All Forum Posts by: David Fitch

Agreed, that's a long time. 

Thanks JR - that's not good; doesn't CHA pay automatically every month? Mine seem to hit on the 1st of the month every month. Or is it that Elite just never got it properly registered with CHA to begin with?

I'm definitely interested in how long it takes to replace the tenant now that there's no rent guarantee. Please keep us posted. 

Thanks Vivek. 

I agree in principle with what you're saying, but I factored all of that into my buying decision, so it's not a new data point for me that is suddenly concerning. My financial situation is such that, barring some catastrophic event that is unlikely enough not to factor into my decision, I will not need to sell these anytime soon. 

These investments represent a small % of my overall net worth / investments, so I can float them as long as required even in the worst case scenario. 

I paid $275k; I put down about $80k; I owe $190k on the mortgage. With net income of $13k, that's just over 6 years to recoup my down payment (not factoring in the tax benefits, which probably get me closer to 5 year payback period). That means, after 5 years even if I could only sell them for $190k (unlikely based on comps that I can already see today, let alone 5 years from now), I'm not losing any additional out of pocket. Of course, that would also mean I made no return on my money over 5 years, but again, we're talking the "very bad" (and also very unlikely) scenario here. 

The point is - these should not be viewed as liquid investments. If you approach them that way, that's a flaw with the investor, not the investment. If you need to get in and out of investment vehicles within a few years, stick with stocks / options / bonds / anything liquid. I find that almost always, when someone loses their shirt on a RE investment, it's because they were spread too thin and forced to sell at a loss because of timing and inability to float the investment through tough times. 

Anyway, my two cents. 

Meh, I have to call a little BS here. I'm no fan of politicians - particularly career politicians that flip-flop constantly, but it's overly simplistic to suggest that folks are just "weak willed" and not standing up for their citizens. The reality is, most of what it means to "stand up" for those citizens is to make decisions that benefit them economically. It's entirely possible that the analysis to spend $750M assumes at least that or more in net new tax revenue, and/or a large increase in jobs, infrastructure, and other things that positively benefit living / working in a particular area. 

Now, you can argue whether those numbers actually flesh out, and whether the politicians are in the pocket of the developers - only making it "appear" to be financially beneficial, and taking kickbacks to do so, etc. But those are different criticisms (and probably more valid than the one you're trying to make). 

Yea, exits are problematic for any multi-family property. Your market is limited to other investors, so obviously liquidity is something to be aware of. I don't think that's really unique to Elite though; just to this investment style in general.

I think I recall Elite saying they occasionally have existing investors that find themselves needing a quick 1031 exchange, and if there is no inventory ready for immediate purchase, they sometimes broker that type of sale between their customers.

Beyond that, I'm sure it's appealing for folks that live in that area to be an owner-occupied landlord. With a 3-unit, the owner would essentially live rent free, as the other 2 units would more than cover the cost of the property. 

I hadn't reviewed my income / expense in detail in a few months, so this question prompted me to get that all sorted since I'm coming up on the one year mark. Here are the specifics:

• Gross Rental Income - $37,869
• Expenses - $24,859.45
• Net Income - $13,009.55

Elite's PM portal is a bit clunky, so I made some of my own decisions on how to account for various items. A number of things show up as a "positive" number in their portal, and without massaging the data, would appear to contribute to the "revenue" side of things. Some of those I categorized differently and use them as expense offsets, instead of income. I just pull the data into a different tool that's actually better at proper accounting. 

So, for example, if you get a tenant paying $1250 in rent, and they pay a $500 move in fee, and Elite refunds you a $750 credit, the $1250 shows as a negative, and the $500 + $750 show as positives. I don't count the $500 or the $750 as rental income. If you just lump together all the positive numbers in the portal and call it income, you'll be high balling your actual gross rental income. Instead, I have an expense category for "Tenant Sourcing". The $1250 is counted as an expense in that group, and the $500 + $750 are counted as offsets in that category. So, that expense category nets out to zero dollars, and the positive numbers are not inflating my income category "Rental Income". 

Anyway, that sort of stuff aside, the details of my expenses are as follows:

• Repairs & Maintenance - $1787.27
• Tenant Sourcing Fee - $0 (however, there are $5085 worth of debits / credits in this group, as described above)
• Insurance - $1660
• Mortgage Payments - $14,456.70
• Landscaping Services - $1440
• Utilities - Electric - $928.04
• Utilities - Gas - $1133.64
• Property Management Fees - $2885.52
• Utilities - Water - 568.28

Unless I fat fingered something, those should add up to the $24,859 expense total, resulting in $13,009.55 in net income. With total down payment of about $80k, that's cash on cash return of 16.25% for year one. 

I should point out the big caveat (in my view - there may be others). While that number looks very close to the projected returns from the inventory spreadsheets, once you get to year 2 and beyond, you don't get reimbursed for the tenant sourcing fees. Since I ended up with 4 tenants (one flaked out and left), that resulted in the $5085 worth of sourcing fees. If I hadn't been reimbursed, my total expense would have been $29,944.45, resulting in net income of $7924.55, or just under 10% cash on cash return from my $80k down. 

Add to that, that as years go by I expect maintenance costs to go up as the rehab becomes less "fresh". So the returns could be even less than 10%. The flip side of that criticism is that 3x units at a market rate of $1250/mo for 12 full months is $45,000 gross instead of $37,869, so if I get some years with little or no vacancy, that additional revenue more than offsets the sourcing costs, and you're back to or above my current 16% return. (quick napkin math gets me to about 19% based on $45k revenue and $29.9k expense = $15k, over $80k invested = ~ 19%).

So, hopefully that additional detail helps. I still think it's a good alternative investment vehicle, but as something that diversifies against other types of investments. I wouldn't put all or most of your investment capital into these based on the simplistic view that you might see 18% annual returns (you should never put everything into a single investment category anyway, but it's worth reiterating).  I think you need to believe in the appreciation upside here as well (which I do), in order to make these more attractive than keeping your money in the market. 

I had a few months of vacancy in one of the units that hurt the overall return as compared to the projections, and a few higher than expected charges (had a $500+ repair charge for something, don't recall what). 

I haven't tallied it up recently, but if I had to spitball I'd say I've netted about $12k over the last year, including the disbursement I'll be getting soon.  I put a bit less than $80k down (maybe $78k including closing costs etc), so ballpark $12k/$78k is about 15% return on cash invested. 

I'm pretty happy with that - it hasn't been perfect, but it's a high risk investment area, and I'm sure they have to deal with high employee turnover and low skill workforce, which adds to frustration that we feel about things not getting fixed quickly, or unexplained charges, etc.

For me, as long as I'm making around that 15% mark, I'm fine - I'm banking on the longer term appreciation anyway. I've been convinced for a few years that a lot of the major development will shift south over the next 20 years, which will make these 2-4 unit buildings very valuable. The same 3 unit brick building Elite sells for $300k - $320k, would cost over $2M on the north side. It's not unreasonable to think these will head that direction over a long enough investment timeline. Even if they only hit 800k, or $1M on average, it's still a great return when you combine cash flow + appreciation. 

https://chicago.curbed.com/2017/7/26/15983862/chic...

Anyway, I signed up for another 3 unit to close later this year, so I was happy enough to be a repeat buyer.

Do you have 4 units, or 4 buildings?

@Sandeep Jain

Sorry, I just saw your question. They place the first tenant as part of the purchase. 

Subsequent placements cost one month rent, just like any other RE agent or PM company would charge. The 8% monthly fee is on top of that.