All Forum Posts by: Henry Lazerow

Thought this would be a fun post. Here is a list I created. This is targeted more towards beginner investors so I left out the advanced/high cost strategies. Feel free to add to the list with any of your own tips. Happy investing everyone! 

• 1) The best bang for your buck value add is adding in-unit laundry. This will cut your vacancy rates down significantly and in many north side neighborhoods can bump the price of the unit up $100-200 per a month.
• 2) The second best value add is new counter tops/sink and paint. These are things you can do cheap without pulling permits and make a world of difference in the rent you can achieve. I like to steer first time investors towards buildings that already have the modern HVAC systems (furnaces no boilers) so they can do an easy value add such as steps #1 and #2. Having to change HVAC can be $20k+ by itself if doing it legally.
• 3) White is the desirable look for kitchen rehab rentals right now. Doesn’t have to be high end or expensive finishes but the all-white look with Stainless Steel appliances sells. 
• 4) The Chicago market is seasonal. An identical property can sell for 5-10% higher in April-May then it would in October-November. Late in the fall around the holidays significantly less people are shopping for properties which means less competition and sellers start to get desperate accepting lower offers/doing price drops. To give some context had a $850k contingent in November which had sat unsold 2 weeks then broke contract mid January all of a sudden multiple offers sold for $900k. Potential $50k saving by shopping when others are busy with the holidays. If you want the best deal this is the time of year!
• 5) Rentals are also seasonal in Chicago. The prime rental season is March to July. If you buy a building in the off season the best practice is to rent it up on leases that will end between March and July for example a 9 month lease or a 15 month lease. You may have to rent the units under market rate especially if you get stuck in the late fall.
• 6) 5% down conventional is often the best option for your first house hack and available in many of the gentrifying Chicago neighborhoods. You can check the census track through this link to see what exact neighborhoods this loan is available in for non-income restricted buyers. http://www.freddiemac.com/homepossible/eligibility.html
• 7) Property management on the north side is a lot cheaper than what you may see quoted on Bigger Pockets for other parts of the US. I can name a handful of managers that charge 5-7% for 3-4 unit buildings.
• 8) Leasing fees in Chicago are 1 full month if you are buying from out of state, etc. be sure to calculate this in your analysis. The good north side property managers will open their portfolio up to all the little leasing companies in Chicago which gets these units rented quick vs trying to make more money themselves pocket listing both sides ask your manager what their policy is on this.
• 9) Vacancy rates should be sub 5% if you are priced right in A or B areas. If units are sitting longer you may be over priced or lacking in unit laundry. Make sure to start marketing units 8 weeks in advance of a tenants lease ending. You should have a signed lease before a tenant vacates when done right. I helped lease 1100 north side managed condo/2-4 units when first got licensed so saw the vacancy trends on a larger scale. It's good to be conservative though so run 5-7%.
• 10) Chicago is a very pet friendly city. Accepting pets will both help reduce vacancy and bring in pet fees. You can charge pet rent $25 per month or a one-time fee of $250-350. No aggressive breeds.
• 11) In Chicago the norm is a move in fee and no security deposit. Chicago has strict laws with security deposits and most landlords choose to just take a non-refundable move in fee.
• 12) Parking in Chicago can be worth a lot depending on area be sure to add this into your analysis. It’s not uncommon for parking to rent $100-150 per spot in class A/B. Do not include it with a unit always charge extra for it to max out your cashflow. Whether the parking is garage or a pad it will still rent well. Exceptions are areas with lots of street parking available a good trick to drive by property at a few different times of day.
• 13) The real profits from north side investments will be over the long term as rents grow and your mortgage stays the same these are typically not high yield in day 1 properties with the exceptions of buildings that have an un-zoned extra unit. There may be ups and downs but over the long run rents will statistically rise. This is especially true in the gentrifying neighborhoods.
• 14) Run your own market rent analysis. On the good deals you will often see rents very low from old mom and pop landlords. Look at this as an opportunity and don’t get scared when it’s $600 or $800, etc.
• 15) My hot list of gentrifying neighborhoods…. Avondale, West Logan Square, Hermosa, Humboldt Park (North of North Ave. or between Western Ave. and California Ave.), Albany Park, Irving Park, Rogers Park, West Edgewater, Pilsen/Heart of Chicago, Little Village, Mckinley Park, Bridgeport and Bronzeville. These areas have a ton of upside and the numbers still work for house hacks if you find the right deal.

