Moving to Chicago, keep my Youngstown Rentals?

Question

So I'm about to make the move from my home town of Youngstown where I've lived and worked all my life up until now and started my rental portfolio 2 years ago which is now at 7 units. My fiance got an opportunity of her lifetime in her industry and we've always talked about moving to Chicago down the road but apparently that time is now! So a couple things I'm pondering, I currently manage my own properties and don't necessarily want to sell them off though I'm a little weary of giving them to a management company and being a timezone away, though I know many people do this.  Also I would love to continue my business in Chicago, so I'm looking forward to connecting and diving into the market! We'll be moving to the north side somewhere possibly Roscoe Village, Lakeview, maybe Lincoln Park areas.... though from my initial searches it seems a bit daunting to purchase something in any of those areas, any Realtors out there willing to lend a hand?

John Casmon · Answer

@Joe Cantanzriti Welcome to Chicago! I'm from Cleveland so always good to see other Ohioans here. As for your properties, did you factor in PM costs when you originally purchased? If not, that may eat away at profits and make it less desirable to keep them.

As for buying in Chicago, I would suggest getting a 2-4 unit building and living in one of the units. You can use FHA financing and only put down 3%. Also, for neighborhoods, look into Avondale, Lincoln Square, East Humboldt Park, Irving Park and West Town as well.

If you decide you want to sell, look into the tax benefits of doing a 1031 exchange.

John Casmon · Answer

@Joe Cantanzriti I'm pretty sure the bank included the rental income when we purchased, but they'll probably require a current year-long lease to count it. The neighborhoods I suggested have a bit of a better ratio of rent to acquisition price which may help with your analysis.

Joe Cantanzriti · Answer

@John Casmon Thanks, and I am certainly excited to take on Chicago, certainly a big change from Ohio. We did factor in PM as that was the original plan though I just haven't gotten there yet as we have been in a constant state of renovation for the past year it seems between turnover and a new acquisition so the plan always was to turn over to PM once we were renovated and occupied. Though I did plan on managing myself for a little while just to get a feel for what all it entailed as I knew I would appreciate PM once I had experienced it myself.

I love the idea of the 2-4 unit and living in one as that was actually the plan here in Youngstown for one of my units, though it didn't actually happen. Do you know if when using FHA financing to purchase a 2-4, will the bank count the rental income towards your overall income? I'm wondering because the price tags I'm seeing for 2-4s is a little steeper than what our income will support.

Joe Cantanzriti · Answer

@Jeff Valentino  My rentals now are so-so to be honest, had a major heroine turned eviction problem recently that is thankfully now over but that really put a strain on me managing all of them the best that I could, not to mention it was affecting 2 other tenants negatively as well. I do think I will hold most of them as I do have family still here in town that can assist with any issues when they arise. And yes, I certainly need some time to figure out Chicago.. its about 1000x the size of my current market and a bit daunting.

Joe Cantanzriti · Answer

@Jimmy Chou As far as how large of a project, as long as it's in finance-able condition we could certainly make it work as we do have some temporary housing options there should we find a project that would take a bit longer to get to live-able condition. Pop the top might be a more aggressive strategy than I'd want to take on for my personal residence and first property in Chicago but layout changes are no problem at all, my background and current job is in architecture & development so I'm pretty comfortable with major changes as long as the bank account likes them of course.

I really appreciate all of these thoughts on my current rentals as far as making them more systematic... really need to sit down and flowchart it like you just said, great idea!

Jeff Valentino · Answer

Hey there @Joe Cantanzriti. How are your rentals performing? If they are doing well, I'd be inclined to hold onto them and rent a place for a year and see how you like managing out of state. You can probably figure out a simple system for work orders, property checks etc in the meantime.

It will also give you some time to learn Chicago neighborhoods and surrounding towns. Chicago and Cook county have some tenant friendly laws that you should have a hold on before getting property here IMO.

Good luck!

Jimmy Chou · Answer

@Joe Cantanzriti How big of a project do you think your family can endure? I have seen some pretty dramatic transformation in that area by flippers that gets some deals from the MLS. Usually properties with the potential to pop the top entirely plus some layout changes for you to value add.

I believe a good work order mechanism doesn't always have to involve technology. The most important consideration should be the flow of information. What should the tenant do when there's a problem. (Call? Text? Email? Who should they be contacting?) What should this next person do? Do you need to approve the quote before the work gets done? Is there an amount they may just go ahead without checking with you and send you the invoice when it's complete? Can the handyman fax you the invoice if they can't work with emails? I recommend drawing out a flowchart of how things should go from beginning to end.

With the money piece, I can think of a few more options that may be worth exploring depending on your situation. Talk to some lenders and see if they can come up with anything else creative.

1. Can you & should you leverage against your existing investment to purchase the new place? What would that look like?

2. Would you be able to BRRRR it as if it's a flip and then refi to a traditional loan when all is done? What are the risks if the project drags on?

Joe Cantanzriti · Answer

@Jimmy Chou I appreciate the response.... yes I have seen that we're looking in a very popular area, if it was just me I'd live anywhere that I could find a deal but that's probably not realistic with the future wife. Although she is more than willing to get into a project property as we've done full renovations in the past together.

We really don't have a great system right now for the rentals though I know I need it, seems the hardest part of that for me is the work order mechanism.... right now my go to guys barely operate a cell phone let alone a computer or technology that could help me out.

The other piece to the puzzle is that if we don't sell one or several of the properties, buying a place in chicago is probably not realistic right now as I just don't have the cash for the price ranges of Chicago properties compared to here. So we're in the debate right now on whether to rent for a year or try and do a short term rental and then buy as soon as find something.

Moving to Chicago, keep my Youngstown Rentals?

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