All Forum Posts by: Michael J Scanlon

@Brian Cyhaniuk

Myself and @Jake Fugman have helped countless house hackers in Elgin, Aurora, Joliet, and Chicago. There are good agents around Chicagoland but Jake and I are both investors ourselves and I have my MBA in Finance. We can definitely help you start your investing career.

I have a unique breakdown-slightly different to my normal breakdown: 

Single family home

Asking Price: $238,000

Negotiated to $227,000 cash purchase. Tenant already lined up for the investor. Investor happens to be a lender and the tenant was his assistant who had low credit but provable income because she worked for the lender and he paid her so I suggested we set up a lease option for her of 2 years to give her time to repair her credit and my investor agreed. 

New Kitchen: $9,800

Total investment: $236,800

Closing costs: $0 (went through his own company) 

6 months of rental income at $2000/month = $12,000

Taxes for 6 months: $2476 Insurance: $500

Tenant paid all utilities

Total investment after 6 months: ($236800+$2976-$12000)= $227,776

Refinance cost: $0 (own company)

Refinance appraisal w/new kitchen and tenants having torn up carpet exposing hardwood floors: $259,000

80% LTV = $207,200 loan

Total left in property after refinance: $20,576

1.5 years of renting at $2000/month with PITI of $1426 = $574 on top of mortgage per month-expenses

Actual expenses: Vacancy: $0; Utilities: Tenant; Capex: $0; Expenses: $426.25 (oven igniter, lightbulbs, hvac servicing) Management: $0

$574x18months= $10,332-426.25

Total of own money left in house by time of option purchase: (20576-9905.75)=$10670.25

Remaining mortgage after 18 months at time of lease option execution: $200839

Sale Price to tenant: $270,000 done as a direct sale between my investor and his tenant

Net proceeds to seller: $264,049.47 - $200,839 = 63210.47

Profit of sale - total remaining initial funds = $63,210.47 - $10,670.25 = $52,540.22

2 Year profit on deal: $52,540.22 (taxed as a rental, not a flip) or $26,270.11/year. 

@Jason Lee Mathis

Get a new lender. I’ve had clients do this plenty of times. All they needed was a letter verifying the new employment. It’s really not difficult.

@Mark Ainley yes I love finding these deals and making the clients happy.

I wouldn’t consider myself to be a Joliet specific expert but I do work that market a lot for clients. Happy to help if you ever need anything from me for the podcast or in general.

@Jonathan Klemm @Paul De Luca

MLS deal in Joliet

Last week I broke down a deal for an investor of mine in the Chicago area so I wanted to break down another.

Investor was buying a 3 unit. List price $199,900. Rental income $2500 ($1000/800/700).

After back and forth negotiations, landed on $188,200 as an accepted gross price with a full 3% closing credit ($5646).

Buyer was using a 5% down conventional home possible loan. Building was newly rehabbed and in great shape.

Inspection turned up very few issues except that the flat portion of the roof had been done by presumably unlicensed individuals because it was done incorrectly and had subsequently been patched repeatedly. After some negotiating and working with the listing agent (trying to convince her why her seller shouldn’t walk), we agreed to a $7000 repair credit given in the form of a price reduction to $181,200. The max allowable seller credit of 3% dropped slightly to $5436.

Tax proration was 105%. Buyer closed at the beginning of November and thus did not make the first mortgage payment until January 1.

Total required down payment was $9060 and the closing credit covered all closing costs. Buyer was credit $2500 for November rent and $2500 for security deposits. Then after receiving the tax proration of $1890, it brought down his down payment due at closing to $2170. In December he received $2500 rent which replaced the security deposits leaving him into the property for $2170 by time he first paid a mortgage.

The first tenant already moved out for the new year and rent on the $700 unit was raised to $850. This brought total rental income to $2650 with a payment of $1350. With 20% reserves, cash flow is still going to be $770 a month with $530 going to reserves in year 1 after he moves out. This will produce 426% cash on cash return with $6360 going to reserves each year.

Dave is spot on-buy for cash flow and you’ll hedge against market downturn.

That being said, the macroeconomic indicators don’t seem to be there. Yes, I understand that there are a lot of people who can’t pay their mortgage and may need to short sell or will get foreclosed on. However, the fed seems committed to keeping interest rates low for a while and is continuing quantitative easing for the foreseeable future. Could it happen in 2022 or 2023? Sure but it seems unlikely this year. Plus, the fed has gotten so much better at controlling the economy through managing the interplay of interest rates, the money supply, and other factors that a crash doesn’t seem as though it would be as bad as 2008. 

Josh Belk is great 

@Jonathan Klemm

This was listed on the MLS and no fuss about the credits because we agreed on the net price and we were confident it would appraise. I think it was a great deal but the hidden value of knowing the basement could easily become a legal 4th unit made it a home run.

Elgin!