All Forum Posts by: Kevin Morgan

@Jennie Berger Oak Park, Forest Park, River Forest, La Grange, La Grange Park

I've posted in this forum before on this subject (Chicago Mid-Term Rentals).  I'll just paste my previous post below (with a few updates):

I'm all in on my Chicago-area MTR operation. I now have 6 buildings with 39 total units.  I operate 35 of the units as Mid-Term rentals in suburban Chicago. I own all of the buildings except two (a 6- unit building and a 2-flat).  The 6-unit building I previously owned - I sold it and leased back the apartments from the new owner (Arbitrage/Master Lease).  The 2-flat I run on the arbitrage model.  I have a 2-flat under contract.  The other buildings are a 10-unit, a 9-unit, and two 6-unit buildings. 

I generally try to get 2X the market rent - and I get close to that amount most of the time. I run about 80% occupancy but much of the time I am 100% occupied.  There are a few slower months that bring my overall annual occupancy down to 80-85%. Since we are getting 2x market rent, my cash flow is many multiples of what I would get using a typical LTR tenant.

We only offer extended stays of 30 nights or greater. These are not full-amenity buildings. These are small vintage buildings but we have fully renovated and updated all of the units and common areas. We spend a lot of time furnishing and styling these units. They are decorated in a very stylish manner. We are generally trying to attract an upscale, professional guest. Some of the units have an in-unit washer and dryer (or we have a laundry room in the building). Most of the units have a dishwasher. On a case-by-case basis we allow pets. Each comes with 1 parking space. We have mostly have 1 and 2 bedroom apartment.  My 2-flats are 3-bedroom units (which are much in demand from "families" needing temporary furnished housing).  

Note: These are suburban buildings but in highly desirable towns with close proximity to downtown Chicago. So there is plenty to do in the suburbs itself. In other words, these are GREAT locations.

I used a traditional bank to finance the purchase of each of these buildings - using a traditional commercial real estate mortgage. The bank underwrites the loans using a traditional "market" rent analysis for the property. In other words, when purchasing they don't really consider my projections for the enhanced (very enhanced) cash flow from the furnished operation (although they understand this business and I provide detailed financial information to them).   For the most part, I've self-financed the renovations and furnishings of the apartments. Those capital expenditures are SIGNIFICANT at this scale.  

This is a completely self-managed operation (we don't use property management firm).  I  have a property manager, cleaning, and maintenance people.  We have our own laundry facility.  This is a COMPLICATED business to run at this scale.  Cleaning and maintenance pose significant challenges.  Overall revenue is over $1M and scaling up as we bring more units into the program.

I started with a single STR (as an experiment) in a six-unit building that I owned. I've scaled up from there - eventually converting my furnished business from STRs to MTRs and converting most of my units from long-term tenants to MTRs.

A traditional bank will not (and can not) make this loan.  Unless they consider it an "unsecured" loan to a high net-worth investor.  They would be in a second position to the seller, thus essentially "unsecured".  This would not pass scrutiny from regulators, auditors, or their loan oversight committee (unless some sort of "shady" institution).  You might have other options as highlighted in other responses - but a bank is not one of them.  

Yes, I agree.  One of the reasons I keep buying buildings is that the guys that renovate for me also handle all the maintenance.  Without that, I would need a fairly reliable maintenance resource (or employee). 

 I gained 30 pounds without a property manager.  Now that I have one - I have the time to lose the 30 pounds (I hope)!   Eventually I hope to off-load some of the communication to my PM - but that will take some time.  For now, I want that person on-site and on-top of the buildings and the apartments - and I can handle the communication from anywhere in the world.  

Basically, the real estate play-book is do most things yourself until you have scale to hire or delegate...

What did you end up doing?  See my recent posts regarding my experience in the western suburbs doing MTR.  I'd love to have some MTR in Naperville as I am positive it would be a good market for MTR.  

