All Forum Posts by: David Conroy

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Chicago.

Purchase price: $39,614
Cash invested: $64,500

Purchased this duplex at auction and it needed some serious work top to bottom including new plumbing, ducts, furnace, partial reroof, garage siding, front and back porch, and bathrooms.

Rented it to two CHA tenants $100 for garage, and rents of $1200 and $1138. 3 Bed 2 Bath Unit and 3 Bed 1 Bath Unit.

What made you interested in investing in this type of deal?

I was looking to expand on my last investment and get a little larger property to keep moving up in size

How did you find this deal and how did you negotiate it?

Auction purchase

How did you finance this deal?

Did it with all my own cash and put debt on after rehab and renting

How did you add value to the deal?

Main source of adding value was close to a gut rehab that we did on the property to bring it to a point where its actually rentable and livable for tenants

What was the outcome?

I leased the property to two CHA (Section 8) tenants and refinanced the property to pull most of my cash out that I used to finance the project.

Lessons learned? Challenges?

Biggest challenge was I bought it as-is and it came with an $11,000 water bill which was a misreading, working through that with the utility company was a long and frustrating process. I might stay away from water bill problems in the future unless it's a cheaper deal.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes I worked with Manage Chicago for the rehab and they ultimately managed the finished project. Constructive Loans did the refinance, and a local agent Leon Ivy helped with the acquisition and underwriting of the property.

The savings won't matter too much if the business doesn't do well as he'll get out of the business regardless if it's not cash flowing on its own. Typically with a startup on the commercial side we'll simply ask for a 1 month security deposit per year of term if there's no operating history. Perhaps if its an as-is deal with no T.I. dollars then you can back off that slightly. As an example for a 3 year commercial lease which is what we see as average term for spaces under 5,000 SF in my market you'd get a 3 month security deposit. If it's an as-is deal you don't put additional capital into the space for then perhaps 1.5-2 months would be fine. 

Investment Info:

Single-family residence buy & hold investment in Chicago.

Purchase price: $15,700
Cash invested: $42,700

BRRR SFH property. CHA tenants (Section 8). North of 17% Cap Rate. Went in cash and all capital pulled out upon refinance

What made you interested in investing in this type of deal?

Great returns and ability to continually recycle my capital based on cap rates in the area

How did you find this deal and how did you negotiate it?

Auction.com

How did you finance this deal?

Went in cash

How did you add value to the deal?

Gut rehab of the property and then rented it out

What was the outcome?

Refinanced capital out and held onto the investment

Lessons learned? Challenges?

Rent came in lower than expected but I took the rent offer from the CHA since it is 100% guaranteed by the government and there's ZERO need to chase tenants for cash. Learned to do deals with room in your number to be able to be flexible with what the market ends up offering.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Manage Chicago did a great job on the construction, leasing, and management of the facility for me starting the rehab within 5 days of me closing and finishing it in under 40 days. Tenant was identified before construction and inspections with the city were done 45 days from close

Just completed BRRR on Chicago's Southside with Chicago Housing Authority Tenants (CHA). 100% of my rent is direct deposited by the City of Chicago/federal section 8 program each month. People like to shy away from these deals but I come from there commercial brokerage world were the tenant credit dictates cap rates and value, my view is that the CHA is more likely to pay every single month (and therefore stronger credit) than a market tenant in a high end neighborhood like River North or Goldcoast. Details below!

2 Bed 1 Bath Brick Ranch in Roseland Neighborhood 

Acquisition Price: $15,700 at auction

Soft Costs: $1,500

Rehab $25,500

Total Capital $42,200

Rent $1,058 per month

Expense and Repair Reserves $445 per month

NOI $7,353

Cap Rate: 17.43%

ARV $95,000

Refinance with 55% LTV and pull out original capital

@Tyler Kress@Tyler Sounds like your uncle wants to get out of the real estate game and/or isn't set up to manage properties efficiently. Perhaps you should approach him and offer to have him owner finance the properties so he can keep an income stream from it and you can manage them and do the hard work of wringing value out of them. They may need to see you be successful with a few other properties before agreeing to do so, but I'd keep asking him every 4-6 months because Madison is a phenomenal market especially on campus which it's sounds like is where he owns property. 

I went to school there and rents have increased 35% in the building I used to live in since graduating in 2013. Also its a slightly unusual market in a huge % of students all sign leases for the next year in October/November time frame. I actually signed a lease freshmen year with people I had met 90 days earlier because inventory had run out so vacancy is rare. The current development boom is continuing to push prices into the echelon of a market like downtown Chicago for Class A buildings and and limited land supply since its surrounded by water makes new supply very very difficult to come create. 

