All Forum Posts by: John B.

Haha just open an account with Vanguard and invest in VTI + VXUS, and some QQQ if you want to take more risk. That's all you need, with 0.0x% of expenses, and extreme tax efficiency. 

Thank you for your reply. To be honest, 30+ minutes on a dirty CTA each way is not something I’m willing to do, I work 70-80h a week (that’s my “little sacrifice” already) so it is important to keep my daily routine optimized, and walking to work from River North/West Loop is not negotiable.

That might as well mean that it’s better for me to keep renting rather than “investing” in an overpriced condo. I just wanted to hear the opinion of pros.

Thank you for the suggestion. Indeed that would be my preference, but my network is completely outside the real estate world, so the few syndication opportunities that came my way did not convince me, I couldn’t get past the “this person must be desperate if they are asking money to me”, so I never pulled the trigger, it really just felt like giving away $100k on good faith. This heavy feeling of mistrust I have is the main reason why all my portfolio is in public index funds. 

Re-posted in a better forum: https://www.biggerpockets.com/...

Please ignore!

Hello,

I am 35, live in Chicago and work in the Loop for a demanding finance company. I never owned any real estate and have been renting a high rise one bedroom for $1,800 in River North with my girlfriend for the past couple years, and we love it here.

I have done well in my career and am currently sitting on a mid 7 figure liquid portfolio all invested in equity index funds, and I think diversifying a bit in real estate might be a good strategy. Thanks to my high W2 income and not having any debt, it would also be easy to get approved for some cheap 2.x% financing.

Having never owned real estate, a good way to get started would be by owning my primary residence for a while, with the intent of eventually renting it out in a few years and in the meantime seeing how I feel about maintenance and home ownership in general.

Unfortunately, the areas I am looking at are in very high demand (River North, West Loop, Fulton Market), and have prices such that I would at best barely break even with rent after taking into account HOA and taxes ($300k-500k range for 1-2 bd, HOA in the ~$500/mo).

I understand condos in downtown are generally a bad investment, but I really don’t want my quality of life to suffer by moving far just for the sake of home ownership. I take great happiness in keeping my commute to a 20 minute walk door-to-door all year round (even winter!).

Do you think I have some hope of this being a reasonable strategy, or should I just keep renting?

At this time I really do not have time for buying and renting out properties, I would basically need someone to handhold me completely through the process, and I tend to be overly cautious of scams.

Thanks!

Hello,

I am 35, live in Chicago and work in the Loop for a demanding finance company. I never owned any real estate and have been renting a high rise one bedroom for $1,800 in River North with my girlfriend for the past couple years, and we love it here.

I have done well in my career and am currently sitting on a mid 7 figure liquid portfolio all invested in equity index funds, and I think diversifying a bit in real estate might be a good strategy. Thanks to my high W2 income and not having any debt, it would also be easy to get approved for some cheap 2.x% financing.

Having never owned real estate, a good way to get started would be by owning my primary residence for a while, with the intent of eventually renting it out in a few years and in the meantime seeing how I feel about maintenance and home ownership in general.

Unfortunately, the areas I am looking at are in very high demand (River North, West Loop, Fulton Market), and have prices such that I would at best barely break even with rent after taking into account HOA and taxes ($300k-500k range for 1-2 bd, HOA in the ~$500/mo).

I understand condos in downtown are generally a bad investment, but I really don’t want my quality of life to suffer by moving far just for the sake of home ownership. I take great happiness in keeping my commute to a 20 minute walk door-to-door all year round (even winter!).

Do you think I have some hope of this being a reasonable strategy, or should I just keep renting?

At this time I really do not have time for buying and renting out properties, I would basically need someone to handhold me completely through the process, and I tend to be overly cautious of scams.

Thanks!

 Thank you Jason, I really appreciate you taking the time to share your opinions on this!

No worries, I'm afraid the picture I attached with the financials has a very low resolution.

The purchase price is $5,600,000 for 52 units, the loan amount is $3,700,000 secured at a 30-year term with a 30-year amortization period, interest rate is fixed and rate locked at 3.85% for 5 years.

The sponsor is raising a total of $2,500,000 in equity (they are also buying in ~15% of the equity), so the additional $600,000 raised are going in closing costs and fees (~300k) and budget for renovation (~300k).

Because of the favorable debt, the DSCR seems particularly good (I have been comparing this deal to other crowdfunded on the web and boy those are risky, some barely get to 1 with an interest only loan!), it never goes below 1.3 even from the very beginning (of course an end of the world situation could always happen and vacancy skyrocket, but realistically that's not likely to happen in Sacramento at this time).

@Jason Chen

Thanks for your patience, I now understand much better your reasoning (nitpick: the purchase price is actually ~107k/unit, not 130k, unless I am missing something).

Yes, the purchase price is significant, and that's mostly because Sacramento is growing at a very steady pace, people keep moving in the area because they get priced out of coastal California.

When I inquired about this, the sponsors said they had to make an aggressive offer to the owner in order to buy the property off market, and that explains the low purchase cap rate of 4.7%.

In any case, good food for thought, so thanks again.

@Jason Chen

First of all, thanks for your reply, answers like yours are exactly what pushes me towards wanting to learn more.

May I ask what is terribly wrong, in technical details, with this deal? Yes, cap rates in this area are extremely low so the deal is not looking too favorable in terms of cash flow. However, the debt terms are very favorable and the sponsor is planning to significantly increase the NOI (~250$/month per door) through internal and external budgeted renovations. This in itself should bring the value of the property from $5,600,000 to $7,200,000 (and this is considering a more conservative exit cap rate of 100 bp above the enter one), so at the end of the day the increased value would make the investment IRR in the 15-20%.

I have a considerable amount of my portfolio in the stock market and believe me, no 2.5% dividend yield stock is going to deliver that performance over the next few years, especially considering the current inflated P/E ratios in the market, unless we gamble on ridiculous appreciation, so I fail to see how your comparison is fair. At best, that stock is going to have an IRR of 6-8%.

Please notice that I am absolutely not trying to argue with you and I just genuinely want to understand what is your point: are you saying that, in order for this to be a good deal, I should be completely ignoring the exit value the increased NOI will bring to the property, and just focus on the actual increased cash flow the increased NOI will bring me? Because that would indeed mean that the only way to achieve a better performance, regardless of the value-add strategy, would be to buy at a considerable discount (not really feasible in this area of CA).

As a novice, understanding this would be priceless.

Thanks!