All Forum Posts by: Chris Heyman

@Crystal Smith Well that's a new one for me! I had not heard the phrase Hurdle Rate before, but totally makes sense. I've definitely read that it helps to compare returns on real estate investments with what you'd get investing elsewhere. I think we are still trying to figure out our minimum acceptable rate of return at this point, but I also agree that we aren't at the point where we need to be comparing investment types yet. I'm sure we will get there, but this will be our first rental property, so just hoping to continue learning by doing. Plus looking forward to a lower personal housing cost for a while as well, even if it's not zero! Thanks again for all the help and insight offered!

@John Warren Thanks for the response, and yeah we are definitely seeing the low inventory issue. We assumed it may have been a seasonal issue (along with pandemic related buying), as we have seen this before in the winter months here and elsewhere. Taking into account the actual vs. market rents is a good point. Depending on what information we can find online for a property, we have been doing additional research to see what rents look like in the area, and taking this into account sometimes. We have definitely noticed the lack of available multifamily properties in the burbs, but we are hoping to find something close to family if we go the house hacking route and live in it as our primary. We are open to burbs closer to the city, but we are trying to limit the distance to the West/Southwest burbs.

@Jonathan Klemm Thanks for the response and the recommendation! We have considered not selling(our first consideration actually), but running the numbers it just doesn't seem to make sense. Rents would be difficult to come by to cover both mortgage and hoa(not even factoring in any other costs), and if we sold for what an identical unit across the hall listed for we might walk away with a small pile of cash to start investing.

@Michael Facchini Thank you as well for the response and reaching out. I definitely agree about multifamily and have seen the bang for the buck in the calculations. Also a really good point about everything being under one roof, for connivence sake as well as financially speaking in terms of operational expenses and CapEx. We are keeping our options open and took a drive the other day just to get a feel for some of the areas that are west and southwest of the city as well. We are just hoping to be as close as possible to family (Naperville and Carol Stream area). We have no other debt finally except our current mortgage, but we do hope to continue investing in properties down the road. So using leverage to our advantage does seem like the best bet, as long as the numbers work.

@Crystal Smith Thank you for the responses, and getting right to the point! I clearly am long winded sometimes, but there's seemingly an endless amount of variables and factors that you can think about when it comes to real estate investing. The calculation above looks about the same as what we have been using for cash flow, and that is the main factor we have been considering and comparing. Just reading blog posts on bigger pockets, and listening to podcasts, plenty of people have opinions on what's most important to look at, Cash Flow, Cash on Cash ROI, IRR, etc. but it was helpful to see you recommend Net Cash Flow. Also noted about running calculations with 20%. I have it set up now where we are running both 5% and 20% automatically, just so we can see what the numbers look like with each scenario. Going forward though, if we invested in more properties, it would be 20% anyways so that makes sense.

@Josh Mitchell Thanks for the response! From the looks of it, we plan to be in the area that you work in. Mainly looking in West and Southwest suburbs and we are hoping to cash flow a buy and hold property. The 3.5% down question was in regards to purchasing a multifamily building and house hacking(living in one of the units). If we did end up purchasing two single family homes(one for our primary residence and one solely as an investment property) we would have to put down at least 20% for the investment property, but we may put less down for our primary residence in this case. I may reach out shortly as we are hoping to get our place on the market in the next month or two.

@Marcin Talaga Yeah I had my wife read it over before posting, and she confirmed it was too long... But figured I might as well put all the info out there and see what people say. Thanks for the detailed responses! 

1. This(If I were you I'd keep my options and mind open to buying either or.) has been our recent thought, and was glad to see you thought the same, and yeah I agree, going with the multifamily does make more sense initially if we can find the right place.
2. I created a spreadsheet that allows us to input just a few variables such as purchase price and estimated monthly rents, and it will give a general estimate of Total Monthly Cash Flow, Per Door Cash Flow, Cash on Cash ROI, 50% Rule, 1% Test/Rule and even FHA Self Sufficiency Test (only for 3-4 unit). Pretty much any calculation I have found that investors seem to use for multifamily and single family investment properties. I'm sure it's all overkill, but I like data, and it's worked out to quickly give us tangible(though estimated) numbers to think about. We definitely check out the taxes, but that's a good thought comparing those two things. It's pretty incredible how much taxes differ from city to city! I'm using 19% of Monthly Rents to calculate potential operating costs including Repairs, Maintenance, Vacancy, and CapEx, but maybe this number is not ideal.
3. This is a really good point, and we had not thought about this before. We have definitely found some properties where rents most likely are maxed out, and I could see how this might really bring down a "good deal" over time.
4. Noted, and yeah definitely taking PMI into account. We are in our second primary residence at the moment and both mortgages had PMI, so we are all too familiar with it!
5. Ah that's an interesting point, and I had not thought about that. If we did go with a SFH home for an investment property, I think we would almost certainly purchase a SFH as our primary residence as well. The multifamily was just to house hack for a year to cover the primary residence requirements, and then would purchase a SFH primary residence a year later. But if we got two properties at the same time, they would most likely both be SFH.

Yeah this is our thought as well. Having multiple units in one place, potentially never total vacancy, and single shared operational costs does seem to make more sense. Just hoping we find the right one!

Again, thank you for all the info! This was all super helpful! We'll just keep trucking on with running numbers and seeing what comes on the market! We may reach out if that's cool with you once we are ready to start selling/buying.

Hey All!

Long time listener, first time caller... uh poster.

If it helps form your opinion, a little background: We currently own a duplex down condo on the Far North side of Chicago, IL that we purchased almost two years ago. We plan to sell in a few months once we hit two years in our current place, and finally start our real estate investing adventure. We've been reading, researching, and running numbers since last fall and planned on house hacking a multifamily property, and then possibly moving out after a year. We want to find something less than an hour from Naperville, IL(so mostly western and southwestern suburbs) and are hoping to have at least $70,000(possibly as high as $100,000) available for necessary costs to get started(down payment, closing costs, hopefully a bit in reserves, etc.). We would like to find something that is in good shape, possibly updated, and does not require much if any repairs. We have found plenty of properties that seem to fit this, but the only properties that actually cash flow at all, either require a huge down payment(which feels like fudging the numbers), or is a lower class (C class in an A-to-C scale) property or area. Also, we are planning to self manage, and would like to get the experience as landlords.

Where we are at now: After researching properties and running numbers for months now(just about every multifamily that pops on the market), we are finding that many, if not most do not make a ton of sense unless we fudge the numbers to show cash flow. We are definitely buy and hold minded, and get that Chicago may not be an ideal location for cash flowing like crazy, but we obviously don't want to be in the red right off the bat. Ideally we would have a lot lower housing costs personally than we currently do($2,200/month), and hopefully cash flow something, while we continue to save for the next investment property. So we have begun to look at and run numbers on single family homes, in addition to continually number crunching multifamily properties. We realize if we will have to purchase two homes at once, the investment property will require at least 20% down with a conventional mortgage. We are okay with that if the numbers work, and we can make it work.

So with all that said, our main questions at the moment are: 

1. Do multifamily or single family homes make more financial sense to cash flow buy and hold in the Chicagoland suburbs?
2. What calculations make the most sense to look at for buy and hold cash flowing properties, and specifically in Illinois? 
3. Should we be making any specific assumptions for our market in these calculations? 
4. Should we run numbers for a low down payment mortgage(3.5 or 5%), or is 20% valid if we are willing to spend it? 
5. If we go SFH, what are the downsides to putting down 20% on the investment property besides less cash in the bank?

Thanks a ton!

Chris