All Forum Posts by: Craig Sparling

Wow.  The above stories blew my mind a bit.  My experience is limited. I bought a place with a Section 8 tenant in place.  She was great. When she moved out I tried to keep it section 8 with section 8 but the Housing Authority made it pretty difficult.

Two aspects I didn't see covered above is:
1. Section 8 is very slow to place new tenants.  I was targeting no vacancy to 1 month vacancy.  I was told it may take a six weeks to evaluate whether the application was approved, so minimum 2 month vacancy and not even guaranteed at that point.
2. It is illegal to discriminate based on "Source of Income" in many locations.  Do some research before posting any restrictions.

Also +1 on the inspection nuissance, in a pristine place the inspectors always "found" something.  Something no tenant would care about without the city's "help". It had to be remediated within a tight time window, and then reinspected.

Embarassing self-reply, but if anyone on the internets stumbles on this one.  I found the key is to go into one of the local Secretary of States offices.  Only certain ones have a seperate desk (beyond the DMV), called index services.  They keep different hours so be careful, however they were able to charge me $100 and get my series in place within several hours (stated as 24 business hours).

I wish
1.  I could have just done this online.
2. I would have been told by someone about index services (with correct hours) before spending $40 in postage to overnight something to Springfield.

Hope my experience helps a fellow investor.

I've done one LLC in Illinois and it was easy: $75 to the state, one web form, draft up some routine procedural docs etc. Less than an hours work, everything online approved within a few days.

I recently decided to stretch myself a bit and start putting my holdings into series LLCs.  Filing the parent LLC was easy,  $400 to the state this time, everything online approved within a few days, but then I went to file my first series for a property.  According to the telephone operator it was snail mail only for Articles of Incorporation.  I mailed it overnight, I wait 10 days for them to look at it and say the signature wasn't filled in right, and only then when I called them.  Some operator takes some pity on me and says I can do some of this expedited and in person but only at Lake Zurich, Mount Prospect or Springfield walk in.  I make it to the facility 75 minutes before posted closing, and get sent down to the business desk by the greeter.  I wait for 10 minutes and then a security guard tells me it is closed at 4 PM as indicated by a printed sign....  I took a picture of the hours for my own reference and get chastised by the employee for taking a photo, which is "not allowed at government facilities"....

Enough of the rant,  fellow Illinoisans or else where any tips on how to work on government time while trying to hit closing deadlines.  Is everyone else filing the LLC far in advance and waiting for the right property to put in it?  I am guessing a few will say to have my lawyer do it, but the other LLC was so seamless that it seemed superfluous to have someone get involved.  Perhaps next time.

I loved every bit of the article and it rings true.  I will however say that "at least decades if not longer!"  made me laugh.  I don't think I can invest with centuries in mind. Decades is plenty in my book.

One follow-up.  The agent was getting pushed pretty hard by his brokerage to get this signed before putting in an offer, so I caved, but limited the date.  Noone bring me any REALLY good deals for the next 1-15 days, or I am subject to counter claims...

Real estate industry.... get your act together.

First of all, let me pay my respects to the hardworking people in real estate and the treacherous waters they navigate—fronting hours of effort with only the chance of commissions and an abundance of non-forthright people out there. AND it just got harder with Burnett et al. v. The National Association of Realtors.

That said, I will not be signing an Exclusive Right to Represent as an established real estate investor, and I’m honestly a little annoyed to be asked.

I also realize this may qualify for Reddit’s AITAH channel. Here’s the scenario:

I went to see a few places this weekend. My realtor/contractor/friend agreed to show them to me. This friend and I have done 2–3 deals together, and there’s never been a payment dispute or even a hint of cutting him out of something. He’d likely play the role of buyer’s agent, contractor, and rental listing agent—something we successfully did last June. However, he asked me to sign a one-year Exclusive Right to Represent agreement, as presented to him by his brokerage.

His interpretation is that it applies only when he materially assists me, but I think the boilerplate brokerage language he was given reads much more broadly:
"If during the term of this Agreement Buyer enters into a contract for the purchase of Property through the services or efforts of the Broker or Buyer’s Brokerage Firm, or by or through any other persons during the term of this Agreement" (emphasis mine).

