Deal Analysis for Property in Chicago, Illinois

[Nicole R.]

Hello all! I'm new to BP.com, but have been listening to the podcast for a couple of months now and I’m looking forward to participating in the forums

I've recently come across a property that I'm analyzing for a potential buy, and would like some input.

It is a recent foreclosure and the price keeps decreasing because it has been sitting on the market since mid-2015. It has had a couple of offers that have fallen through due to certain issues with the property (which I get into below). Rehabbed 2bd/2ba units in this area range from $315K-$350K.

Property Facts:

-3bd/1 bath condo (rooms are small, but in overall decent shape but for the kitchen)

-Is at the rental cap for the building (total of 3 units in the building)

-$25K special assessment owed to cover repairs to roof & exterior

-6 months of unpaid HOAs (~$1500) due upon sale by new owner

-in foreclosure—listed at $239K

-Unit 1 & 2 are owned by same individual

-Taxes: ~$2500

Rehab/Flip vs. Rentvs. Wholesale:

*Rehab/Flip Scenario:

-Initially, I thought I would flip this property to build up my capital and allow for more future investments. I toured the property on Sunday and it appears to be in need of significant work in the kitchen area. The floor is dipping in the middle of the kitchen and is not level. To flip it, I would need to frame out a bigger master & create another bathroom. I am not sure how to estimate rehab costs (given this is would be my first flip) without having quotes from a contractor, but I would estimate a total of $20K for rehab.

*Rent Scenario:

-The building rental cap is met; however, the rental market comparables for this property/location is between $1900 (unrehabbed) vs. $2300 (rehabbed).

*Wholesale Scenario:

-I wanted to have this as a backup option should the rehab/flip scenario not work. Being able to wholesale it would depend on what my closing price is.

Financing:

My first question would be what would the recommended financing options for this type of property. The listing states it is a Home Path unit, but I thought this program was discontinued in 2014? I do not have a lot of capital to invest up front, and I already own a condo that I have rented out which is positive cash flow.

Entity Formation:

I've been researching S-Corps vs. LLCs and am leaning toward the LLC in terms of the entity in which I'll hold the property, but I'd like some input regarding pros-cons on both.

I think I can make this deal work/profitable with an offer price of $190K. I’d like any input that you all can provide and thank you in advance for your consideration!

[Ronan M.]

"Unit 1 & 2 are owned by same individual"

That's a red flag right there. If there is only 3 units total that individual holds 66% of the HOA votes. He is basically in control.

"Initially, I thought I would flip this property"

You might not be able to... due to the other guy owning the other 2 units. Buyers and lenders might be scared off because of that.

Might not be a total deal breaker but certainly something to consider. I would wonder why that other individual would not buy the last unit (and then deconvert the building)  Maybe he can't because of lack of funds...or like you he is hoping the price continues to decline. And time is actually on his side right now.