Need feedback for my REI plan - esp from Chicago and Dallas investors!

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Need feedback for my REI plan - esp from Chicago and Dallas investors!

Sarah Lam
Rental Property Investor · San Francisco, CA · Member since 2013 · 141 posts · 93 votes

Hi everyone!

So I've been dutifully reading and researching about REI since I've joined this site. I've mapped out my goals, and would really love to hear some feedback. FYI, I live in San Francisco and can't afford to get started in REI in my area. 2/1 condos in my neighborhood go for $1.1M and rent for 3.5K-4K/mo.

I'm investing in real estate to replace my bonds portion of my portfolio. I want a balance of CF and appreciation; I don't need the income, but would like to be able to reinvest profits into my next property. I'm taking a buy-and-hold approach with small MFR turnkeys, but would consider SFR turnkeys if the numbers were particularly good. In the next 8-10 years, I'd like to acquire 4 properties, one in every major geographic location of the US - Midwest, South, East Coast and West Coast (where I reside). I'm interested in suburbs of major metropolitan areas, so I'm particularly interested in the Chicago and Dallas/Fort Worth areas. East and West Coast areas will require more time for me to save before I enter the market there, so I'm focusing on Chicago and Dallas/Fort Worth markets for now. I will be using property management companies.

Chicago investors - I'm looking at some turnkey duplexes in the South Side. Are there any neighborhoods that are in the process of gentrifying? Any neighborhoods I should absolutely avoid? What's the market cap rate for 2BR/1BA duplexes in the South Side?

Dallas/Fort Worth investors - I know the SFR market is hot right now, but how about small MFR? Any recommendations on neighborhoods that are "B" quality?

Let me know if I should provide any further information. Looking forward to reading replies!

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  • Andrew Herrig
    Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes
    13y

    How much are you looking to invest? Quadplexes go for around $160-200k near me (I am in Dallas proper), and generally fall around the 1% rule. If you go out into the suburbs you can definitely get a better deal. There are several good suburbs for holding rentals. Garland and Mesquite come to mind as those are the ones I am most familiar with.

    0Reply
  • Sarah Lam
    OP
    Rental Property Investor · San Francisco, CA · Member since 2013 · 141 posts · 93 votes
    13y

    Hey @Andrew Herrig thanks for the quick response! I would like to be around $100-150K. Not sure if that's reasonable for "B" neighborhoods.

    0Reply
  • Dan Shoemaker
    Rehabber · Keller, TX · Member since 2013 · 137 posts · 20 votes
    13y

    Sarah,

    There are many great areas to go into in DFW. Carollton, Farmers Branch to the East (in addition to Mesquite and Garland) On the west side, Saginaw, Blue Mound, and Lake Worth are definitely areas to look into. Do you have a broker you're working with? I suggest that first - and someone local. I'm sure there are some here on BP. I have a friend who is also a commercial broker. I'm sure he'd be happy to help you find something that fits. Let me know!

    0Reply
  • Sarah Lam
    OP
    Rental Property Investor · San Francisco, CA · Member since 2013 · 141 posts · 93 votes
    13y

    Thanks @Dan Shoemaker - I just PM'd you! Definitely looking for some great professionals to connect with, especially as an out-of-state investor.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    Hey I know you! :) I following the thread to see what people say.

    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    13y

    Hi @Sarah Lam,

    I've said may times that the numbers don't make sense in most parts of California. You're in an areas with a very low rent-to-value ratio, so you won't find the returns you probably want.

    Dallas is a great market to invest in. The cap rates are still favorable in many parts of the Dallas metro. I am seeing our properties range from about 8.0% to 10% in cap rates and 1.0% to 1.1% for R/V ratios these days. We just picked up nine more properties this week that will have slightly higher returns. The deals are out there.

    I like your strategy to get out of bonds and into hard assets like real estate. And your approach to diversify your real estate into several different markets is also very smart.

    Continued success!

    0Reply
  • Sarah Lam
    OP
    Rental Property Investor · San Francisco, CA · Member since 2013 · 141 posts · 93 votes
    13y

    Oh hey @Ali Boone Fancy seeing you on here :) Thanks again for all your help and advice!

    Thanks for the encouragement @Marco Santarelli - it's reassuring to hear my research agrees with an experienced investor's research. Any thoughts on Chicago? Particularly South Side and Section 8 tenants?

    0Reply
  • Account Closed
    Real Estate Investor · Chicago, IL · Member since 2008 · 1k+ posts · 218 votes
    13y

    Sarah,

    Chicago is the most tenant friendly city around. Cook County (in which Chicago is located) also favors tenants. If you are going to a long distance landlord, you need to realize that evictions are a slow and extremely painful process here in this city.

    Chicago has its own laws/rules on being a landlord. They are updated each year, and it is your responsibility to keep up with the changes. It is called the Chicago Landlord Tenant Ordinance. (CLTO). There are some subtle things they nail you for. For example, if you do not refund the interest from the interest bearing account you hold the security deposit it, either in the form of a credit (with a written receipt for that credit) or a check. Then you are liable for 3 times the security deposit to the tenant.

    Best to educate yourself there. I might suggest that Chicago is more than just the south side or even Cook county. By Chicago I mean all the Chicago Metropolitan area, and there are smarter better areas to invest.

