All Forum Posts by: Henry Lazerow

Same ^ I am seeing even war zone 10+ units selling for stupidly low cap rates. The 6 units seem to have way more good deals out there being mom and pop owners. Had a 6 unit under contract last month actually with another BiggerPockets member would of been a cool deal but the stairs were totally shot and we broke contract.

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Aloha! For your Chicago property HELOC you may need to pull those funds out before you move while it's still your primary. Is this a residential or commercial HELOC?

What are cap rates running in Hawaii?

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Tenants have been there 15 years with no rent increases. That's why it's low. Yes I got a 12500 close credit. It's as is but has a brand new roof and solid bones.

I ran a tester advertisement on hotpads at $1000 with dirty kitchen photos and dated bathroom not yet updated got 7 replies in 4 hours. All the 2br comps are over $1200 even old boiler system buildings that aren't rehabbed this should be over 1% when I'm done il post a BP update at that time :)

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Chicago, Illinois

Albany park has 2 deals up right now that hit .9-1% after cosmetics. I offered on one and have a client offering on another so don't want to post address.

I have a 4 unit + illegal in Logan square east of kedzie nice part that with cosmetics hits around 1% under contract right now.

I just closed 6xxx n Hermitage myself 4 units market rate with cosmetics is $4200-4400 I got it $412,500.

These are all just kitchen/bath remodels and at the low rates of owner occupant loans on 30 year terms work well in the 4s right now with lender paid pmi. I personally think the north side tenants are better for beginner investors as easier to self manage and less issues. I understand we all have different strategies and full respect to everyone's opinions.

4 Votes

Chicago, Illinois

Dan awesome post. Someone should sticky it! I agree 100% and think this is one of the parts BP misses is that leveraged gains from appreciation are huge and will typically way out perform the cashflow. Also about how costs are fixed I see so many newbies running 10% cap/ex on all buildings and then thinking the one in the hood with low rents will cashflow more. I run all analysis with fixed costs for cap/ex regardless of what rent %.

Originally posted by @Dan H.:

I think it is probably a mistake.

I assume you are choosing Ohio for its low price. This low price is due to historically poor appreciation. Leveraged appreciation has an amazing effect on return.

The first BRRRR process is challenging if done locally; real challenging if done OOS. I have done a few BRRRR and have yet to achieve the textbook BRRRR. Mostly I find the refinance LTV combined with the low refinance appraisals prevent me from extracting all of my investment.

So if you choose to go OOS here is some advice:

Familiarize your self with the 50% rule. Any low appreciation market that has pro-forma that does not reflect the 50% rule is bogus. TK providers and RE agents will present various return projections that over estimate the long term cash flow. Make sure the cash flow estimates reflects the 50% rule (probably 60% allocated to expenses other than debt service would be safer for the pro-forma in the low rent units).
For the low rent OOS markets, 50% rule is not a large enough percent. This is because maintenance/cap expense has more to do with the RE abundant especially the structure than it has to do with the rent price. A water heater costs the same for the $4500/month 2 br San francisco unit as it does for the $500/month 2 BR Cleveland unit.
Get a 3rd party inspection and appraiser. No discount is worth the added risk of not having the 3rd party review.
Realize that if you purchase a TK, it will start to depreciate immediately after put in use. The rehab will start to age. This implies a year or two in, it is inevitable that your equity has been reduced.
Avoid the highest projected cash flow pockets in any area. These are typically the class D areas. I use the word projected because these areas only achieve the projected cash flow by expert LL in that class of property. Most newbies will have worse actual cash flow from these RE than the lower projected cash flow class B areas. Basically class D is more difficult to hit the return projections than class B.
Even modest appreciation areas, when leveraged, can provide a good return from appreciation. The historically zero appreciation areas will not benefit as much from the leverage. Example: 75% LTV appreciates 2.5% in the first year and you have a 10% return on your investment and a return that is positive in inflation adjusted dollars. Basically this means avoid all of the cheapest markets. If you can purchase a SFR for less than $100k then this is a low appreciation market.
Low rent units set a low cash flow limit. How much cash flow can you hope to get from a OOS $600/month unit. One of my above bullets indicate expenses other than mortgage will be greater than 50%. Then take out the mortgage. Probably lucky to get $100/month true long term cash flow.
The cash flow on appreciating market units will eventually always surpass the zero appreciation markets. It really is simply math.

The lure of the low cost purchase and initial cash flow (mostly exaggerated) make markets like Ohio tempting for investors from high cost areas. Ironically it is this low purchase cost that is why OOS investors should avoid these markets.

Good luck

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You can have seller pay up to 3% of close cost not directly down payment costs.

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Chicago, Illinois

Thanks @Sean Graham. I think all of Rogers Park is on the way to gentrification but the first to fully go will be the furthest south and east parts. It's funny when going down Clark St up to Devon Ave has trendy bars/coffee shops and suddenly North of there the retail is barely gentrified it's moving more and more north though every year. The area just West of Howard Red Line used to be rough area and now it's got some nice restaurants I just did a 3 unit house hack client there and numbers worked where they are living almost completely free.

2 Votes

Chicago, Illinois

I toured one of their projects while it was in progress and can say they do true gut rehabs (unlike a lot of the turnkey rehabs which are just cosmetics). Staff seemed cool but full disclosure never did business with them. Hope that helps.

1 Vote

Chicago, Illinois

Just put it on the MLS. You will be surprised how much you can get for it as value add projects are what's hot right now. I would avoid selling it directly to any contractor they will just try to low ball you. Another option would be getting quotes to repair it yourself and seeing if it might make sense to just do the job yourself.

For insurance moving forward just do high deductibles. That's what I do and it comes out to a nice balancing act of being safe while spending minimum money. Claims are rare and I think we all can pay out of pocket for small stuff so high deductible makes sense while being protected for bigger problems like your scenario.

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House hack is great way to start. $20k is enough for a house hack where by living in one unit of a 2-4 unit building you can buy with just 3.5% down on an owner occupant loan. With all that leverage your net worth rapidly increases even just from mortgage paydown. Otherwise non owner occupant requires 25% down normally and $20k invested in stocks or syndications isn't going to really make much after fees.

1 Vote

All Forum Posts by: Henry Lazerow

Henry Lazerow has started 124 posts and replied 1854 times.

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