All Forum Posts by: Jonathan Satizabal

@Bob Floss II, 

I feel like the main concern of buyers is the zoning, which I believe the proper term would be an "illegal conversion". But, that's always followed up with, "how much would it cost to make it legal". Which I interpret as, what will it take to get it up to building code. 

It's interesting that you would be ok with the building being up to code but not zoned. I was thinking the opposite would be a better scenario, but I can see how the building violations could be more expensive to repair.

When I research properties I always check county records and building violations and I have never seen anything related to an illegally converted unit. I feel like the most common violations are for not have your owner information on the property, not cutting grass, tuck pointing/ parapet walls and porches in disrepair. Has that been your experience?

Thank you for your input.

Interesting how many responses are on here for this topic.

I would like to add that the majority of the problems that I have had with section 8 has not been the tenants. It's the inspection process and the time it takes to get the contracts approved. Having a handyman that is familiar with the inspection process made a huge difference in working with section 8.

I would suggest that you get to know the process of working with section 8 and find a handyman that knows how to pass the inspections.

I use CreditUnion1. They're one of the larger credit unions not sure if they're the best but they had great rates on their HELOC's.

The HELOC was basically free to get. The only cost was the appraisal and they waived the appraisal as long as you used 2.5 or 5k with in a month or two. I don't recall the exact terms. The process was really easy too.

I'm not sure about their mortgages but the website said they are offering 100% financing. 

@Samson Hollmérus

This is Jay's company, he's the founder of an investment company that specializes in multifamily investing.
About Us | Compounding Capital (compoundingcapitalgroup.com)

He's a syndicator. Which is great good for him, but his post is not a personal story. It's a marketing campaign. He's definitely using other peoples money to make investments.

As an investor you read a lot of information and it starts to tell a story about a situation. Credit reports, real estate guru's, county recording, court cases...etc. You have to read between the lines of the information that you're given to build a picture of a given scenario. 

The more you look through this information you will begin to develop an eye for what is fact and what is fiction, as well as someone's intent. Never accept something as fact without analyzing the situation and verifying it. This is what separates the average investor from successful ones; very simply put, trust but Verify.

I like having a few tenants that hold section 8 vouchers. I market my properties at market rents and I put all the applicants to the screening process. If a section 8 tenant happens to be the best applicant then they get the unit. I have had some really good experience with section 8 tenants. I had one bad experience with a section 8 tenant but that was my fault. I never should have moved her in.

I have had some really good section 8 tenants. Example, working mom that put her self through college, a Vietnam vet that was the most clean and organized tenant I have ever had, another one actually priced her self out of the program because she started making too much money at her job.

You have to treat them like any other tenant credit check, back ground check  and employment verification. This information builds a story on how responsible they are and gives you an idea of their past rental history. 

I feel that the people with bad experiences do not properly screen their tenants. There's definitely a trick to making it work. Remember, anyone can qualify for section 8 but that doesn't automatically qualify them for your property.

Typical Real Estate Cycles run about 18 years. If 2006 was the last peak that will put our next one at 2024. My investment strategy was to be cautious from 2021 -2024. 

However, with the increased government spending due to Covid and the increased government spending, AKA "printing Money". Governments around the world are doing this, which historically leads to inflation. A lot of investors believe that the price of Real Estate will not go down due to inflation. You meet see a lower nominal value due to inflation but not a drop in price. I tend to favor this prediction.

So what's the worst case scenario if it's wrong, I buy a property that is cash flowing now and prices drop I still cash flow and wait for property values to recover. If it's does happen, you've locked your self into a property at todays prices and rates but your rents increase because of inflation. 

I would be careful buying over the next few years but if your an investor holding real estate you have already committed your self to the life style. Market crashed shouldn't affect your current holdings. They should be seen as an opportunity to purchase under valued properties.  You want to make sure that you stay in a position to take advantage of a crash while still continuing to build your portfolio. 

Stay focused, study your markets and play the long game. 

I always think about the advice Suzie Orman gives when asked about when to buy a stock. Buy now, buy later just keep buying!

That's probably not exactly how she said it but it's close enough.

