Nice Househack in Chicago

[Iso Iyi]

Hi all

I have been listening to BP podcasts and actively following the discussions here on multiunit investing and particularly house hacking. I have a long time horizon, ie I would like to hold this ideally 3-unit property both for appreciation and future income. I also prefer to be on the north side, and close to the lake if possible. My budget is around 900K-1MM for a 3-unit (with a 20% down), post-renovation or assuming minimal renovation (taking at most 6-months). I hope I'm able to express my objectives/expectations clearly :) 

I have come across an interesting opportunity around Andersonville, but I am intimidated by the amount of work and updates that the building needs and afraid of finding myself in a renovation quagmire and potentially added stress of a renovation loan. The building is listed around 750K and the renovation budget would be around 250K (new electric, plumbing, kitchen, bathroom, windows (old ones are lead), HVAC, garage, removing lead paint, lead pipes etc...). I am having second thoughts as this is starting to look like a bigger project than I intended to, and wanted to see if anyone has any suggestions based on what I tried to describe. I'd be happy to share the property info as well.

Cheers!

[Jonathan Klemm]

@Iso Iyi - First off, I love your plan!!  It is definitely a similar approach to the one I have taken.  Very well articulated.

Next, I'd say go for Andersonville property!  The key to taking down bigger projects is to have a team of rockstars working with you.  You should definitely connect with @Michael Facchini regarding a renovation loan and happy to help put you at ease starting out with a larger renovation project.  Shoot me a PM and we can discuss in more detail.

[Michael Facchini]

@Iso Iyi, agree with @Jonathan Klemm, to properly size up this venture you need to have a complete & experienced team to break everything down for you (for starters). General contractor, lender, and agent initially, then eventually an attorney and perhaps a home inspector (another set of eyes/ears to double check things) or HUD Consultant. This path will take more planning, coordinating, and effort, but if you're up for it then there's quite a lot to be gained!

[John Warren]

@Iso Iyi you should connect with @Brie Schmidt. She has the experience to guide you through the process and she has done a lot of rehabs as well. 

[Brie Schmidt]

@Iso Iyi - from what you are describing you would not be able to do a renovation loan with a traditional lender.  @Michael Facchini can confirm.  But a legal 3 unit with an all in budget of $1 million doesn't fit any loan program I know of.  You would likely need a construction or hard money loan.  You can send me the address and I will take a look, but the scope of work you are describing sounds like it will be more than $250k.  I also have a fantastic contractor I may be able to refer

[Michael Facchini]

Correct, a conventional renovation product on a 3unit would require 25% down (on the total of purchase price + rehab), which if we're looking at a $1mil budget would be $250k.  Can go to a max loan amount of $848k.  

[Henry Lazerow]

Iso, feel free to PM me. I have a lender who can do 2-4 unit properties 20% down on a rehab loan. It's 5-6% rate and your credit/income has to be great. You also have to do it under an LLC but can deed the property out of the LLC into your personal name after the rehab and then refinance in the 3's % range.

As for Andersonville it is a great area and seeing tons of growth on the northern edges that are still gentrifying (near peterson). I own a 4 unit nearby in West Edgewater. $750k is too high though for a 3 unit that needs that much work it's a nice area but not that high price of ARV to make much sense. As Brie mentioned a full gut like that can get pricey. Rogers Park is also a good option and can have some higher cashflow buildings. I also like areas like North Center, Roscoe Village, Lake View etc. as can create such a large margin of equity after rehabbing. I have bought/sold three multi unit flips in Lake View where client was able to create over $200k of equity post rehab on 4 unit buildings. Always go for 4 units if can find them or 3 units that have a duplex up (2 story unit) to get the highest rents.

[Ron S.]

Hate to be the only naysayer in the thread, but this seems like a lot to bite off for your first investment.  I'd recommend sticking to something that doesn't require rehab upfront and look for something that you can rehab while you live there and add value to over time.

[Brian Ploszay]

Andersonville is a solid neighborhood.   If this is your first property, I would suggest you do not take on such a big project.  There are so many variables with construction and first timers are at risk.

There will be other properties.  Few ideas:  I find that square footage for these apartments generally range from 800 square feet to 1200 square feet.  Sometimes you will find larger.  Try to buy larger apartments if possible. 

Last, recognize that the rental market is soft in the City.  You're in it for the long term, you'll be fine.  But it is soft.

[Aaron Zimmerman]

I would have to agree with the people saying to not do it. However, if you do, I'd recommend getting multiple contractors to bid the project. There are plenty of other heavier value add opportunities for $100k or so that might be better suited for you!

[Iso Iyi]

Hi all! Many thanks for all your thoughtful views and suggestions, which were extremely helpful, and apologies for the late response. We've finally decided to pass on this opportunity, and look into 3-4 units with a "little" less upfront work :) Cheers!