All Forum Posts by: Elizabeth J.

I guess by shingles I assumed siding but maybe you meant shingles on the roof?

Will there also be a new roof?  I can speak to that as we just installed a new flat roof on a 6 unit building (about 5,200 square feet for our building size), new gutters and skylights.  It was about $10,000.00 and I think that was a pretty good price.

Hi Jon!

I am not familiar with the FHA loan process, but I agree with one of the previous comments to look at the smaller buildings for your first property, as the commercial loan process for the larger ones (5 or more units) is doable but can be a headache. Commercial lenders in my experience are fairly nit picky with all of the financial documentation required and the inspection process. In order for us to get a much better rate with the 6 unit building we purchased recently in Chicago, we needed to put 30% down, which can be a sizable amount of money to have to provide at the outset. I do like that our rate is much lower and we now have less of a mortgage to pay off. With commercial mortgages, they often have a 5 year or 7 year arm; ours is 7 so we have to be really disciplined about trying to pay that off at the end of that period or be forced to refinance and hope for not too big jump in the rates.

Sounds like you want a nice, safe and fairly stable area.  You might want to consider going a bit south to the Bridgeport area or near Chinatown, where things are gentrifying.  Have your agent research the more up and coming areas with a good rental pool and where you will also feel comfortable living.  For example, Bridgeport seems to have a pretty stable middle class demographic; one of the buildings I looked at had teachers, a police officer, etc. residing there.  You will want to ask some questions as to the seller's process for vetting tenants and see what they will tell you about existing tenants.  We had many issues with a very bad tenant (who fortunately left before we had to evict him); this could have been avoided if our seller had done a reasonable amount of tenant screening.

Most multi-family buildings you see will be a far cry from turn-key - at least in my experience looking at a lot!  You will need to take stock of how much work you may be able to do yourself and what you need to hire out - and factor in all of the cost.  You will also want to consider what the upkeep will involve and again, whether you plan on being very hand's on with this or whether you will need to outsource.

Best of luck to you!

Elizabeth

Hi Dan,

It sounds like you are really doing your homework and being very thorough!  I can't speak to some of the estimates, but having bought a very old (1917) 6 unit building in Chicago recently, I can give you my 2 cents on my experiences.  I think your estimates for the electrical might be a bit on the lower side.  We already had updated panels in our building, but the prior owner did some sloppy work and the electrical was very overloaded in one unit (excuse my ignorance of some of the terminology - you seem to understand it much better!).  Anyway, I had to spend close to $1,000 in that unit fixing that situation and installing a lot of new wiring, from someone who was a friend of our handyman - so I know he was not charging us as much as he could have.  Our building still has a lot of old wiring behind the walls, which does concern me.  Since you are redoing so much of the building, have you considered whether it might make sense to redo all of the electrical?  Not sure if that is feasible, but you might want to price it out to see if makes sense to start fresh and not have to worry about cloth wiring, etc.  Don't underestimate the cost of installing all of those fixtures, plus emergency lights (which you should put in common areas).  They tend to add up.

Plumbing costs can also add up especially if they need to bust through concrete in a basement to assess a problem - I would get your plumber out there (and the electrician for that matter) before you proceed on anything and get the costs more nailed down.  I would have the plumber address water heaters - what is there now, what is needed for each unit, cost, etc.  Also, where will the laundry be?  Is there going to be common laundry in the basement?  If so, factor in cost of any plumbing needed plus the cost of commercial machines (can be quite costly).

We had an existing HVAC system so we haven't had to address that or the meters (we had that also in place) but that sounds like a great plan - just not sure about the cost.  I would have an HVAC person take a look now rather than waiting until after you proceed further.  If the seller is truly interested in selling, they might consider allowing you to get in with these people to get a clearer picture on your true costs.  The seller of our building was open to it so it never hurts to ask.  

Awesome about the roof being replaced.  We just had our flat roof replaced and that plus skylights plus gutters amounted to $10,000.00.  With roof being replaced, water intrusion from above should not be an issue, but still think about whether water can get into the building some other way.  Our broken sidewalk is angled towards the building, allowing water to go towards the foundation.  Definitely a bad thing that needs to be addressed sooner rather than later.

I think your rehab per unit estimate of $16,000 sounds reasonable, especially if you plan to do a lot of the work yourself.  The large area of the apartments will probably mean each floor will be $1,500.00 $2,000.00 to refinish if you change your mind about doing it yourself and decide to hire professionals.  Ours were about $1,200.00 per unit but we have much smaller units with a lot less wood floor.  Makes a big difference, though and tenants will love it.  New cabinets could be purchased for about $2,000.00-$3,000.00 from a home improvement store.  We invested in stone counters for about $1,600.00 - worth it to me with the durability and tenants love it.  Maybe something to consider.  A stainless appliance package cost us close to $3,000.00 with the 5 year service warranty.  