    Just recently I filed eviction on a tenant on August 13th. The hearing was on Sept 4th. I was granted the eviction and on Friday at 11am I am meeting the Sheriff to toss the tenant out. That does NOT happen in Cook County, but I live in Chicago. I just don't work rentals in the city itself.

    0Reply
  • Ali Boone
    Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    You're right @Account Closed, but so investors know, there are now insurance options for tenant-friendly states. It's called rental insurance or something like that. I know a lot of investors using it in Chicago. It's very cheap annually and covers 6 months of rents should something happen with the tenants. It kicks in after the first 30 days.

    Also, if you are long-distance and using a property management company, that company does all the eviction work on your behalf if it happens. It's also the manager who will keep up with all the changing laws.

    0Reply
  • Sarah Lam
    OP
    Rental Property Investor · San Francisco, CA · Member since 2013 · 141 posts · 93 votes
    13y

    Thanks @Account Closed for your input. I knew Chicago was tenant-friendly, but that rule is insane! I'll definitely look into the CLTO.

    Any suggestions on those other areas to invest in? I would definitely prefer not to rent to Section 8 tenants (esp for my first deal!) but I'm not sure if there are any small MFR's at my price point.

    0Reply
  • John Hauser
    Investor · Fairfax, VA · Member since 2013 · 126 posts · 28 votes
    13y

    Our insurance covers loss of rents but only if something happens to the building that causes the tenants to have to move out. Is there a separate insurance for tenants who don't pay or something? That would be worth looking into.

    John

    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    13y

    @Sarah Lam: What is your "price point" or budget for multi-family properties? Depending on the market, you can get into very good duplexes for $50,000 to $70,000 in neighborhoods ranging from "C+" thru to "B".

    0Reply
  • Sarah Lam
    OP
    Rental Property Investor · San Francisco, CA · Member since 2013 · 141 posts · 93 votes
    13y

    @Marco Santarelli About $100-$150K. Does your company work with any turnkey providers in those neighborhoods?

    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    13y

    @Sarah Lam: Actually, we are a turnkey provider.

    Here is what you will find for turnkey multi-family properties:

    • Indianapolis duplexes: ~$50k to $75k
    • Indianapolis fourplexes: ~$200k
    • Lehigh Acres duplexes: ~$110k to $130k
    • San Antonio duplexes: ~$225k (new construction)
    • San Antonio fourplexes: ~$395k (new construction)
    • St Robert duplexes: ~$168k (new construction)
    • St Robert fourplexes: ~$215k (new construction)

    That's a broad answer to your question, but it gives you an idea of the range. Cap rates vary by market and property, but will typically be between 8% to 12%, with properties in the C+/B- neighborhoods as high as 17%.

    0Reply
  • Sarah Lam
    OP
    Rental Property Investor · San Francisco, CA · Member since 2013 · 141 posts · 93 votes
    13y

    @Marco Santarelli Thanks for that helpful post! Do you have any properties in the Chicago area? If not, is there a reason why you haven't invested there yet?

    0Reply
  • David B.
    Investor · Chicago, IL · Member since 2012 · 80 posts · 31 votes
    13y

    Hey Sarah,

    I have been investing in Chicago real estate for 18 years and I'm very familiar with the south side ( I grew up there).

    Some of the gentrification areas are around U of C in Hyde Park such as North Kenwood, Oakland, Woodlawn and Douglas. Bronzeville, just south of the Loop continues to have good deals. The Morgan Park/Beverly areas and Ashburn are nice for investors. South side Chicago have many neighborhoods that are block by block situations. Meaning one block may be well manicured and look like a sprawling suburb and a couple blocks over the houses are total eye sores. In this case the eye sores have brought down the price of some very nice properties which provides great opportunities for the buy/hold investor.

    In regards to eviction, screening should be your first and most efficient line of defense. Cook county can be very lenient to tenants but if you are a proactive landlord you will be fine.

    Nice Investing

    0Reply
  • Sarah Lam
    OP
    Rental Property Investor · San Francisco, CA · Member since 2013 · 141 posts · 93 votes
    13y

    Thanks @David B. for chiming in! Definitely seems like I have my due diligence cut out for me, particularly in the area of screening my property management team. I'll definitely have to make a trip out to Chicago to take a look around at all the different neighborhoods.

    0Reply
  • Marco Santarelli
    Specialist · Orange County, CA · Member since 2008 · 2k+ posts · 623 votes
    13y

    Hi @Sarah Lam,

    Some of my personal reasons include:

    • Weak population growth.
    • Poor state and local fiscal health.
    • Housing burdened by high foreclosures.
    • Old and aging infrastructure.
    • Very tenant-friendly (as *********** discussed above).
    • Spotty inner-city neighborhoods bring down the overall grade.
    • Poor (corrupt?) political environment. (Reminds me of Detroit.)

    Continued success!

    0Reply
  • Sarah Lam
    OP
    Rental Property Investor · San Francisco, CA · Member since 2013 · 141 posts · 93 votes
    13y

    Really appreciate you sharing your concerns regarding Chicago, @Marco Santarelli - that gives me a lot to think about.

    0Reply
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