Househack Quadplex in Belmon-Cragin, Chicago, IL

[Jodi Taylor]

Investment Info:

Small multi-family (2-4 units) buy & hold investment.

Purchase price: $512,000
Cash invested: $40,000

4-unit building. 50% ownership with a partner. Bought 100% occupied with reliable on-time paying tenants. Terminated the lease with one tenant so partner could move in (FHA loan). Needed minimal repairs and only required 3.5% down payment with FHA loan. Remodeled one unit (owner-occupied unit). Renting a room out in owner-occupied unit so that the building breaks even, including saving substantially for capex/vacancy (roof to be replaced in a couple years).

What made you interested in investing in this type of deal?

My boyfriend (partner on this deal) and I are trying to scale fast so we can eventually quit our jobs. I did a househack earlier in the year for myself and decided to do one in his name as well. I specifically wanted a four unit property for the extra cashflow long-term. Having a four flat, rather than a 2-3 flat, also allows for us to more easily break even during the 1st year period while living in a unit. Utilizing low down payment loans has helped us grow quickly (3rd property to come soon).

How did you find this deal and how did you negotiate it?

I found this deal on the MLS. I had my agent presenting offers to the listing agent. The property was listed for $550k. It was a very tough negotiation where they ended up accepting someone else's offer first... but then it fell through!! They came back to us after it fell through, and we eventually got them down to $512k with a $2,500 seller's credit. (It appraised at $520k.)

How did you finance this deal?

Utilized FHA for a 3.5% down payment and interest rate of 2.75%. Also had the seller's credit negotiated in for $2,500. The cost to close was covered by my partner's savings from regular job. Total cost to close (all inclusive): $23,453.

How did you add value to the deal?

When we acquired the property, there wasn't much that absolutely needed to be done immediately. We did better insulate the crawl space to protect the pipes, water heaters, etc. We took care of various small repairs around the property (roof/chimney repairs, new smoke/carbon detectors throughout, etc.). We have replaced two water heaters and one furnace. We renovated one unit for about $11,500 with brand new cabinets and quartz countertops, fresh paint throughout, and some other items.

What was the outcome?

We kept 3 out of 4 of the original tenants. We have increased the rent on one and will be increasing the rent on the other two when their leases expire in a few months. Have done some renovating but plan to do more renovating as units become vacant for increased rent. The building is currently breaking even while saving for capex/vacancy. After the year mark is up, we are projecting $9,277 annual revenue with a property manager (but plan to self-manage) and saving for capex/vacancy.

Lessons learned? Challenges?

One major thing I've learned is that it is pretty easy to manage two properties yourself when they are right across the street from each other. So glad that we pushed so hard for this second property that is about a 1 minute walk from the first! We have run into a few challenges with furnaces and water heaters failing (all towards the end of their lives and likely why the owner wanted to get out prior to the needed replacement of the furnaces, water heaters, and roof). Always save for Capex!

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Real Estate Agent: Peter Fisk - https://www.jillsilversteingroup.com/
Lender: Zack Karp - https://zacharykarp.com/

[Jodi Taylor]

@Sarita Scherpereel It has definitely come in handy! I actually have it worked into the lease that one of the tenants is responsible for snow removal at one of them, but we still do the other currently. I plan on contracting it out next year rather than take care of small things like that. 

@Michael K. At market rate (which I'm working the inherited tenants towards) with all units rented out, the cap rate would be around 9% without saving for vacancy and capex. While saving for vacancy/capex, I've got it close to 7%, but I've got a healthy capex savings going for a planned roof replacement in a couple years. I honestly don't really look at cap rate, because it doesn't determine whether a property is right for me. For one, it needs to break even or close to it while a unit is vacant/owner-occupied so that I'm living for free (for my househack properties like this one). Secondly, after the one year mark when it's fully rented out, I look for a cash-flow of around $200/door/month and a cash on cash return of 10%+. My goal is cashflow so that I can work towards financial freedom. Everyone has different goals of course and have different requirements based on those goals. Once I get into 5+ unit buildings, I'll likely be paying a lot more attention to cap rate. 

For this property, the current rents are all right around $1,100 with market rate being around $1,300. The building has four 2BR1BA units.