All Forum Posts by: Brian Jacobson

Thank you all for the input.  It will be really interesting to watch how this unfolds.  I purchased my property as an owner-occupied residence 10 years ago, and rented out the other apartments.  It had a finished basement unit when I purchased it.  

While I lived there, I had every surface and appliance in the entire building replaced (nothing moved, so no need for permits - simple replacements).  I was keen to get that basement unit permitted for resale purposes, as I have since moved out of state.  But based on everything I'm hearing and reading, it doesn't seem like it will be worth the hassle.  It's a high-performing asset, so I may as well hold it, and wait for regulations to become more investor friendly before deciding to do anything else.

In my situation, with such a huge back yard, there is a lot of space to be able to expand. Might be something to explore if Chicago changes their stance. Here in Portland there is a huge push for infill housing, and we are getting to the point where you can put 12 units on a standard 5,000 sq ft lot (as long as it's in the right location). But...our CAP rates aren't nearly what you can find in Chicago. Not to mention almost zero inventory here.

@Joey Nakayama Thanks for creating this post.  As I'm catching up on the passed legislation, it appears my home is in the pilot area.  Curious if you ended up getting to the point of discussing general cost assumptions with any builders?

To anyone else on the thread, I've been waiting years for this day, in hopes I could expand the number of units I have.  I have capital ready to be put to use, if the numbers work out.  My property is a legal 2-flat, with the possibility of adding a permitted unit to the basement - likely the most cost efficient way to add permitted units.  But, the property is also on an oversized lot - nearly 100 ft deeper than a standard Chicago lot - which opens a number of additional opportunities.  Has a garage that was built in the early 2000s, but based on the foundation, I'd be looking at a scrape to have any proper coach house built.

But I also see mention of adding attached rear units.  Curious if this follows the same guidelines, and if additional attached units need to conform to the 33% cap on unit increase cited?  

I can't disagree with anything stated above, but I have primarily targeted MFR so far, for most of the reasons Mike and Ben mentioned. But it's all about what's available, and what your exit strategy is. I always suggest having more than 1 exit strategy so that you can adjust when needed.

I've yet to sell a property, but have three 3-plex buildings that have all been providing both great cash flow, and excellent appreciation through rent increases. But I also have a SFR that was purchased because it was a better deal than anything on the market at the time. I may do better on that home than the MFRs, in a shorter timeframe. But, I have spread my risk with MFRs, while having a larger amount of equity buildup paid off by the tenants.

It's all in the deal you find.  And I've found that realtors aren't all equal in their knowledge of investment real estate and strategy.  Find a great one and they can bring you some good deals that others may miss.

I just got myself into a bit of a bind, that I'm sure I can get out of, but am looking to this BP community for some insight on our collective experiences.

Details:

Two 3-plex properties located on the same "lot" in Portland, OR.  Because they are both 3-plex properties, as opposed to a 6-plex, I have favorable lending options.  However, in talking with my banker, he assured me that a 20% down payment is all that was required.  I did my research, came up with the money (much of it hard money at 5%), and got the deal under contract for $110k/unit - which is a steal in Portland!

The issue is that I found out shortly after submitting my earnest money that this particular bank actually requires 25% down.  I have the money, but JUST BARELY.  I would have zero contingency funds, and nothing leftover for some of the rehabs that are needed to get the units into the type of shape I would actually feel good about.  Not to mention that I would have to carry a balance on one of my credit cards for the first time in almost a decade to make this work.  Far from ideal.

So my question:  Is 20% really the requirement across the board?  Or just at this one particular regional bank?  I'm sure everything will work out fine in the end, as it always does, but I'd love to hear some of your input on this topic.

Thanks all,

Brian

@Dave Foster

Interesting.  I had never considered that.  Although, it would only be 1/5 since I rented 1/2 of my unit to a friend, as well.  5 bedrooms in the building, so for all past tax preparations, my primary residence was 1/5 of the building.

And while the cash will likely be reinvested in real estate anyways, it takes some of the burden off having to pick a property within 45 days of closing, and close on that property within 180 days....at least I believe that's what the rules are.  It wouldn't need to be quite as substantial of an investment if I couldn't find the right one.

A little over 4 years ago I purchased my first property: a 3-flat in Chicago for $305,000.  In Logan Square - now one of the hottest real estate areas in the city in terms of %increase in value and %increase in home sales YoY. 

The idea was simple - rehab all of the units, live in one, rent others to friends, find property manager when friends leave, hold for retirement.  I estimate that I put about $80,000 of my own money into the building over the course of 3 years.  Everything has been replaced other than the roof and one refrigerator.  

Fast forward to today, and I have a little over a $200,000 principle balance on the building, with 11 years left on the 15-yr mortgage.  And an estimated value between $650,000-700,000.

With the $900/mo gross income ballooning to a little over $2,600 when the mortgage is paid off, I planned on making that a good half of my retirement plan.  But this post by Ben got me thinking - which I believe is always his intended purpose. http://www.biggerpockets.com/renewsblog/2015/06/09...

At first read, it seemed ridiculous.  Of course buy and hold works.  It's working beautifully for me.  But the value of my cash flow to available equity doesn't appear to be as high as I could obtain by cashing out my supposed $400,000+ in equity and purchasing two larger buildings, thus generating more cash flow now than I was planning on getting after my mortgage is paid off in 11 years.  And using a 1031 exchange, I wouldn't have to pay taxes on the appreciation of the building.  

And I forgot to mention that I now live in Portland, OR where I purchased a home with a spare lot that I will develop in the very near future.  I don't need to list all the benefits of liquidating in Chicago and bringing that Equity closer to home.

So, my question to the BP community - given that this is all new to me - is what am I missing?  I got lucky with my first purchase and don't want to get greedy.  But I also don't want to leave money on the table by not putting my money to work for me in the most efficient way possible.

I realize there are a lot of factors at play here, so ask away if you'd like additional information.

Thanks all,

Brian