All Forum Posts by: Daniel Baker

A few things to think about here. I looked at this a while back. Both self-directed IRAs (SDIRAs) and self-directed 401(k)s (Solo 401(k)s) allow you to invest in real estate, but there are key differences that might make one a better fit for your situation:

Self-Directed IRA (SDIRA)

• Requires a custodian to oversee transactions.
• If using an LLC (aka a "Checkbook IRA"), you get direct control but must ensure compliance with IRS rules.
• Subject to Unrelated Business Income Tax (UBIT) if using financing (e.g., a mortgage).
• Lower contribution limits compared to a Solo 401(k).

Self-Directed 401(k) (Solo 401(k))

• More control, no custodian required.
• No UBIT when using leverage for real estate.
• Higher contribution limits ($69,000 in 2024, or $76,500 if over 50).
• Requires a self-employment component (even part-time business qualifies).

Since you want more control over your investments and possibly plan to use leverage, the Solo 401(k) seems like the better fit—provided you qualify with some form of self-employment. Also, I am not an expert, just a few things I learned.

You're not overthinking this, it is something we see new investors miss all the time.  Here are a few ways we look at things:

A fast way to estimate expenses (excluding the mortgage) is to assume 50% of gross rent will go to operating costs (maintenance, vacancies, insurance, etc.).

Example:

• Rent: $2,000/month
• Expenses (50% Rule): $1,000/month
• Mortgage: $900
• Estimated Cash Flow: $100/month

If the deal still looks good, move to something like

Break Down of Actual Expenses

Fixed Expenses (Every Month)

1. Mortgage (P&I) – Principal & interest from your loan.
2. Property Taxes – Look up county tax records.
3. Insurance – Get a quote
4. HOA Fees (If applicable) – Condos/townhomes may have fees.
5. Property Management (If using one) – Typically 8%-12% of rent ($100-$250/unit).

Variable Expenses (Plan for These!)

1. Vacancy Rate – Assume 5%-10% of annual rent.
2. Repairs & Maintenance – Estimate 8%-12% of rent (higher for older properties).
3. CapEx (Big Repairs: Roof, HVAC, etc.) – Budget 5%-10% of rent or more
4. Utilities (If landlord-paid) – Water, gas, electric (common in multi-units).
5. Landscaping/Snow Removal – ~$50-$200/month if not tenant responsibility.

Example Calculation (Single-Family Rental in Chicago)

Assume a $300,000 home with 20% down, renting for $2,500/month.

Cash Flow = Rent ($2,500) - Expenses ($2,875) = -$375/month (Negative!)

Bad deal

$750-800 monthly for a 4 unit is way to high.  We run multiple similar buildings in the same neighborhood and none of them are that much.  I would have someone come inspect the line after you rule out any issues in the building.  

It sounds like your property manager is not prioritizing your rental as they should, which is causing delays and lost income. You might think about these options:

• -Set Clear Expectations: Email them a formal request for updates on applications and marketing efforts with a deadline for response.
• -Request a Weekly Report: Ask for a weekly vacancy report detailing inquiries, showings, and applications.
• -Confirm Marketing Efforts: Check that your listing is active on major rental platforms (Zillow, Apartments.com, Facebook Marketplace, etc.).
• -Compare with Other Companies: If they continue being unresponsive, research other local property management firms.
• -Negotiate Fees or Exit Clause: If switching managers, check your contract for termination terms.

Thanks!

Hey- We also love the IL and specifically Chicago market, here are a few ideas for you:

1. Hard Money Loans

• Short-term, asset-based loans from private lenders.
• Typically 70-85% of ARV (After Repair Value), but come with higher interest rates (8-12%).
• Best for fix-and-flip deals or BRRRR (Buy, Rehab, Rent, Refinance, Repeat).

2. Private Money Lender

• Individuals (not banks) lending based on relationships and trust.
• Can negotiate flexible terms with little to no money down.
• Great if you build a network of investors willing to fund your deals.

3. Seller Financing (Owner Carry)

• The seller acts as the bank, letting you make payments directly to them.
• Little to no money down in some cases.
• Works well for motivated sellers or properties with no mortgage.

4. Subject-To & Lease Options

• Subject-To: Take over the seller’s existing mortgage payments.
• Lease Option: Rent with the right to buy later, often with rent credits.
• Can acquire properties without a big upfront payment.

5. Partnerships & Joint Ventures (a great option for you)

• Partner with an experienced investor who funds the deal while you handle operations.
• Split profits based on an agreed percentage.
• Great way to learn hands-on while minimizing personal financial risk.

Would you be interested in connecting with local real estate investor groups in Illinois? I can help find meetups or forums where you can network with potential partners!

With your excellent 800+ credit score and $60K down payment, you have multiple financing options. While an FHA loan (3.5% down) is often appealing for house hacking, it might not be the best choice for you due to higher interest rates and mortgage insurance (MIP) that lasts for the life of the loan.

Other Options:

1. Conventional Loan (Best for Long-Term Savings)
• Requires 15-25% down for a duplex (but with $60K, you could still do 15%+).
• Lower interest rates than FHA.
• No mortgage insurance if you put 20% down.
• Higher loan limits for multi-family properties.
2. Conventional 5% Down Multi-Family Loan (Fannie Mae)
• Allows you to buy a duplex with just 5% down if you plan to live in one unit.
• Avoids FHA's mortgage insurance.
• Might have slightly higher rates but could save money long term.
3. DSCR Loan (Debt-Service Coverage Ratio)
• Best if you won’t be living in the property.
• Approval is based on rental income, not personal income.
• Requires 20-25% down but no income verification.
• Higher interest rates than conventional loans.
4. VA Loan (If You're a Veteran)
• 0% down with no PMI.
• Must live in one unit.
• Usually lower interest rates than FHA or conventional.

Recommendation Based on Your Situation

• If you plan to live in one unit, a 5% down Fannie Mae loan or 15% down conventional loan is likely best.
• If you plan to rent out both units, consider a conventional loan with 20% down to avoid PMI.
• If you prioritize cash flow, a DSCR loan could be an option, though it comes with higher rates.

I hope this helps! 

Hey Henry!  You should get on @jasonwagner's distribution list for his Wagner report (google it).  We manage on the North side of the city and yes we have also seen large increases in the past few years.  For my company Lincoln Square has seen some of the largest increases.  I have had multiple showings in Lincoln park where people scheduled a showing just to show up and ask me if we had anything else in the area that was open because they had lost out on so many other apartments.  

I have a great person that does countertops, DM me.  Thanks!

Are they 3 bed 1 bath or 3 bed 2 bath?  If they are 3/1's I would 100% add another bathroom in each unit.  We usually just build the bathroom on the other side of the current bathroom, then the plumbing is relativity simple assuming there is room.  If the space is big enough you could even add washer/ dryer.