@Jaideep Balekar,

I'M CALLING BS... SOUNDS MORE LIKE A SALES PITCH THAN A TRUE STORY!!!! ARE YOU LOOKING FOR SOME MORE INVESTORS JAY? IS BUSINESS A LITTLE SLOW?

You can apply for the Zoning Certificate anytime, it's 120 dollars and submit a the application.
03_26_20_zoning_cert_form.pdf (chicago.gov)

If you are pulling permits to renovate a non-conforming unit I believe you apply at the same time that you are applying for your permits. The zoning certificate is not the same as re-zoning your property. It's just the zoning administrator acknowledging the number of units that are currently existing in the building.

If you want to add a new unit to an unfinished basement, because the city did not keep good records of building permits, you could try apply for the zoning certificate for the additional unit. If they approve it you might be able to sneak a conversion unit into the basement. They'll probably never know unless you get caught in the middle of the project. 

If you want to do it the right way, I think you need to get the property re-zoned from an RS2 or RS3 to RT4 or use the new ADU ordinance. You would need to do this before you add the unit. I haven't done it but have talked to people that have. It takes about 6 months, you need to get lawyers involved, alert the neighbors have some public hearings.

If you are adding a unit to a 4-unit property, you may no longer be eligible for city trash removal and you will need to find a private trash removal service.

Another thing you could do is apply for your permits to finish the basement; Apply to add a bathroom, mechanicals, plumbing etc. You build it out like it is additional living space but during construction you add the kitchen plumbing, electrical gas etc. You can put some cabinets in and a sink just don't put the stove in, but have the gas line inside the wall so that you can easily pop it out. Same for the electrical, hood vents etc.

Then you can apply to get re-zoned or use the ADU ordinance to add a unit. By having every thing set up you can easily convert it if it gets approved. I would most likely go this route if your're having issues with approval.

@Nathan Miller  Typically they go off the comps. The rental income does show up on the appraisal report and they say that the appraisal isn't based on the rent. If you're getting higher rents than your comps that would tell an appraiser that you have a better property so it should be worth more. I'm pretty sure it is part of the valuation.

Also, I recently had an agent submit an offer on one my listings and they were using the rental income to come up with the loan amount. I can't remember what the loan was called but my attorney who use to be a mortgage broker new exactly what it was. The pre-approval was from Gold Coast Bank here in Chicago but I deleted the email, sorry.

The place they submitted the offer on had a non-conforming basement apartment. She was telling me that they couldn't use the rental income from it to increase her offer price because we didn't have a zoning certificate for three units. I didn't believe her but I verified it and she was right. 

So if you have a non-conforming unit make sure you have a zoning certificate and check with your lender or call up Gold Coast Bank. They might be able to use the income to value the property.

We were able to get the zoning certificate for the third apartment with no issues. The previous one was only for two, we applied for a three unit and the city signed off on it with no issues.

On my last couple off BRRR's the appraisers have asked me what improvements I had done. So, I recommend documenting your rehab, have a construction budget or schedule, permits, invoices, take before and after pictures and put a packet together that you can give to the appraiser when he shows up. I really believe documenting your rehab is a good practice not just for the appraisal.

You can also throw some comps in there that you're looking at. They might use it or not, but at least you're showing them that you're organized and have done some research on you're project.

Good Luck!

@Jennie Berger

It is like a new house. 3 car Garage 22ft x 35ft, plus the upstairs apartment; that's 1400 square feet. It's basically a 3/1 with a garage. Except you're trading the family room for two more parking spots.

I estimate and manage industrial electrical projects for work. I starting putting a spreadsheet together for estimating my own, real estate investment projects. I just pull material costs out of the Home Depot and Lowes websites. Probably not the best place to get material pricing but I figure it's better to go a little high in case there's anything that I miss. There's also a 25k contingency in there that I split between material and labor. I also added the costs of appliances in there.

I have run the numbers on adding coach house units if you can't cut the costs by doing some work yourself, you can cheaper labor I don't think it makes sense.

You're probably better off just buying another house as an investment if your ROI is the end goal.