All Forum Posts by: David Gregory

I can confirm that Jillian is still there. I email her occasionally as she works in the owner services dept. 

Hey, one more thing about taxes. I own a unit on the north side of Chicago and we worked with a company to lower our taxes and got them reduced almost 10%. I consider my taxes on the 4plex to be reasonable right now but I might consider doing the same with the 4plex.

Ironic how you mention this about AppFolio and the tenant Notes section because I discovered this earlier today after noticing one tenant is really behind on rent. BTW, I own a 4-plex with the same company as Michael on the south side of Chicago. Nonetheless, the attached Notes have me truly concerned about this tenant. Not only is she been issued two late payment warning but she has been issued several warning of noise and illegal activities on the premises. This tenant just moved in two months ago and if this tenant is such big trouble, why didn't we see this in any of the Chicago Housing background information. The building is still profitable if/when we have her removed, which is the reason I went with a 4-unit but with Chicago being such a tenant-friendly state, I really don't want to have to deal with formal eviction proceedings and the cost. I will send some updates as they come in.

I also don't mean to hijack this thread but felt it was valuable to add my experience. I personally like Alex over at Elite Invest but I have to echo the sentiments on this thread. I signed the contract for a four-plex in November 2014 and was told it would be finished in January 2015. Then January turned into April, then July, and we finally closed on it in November 2015, almost 1 year from the date I signed the contract. They always told me it was delays with the city for permits and such and while I understand there will be delays, they need to do a better job of setting expectations and better communication. With the constant delays and lack of clear communication, my mortgage broker lost confidence in Elite and I thought she might bail on me. Since closing, the communications on getting my units filled has also been equally lacking. If I don't email them, I don't think I would ever hear from them so I have to constantly check the AppFolio website for updates and then quickly follow-up with them. I currently have one tenant in place and the other three units have applicants approved but they have not moved in. Elite says that the hold-up is with the city and the CHA again. Fortunately, I found a snippet on their website that talks about a rent guarantee if the units aren't filled within 60 days of closing. I sent it to Elite and CC'ed my lawyer to ensure a 3rd-party could see it:

http://www.eliteinvest.com/faq/selection-buying-process/

Q: | Does my property come rented at the time of purchase?

A | Most likely it will not be rented at the time you close escrow. We sell most of our properties before the construction is completed and therefore it takes some time administratively to process, screen, approve and pass inspections. If the property isn’t rented within 60 days of closing the property, we start paying the expected NET rental income of each unit for any vacant units. This is VERY unlikely, but it is there for your protection.

Regardless of this rent guarantee that I'll be cashing in on, the lack of communication and urgency concerns me when my units become vacant again because I won't have this rent guarantee to fall back on. I'm just hoping that I won't ever have 3 units vacant again but who knows. Also, these buildings are evaluated on their gross income, NOI, and subsequently CAP rates so this type of performance will hurt the value of my building come resale time. I'll also post some updates along the way.

One more thing to add is that a house at less than $200/sqft in this neighborhood is considered a really good deal so if done right, this house is worth ~$500k. I can't imagine a full gut rehab on this house costing more than 100k but I'm working to get some estimates this weekend. How much % do wholesalers typically make on a deal?

I've only done buy and hold rental property to date. I would be buying more but I'm low on capital right now. Nowadays, as I start to build my capital back up, I drive around a lot looking at neighborhoods, houses for sales, houses that look abandon. So this house in my own neighborhood looked abandon back in September 2015 and by the time I try to track down the owners to try to make an offer, two neighbors did a JV and had already bought it. Homes in this neighborhood range from 400k-500k. They bought this distressed home for $150k. The two neighbors disagreed on what should be done with the house so rather than repair the house and make it move in ready, they just cleaned it out and are now trying to sell it for $299k. It's 4 bedroom, 3 bath, 2571 sqft on .88 acres. I'm pretty sure the house nearly needs a full gut. Depending on the cost of the gut rehab, which I'm working to guestimate, is there enough meat on the bone for a wholesale deal? Also, how does wholesales work? Do I get the house under contract for a certain price and then assign the contract to an investor? What kinds of forms/contracts does a wholesale deal require? I'd appreciate any help I could get here. Thanks again, Dave

I guess another option I should have included was to do nothing and just keep the property and pay nothing down because this maintains most of the benefits with nothing out of pocket. From this angle, it makes the two above scenarios look pretty bad. The fact that I don't make any money month to month compared to my other, better performing rentals makes me immediately think I need to get rid of it but perhaps that's the wrong conclusion to jump to? IDK. Any insight here?

