Hey Bigger Pockets Family!
It’s been a while since my last post, but I have been active in implementing my investment strategy. I wanted to make this post to share my story as well as share some insight on where I want to go next. My last post, I asked about house hacking and the best way to go about acquiring a multi family property here in Chicago. In January of 2020, I purchased my first 2 unit building that I house hack.
January 2020 is where I'll begin. The lease on the apartment I was renting at the time wasn't up until the end of February so I moved into my building in March. Given that the year was 2020, we all know what happened in March. For the most part at this time the COVID shutdown didn't effect things too much. I was a brand new home owner who's tenant was still able to pay rent, life was good! When I got the building, I was already planning on how I was going to force equity into it. I was set on following the BRRRR blueprint. The building had an unfinished basement and after some research the building was zoned for 3 units allowing me to put in a garden unit. So that was the plan. This seemed like the easiest way to get the biggest bang for my buck.
In order to put this plan into motion Chicago requires permits and in order to get a permit you need architectural drawings of the work needed to be done. As a result, I did some digging and found an architect to do the drawings. The architect also took care of filing for the permits with the city. The drawings were complete around June so now it’s time for the permits. Before the permits could be filed, I needed a General Contractor who was licensed and approved by the city to do the work, to be on record. Me being new in this field, I didn’t have the connections to call up a GC that I knew so I had to look around and find one. The guy I found was in this Facebook group for other real estate investors in Chicago and was tagged in a post that I made asking if anyone could recommend a GC. We connect, he comes out to the building, takes a look at the drawings, and tells me it’s doable. He tells me he’s going to bring his electrician and his plumber/HVAC guy by to take a look as well. A couple days go by and he brings his guys to the building to look at the basement and drawings. They all say this is something they can do for sure. I’m super excited at this point because everything is working according to plan in the midst of a pandemic.
Now that I got my GC, I pass his information along to the architect who is waiting to file the permits. After giving the information to the architect, he tells me that the GC isn’t on file with the city and if I want to use them, then they need to register with the city. I let the GC know and they say they will get that done. A few weeks go by and the architect informs me that the GC registered with the city but for the wrong license, a Handyman License. So I had to go back to the GC and tell him to apply for the right one. More weeks go by and finally they got the right license. The month is now September and I’m finally about to start doing what I had been planning on doing since getting the building.
During the visits to the building by the GC, it was discussed how much the basement unit would cost and how long it would take. I was told 50k and 4-6 weeks to complete. This is great news to me because that means that I could have a new unit, rented, and refinanced by the end of the year. Now, the next step is financing this project. Because I'm a rookie in this game, there's a lot I didn't know. One of those things being my plan to finance this project was a Home Equity Loan. After calling my loan provider I was informed my property was too new and because I did FHA I didn't have any equity. So on to Plan B. Plan B was to apply and get loans for it. I had to get creative because no one loan provider would loan all that I needed, so I got 4 different loans to cover the total cost estimated. At the time, I wasn't really concerned about paying on 4 loans because the project was estimated to only take 4-6 weeks and I was going to refinance to pay the loans back (another rookie mistake).
It’s now October and I got the money, the plans, and the crew. I put down the first third of the total payment and work begins. A couple weeks go by and I hadn’t heard from my GC, I call to see what the updated timeline is and what the plan is for the next phase of the project. At this point in time I believe only new windows had been put in. I get an update and told another project took his team away but they are back on track to begin the plumbing the following week. I’m satisfied with this answer even though we are about 3 weeks behind schedule because that still puts me at the end of the year to get it rented out and refinanced by the beginning of the new year. With the holidays packed into the last part of the year, another 2 months with almost no work done go by. I talk to my GC about what’s going on and it’s another excuse, this time it’s a work related injury that is preventing him from getting the work done. He ensures me that he will get back started in January. I again say ok, because I feel I am at the mercy of him and his team and just want the project done. He does indeed come out later that month and they get started on the underground plumbing. I get excited again because it’s work being done and a huge cement truck out front!
Unfortunately that excitement didn’t last long because ANOTHER 2/3 weeks go by without seeing anybody at the building. I contact the general contractor again to get another update on the timeline because now we are about 3 months behind schedule. He tells me that other projects, his injury, and other factors are preventing him from completing the project and tells me he has to back away from the project as a whole. So just a recap, I have a garden unit project that was supposed to take 4-6 weeks, took loans out to finance it, it is now 3 months behind and at a stand still. While all this is happening my tenant gets let go of their job in August and couldn’t pay rent. At this point I’m struggling to keep my head above water between the loans and mortgage.
As I mentioned earlier, because I’m new in this field I didn’t have any contacts so I’m always on the look out for potential connections. As I’m headed back home one day from the store, I see a guy working on another house in the neighborhood. I get out and explain to him my situation and the project and he tells me he does it all. About a week later he comes by the building, takes a look at the drawings, and says it’s doable. I don’t get as excited this time because that’s what the other guy said too. After bringing several members of his team by, he writes up a contract, we get him on the permits (he was licensed already) and we agree to get to work. The month is now June, one year since getting the drawings for a garden unit that was supposed to take 4-6 weeks.
This General Contractor is what I believe a General Contractor is supposed to be, I just didn’t know it. Communication is stellar, he let me know what the money I put down was going to, the next steps in the project week to week, etc. Everything is going very well until about a month into the restart. Flooding. Flooding was an issue in the basement. Somehow the GC prior missed that and didn’t tell me that there was a lot of moisture coming through the walls of the basement causing everything to be damp. This was bad news. I had no choice but to fix the issue otherwise it would have been hell to deal with down the road. The solution was to dig a trench all along the perimeter of the basement and install drain tiles to catch the water and send it to the basin. This was a $6,000 fix, I was hurting. On top of me paying for the loans originally taken out, I had to come up with an extra $6k. I figured that out and the water problem was fixed and we were able to resume with the renovation.
Once the water issue was resolved, the construction moved pretty quickly (relatively speaking). Plumbing and HVAC first, then framing, then electric, then drywall. The basement was starting to look like something, FINALLY. Fast forward to December 2021 and the basement is complete. One year and four months behind schedule and 26k over budget, I’m finally in the process of refinancing to cash out and pay the loans off. The unit isn’t rented out yet but that’s in the works. Originally at the start of my journey I wanted to refinance, cash out, and buy another building to do it all over again. While that is still the overall plan, after going through this experience I’m going to take a break and enjoy the fruits of my labor for about six months until I refinance again to take out more equity for building #2 and do the same exact thing all over!
Thank you for reading this post, I know it was long but I wanted to share a little bit of my journey so far in hopes that my story inspires someone else wanting to jump into real estate investing and also learn from my mistakes. There are a lot of things I would do differently but I consider all of this a learning opportunity on what to do the next time and the time after that! After building #2 I plan to get a 6 unit building using the equity gained, then after using BRRRR again I want to use the equity gained from that building to buy a small strip mall here in the city. I eventually want to get into real estate development too, seeking partnerships to build mix use buildings a long the south side. We'll see how that goes and I'll keep you all updated! Attached are a few pics of before an after.