Can I see your MTR portfolio (Airbnb listings, etc.)?  What is your market rent multiple in your market?  I have a similar sized MTR portfolio in Chicago suburbs.  Although I have the same issues as you, I never considered abandoning the strategy as the cash flow can't be replaced.  I get 2X market rent.  Cash Flow after debt service is closer to $1000 per door.  

P.S. I've found an in-house Property Manager and it has changed my life.  However, the person is relatively new so I am still fielding all the communication BUT I can delegate much of the response to the PM.  We also have our own laundry and cleaning staff.  

For Comparison:  

I'm all in on my Chicago-area MTR operation. I run over 30 Mid-Term rentals in 5 small apartment buildings (6-10 units) in suburban Chicago. I own all of the buildings except one (6 units) which I sold and then leased back the apartments from the new owner (Arbitrage/Master Lease) .

I generally try to get 2X the market rent - and get that amount most of the time.  I usually am 90-100% occupied (last year 91% occupied).  Since we are getting 2x market rent, my cash flow is many multiples of what I would get using a typical LTR tenant. 

We only offer extended stays of 30 nights or greater. These are not full-amenity buildings. These are small vintage buildings but we have fully renovated and updated all of the units and common areas.  We spend a lot of time furnishing and styling these units.  They are decorated in a very stylish manner.  We are generally trying to attract an upscale, professional guest.  Some of the units have an in-unit washer and dryer (or we have a laundry room in the building). Most of the units have a dishwasher. On a case-by-case basis we allow pets. Each comes with 1 parking space. We have 1 and 2 bedroom apartments and a few studio apartments.  

Note: These are suburban buildings but in highly desirable towns with close proximity to downtown Chicago.  So there is plenty to do in the suburb itself. In other words, these are GREAT locations.

I used a traditional bank to finance the purchase of each of these buildings - using a traditional commercial real estate loan. The bank underwrites the loans using a traditional "market" rent analysis for the property. In other words, they don't really consider my projections for the enhanced (very enhanced) cash flow from the furnished operation. For the most part, I've self-financed the renovations and furnishings of the apartments. However, they recently provided a relatively small LOC for that purpose.

LOCATIONS:  Oak Park, Forest Park, River Forest, LaGrange.  

I own all of the buildings except one (6 units) which I sold and then leased back the apartments from the new owner (Arbitrage/Master Lease) . 

We specialize in, and only offer, extended stays of 30 nights or greater. These are not full-amenity buildings.  These are small vintage buildings but we have fully renovated and updated all of the units and common areas.  Some of the units have an in-unit washer and dryer (or we have a laundry room in the building). Most of the units have a dishwasher. On a case-by-case basis we allow pets.  Each comes with 1 parking space.  We have 1 and 2 bedroom apartments and a few studio apartments.

Note:  These are suburban buildings.  Generally the furnished studios are $2,250 per month; furnished 1 bedrooms are $2,500; and furnished 2 bedrooms are $2,750. During the summer months (May-September) the prices INCREASE by $250 per month. These prices include a dedicated parking space (1 space), high-speed internet and all utilities.  Based on my knowledge of the market and similar properties I think these are at, or near, 2X market rent.

I've use a traditional bank to finance the purchase of each of these buildings - using a traditional commercial real estate loan. The bank underwrites the loans using a traditional "market" rent analysis for the property. In other words, they don't really consider my projections for the enhanced (very enhanced) cash flow from the furnished operation. For the most part, I've self-financed the renovations and furnishings of the apartments. However, they recently provided a relatively small LOC for that purpose.

Update:  

Currently (as of Oct. 27) I have 31 active MTRs in buildings I own and manage in the near-west Chicago Suburbs.  29 are occupied and 2 are vacant.  Much of the time I am 100% occupied.  I'm still at approximately 2X market rent.  See my previous posts on this thread.  

I generally try to convert all the apartments in my buildings to Mid-Terms although I do have a few legacy tenants that wanted to stay.  Sometimes that is not a bad think if they are good steady-paying tenants.