Preface: I'm aware that I'm also fighting the emotional bias of this being my first home with my wife so my brain is making some justifications to keep it.

Back in 2006, long before I was smart about buying rental property, I bought a condo for my wife and I at the top of the market on the near north side of Chicago. The condo showed amazingly, had recently been on HGTV - my wife was hook, line, sinker and I was young, with a new, high paying job and said sure. When the market crashed, our condo lost over 100k in value overnight and when my wife and I needed a bigger place to start raising a family, I had no choice but to rent it out. Started renting it out in June 2011 and it's never been vacant - I've been able to find young, professional, low maintenance, highly quality tenants on day 1 ever since. While the condo has come up in value, it's no where near where it used to be. I currently lose about $150/month on it and while that seems bad, my tenants have been paying down over $8000/year in principal on the unit and I'm able to depreciate the value of the unit and my paper losses against my other, better performing rental properties, so while it's not ideal, it's not a complete loser. I've been talking to my accountant lately about selling it to replace it with better performing rental property but with 6% realtor fees and all, I'd have to pitch in about 30k just to sell it. Tonight as I thought about this, I was thinking about how much more would it take to turn this property around into a decent investment and I calculate about another 28k. So for a total of 56k, I could turn this property in a decent investment. I'm able to do this because I have a 1st and 2nd mortgage on the unit and could pay the 2nd mortgage off. Compared to my other rental properties, these numbers downright suck, but there is a part of me thinks there is a silver lining here. Bear with me :)

I could pay 30k and sell it and I:

• Lose $8k/year in principal pay down
• Stop losing $150/month
• Lose depreciation against my other rental properties

• Start making about $250/month
• Continue to pay down my principal by over $8k/year which will continue to increase with time
• Continue to depreciate the unit against my income and my other rental properties

This is where my brain doesn't know how to distill my own thoughts. :) Since I planned to sell it for $30k out of pocket, do I consider that part of the pay down for keeping it. Part of my brain says yes, but part of brain says no because if I was willing to pay $30k just to sell it, I would lose all benefits of the property but for an additional 28k, I continue to keep the following benefits:

• The delta between losing $150/month and making $250/month is $400 so my actual benefit is $4800/year
• $8000/year principal pay down
• For a total of $12,800/year
• Plus depreciation of the unit against this income and my other rental properties

$12.8k/$28k = 45.7%

Who in their right mind wouldn't pay 28K to keep an 12.8k benefit and the depreciation in a great, stable neighborhood with professional, low maintenance tenants? Even if we included the 30k in the pay down to keep it, the numbers are:

$12.8k/$56k = 22.8%

Still not too shabby.

Part of my brain says I can't keep the 8k principal pay down benefit in these equations because I still get this benefit today without paying anything down but if I sell, I lose this benefit so part of my brain says keep it in. If the property was high maintenance, I think this might be a easier decision. Can anyone help me better understand how to think about opportunity costs or cost/benefit analysis so I can make a good decision here?

Thanks again,

David

P.S - I'm an engineer by trade so I'm aware that I sometimes over analyze and over engineer things. :)

I make more than enough to buy a nice home and everyone I know owns a home and wonders why I don't. I've been spending all my free cash on rental property while we continue to rent our primary residence. My wife would love to buy a home but after seeing the returns from my rental property, I just can't justify buying a primary residence due to the opportunity cost. Ultimately, I'd be paying a down payment for a home, which then commits me to paying a mortgage when I could use that same money to buy another rental property that makes me a ton of cash. My parents recently questioned why I don't buy a house because they think that's what every smart person with money does. I'd like to think I'm enlightened. :) Perhaps I'll buy a home when I have so much money, it doesn't matter any more. :)

With rates so low, I've been working the last few years to acquire (4) 4-unit investment properties but I don't yet own a personal residence and rent. I figured I would be more comfortable with a mortgage once I had these properties. I keep on reading about how not that many banks want to deal with people that have +4 properties because of all the underwriting documentation required. Nonetheless, will my 5th property, which will be my personal residence, require the same down payment as investment property @ 65% LTV?