All Forum Posts by: Abby S.

Trying to size up my rehab budget to what I could get with increased rents and an improved multi unit in Bucktown/Wicker Park (Chicago).  

Would like to target a good CoC on the cash out I'll have put in with my down payment and renovation budget.

I've seen 10-15% be thrown around, but would like to hear what other folks here with experience have seen?

This directionally feels like great news, and appreciate the detailed input!

I have a non conforming basement unit in a legal 3 flat. The ceilings in the basement are a hair over 7' (full size door fits), and trying to understand whether to duplex down my first floor unit and go from 3/1 to 4/2 bed/bath legally. 

Per the link below, I'm seeing that in a "sleeping space" that the ceilings are permitted to be 7' (or less, for a bathroom):

https://www.map-strategies.com...

However, the chicago code says the height should be 7' 6":

https://chicagocode.org/13-64-....

So which is it?

Planning replacing boilers with furnace + central AC, so a larger job in a 3 flat with running ducting. 

Can folks recommend any HVAC specialists to speak with?

Appreciate the tip!

really appreciate the insight!

Are there any HVAC or other contractor folks you can recommend? 

Building is in wicker park. Lots of original charm that I want to supplement with modern amenities while making it appealing in a swarm of vinyl floor new construction.

I'll be starting to get contractors in, but trying to refine an approach here to also get feedback on when folks come through. 

For example - (low) rents right now are 2k/2k/1k (3bed/3bed/basement 1 bed). I reckon fully done, the 3beds could be 3k/3k but the final question mark is whether going full duplex on the one unit, at which point its a huge 4bed/2bath duplex (say, $4k, so $7k a month total) or keep it split and have a basement airbnb and assume ($3k, $3k, $2k, so $8k a month). 

Again, these are swag numbers now not backed up by the level of up front investment. If it weren't for the damn boiler system, this would be incredibly easy to do. But because it's so invasive I'd really like to hack it up once, and never look back. I hate the personal idea of having invested 6 digits in my home + rentals and having clanky old radiators that bleed money each month too.

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?

Looking to get a gut check on a house hack that I might want to fully lease out as an investment in the future. 

Background info: A+ area (wicker park), 3 large 3 bed legal units, 1 non conforming, 5 minute walk to El, quiet desirable tree lined street, huge ceilings, tons of light, original millwork

Current Rents: $7220 (3x $2000 + $950 accessory unit + 250 garage)

Price: Under contract for 1M, expecting about 30k in buyer concessions (nothing major, but seller indicated flexibility to address anything)

Pros: 40 year owner, new roof, new windows, new garage, recent boiler/water heater - stout mechanicals, easy to duplex down into basement to make 4bed / 2bath 2250 square foot unit

Cons: window AC, radiator heating (3 separate meters, but one tied to boiler - owner covers heat), single coin op laundry, porch in usable but older shape, older kitchens

Comps: $1.15-1.25M for similar but upgraded rental (not condo standard) units.

Option A: Do nothing:

If I were to do nothing at all and keep rents (below market atm - at 20% down (interest rate is unfortunately very high, but such is the time - 5%) with 4% loaded for fees, $200/month for radiator gas in entire building, it's cash flow $0, CoC $0.

Now of course you might be screaming this is a terrible deal - I think there's a lot of value add here for a unique building in a prime area. I'd first want to stabilize rents to market value (3x $22-2300 + accessory), cash flow actually looks more like $6-900 per month with no additional work.

If one of those units I live in, I'm spending ~$1600 a month to live in it while the remainder are rented out. That's about a $600 cost reduction from what a tenant would pay. 

Option B: Value adds commensurate to condo level units in the area:

Central AC (easy-ish from the roof) & in unit laundry (plenty of space for these), updated kitchens, and adding furnace to each unit to split gas cost & duplex down:

Central air/heat: $12k x 3

Kitchens: $30k x 3

In unit laundry: $10k (all 3)

Total: Let's say $150k to round up

Updated rents: $2400 x 3 + $1000 accessory unit + $300 garage = $8500)

Now the numbers are roughly: $880/month cash flow, 6.3% cap, 2.9% CoC - which again, are in an A+ area

And if I were to live in one of these units, my cost of living is around $1500 in a unit that rents for roughly $2400. 

Option C:

Also duplex down one of the units, but that's far out and potentially not worth immediately doing until I have a sense of living / operating in the building. 

Thoughts?

My primary goal is to house hack in a desirable neighborhood/building that's in high demand if I vacated and reduce my cost of living while being a live-in landlord. 

If my CoL goes down by about $1000 from a comparable rental and I'm chipping away at improving the building, earning equity and appreciating slightly - that feels like a positive?

Now a conventional investor would say this is probably way too much cash to lay out - the things here which are personally important to me are a low-risk area (fully come up), a desirable neighborhood to live in, and a unique building that isn't cookie cutter chicago 2 flat with tiny bedrooms. 

I've been eyeing a property that has a ton of curb appeal but for a long list of reasons has sat unsold for a while (needs moderate renovation but is very unique - historic/size - and probably not for all spreadsheet buyers/investors). Long story short - I viewed it and would love to have it as a house hack, but also with a combination of amenities I'd love for myself as a live-in-home. It's a non-conventional hack and I'm trying to get a second opinion on my perspective:

- 925k purchase price - 3 legal units, 3 beds each

- Requires 20% down (FHA or portfolio programs fall short of cost)

- Requires 50k up front for reno to make livable for myself + maximize short term rents/resale

- Comps tell me the property could fetch ~$1.2M post-reno, which I'm factoring in as ARV

- Between purchase, closing and renovation, requires 255k in cash up front. I assume the renovations also reduce variability in the mechanicals/variable expenses.

- 5% for vacancy, maintenance, capEx, 5% for management fees (live in, handling myself)

So - on the low end: 

Valuing rents at $6400 (with one of them being my live-in)

Monthly cash flow is -$215/mo fully baked ($6,400 income / $6,615 expenses)

5 year annualized return at 26%

Purchase cap 4.17%

CoC: -1%

50% rule: -$277

Assuming a 4% YoY increase in value, the sale profit after 2 years and avoiding Cap gains is $338k/52% return

On the high end:

Valuing rents at $7000 (with one of them being my live-in)

Monthly cash flow is $264

5 year return: 27%

Purchase cap 4.79%

CoC: 1.25%

50% rule: $72

Assuming a 4% YoY increase in value, the sale profit after 2 years and avoiding Cap gains is $350k/54% return

What I'm struggling with:

Is there a way to look at it qualitatively and quantitatively as a space "I'd really enjoy living in"? Should I be factoring in full management fees if I were I to move out / or factor them in as 0 while living inside? 

Considering the $50k is to shore up mechanicals / condition, could I assume reduced variable expenses (lower than 5%?)

The property would not be "utilitarian" after renovation by any means, and actually represents a really nice space/neighborhood/very Airbnb-able location. If a unit like it were available for me, I'd happily pay $2500 a month towards rent, as an example. The reason on the less "objective" measurement here is that I have to work remotely from home, and want a space that feels "special", rather than just "numbers alone".

What I'm struggling with however, is that the only way to get into it is with a very sizable down payment. It also does require work to make it very desirable - but I'm not afraid of that either as I've got a few folks in the industry who would do it at a nominal discount. 

The alternative could be a space like a single family for around 500k/20% down and then another 150k left over to do a true investment (but I can't do that in quick succession because only one of those can be a primary residence). So that becomes at least a year out.

What do you think? I know the numbers above are far from "savvy" investor grade, but represent trying to get into an already hot area while attempting to reduce cost of living.