All Forum Posts by: Frank S.

A few notes,

Standard loan: Less fees, better chance at being considered.  Otherwise,  you need to overpay. You compete against cash or standard.

Save more.  You need cash for emergency repairs. The rehabs in LV are horrible. Don't do it if you don't have the money,  don't drink the low money down kool-aid. Otherwise, I'll be picking up your building as a foreclosure.

Calc. Add $230/month for water, sewer, and garbage on a two flat. You pay this. 

I bought at great prices in LV. Current prices are absurd,  the asking prices do not justify the low returns and headaches.  This area will never be Pilsen. Prices may remain high for a while. 

Finally,  go see the buildings.   Read the areas for gang activity. It changes by the block. Learn about construction costs. All contractors are busy and costs are high. 

Good luck,

Your purchase price seems off. At $1,200  rents, if you can even get that much in LV, you will be looking at $330k purchase price.  $250k will land you at $800s.

That listing has very small bedrooms.  You will not hit $1200.

Taxes are a tad high. 

You need to ve prepared for high CapEx, the "rehabs" in the area are really bad.

I would recommend going standard not FHA, and gave a good cash reserve otherwise you will be in trouble

The REI savings are peanuts in comparison to the current corporate welfare system. There is no such thing as tax loopholes, they exist by design. Keep that in mind. No need to sweat it.

REI has benefits, but are exaggerated. For instance, imagine a rental unit $27,500 kitchen renovation that will be depreciated over 27.5 years, $1K per year. Well, your savings are a whopping 14% (this is the typical effective tax bracket for most Americans). Will you feel guilty for $140 savings per year? These "juicy savings" are destroyed by inflation at 2.5% per year (unless is this crazy year). So, your savings over 27.5 years are peanuts. Then, unless you die, you will face recapture tax at 25% flat and this does not account for inflation over your cost basis. Finally, you always have property taxes, maintenance, interest on your loans, etc.

Read NOLO Tax Law & Deductions for Landlords a few times, then you will truly realize that the savings are not as they advertise.  The savings are good, but with many limitations.   You won't see incredible savings unless you are mega rich.

Finding financial freedom through REI, is likely a fallacy unless your are aiming to lower income. REI is a business. It is still a job. It will consume your time. As you can see through this platform, creating a successful blog, selling tons of books and advertising is more profitable than REI.

You can always volunteer your time for not for profits if that makes you feel better. However, your immediate group of people will benefit the most,  Focus on your family, kids, and friends.

Update: read Capital in the Twenty-First Century

There is no catch.  That's Chicago's market.  

Chicago is a great place to live, work, offers higher income options,  world class entertainment, fine dining,  theaters,  arts, etc.  You pay for the amenities and the diversity in culture. It comes with high taxes, like any other large city.  

Exclusive and expensive areas are for large capital investment projects. Combined use, condos, 1.5M flips, etc.

For cash flow, you need C and D areas unless you have a lot of cash (B areas) and all you need is tax shelter and inflation control.  

 What do you mean de lead? Plumbing water pipes or paint?

Can you encapsulate the paint instead?

 No. 20 year payback. You need a new roof to start.  Do it for your home to enjoy doing something good for hge planet.

Fix them. They are old growth wood, it is a shame to trash them.

My house is from 1906, I did a top of the line restoration on some of the windows, but you don't have to go to the extremes on a rental.

Read The Crafstman blog and watch a few videos.  They can be repaired, over and over. The hardest part may be the paint, but if no excessive paint was applied, it's easy. You can encapsulate the paint and isolate with metal winterizing copper.

If they wont stay open, it means you can open them, great news! Replace the sash chord and you are set. Sash chords are $40 for 100 feet, 1 hour per window.

If you dont pay for heat,  don't worry about the single pane glass. Add storm windows, if you care. Single panes are R0.6, double pane are only R2.0, it is not a huge difference. There is no payback on new windows. 

Replacement windows for rentals, budget type, are garbage.

Post a photo and I'll give you some insight.

Good luck,

Over the long haul, index is more like 7%. Add bonds and you are at 5%, really good, zero effort, dividends, liquid, etc.

A tax bracket may be 24%, but that is not an effective tax bracket. Most Americans are at 14%. 

One property may not worth the hassle for the little money back. Try it as a test, but recall the recapture tax.  50k/900 month is good.

Thanks. Understood. It's parked until the next season. 

The market is too expensive and construction costs are high in Chicago. The rent numbers don't make much sense to me. This is probably not what you want to hear.

Honestly,  I would recommend you regroup and forget about investment properties in Chicago / house hacking - at least in good areas,  and Pilsen is fun. There is nothing on the market that excites me, the returns are too low and the risks are too high.  For higher returns you need war zones, I don't care about that.    You can make money flipping high end properties, but not so much as a landlord right now.

If you want a home,  buy a good building in a decent area, buy as much as you can afford and forget about the price.  Buy a three flat and get your tenants soften the blow.  Build equity and enjoy the ride until the market turns, if it ever does.  Save a few bucks, If possible.

However, renting is not bad. It is cheaper to rent in nice areas than to own. You are not burning or throwing away money. It's simply matter of consumption.

Good luck