All Forum Posts by: Brett P Holmes

Those are all great recommendations -- I would just add that if you're just getting started, don't try to figure out or do everything yourself.  My recommendation would be to interview and incorporate trustworthy experts to help like thorough inspectors and land use/zoning attorneys. Tell them that you're new and your plan and to explain everything to you.  Attorneys will point out risks that you haven't even considered.  You may spend more in the first few investments building a team and hiring away some of the key DD items, but you'll learn a lot and be able to make more cost effective decisions later (like whether to use them in the future and to what extent).  Better to make 10% return on your first deal and learn a lot than 30% return and miss out on things that will cost you later!

Good question (but broad).  Think about which markets are most accessible to you (relative to where you currently live, somewhere you visit frequently, or within driving distance).  Typically, the economic demand drivers are the same across all successful markets.  If you are just getting started, you want some room for error and you're going to find that in markets that demonstrate positive trends such as population growth and job growth.  It's as simple as that.  Then you can narrow in on things that attract people to areas like schools, hospitals, and commercial activity.

I can't tell if this is a serious question or not.  There's SO many ways to raise capital (crowdfund, friends & family, partner pools, etc).  I'm not sure that there's a "best way", ut yeah, I agree with @Annie Dickerson that friends & family is the most forgiving and legally least risky at the start.  

Further along, you should consider the ways the private equity investments are made (perhaps the "best way"), which are not as complex as you'd think and many real estate PE investors/sponsors use a template of documents and LLC formation. We learned this by making some LP investments into development projects and then started forming the PE structures on our own to invest in our larger development projects.

Sadly, you can't trust anyone.  DEFINITELY run your own. 

I'm probably late to the party here and many people captured it well above, but the whole point of real estate is that it's a tangible asset that holds reliable value and therefore banks and the US Government will lend at higher LTV's and lower rates than other risk assets.

Sure, there's times to use cash to acquire assets quickly and times when you know that you can cash out refi later, BUT generally speaking, the beauty of real estate is in its leverage and the most successful investors invariably have a strong understanding of the power in structured finance.  Obviously, there are risk and time sensitive considerations when employing leverage, but the return boost and the larger deals that you can access with bank money is undeniable.  

Also, if you expect capital appreciation (never bank on it, but aim for it), then even more reason to use leverage. Quick example: If you have $100k and you buy a property in cash and it goes up 10%, well then you made $10k. If you split your $100k and buy 3 properties with mortgages and they go up 10%, well then you just made $30k. It's simple scenario but you can see the point, not to mention that your cash-on-cash and IRR will be higher with bank money (assuming some things here).

Hey @Andrew Fink, we found them on all of the above - MLS, private CRE broker, and off market. Once you do a deal or two, you'll know more quickly what you're looking for and things just happen sometimes. For example, we bought a building on MLS and during renovations, an old guy next door came over and liked the work that we were doing. We started talking about him renovating his building, but once he saw how much it cost, he decided to sell us two of his buildings instead. Just one example. But I'd also get on CRE broker's email lists: Interra, Kiser, Marcus & Millichap, Essex, etc (IF you are thinking multifamily or even just want to monitor it for reference). Also agree with @Jake Fugman (hi, Jake!), single-family rentals are great if you acquire in a concentrated area and the inlaw bonus would be really great, had never explored that before!

There's so many buildings with non-conforming units in Chicago.  I think that the entry/exit difficulty will make it tough to turn it into a legal unit, but we've never tried to be honest.  I've had 3-4 buildings with illegal units that were that way when we got them.  The owner couldn't advertise them as such, but the income generated was factored in.  I'm not sure how the city reacts to units that were already there if you "get caught".  I think that some good points were brought up already.  It's good to be above board but there truly is a gray area if you acquire a property where it's already there.  Doesn't sound like this is the case here...

Have you looked on the Northwest side of Chicago? (Montclare, Old Irving Park, Portage Park, Harwood Heights, Belmont Cragin)  We did several full gut rehabs on 60's/70's properties that had been owned by the same person for 20-30+ years.  Those are great opportunities for value add without the uncertainty (or experience) of working with century old properties.  Some of the folks above mentioned already, but you have to be thinking about plaster, galvanized piping, entirely new electrical wiring and boxes, deteriorating bricks, asbestos, lead paint, etc.  Not to scare you or anything!  Those buildings can be rock solid, but structural oddities about old buildings prevent you from doing as much wall replacement/removal.  Sometimes you're stuck with outdated space configurations, just thought that I'd add that...  Good luck!

I think that what you're asking depends on how much the 2-3 unit building is and how you're going to / able to finance it. We've bought and sold several 5-10 unit buildings in Chicago, all of which were owned in separate LLC's with separate investors. Therefore, we needed to take commercial loans on these which typically require 25% down. So you'd want 30% of the purchase price to get started and then it depends if you plan to make upgrades on the property or not. Alternatively, if you're taking out debt in your personal name, then you can get higher leverage, but the scrutiny from the lender for your investment property will lie less on the asset performance (NOI, DSCR, etc) and more upon your personal finances, credit history, and liquidity. In that case, you may be able to get away with 15-20% down. Hopefully that makes sense. (ie. a $500k building will require $150k in the first scenario and $85-120k in the second, factoring in an operating reserve)