Background info: A+ area (wicker park), 3 large 3 bed legal units, 1 non conforming, 5 minute walk to El, quiet desirable tree lined street, huge ceilings, tons of light, original millwork

Current Rents: $7220 (3x $2000 + $950 accessory unit + 250 garage)

Price: Under contract for 1M, expecting about 30k in buyer concessions (nothing major, but seller indicated flexibility to address anything)

Pros: 40 year owner, new roof, new windows, new garage, recent boiler/water heater - stout mechanicals, easy to duplex down into basement to make 4bed / 2bath 2250 square foot unit

Cons: window AC, radiator heating (3 separate meters, but one tied to boiler - owner covers heat), single coin op laundry, porch in usable but older shape, older kitchens

Comps: $1.15-1.25M for similar but upgraded rental (not condo standard) units.

Option A: Do nothing:

If I were to do nothing at all and keep rents (below market atm - at 20% down (interest rate is unfortunately very high, but such is the time - 5%) with 4% loaded for fees, $200/month for radiator gas in entire building, it's cash flow $0, CoC $0.

Now of course you might be screaming this is a terrible deal - I think there's a lot of value add here for a unique building in a prime area. I'd first want to stabilize rents to market value (3x $22-2300 + accessory), cash flow actually looks more like $6-900 per month with no additional work.

If one of those units I live in, I'm spending ~$1600 a month to live in it while the remainder are rented out. That's about a $600 cost reduction from what a tenant would pay.

Option B: Value adds commensurate to condo level units in the area:

Central AC (easy-ish from the roof) & in unit laundry (plenty of space for these), updated kitchens, and adding furnace to each unit to split gas cost & duplex down:

Central air/heat: $12k x 3

Kitchens: $30k x 3

In unit laundry: $10k (all 3)

Total: Let's say $150k to round up

Updated rents: $2400 x 3 + $1000 accessory unit + $300 garage = $8500)

Now the numbers are roughly: $880/month cash flow, 6.3% cap, 2.9% CoC - which again, are in an A+ area

And if I were to live in one of these units, my cost of living is around $1500 in a unit that rents for roughly $2400.

Option C:

Also duplex down one of the units, but that's far out and potentially not worth immediately doing until I have a sense of living / operating in the building.

Thoughts?

My primary goal is to house hack in a desirable neighborhood/building that's in high demand if I vacated and reduce my cost of living while being a live-in landlord.

If my CoL goes down by about $1000 from a comparable rental and I'm chipping away at improving the building, earning equity and appreciating slightly - that feels like a positive?

Now a conventional investor would say this is probably way too much cash to lay out - the things here which are personally important to me are a low-risk area (fully come up), a desirable neighborhood to live in, and a unique building that isn't cookie cutter chicago 2 flat with tiny bedrooms.

Chicago, Illinois

1 Vote