All Forum Posts by: Jason Krasavage

I appreciate the honesty! As silly as it sounds, we truly are homeowners before investors. We love this house, and kind of just by nature of the property fell into real estate and started looking at the technical financial data later. We are saving such an enormous yearly sum of money in this property compared to other scenarios like renting or owning a SFH that we don't really give much of this stuff a super high priority. We like our tenants to be comfortable as far as heating goes, and enjoy being protected by a low-deductible homeowners insurance policy. So as far as "Complacency Kills" goes . . . absolutely not. Like @Crystal Smith said, we could definitely stand to squeeze some extra dollars out of this one, as could most, but we are winning either way.

@Shamar Gregg The property is from 1893 which makes it a difficult one to convert to forced air. I don't think we will ever consider switching it over. I may consider adding a variable heating cost to future leases. We do have coin laundry in the basement, but it's shared. It produces about $600/year. Each of your units has their own washer/dryer but they are in the basement? I've never heard of that setup, usually they are in the units if they are personal. Sounds like a good in between though. 

@Jonathan Klemm Thanks for the Reply. We sound very similar with longer term goals and yes I do think we are dealing with either a grand slam or home run, we are happy. New to the NW side (came from Bridgeport & South Loop area) but we really like it up here. Keeping my eye out for another property in the next couple of years. Do you do a lot of new builds and general contracting in the NW side too?

Curious about everyone's thoughts on this. 2020 was a weird year for so many reasons, but one result of the pandemic here in Chicago was a temporary decrease in Assessed Value of properties for the 2020 fiscal year. Our quaint 4-Flat on the Northwest Side saw a 13% reduction in Assessed Tax Value from 2019, raising the Cap Rate, Cash Flow, and Cash on Cash Return for our property. Meanwhile, rents didn't change and neither did our occupancy. This meant extra cash in our pocket without having to do anything creative, like raising rents, cutting expenses, etc. I'm sure we aren't the only ones.

However, as we approach the time for the second property tax installment for the 2021 and realize the full impact of the new Assessed Values for 2021, I'm curious how much other Landlords think they can pass the tax hit onto their tenants via rents? Our property and other similar ones nearby are seeing 35-40% jumps in Assessed Tax Value for 2021 compared to 2020. Regardless of how you've financed your deal and how creative you are, this is likely to make a very noticeable impact on all the financials, namely cash flow. I'm sitting here kicking myself for not raising rents through the pandemic, but that would have been a tough sell if I had decided to. Sure, the City of Chicago gave us a nice break on taxes for 2020, but are jumping right back in for their money.

Who's inevitably passing this onto their tenants, and what else are you doing to improve your financials in light of tax hikes?

I will start with outlining the 2021 and projected 2022 financials for our 4 flat, with nothing else changed besides taxes. These numbers use the purchase price for the Cap Rate, and take into account a fully rented property (we are house hacking in one unit right now) as well as a pretty high mortgage (we put 3.5% down in Q3 2020), YMMV of course.

2020 Tax Year (2021 Fiscal Year)

Cap Rate: 8.62%

Cash Flow: $6,735/yr

Cash on Cash Return: 34%


2021 Tax Year (2022 Fiscal Year)

Cap Rate: 8.14%

Cash Flow: $3,547/yr

Cash on Cash Return: 18%

My plan is to set a smart and realistic strategy to raise rents over the next 12 months, shop around for a cheaper insurance policy, do more repairs myself, lower heating costs (I pay for heating the entire building), and install water-saving toilets and fixtures in all of my units

New investor here looking for advice on moving to commercial multi family for our next property. We started out with a 4 unit last year in HCOL that has been going extrmerly well.

I was hoping to try and go 8+ units for our next property this year but am finding the terms of commerical loans very prohibitive.

We did our first deal FHA 3.47% down which made it extemely affordable. With much higher minimums, and different loan terms (balloon payments etc), how are people making that jump to commerical? I feel like the ROI on small Residential multi family is so good in our area (for us at least), with such little capital up front, that I don't see how going commerical would be more lucrative besides being a strategy to aquire more units more rapidly in a single deal.

The additional upfront cost seems to outweigh the extra units and lower cost per unit, in my calculations.

Ant advice is greatly appreciated.

4 unit @ 800k @ 3.5% down = $28k

8 unit @ 1.5mm @ 20% down = $300k

Just looking at cost to get your foot in the door, the commerical option is almost 6x the price. I could 3 or 4 residential buildings in the time it would take to save for the commerical building.

