Operating Expenses to account for in Chicago market

[Fed Finjap]

Hi BP forums,

I'm currently doing research to figure out what a buy and hold on a small multifamily property (2-4 units) under $800k would look like in the Chicago market. 

For context, I'm only at the very beginning of my journey, exploring different markets to potentially move to and do a house hack in where I could break even or cash flow, and at initial glance Chicago seems to have potential. I live in NYC right now and plan to for one more year, but from what I'm seeing, it'd be much more difficult to find something that fit my criteria here. After visiting a few times, Chicago is a city that I could see myself living in for a few years after NYC and pick up a few house hacks that turn into long-term rental investments along the way. It's currently the leading market for me after I leave NYC in a year, although at this stage I'm still open to other markets for this purpose.

In doing this research, I'd love to learn more about what operating expenses generally look like in this market. I know this is probably a broad topic, as Chicago is huge and these things vary on a case by case basis. But would just love to get a general lay of the land so that I know where I need to dive deeper on. 

Some examples of things I'd like to know more about are:
- What types of utilities are typically paid by landlords vs tenants in this market?
- What kind of monthly expenses will I generally need to take into account when running my numbers (e.g. snow removal, waste pickup, water / sewer, etc)?
- How much will electric and gas typically cost in this market?
- How much should I allocate towards repairs & maintenance and capex? How does this change based on the age of the property (I know most multifamilies in the market are over 80 years old so would love to understand how frequently problems typically arise)?
- What kind of upfront costs would I need to account for as a first-time investor in this market (e.g. are there licenses I need to get / pay for? if I want to do value-add renovations on a property, how much would I need to spend on getting permits with the city to do so independent of the actual rehab costs?)
- Anything else that I should be sure to keep in mind when running numbers for properties in this market that I may not find elsewhere?

Thanks,
Fed

[Crystal Smith]

Quote from @Fed Finjap:

Hi BP forums,

I'm currently doing research to figure out what a buy and hold on a small multifamily property (2-4 units) under $800k would look like in the Chicago market. 

For context, I'm only at the very beginning of my journey, exploring different markets to potentially move to and do a house hack in where I could break even or cash flow, and at initial glance Chicago seems to have potential. I live in NYC right now and plan to for one more year, but from what I'm seeing, it'd be much more difficult to find something that fit my criteria here. After visiting a few times, Chicago is a city that I could see myself living in for a few years after NYC and pick up a few house hacks that turn into long-term rental investments along the way. It's currently the leading market for me after I leave NYC in a year, although at this stage I'm still open to other markets for this purpose.

In doing this research, I'd love to learn more about what operating expenses generally look like in this market. I know this is probably a broad topic, as Chicago is huge and these things vary on a case by case basis. But would just love to get a general lay of the land so that I know where I need to dive deeper on. 

Some examples of things I'd like to know more about are:
- What types of utilities are typically paid by landlords vs tenants in this market?
- What kind of monthly expenses will I generally need to take into account when running my numbers (e.g. snow removal, waste pickup, water / sewer, etc)?
- How much will electric and gas typically cost in this market?
- How much should I allocate towards repairs & maintenance and capex? How does this change based on the age of the property (I know most multifamilies in the market are over 80 years old so would love to understand how frequently problems typically arise)?
- What kind of upfront costs would I need to account for as a first-time investor in this market (e.g. are there licenses I need to get / pay for? if I want to do value-add renovations on a property, how much would I need to spend on getting permits with the city to do so independent of the actual rehab costs?)
- Anything else that I should be sure to keep in mind when running numbers for properties in this market that I may not find elsewhere?

Thanks,
Fed

What types of utilities are typically paid by landlords vs tenants in this market?- If you purchase a building with a boiler then the landlord pays for heat and water while the tenants pay for electricity. If you purchase a building with the heat separated then the tenant pays for heat.  Landlord naturally pays for common area heat and electricity Landlord pays for common expenses such as garbage

What kind of monthly expenses will I generally need to take into account when running my numbers (e.g. snow removal, waste pickup, water / sewer, etc)?- Naturally, every building is different but when running an analysis before getting actuals we budget between $100 to $200 per door per month for expenses. This seems like a wide range but if it's an older building we error on the high side.  Most of the proforma's I've seen are in this range.

How much will electric and gas typically cost in this market?- You can actually go online and find data on the typical electric and gas in the market. We recommend either targeting buildings where the utilities are separated or updating a building to separate the utilities. Your bottom line numbers will be much better.

How much should I allocate towards repairs & maintenance and capex? How does this change based on the age of the property (I know most multifamilies in the market are over 80 years old so would love to understand how frequently problems typically arise)?- If the building hasn't been rehabbed then expect your capex to be high. If the property has "good bones" (I love that term) and has been gut rehabbed and all the electric, plumbing, mechancial,..... have been updated to 21st century standards then use 5% or less for capex.  We use $100 per door per month for stuff until we get a proforma or actuals



What kind of upfront costs would I need to account for as a first-time investor in this market (e.g. are there licenses I need to get / pay for? if I want to do value-add renovations on a property, how much would I need to spend on getting permits with the city to do so independent of the actual rehab costs?)- This is probably too much information but the following link provides you with a guide to permits in Chicago.  Guide to Permits. Here's the bottom line- The cost of permits depends on what you plan on doing with the property. Our internal guideline - If we don't plan on gut rehabbing (tearing down any walls, updating the electric, plumbing....) our contractor gets what's called an Easy Permit.  The cost of the time of this post is ~$150. As soon as we tear into a wall and consider updating the electric, and plumbing,.....  we budget $5K to $10K.  half of that goes to an architect for drawings required by the city.  We budget it and then we do whatever we can to not spend it.  

We've invested in multiple markets and a couple of things about Chicago that we found unique- Self-certified architects- First big job we ever did we hired an architect who was not self-certified and it took forever to get things approved. When we used a self-certified architect things moved much more smoother. There are a few good ones on this forum.

Permit Expeditors- We think this is a racket but we have paid the freight to hire permit expeditors.  They are usually former or current Chicago city employees that know what buttons to press to move things along. we don't pay them directly- We budget for it in the event it's needed for the contractor or architect. 

Hope this helps.