation... overwhelmed

Post: Best Cash Flowing Parts of Chicago (Or Near Chicago)

Post: too good to be true? What am i missing here?

Post: too good to be true? What am i missing here?

Post: too good to be true? What am i missing here?

Post: too good to be true? What am i missing here?