All Forum Posts by: Cliff Mccue

@Kyle Jorgensen

 The flips that you are referencing are not as easy as you make it sound.  As a matter of fact, I would say those types of flips are more difficult than your flips in the Chicago suburbs.  There are way more things that can go wrong with the 30k flip.

@Andrew McCotter

 If the condo deal is that good.  Buy it cash and finance out after your house purchase.  No money down purchases are not as easy as people think.  Usually to make something like that happen, there needs to be some sort of distress in the transaction.  The property needs major renovation so there is no competition from owner occupants so there is a value add there.  The owner is willing to hold paper on the property.  Or you find another investor that is going to supply the cash either for interest or equity.  I can't think of anyone off hand that is buying properties that require no rehab, off the mls, with bank financing with no cash out pocket and keep 100% of the deal.

@Barry Armstrong

That stinks to hear.  These situations are difficult to deal with.  Are you at least receiving your interest checks?  The rumor mill here in chicago is certainly churning here about these guys.  Feel free to PM if you want to talk about options.

Insurance seems low.

Missing landscaping and snow removal.

1br condos or 1br apartment buildings?

What about the suburbs?

Any other criteria besides 1 br?

I have not heard of only one local/regional banks that are writing paper with a maturity of 5+ years for this type of collateral.  And that paper they are writing is 7 year with a well established previous relationship.  Banks don't want to take on the interest rate risk just like the investors don't.  There are very few institutions that have any desire for long term paper.  It doesn't match up well to liabilities and the liquidity for a portfolio of small multifamilies is almost 0.  So they are stuck with it.  Traditional banks make their money on the spread and leverage.  

@Brie Schmidt 

Is 7.25% high?  Maybe.  But compared to what? What rate are you currently paying for your 5yr paper?

If you are talking about getting 7.25% on an apartment building in California then I would say yes.  But you are not talking about an apartment building.  We are talking about a portfolio of B/C class scattered site small multifamilies.  Unfortunately this is not collateral that banks are dying to get there hands on.  How many different lenders did you have to talk to line up your current deal?  I know for us we talked with a LOT to get the terms that we wanted.  I couldn't tell you the amount of banks that said, "Hey we aren't necessarily interested in this group of properties, but if you find a 6 flat in Lincoln Park we would be all over that."

I think you need to way the 7.25 not just against what other rates are but also your risks.  I think you biggest risk, is the market changes or your bank changes and they tell you that they aren't going to rollover your loan.  I've seen a bunch of guys wiped out because of that.  When Lasalle bank got bought by BoA, they decided that there were a lot of relationships they didn't want because they were too small.  They didn't renew the loans of performing notes that had been with Lasalle bank for in some cases decades.  Same thing with First Midwest.  Wiped guys out.  Liquidity is something that is easy to find when everyone has it.  It is impossible to find when no one does.  

Your other obvious risk is rate changes.  Look back at the history of the last 50yrs of Fed actions.  This has been the longest period where there has not been a rate move.  I'm not saying that rates are going to rise.  I personally think rates are going to be stuck here for along time, but I am not going to bet the farm against them not rising.

I think from the position of both my husband and I quit our jobs and our sole source of income is this portfolio would suggest that you have a lot of personal risk in this.  If you walk through all the numbers on your 5 year paper besides just interest and the cost to roll the paper each time and compare that to the 7.25.  Is that number the right number to hedge that risk?

Who could have thought this is where you would be?  Congrats!  You should buy those guys that pushed you to take the plunge a beer. :-P

Buyers determine the market not sellers.  If you can find a group that wants to buy it then yes.  Just because other people do it one way doesn't mean that you have to do it that way.

@Micki M. 

It is very disappointing to hear that story.  Unfortunately this is a common story.  What investors outside of the Chicago market don't realize is that  investing in the distressed parts of the city is not like investing other places.  It takes a different type of operator with a different level of experience to handle the issues that can and will pop up in some of these neighborhoods.  I hear it all the time about some out of state investor bought in a terrible part of town and their money is tied up and they can't do anything.

Flipping homes in South Chicago (I assume you actually mean the area of town named that, not the location relative to downtown) would never come up on my list of an area to flip properties as owner occupant.  South Chicago has many struggles.  There are a handle of blocks that you could to that but the risks relative to other areas is too high.  

There is more to investing than just looking at the numbers. Thirty percent ROI's aren't that easy. As a matter of fact, the home runs come after lots and lots of singles.

If you need any help with the property feel free to PM me.