Rehab + House Hack strategy input

[Abby S.]

As my first multi family buy - I think I was lucky to get into a 3x 3bed 1 bath multi family in an A+ area which immediately appraised for 100k above purchase price. The immediate need and plan is to live in one, rent the 2 others (3, if counting non conforming basement unit).

What I'm really trying to do is build a model for a plan of attack over the next 3-5 years, with rehab starting in the spring of next year, when I'll be without tenants. I've got a full time job elsewhere, and want a modern, reliable building that attracts reliable tenants in a good area while thinking about this from an investor's POV.

Goal 1: Build and live in a premium unit for myself. New kitchen, bathroom, floors, trim, laundry. 

Goal 2: Address HVAC - boiler heat on my dime is $350 a month vs. passing off to tenants. Window AC units unsightly, and would love to get rid of radiators for personal unit.

Goal 3: Ground floor conversion to duplex down. Would like to remove liability of non conforming / rough basement unit by adding one more bathroom and bedroom, increasing value. 

Goal 4: Optional - Revised kitchens and bathrooms for more desirable rental units and giving everyone in unit laundry - currently in basement for entire building. 

Some questions:

1. Is starting in the early spring with a plan to be reasonably done by summer an attainable goal? 3-4 months of work

2. I've seen folks say ROI on ripping out boilers is not there - but I'm stuck between systems of wanting something modern for myself while the rest of the building is in between boilers. If the entire building is empty, that's the easiest time to do it, especially while working in the basement on the duplex. This is probably my biggest snag - "nice" units with window AC/ & heating on my dime is a detriment to rent - but also definitely don't get the monthly ROI by just doing my own unit and having two systems in the building.

3. Is there risk in adding a kitchenette in the basement so that it could be used as an airbnb - but really is connected by the front door of unit 1 if ever I wanted it to be a dedicated duplex?

[Tom Casey]

@Paul De Luca Thanks for the mention my friend!

@Abby S. Congratulations on what sounds like a homerun deal so far! Appraised at over $100K purchase, that's huge! I specialize in downtown and surrounding A+ class neighborhoods and I'm very familiar with the Wicker Park market. It's generally almost always worth it to improve your properties with nice finishes in these types of areas for two main reasons:

1) You will actually be able to charge more for higher end finishes and features. Unlike other neighborhoods in Chicago, Wicker and other A-Class neighborhoods have a massive pool of high-paying renters looking for properties in tip-top shape with great layouts. Having good taste in your rehabs and hiring a contractor who is super tight and professional is going to pay you dividends in the future through higher rents, prime tenants, and near-zero vacancy. If you go cheap on your rehab, cut corners, and/or go with cookie cutter mid-grade finishes, it's going to show on the back-end when you can't charge as much and you have fewer interested prospects.

2) The rehab will add significant value to your property and you can leverage your newly acquired equity into more investments. So in your example of whether or not you should replace a boiler, just get that CENTRAL AIR! Even if it's expensive, it is well worth the investment for the long-term. When you're getting it appraised, they will value it higher knowing that it has central air and the work will pay for itself through the equity you will build. Also, renters in the $3K+/month range prefer units that have central air.

I love what you said about hacking it up once and never looking back. This is 100% the correct way to be thinking about this. Rehab it right, do it nice, pay the premium, and just watch it build generational wealth for you and your family over time. If you spend your time counting pennies, you'll miss out on opportunities to make dollars. 

Hope that helps. Cheers!