All Forum Posts by: Christopher Malone

@Sharon Evans

I will do my best to take a stab at this. Rehab budgets are non-negotiable and should not be lowered lackadaisically. If your HML will fund 65% of the ARV, and the ARV is 100K, your purchase price needs to be based off of that 100K (ARV) - ACTUAL REPAIR COST (Not the number that makes the math work) - (Holding cost + Lending Fees + Closing Cost (Purchase and Sale) + Any other fix cost) = Purchase Price. My point is, the only number in your example that should be dropping is the Purchase Price.

A couple of questions and points:

• Is the HML you are using lending 100% of the 65% of the ARV? Or is it more like 80-90%? I don't know any HML that doesn't want the borrower to have skin in the game.
• What is your contingency fund? Nothing goes according to plan.
• I don't know any HML that will give you the Rehab funds upfront, there is always a Draw Request followed by an inspection and a wiring fee. Also, a HML will not give you funds to purchase materials to get the project started. You will have to purchase this yourself.
• I would never suggest financing a rehab with the GC as too many things could go wrong. 

Overall, I admire your high risk tolerance, but I think your plan is far over leveraged and it scares the crap out of me. You will need more funds in the deal than you think, and honestly if one thing goes wrong you will be in a lot of trouble fast. 

I may have missed some points as I'm typing on the go, but I hope this helps.

Hey @Filip Petrevski! I use the Chicago Residential lease issued by the Chicago Association of Realtors. It has all of the required documents that must be given to the tenant and is updated every year with any additional documents that must be given. I add additional rules and addendum's to it and everything was worked out well so far. @Brie Schmidt uploaded it to the File Place, you should be able to locate it there.

Hey @Patrick Britton! CHA looks for everything that you mentioned in addition to a few other things. 

• All Windows must open and shut properly
• All owner supplied appliances and utilities must work correctly
• Knock-Out plugs must be installed on any exposed Light/Power Outlet/Junction Boxes. (Typically in the basement)
• Chipped or Peeling paint
• If you have an HVAC system, exhaust must be properly installed (No spaces or Cracks)
• Smoke/Carbon Monoxide detector must be within 10ft of bedrooms, stove, and Furnace
• No sharp objects, including on the exterior of the property
• Any area that the tenant does not have access to must be sealed or locked (Crawl Space, etc.)  

Everything else is typical habitable property stuff like locking doors, running water, heat, etc. I just recently had a annual inspection and a new move-in inspection that I passed on both of the initial inspections, its not difficult at all. If you fail a item on a annual or semi annual inspection that is the tenants responsibility, then CHA will require them to make the repair after a certain amount of time. If you do inspections yourself or hire someone to do inspections once every 6 months or so and catch issues, then you can get the repair done, bill the tenant, and wont have anything to worry about for inspections. The tenant typically does not want to fail an inspection just as bad as you don't.  Make sure to screen consistently, and do not be afraid to hold out until you find the right person. It took about 2 months, and  about 9 individuals were turned away after my last rehab before the current tenant was placed. Be patient! The inspection is the easy part, finding the right person is the crucial/most important part!

Hope this helps!

@Mark Ainley, Anything to add?

Hey @Wayne Popelka! Welcome and congrats on taking the first step and educating yourself! I had a similar start on my journey and decided to get licensed, it has helped out tremendously. To answer your questions, if you or your wife gets licensed, then yes. Regardless if she represents you or you represent yourself, you are entitled to the buyer's (or seller's if you are selling) portion of the commission. So essentially you are always getting a small discount. Keep in mind, depending on which brokerage you decide to hang your license with, you will be required to pay a percentage of that commission to your managing broker, unless you chose a flat rate brokerage, in which you would have to pay a transaction fee. 

Good Luck!

I am not sure how Niles would like for security deposits to be handled you with have to check your Landlord Tenant ordinance. In Chicago you must

• Provide a copy of the receipt with the amount, name of the person who received it, and have it signed by the tenant. 
• Disclose where the deposit is being held on the lease.
• Place the deposit in a federally insured, interest bearing account in Illinois. (Deposit must be a separate check)
• Pay annual interest.
• Return the deposit within 45 days minus any repairs (must be detailed) that are not from wear and tear.  

I may have missed some steps as there are specific rules that must be followed. If you make a mistake you can be held liable for 3x the security deposit plus the tenants attorney fees. 

@Alex Landau It's funny that i came across this post and I was just driving the area myself yesterday. I think it would be wise to get boots on the ground or work with someone that is familiar with the area like @Elbert D. or @Mark Ainley. As Elbert stated, there are a few pockets in that area that are quiet, but if you are looking for growth, appreciation, etc. the area isn't there yet. You can definitely achieve high cash flow, but you cannot be hands off! It will require patient and disciplined screening, and management.

Good Luck!

@Victor So I have to agree with @John Warren. Taking a security deposit in Chicago can be devastating if the deposit is handled incorrectly. I personally only take move-in fees that are no more than half of one months' rent. If the move-in fee is higher than half of one months' rent, it can be considered a security deposit and you can be held liable for the rules of handling a security deposit.

Good Luck!

Purchase Price - $45,000

Rehab Cost - 36,000 (over budget by $6,000) 

ARV - $110,000 to $120,000

Rent Amount - $1,540 (Section 8)

I apologize for the way this post was pieced together as i accidentally hit send on the before photos. This is a my latest rental completed using the BRRRR strategy and everything went quite well for the most part.

Mistakes Made:

• Purchase Price - Looking over this entire project, I can honestly say that i may have paid too much given everything needed to be fixed that was hidden.  
• Closing Cost - Riding the high of my previous BRRRR project, i rushed into this one and did not budget the closing cost correctly. I still went through with the deal, but I will end up coming short on re-cupping this after the refinance is complete.
• The True Cost of Hard Money - This is tied in with the closing cost portion as I definitely fell short by failing to ask more questions regarding the fees associated with the Hard Money loan I used.
• Cost of Materials - This is really  mistake, but I am including it anyway as I could have done a better job on the front end with selecting the correct materials on the front end. I changed my mind midway through the rehab on the materials I wanted to use for the project and went with more durable materials than i originally planned, which in turn increased my cost.  

I am currently in the process of refinancing and I locked in a 4.75% rate with the same credit union that I have been banking with for years. The LTV is 75%, The Mortgage is set to be $460, and I am shooting for a $120,000 appraisal, but I am not banking on it.

I hope this helps others learn from the mistakes I made here. I already have my next project under contract so I will be looking to avoid making the same mistakes.

Good Luck!

Special thanks to @Mark Ainley at GC Realty for assisting and mentoring me whenever I hit a wall!

After Photos

Before Photos