Those statistics on Chicago are very misleading. There is a HUGE difference between gentrifying rapidly growing north side neighborhoods and economically troubled areas on the south and west side. 

Yes it is true taxes could go up across the board in chicago but if you are buying in gentrifying areas this is strongly mitigated. Also adding in a value add or buying right helps mitigate this. Taxes increased significantly on the last re-assessment all over the north side but it has had no affect on the sales price of 2-4 units due to low inventory they are selling for 10%+ more money then when their taxes were lower a year or two ago. 

Zoning laws in Chicago do not allow 2-4 units to be built as rentals easily in the north side neighborhoods which creates an interesting supply and demand shortage. The city will allow you to turn a 2-4 unit into a million dollar single family but not the other way around. Over the years there are less and less 2-4 units that exist. 

Even in a stock market crash/continued tax increase I do not see north side 2-4 units seeing much reduction. 

One thing to note with PMI the rules are a bit differant with 2-4 units then condos/single families. You can't get it off for 2 years even with a new appraisal and my last 4 unit it had to hit new appraisal showing 65% LTV to drop off PMI (it depends if it's a fannie or freddie loan, etc.)

The option my clients often do is to buy with PMI lender paid most investor friendly lenders you can negotiate something along these lines. It gives you more cashflow early on and most people are going to do a full on refinance/sell before PMI would drop off. Recast mortgage back out to 30 years on refinance.

To give context real life numbers same mortgage 10% down...

With PMI that can fall off eventually - total payment: $1940

With PMI rolled in lender paid: $1871

BRRR is big online because it sells clicks and books. Most Americans are poor and dream of being able to have a lot of cashflow with 0 cash left in the deal. BRRR still works but it's usually to gain X amount of equity and get back 1/2 the money not 100%.

Real life you can't be a good realtor part time. Especially with investors when a good deal pops up you need to be fast. I'll often book a showing within minutes of a client texting me by scheduling it off my phone and then I'll schedule us in during 9-5 hours or anytime that's available next day. If you still have a day job it will get in the way forsure. . 

This is the most surprising part of the job. I see this happen in the gentrifying areas where you still have some little brokerages listing the multi units. In the class A/B areas this never happens. I usually just go through voicemail, text, email and if no reply I contact their managing broker if no reply again I tell their managing broker I am reporting them to the realtor association and then you get a response instantly and they get you in. 

Feel free to PM me there are multiple lenders offering these kind of rates at least to the Chicago market. 

Those rates are high. You can get flat 5% on a 30 year fixed right now non-owner occupant. I just brokered a 3 unit owner occupant for 4.5% with PMI included in that rate at 5% down. Email a lot of lenders and negotiate with them.

Congrats on graduating college. I work with a lot of younger professionals and also am 27 myself. Set up multiple accounts so you have one for down payment, one for day to day spending, etc. is advice I always give when people say need to save a bit more. Also look at selling anything you don't need anymore like bikes, etc. It's usually not to hard to come up with 5% down if you get creative. 

Your biggest cost out of college will likely be rent. Roommates can be cool or doing a house hack (buy a 2-4 unit) live in a unit. I personally hated having roommates but some people like it and definitely saves money. 

Why not invest in a market with decent cashflow and strong appreciation/rent growth? For example north side of Chicago gentrifying neighborhoods or class A/B areas in colorado seeing steady growth, etc? 

I never understood the very low cap rate markets. The mix of cashflow/appreciation seems like the better play.