All Forum Posts by: Henry Lazerow

Awesome congrats on the successful deal!

You can also see what the city assessor has it as in regards to # of units. http://cookcountyassessor.com/Search/Property-Sear...

Warning though the assessor is often wrong and the zoning doc trumps what's on there.

@Kevin O'Brien make sure you see the zoning doc before you waste time putting down earnest, negotiating, etc. If the basement bedrooms don't have windows it's a pretty high chance it's an unzoned basement unit all together. 

Buying a turnkey property can be a great way to get started but I would avoid using turnkey services. You make money on the buy in real estate and want a broker who only represents you helping get the property for the lowest price. When you go through a turnkey service you are paying either market rate or often above market rate and the person selling you the property has no reason to help you negotiate for a lower price (its not in their best interest). 

The better solution is to find a market you like. Identify a good broker in that local market and a good property manager (can get recommendations for both of these off BP). Then have the broker find/negotiate you a great deal and once you close immediately put it under the property manager. 

Find a deal that's already rehabbed and ideally stabilized with tenants (there are a ton of these in any major market) and you just got yourself a turnkey deal at the lowest prices. You can also shop property manager rates and remember everything is negotiable in real estate including management rates.  

^ What those wholesalers do is push junk deals 99% of time. They basically cherry pick comps and try to market it as a great deal to a newbie investor who doesn't know any better it makes me sad to see their "scam" advertisements. I am sure some wholesalers have actual deals but that's the majority I have seen at least on the North Side of Chicago maybe in less hot markets like Back of the Yards they have more motivated sellers to make it work. I registered for a bunch of mailings out of curiosity and was overwhelmed by the amount of garbage deals. 

I currently have two Chicago flips under contract sell side with great profit for client and another under contract buy side where the numbers are solid. Strategies to find deals....

1) Find old properties in MLS that were originally over priced. For example originally listed at $800k and dropped it to $775k then $750k then 725k then $700k. By that point everyone has already seen it early on when it wasn't a good deal. Then you go in lowball them offer $625k and get it for $650k. All this on a deal that would of had multiple offers and gone over ask if it was priced at $650k originally. This strategy works I recently had an 800k listed property from 2 months old under contract at 750k then my client broke contract because they got cold feet so the seller relisted it he puts it up as "new" in MLS and guess what it ends up selling 40k higher then we had it under contract at lol

2) Have auto alerts set up and when you see a good deal jump on it fast. Push the broker to accept your offer that day rather then doing a best and highest. A lot of brokers don't like playing games believe it or not and are willing to work to get your offer accepted and be done with the deal quick. 

3) Find ways to do a major value add outside just a rehab. For example adding livable sq ft, adding bedrooms, duplexing an attic. These are things that will make it appraise out on paper higher. Everyone loves pretty kitchens and baths but when you add in closing costs, commissions, carry, etc. it often won't cut it. 

@Syed Lateef I agree repairs/maint. are not properly reflected in the comparison. Those were items directly related to the new rehab anyways. Without those in analysis it increases margin over standard rents. 

@Ray Harrell It's a 3br 2ba coach house. Small house in the rear of a chicago lot where the horses at one point lived. In front is a 2 unit building. 

@Bob Floss II It's a clients they own whole property I can't give out specific rehab financials but will say it was not a cheap build. They used quality materials and the same crew that does 1.8 million single family builds. Overall the current rents got the cap rate well above similar properties in neighborhood for a bit of context. 

I am a HUGE fan of coach houses just did another deal with one and got the pro-forma significantly higher then any other 4 units in area. I also feel like as these coach houses get torn down more and more for new construction there will be less and less of them which may create a rarity/premium from a long term buy and hold standpoint. 

I see a lot of talk about airbnb on this forum so wanted to share some real life numbers (this is a clients not my personal) I have removed the address per forum rules. Overall it brought in a net annualized return of $4284 a month or $51,409 net annual (after management, vacancy, wear/tear repairs and cleaning fees). Comparatively I think the market rate would of been $3800 normal rental so assuming 5% vacancy $3610 then 5% management = $3429.50. In this case airbnb brought in 19.95% more income. Wrigleyville area coach house. 

I like the idea of data sharing and think it is something more forum members should do to help each other estimate investment returns for various neighborhoods/strategies. Does anyone on this forum have real life numbers for single room airbnb in chicago? I am very curious of how the strategy of doing individual room rentals plays out? 

Unfortunately don't have any pre-rehab shots but here is a shot of the finished project ;) 

The DSCR is the Debt Coverage Rate which means Annual Net Operating Income divided by Annual Total Debt Payment. The closer to 1 the more risk of defaulting if for example rents dropped slightly. Higher then 1 means there is more room to still pay debt service if net operating expenses dropped for any reason. Real life example: $18,435 debt service (includes mortgage, taxes, ins) and $32,355 net operating income would leave a DCR of 1.75

Cap Rate is Net Operating Income divided by Purchase Price

Cap Rate can be great for looking at larger multifamily buildings with sophisticated buyers/brokers. The problem is it's very easy to manipulate by changing the proforma variables and I always recommend first time clients instead analyze deals by market rents to purchase price ratio. 

An example of my market rent to purchase price strategy: 500k property that market rate rents for $5000 a month would hit 1%. If that is the going rate in your specific location you know it's good cashflow if it comes out over 1% and is below average cashflow if it comes out below 1%.  This is a simple effective strategy to pick out deals and makes it easy to run through a list of potential properties . 

I would recommend talking to your parents to see if they can co-sign.  As mentioned above show them the numbers of how this is cheaper then living in a dorm and will give you a wonderful asset/experience for later on in life. 

In regards to qualification you will need to hit the set Debt To Income after Mortgage+Taxes+Home Owners+PMI (this will be on any mortgage under 80% LTV). A local lender in your area should be able to get you exact qualification numbers.

Good luck and awesome you are looking to start out young!

@Peter Halliday glad to hear you made it past that hurtle. Let me know how the deal goes!