I know I'm taking a narrow view on the upfront cost but please enlighten me! I know commerical real estate is the way to go eventually, and all roads lead there, but how do I overcome this intiial cost barrier?

@Collin Bryston Adams

Just got rent from one of our units in our house hack 4 flat this morning via Zelle. It is awesome. Immediately available in the account. We both have chase. I am a small time landlord with no LLC so this works well for us.

I framed the conversation to our tenants during the lease signing as a "what is easiest for you" approach. I laid out various options, like cozy, checks, bank to bank, etc. I just wanted to make sure it was as easy as possible for them to pay. I figured it best to remove as many barriers as possible to delivering rent. Since we only have 3 units it's easy to tailor to each tenants needs though.

But man is it nice to just see rent quickpayed directly to our checking account. No waiting.

One thing I did specific is that the payment must come from only ONE of the tenants in the unit and must be the FULL amount. I would not accept each person's individually divvyed up rent speeately. They need to collect from each other then pay us all at once.

Hi, we just did this in Jefferson Park. Would be happy to discuss details with you. Yes it is hard to meet self sufficiency with the 3 and 4 units. It's not a requirement for SFH and duplex buildings (because they will rarely meet the requirements anyways).

Passing self sufficiency was the single hardest part of securing our loan, but now we are living "rent free" (tenants pay our mortgage and we live in one unit), pocket a couple of hundred extra dollars every month after paying the mortgage, and did it with 3.56% down which for us was under a years worth of savings. It's not impossible but it can be hard depending on the property. There is a lot you can do to prepare before even diving into trying to do this on a 3 or 4 unit, though. 

Hey all, thanks for your responses. 

Crystal, only one of the four units is occupied. No rental income on the current rent roll. We tried to appeal the appraisal because they put the garden unit 1 br at 1100/mo and the 2nd floor 1 br, with greater square footage, at only 1000. Obviously this is not market value, anywhere. Garden/basement units are always cheaper. The appeal changed nothing. 

So, regarding levers we pulled on the insurance one and halved our monthly premium. This got us most of the way there and we are bringing an extra point to close to lower the P&I. All said and done we will close at 4.45% down. 

Regarding the rate we are already getting 2.75% with 1 point of lender credits to help us close. I considered taking the 2.5% with no lender credits but the difference in the end, in regards to final cash needed to close, was negligible. Plus it would have forced the lender to backtrack a lot and push our closing even more. I'm happy with the outcome here. 

Now just waiting on the Certificate of Zoning Compliance and updated survey. Should close next week!

Comps for parking income? Can parking income even be used for FHA Self Sufficiency? The actual rents on the appraisal are pretty much right at market value.

Trying to close on our first 4 unit this week. Everything has gone relatively perfectly until now. We got the appraisal back Monday, and although it was at the exact valuation we wanted, and didn't require any changes to comply with FHA standards, the appraiser's rent schedule was low.

It's a 4 unit on a double wide lot with 5 parking spaces, 2 of which are in a garage. The appraiser didn't add a single dollar to the rent schedule for income from the parking spaces (which market value go for around $500/mo total). All the other rents were either around or above our initial market value estimates. This meant that after the appraisal made its way through underwriting, our PITI was ~$120 too high for our property to pass FHA's self sufficiency test.

Lender wants us to bring a lot more money to the closing table, in combination with a lower insurance premium, to get the deal closed and pass the the self sufficiency test.

What are my other options? Can I argue with the appraisal company? It seems crazy that not even a dime from parking spots would be included, when he valued the three uncovered spots at $6000 and the 2 car garage at $8000 in his comps. Thanks in advance everyone. 

Thanks John, and I have a question regarding taxes. We did account for an increase but I'm realizing perhaps we didn't account for enough of one. If it was assessed around 478k last year, if I buy it at around 650k, do the taxes immediately jump up to using that exact purchase price... Or is it only a factor into the assessors tax value? 

@Crystal Smith, where can I find the data/numbers for the units that are renting fast and the ones that aren't? Definitely want to take a look.

From living in Chicago for 6 years and having seen a LOT of rentals being on the tenant side, this place is significantly nicer that the bulk of what is usually available on short notice in the city. I do think it stands out a lot from other potential competition, but that is obviously subjective. Still, if 45 days is data driven then I will base my risk on that. Thank you!