My concern is that, under my interpretation, if a fellow real estate investor wants to unload a property or if I get pointed to an opportunity by a former agent, colleague, or friend, this agreement could create an obstacle to moving forward with the deal.

In the end, I didn’t sign. We went to the showings, and we’ll likely still do a deal together.  I'll happily pay the commission and his GC fees, and we'll hopefully do this a few dozen times over the coming years.

My general question is: how are other people handling this awkwardness? The Exclusive Right to Represent makes sense for prospective individual homebuyers, but for real estate investors, it seems unfair and limiting.

Thanks for being open on the lessons learned.  I've had my share of expensive lessons. I console myself with the fact that compared to higher education that is relatively cheap tuition.  Don't give up the pursuit.

Fail fast works better in software than in real estate: reset the server, push a patch, etc.  Fail forward is generally just great life advice.  God speed friend!

Quote from @Dennis Bragg:

Hey @Craig Sparling

Love seeing someone approach real estate like Benjamin Graham or Warren Buffett might tackle stocks... methodical, data-driven, and grounded in fundamentals. Your mention of using GRM as a first pass and then diving deeper into cap rates and IRR is exactly how I've seen some of the sharpest investors I know operate.

I had a buddy in Chicago who bought a four-unit last year in Pilsen. We spent weeks analyzing the details. GRM and cap rate both looked great, but when we pulled utility records, we found heating costs in winter were brutal because of old, inefficient systems. That added a 12% expense bump- totally changed the vacancy dynamics. Little details like that are why I obsess over digging deeper than just the metrics.

Metrics I find useful:

Expense Ratio: Look at operating expenses as a percentage of gross income. If it's way out of whack with the market average, dig deeper.

Debt Service Coverage Ratio: Key for nderstanding if the property's cash flow will cover financing comfortably.

Historical Vacancy Trends: Especially in areas like Chicago, where local job markets fluctuate, knowing vacancy trends can help you anticipate rough patches.

Rent Growth vs. Property Appreciation: For long-term holds, I always compare rent growth with broader market appreciation. For example, I once walked away from a deal in Austin becaus rents lagged behind the crazy property appreciation there.

You mentioned employment levels and income-to-rent ratios... great calls. One other market-wide factor I’d throw in is local government policies. For instance, cities like Chicago are known for landlord-tenant laws that skew heavily in favor of tenants, and that risk should be baked into your underwriting.

What’s your take on balancing short-term cash flow with long-term equity growth? Always curious how others weigh that trade-off.

When it comes to balancing cashflow with long term equity, allow me a slight running start. A good chunk of my career of day jobs has been in analyzing data and forecasting the future. I have come to believe that no one knows the future much better than others. Nicholas Nassim Taleb helped me get there too.

I find cashflow mostly a present gauge and thus much more highly accurate. Betting on future price appreciation and equity growth is just that "betting".  I don't think the fact that prices have gone up 5 years in a row is a good clean indicator that they will continue to do so, if it cashflows today and I can hold it for 20 years inflation should do most of the heavy lifting for me.

I consider myself an old school fundamentals guys.  I've read about Benjamin Graham and Warren Buffets approach to investing at large and it resonates with me more so than the crypto-generation.  Real estate's "gross rent multiplier" is Wall Street's "sales to revenue",  "cap rate" is roughly "P/E ratio".

When evaluating markets and investments I tend to start with GRM (or lazily the 1% rule), then attempt to return a cap rate based on assumptions about costs, then I work my way to multiple years of projections (assumptions about inflation, amortization, tax benefits, etc), and if I am partnering with one of my smart friends I have to pull up an IRR (internal rate of return).

I also look at regional employment levels, median income to rent ratio in the zip code etc.  And here in Chicago I always check my favorite local homicide tracker whose name violates usage restrictions.

Is there other favorite metrics out there that I am missing?  Is anyone else willing to share the math-side property screening process? Is there other market wide metrics that apply here?

One small word in defense of retrospection.  One of my favorite authors, Nicholas Nassim Taleb, sold me on the concept of Skin in the Game and holding all pundits accountable for prior predictions, myself included.  Only by reviewing past buy/walk decisions and market decisions will I be able to hone my chops for future decisions.