No offense but I think he's out of his mind I'd give my kidney (kidding) for a good deal in Madison on campus as they almost all sell off market. Yes you deal with college kids, but the market is phenomenal and usually they don't expect the kind of CapEx market tenants would.

As far as your family they're thinking conservative on your behalf because they care about you, once you make some smart deals and make money they'll come around quick! My dad was similar when I started, but in the end he said you're a big boy and are going to do what you want, just be smart about your deals. 

Moral of the story you should find a way to buy your cousin's houses from him

@Josh Reed Sorry about the typos in my original message, I was typing it on my phone. I think it depends on the opportunity in your market. Oregon may have better opportunities in industrial vs. multifamily. Speaking from what I know (which is Chicago) if you develop yourself into the top guy in the market you can make about similar amounts of money. I have guessing if you're around Portland the multifamily market is probably more robust there than the industrial market. Portland would probably be considered a tertiary industrial market meaning there's not the type of deal velocity as an Atlanta or Dallas or Phoenix or Seattle. From a broker perspective deal velocity is important to making money since you only make money when people move spaces or sell buildings. 

What I can tell you is I am buying some multi family and single family homes in Chicago, but the industrial market is so strong here there are absolutely no regrets in going into industrial vs. multifamily (and I looked at both). The one thing I like about starting in industrial is it's a lot bigger learning curve learning the underwriting to leasing deals and the pool of brokers are smaller and harder to break into. You'd probably have an easier time doing both multifamily and industrial as an industrial broker. Whereas if you were doing strictly investment sales of multifamily it might be difficult to break into industrial brokers communities later on to dig up deals. 

It's not always true that you can't invest and broker in commercial. Many of the large companies discourage it, but I'm not sure they disallow it completely. I know brokers at Colliers, Cushman, and CBRE that are invested in deals. Certainly there are a lot more hoops to jump through disclosure wise and HR generally frowns on it fin some cases.

Brokers at entrepreneurial shops (usually a local company that is privately owned or by a few partners) typically buy deals themselves a lot more. What I've heard from some of our clients is if we pick off smaller deals they don't want to spend time on it typically doesn't both them. That being said at a certain size you become a competitor. 

Industrial and multifamily are both great sectors with growth potential. I personally am in industrial, but Chicago is a 1.2 billion SF industrial market. If you don't have a 70,000,000 SF+ industrial market size near it'll be hard to really specialize in just that and make a strong living. So market size is something to look into. If I were you I'd interview/talk with people at smaller boutique companies and larger companies BOTH in industrial and multifamily. The most important thing is to partner up with someone you gel with and can learn from in my opinion. 

If you want to invest a privately owned firm may be the way to go as they have less of a corporate structure setting restrictions on you. However, they don't have the national clients where deals just get handed out so you'll have to dig up your own business, so transitioning careers with a family can be hard the first year. 

One thing you need to be aware of on industrial deals if you haven't done one is the deal costs as they can eat away at your yield quickly and are VERY different from residential. 

While it might be a triple net lease a savy tenant will probably come in and ask for some TI dollars (which is market for industrial). They will probably ask for some improvements in the realm of $1-$2 on a warehouse in order to renew the lease. If they are represented by the broker that will be some additional deal costs, and often times lease review is more onerous than in residential so you may have to pay some legal bills as well.

Also I've found sometimes people say its a "NNN" lease but landlord is still on the hook for roof, structure, and parking lot. All things to make sure you cover in underwriting and making sure you have enough money outside the loan.

In the industrial market landlords almost always ask for tenant financials. Usually in 10,000 Sf units and up the landlords I work with don't even pull the credit of the end user unless the company financials look shaky. In 2,000 SF units you're probably dealing with a lot of 1 or 2 people companies so a combination of the individuals strength along with the companies financials would be a good strategy (they may even be the same thing). 

Any company with more than 10 employees we've always asked for trailing 2 years P&L and a balance sheet. I've never gotten pushback on that.

I've experienced the same thing in Chicago there's a ton of demand under 100,000 SF in Chicago and no one is building them. There's actually a simple reason why they aren't built - construction prices don't scale well under 100,000 SF and most institutional groups don't view them as big enough deals. Nashville is a strong market from what little I know about it. Building 40,000 Sf with an extra Acre or two of outside fenced storage is probably a home run for you guys.

Pre-engineered is interesting as maybe you can get the price down from precast? If you can build to a 9% Cap on 40,000 SF I would be very interested about discussing if you could replicate that in other markets? Curious what your construction cost PSF is for the building (w/ 10% office finish)? Precast in Chicago market is running about $70 with permits, architectural, and engineering. (+land acquisition costs)