3 unit in Chicago started as a house hack..

[Ki Lee]

Investment Info:

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

Purchase price: $400,000
Cash invested: $100,000

Started as as house hack when I lived in one unit and rented the other two. I also had 2 roommates. When I got married and moved to LA, I hired a PM management to run the place. It is not cash flowing, but has appreciated about $200K and I paid back about $50K in principle during the last 9 years. I am looking to 1031 exchange it to a higher cash flowing asset.

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

When I got based in Chicago(as an airline pilot) I saw that there were many triplexes that were within my price range. I wasn't part of BP back then, but the "house hack" idea intuitively made sense. I rented out the 2 units and lived in one with 2 roommates and lived rent free for 4 years until I moved back to LA in 2014.

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

I was not a savvy investor when I started and I basically looked at a dozen properties and picked me "favorite" that didn't include any sophisticated analysis. It was an MLS deal brought to me by a realtor, and we went back and forth on the price and also some minor terms(repair credit, cleaning out the attic that was full of junk, etc).

How did you finance this deal?

Traditional 30YF with 20% down. then refinanced 2 years later to a better rate. 3.75% 30YF

How did you add value to the deal?

I rehabbed my unit with new bath, new kitchen appliances, added back splash, new laminate flooring and carpet, and other minor rehab.

What was the outcome?

It's worth about $600K now and I paid back about $50 in principle, but it's not cash flowing. I was on autopilot and did not manage my PM until recently when I decided to get more serious about RE. The property is not run optimally and is under performing. The plan is to 1031 exchange it for a better cash flowing asset.

Lessons learned? Challenges?

I definitely learned that I need to screen the PM and manage the PM. The property had too many turnovers and the turnover costs were outrageous. The PM also keeps all the leasing fees(no security deposits in Chicago) rather than giving it to the owner. So if your PM suggest non-refundable leasing fees, find out who keeps it.