All Forum Posts by: Anita Fofie

@Account Closed very interesting concept...the seller is getting very close to giving it away but will try to whittle it down another few thousand. Not sure if I'm the gambling type :)

 It's in West Pullman, 60628

Quite right @Jay Hinrichs, these are a dime a dozen in Chicago, and thus I didn't anticipate such resistance from investors. And I lived in Chicago for 5 years, so not a complete neophyte to the market but not an expert by any means. The numbers you quote are exactly the asking price for the property (and I have it tied up for lower): $20-25K as is, $100-125K for rehab. I'm confident we'll get this thing closed. Thank you for the feedback. 

@Crystal Smith yes I'm familiar with the CIC but was not aware of their lending criteria  for the program you're referring to. 

 Actually, this building is a 4 unit building so I would only need to bundle another 5 units into the deal to make it work. 

Thanks for the advice.

@David Dachtera

Excellent suggestion. Attempt to bundle the deal with another nearby property as a commercial project. I'll look into that. 

I am already working on trying to secure private money for my buyer, who believes in this property as much as I do. 

And yes, David, you get it-- this is a burnt out shell, it's a tear down, without actually having to demolish the structure and start totally from scratch. That has to be worth something. Now to figure out how to valuate that for lending purposes. 

Thanks so much all for the advice and suggestions. 

@David Dachtera 

Agreed. And as I mentioned in my first post, this clearly isn't a fix and flip deal but a decent buy and hold deal because even with the rehab costs plus purchase price, area rents (especially if you put section 8 tenants) are such that this property will cash flow. This isn't speculation. Each 2bed/1bath unit is over 1100sf and was already renting for $1000 per month. That's $4000/month gross rent. Annual Taxes of $2610. Even at a total acquisition cost of say $200,000 and taking out 50% of gross income for expenses (48,000/2= $24,000), the cap rate would still be 8+%.  

This is why I ask what am I missing? This property would still cash flow and cash flow quite well even at a purchase price of $25,000 and a rehab of $175,000.  I understand @Crystal Smith's  point that lenders don't have "perceptions" but  rather run the numbers and make decisions from there but in this case it really does not seem as though that is what is happening. When you look at the numbers, this property still cash flows and makes sense as a buy rehab and hold deal.  Investors buy for cash flow over appreciation every day. 

@Crystal Smith thanks for the advice. Much appreciated. 

 I guess this brings up a larger economic/philosophical issue: 

What happens to these beautiful brick homes and distressed communities when the costs to renovate exceed the current opinion of ARV?

This is a classic chicken and egg scenario. Neighborhood median home values will never increase if no one improves them, no one takes on the risk to improve them because they don't anticipate the ability to get a high appraisal to sell, refinance etc. The property sold for over $150,000 in 2007, so not a war zone...now granted that was then, before the crash, but the if the market is projected to recover at some slow but predictable rate, then appreciation could happen, but won't if the intrinsic value of the homes has decreased because now they are vacant and boarded up. In this particular case it was due to a fire and not a foreclosure but this home was producing income up until last year. 

We have to fix this problem one distressed property, then one block, and then one community at a time. 

What ever happened to neighborhood revitalization?

@David Dey,

Thanks so much for these tips. Very helpful.

I put the property on loopnet last week, but it's an unpaid ad, so I may have to bite the bullet and pay for an ad to get more exposure. 

The property was deeded to the insurance adjuster after the landlord lost it in the fire. Apparently she got about $400,000 after the fire and being an out of state landlord she decided to cut her losses and move on by giving the property to the claims adjuster.

 So, the previous landlord has the insurance money but the actual seller is the insurance claims adjuster. As far as I know, he's not sitting on a bunch of cash to fund rehab but title is clean and he could "owner finance" since he owns it outright. 

I will look through county records to see who has recently purchased multifamily units in that ZIP Code. 

 I am not in the Chicago area so I wouldn't be able to whitewash the property and make it look more presentable but I do have some boots on the ground partners in Chicago who could maybe help me out with that so thanks for that tip too. 

I am also trying to add value by helping my cash buyer secure funding with some of my lending sources. 

Seller seems pretty motivated (i.e. flexible) and has nothing to lose by working with me to get this thing closed, rehabbed, and cash flowing again, so perhaps he will entertain some creative techniques to get this done.

David, or anyone else, can you give me some more guidance on the owner financing terms I might go back to the seller with?

Thanks much. 

Hello all,

As a wholesaler, what are your options when you have a dilapidated property under contract needing a full gut rehab that might exceed the ARV? Rehab is about $100K.

I have a small brick multi family building on Chicago's south side. Recently sold comps say one thing regarding ARV (~$130-150K), but it's a C/C- neighborhood so my buyers are having a tough time getting the funding for the rehab based on lenders preception of the appraisal value. Prior to a fire the four units were cashflowing really well. So not sure ARV is really the best metric...Cap rate even with the full rehab and acquisition costs would be in the double digits. Even cash on cash return to acquire, rehab, and costs to hold the property would be over 15% in the first year...

I've negotiated the contract down with the seller by half and would of course pass that on to buyer. I get that this isn't a deal for a fix and flip, but should be a decent fix and hold project. 

Still can't give this one away.

What am I missing?

I can give more specific numbers of need be but thought I'd just start with the general scenario to figure out what to do. 

Thanks. 

Sounds like a good opportunity. The one thing I missed was an allocation of funds for property management. Are you planning to do that yourself or will you hire a PM company? You don't want to buy yourself another full time job babysitting tenants and toilets.....unless you do :)

Conventional thinking would advise you to take out 10% for property management expenses. 

The other thing to factor in is legal/eviction costs, but I don't know what % to allocate to this