Well, that's my book for the day.  Hope something from here will be of use.  I am not sure about how the financing situation would work, but others can probably give insight.  One thing you need to ask is about the eventual financing situation.  With a 6 unit building, you may have to get a commercial loan with the refinancing part.  I may be wrong on this, but you will want to ask.  With our 6 unit building, a commercial loan was the only option and it can be a rather complicated process.  Maybe there is another way for you to pay off the balance of the building?  I am fuzzy on this part with your more creative plan, but you should ask a mortgage expert.  Good luck to you!

Elizabeth

I would think this could get complicated with multiple members.  Not sure if your company involves actually purchasing and holding properties, as well, or some other aspect of real estate services.  In Illinois, if you own properties in an L.L.C., you might want to keep each in a separate L.L.C. or multiple properties within one series L.L.C.  I think I would err on the side of caution and make sure everything is being set up with an eye towards future growth, as it is much harder to fix things down the line.  Your C.P.A. would be a great resource for strategy with the various tax implications, but I would at least consult with the attorney about the actual set up. I set up my series L.L.C. on my own (I am an attorney but never practiced in real estate law) but I asked a real estate attorney for guidance.  He was willing since we have done a lot of business with him.  It was great having someone to direct me as our properties are held in a trust and the wording could have been easily messed up.  If you have the proper guidance, the forms are not that hard to do, but I would be cautious.  If in doubt, I would hire the attorney.  Good luck to you!

I think there are still some decent deals if you look a little more on the south end of downtown - Bridgeport, McKinkey Park, Tri-Taylor, Pilsen, etc.  Logan Square has gotten a little expensive, but others may have thoughts on whether there are still deals in that area.  I looked at some properties in the Bucktown/Wicker Park area, but the cash flow didn't work.  One building I saw there was priced pretty well for the prime area, but the cash flow was terrible.  I think if we bought that, it would only be for the possible further appreciation of the building, which wasn't what we wanted to bank on.  Properties in Lincoln Park and Lakeview are so expensive and the rents they get are probably not going to be that great.  Not sure if going a bit further north (like Irving Park) might get you more bang for the buck.  I haven't really checked that area recently.  Good luck!!

Hi Dave,

I think it's great that you are thinking about multi-unit buildings.  My husband and I purchased our first multi-unit building this summer, after years of buying condos and town homes as investments.  I have stressed out a lot with this purchase, but the potential is great.  Our building has 6 units and we inherited a lot of building problems (have already redone the roof, some plumbing, electrical and rebuilt some stairs, along with renovating some of the units).  We wanted to purchase a 3 flat, but the numbers for cash flow were just not working out in the areas we were considering.  The 6 flat has much better cash flow (especially now that we raised some rents after renovating some units), but is a lot more work to fix up and required a commercial loan.  I found the commercial loan process to be quite a headache to get through, so the smaller buildings with conventional loans might be a better way to start off.  We purchased in an area with a really good rental market - lots of students in the area.  That has been really great for attracting renters.  

My advice would be to do your homework on exactly when any work has been done on the building (our "turn-key" building was not so turn-key), obviously have a really thorough inspection done and inquire as to how existing tenants are.  We inherited a horrible tenant from the seller and had a really challenging time getting him out and collecting rent.  Our building is now running so much better with tenants that we have selected and screened.  If you are going to reside in the building, I assume you will manage?  If so, the rules are a bit more lenient than if you didn't occupy the building - but you still want to make sure you have the time to devote to fixing things, dealing with tenants, etc.  If not, you might want to factor in hiring some people for e.g. snow removal, etc.

Owning a multi-unit building has been a lot of money and work from our standpoint but well worth it in the end with great cash flow and not having to pay assessments.  I don't focus too much on appreciation since we like to buy and hold, but I think some of our improvements will definitely add to that, as well.

Lots of luck!

Elizabeth

I also read good reviews on a company called Generation Rent.

We are interviewing a company called Urban Apple, a smaller company in Chicago.  They charge a higher percentage but include basic maintenance and repairs as part of their percentage.  They also have a reasonable cancellation policy if we are not happy.

I contacted one yesterday called Letts Property Management and spoke to Janet.  She seemed very nice and was very knowledgeable.  I know they have a presence in the suburbs but not sure about Cicero.  I don't know how their reviews are (would be good to check) and I will probably use a company that is more focused on downtown, but I was impressed when I spoke to her.   You may want to look at the reviews of various property management companies on Yelp to see what others think of different companies.