All Forum Posts by: Moe Khan

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Lucien.

Purchase price: $790,000
Cash invested: $153,000

Each unit is 3bed 1bath, offered as a furnished rental for 30 days minimum

@Ryan

@Ryan McKay

I am a landlord with 37 units. We use an accountant for our end of tax year work, but track all of our expenses ourselves otherwise. Unless you understand how to do depreciation schedules, etc, you will definitely want a professional accountant / accounting service to help you with your properties, in my opinion. The daily stuff isn't too hard, and is pretty much tracked by your bank account. I don't know how you are setup, but would definitely suggest setting up a corporate structure of some sort. Opinions will vary widely. LLC's offer asset protection. We use a Sub-S corporation to collect our rents. All of the taxable income flows down to our personal 1040 tax return- which read another way - the corporation pays no taxes, they just pass through. But what you gain there is the ability to write off all sorts of stuff... Everything from 1/2 of business meals, to business auto expenses, asset depreciation, property depreciation, and the list goes on and on. It's really pretty easy to do all that. You would start off by gong to your state corporation commission and finding a name you can register. Then you can go to the IRS website and request an EIN for that entity. Then you can open a bank account in the company's name... and from there you track most of your expenses through your bank account. Many people use a quickbooks type accounting software... but if you are small, even that might be overkill. The key is to track your expenses to where your accountant can use the information at the end of the year to prepare your taxes. Our tax rate after write-offs was about 11% of our income last year... but what doesn't show there is the thousands (10's of thousands) of dollars a year that were written off in business expenses that on any other year you would have paid taxes on through your personal taxes. My vote would be to do the daily work yourself and pay your accountant to file your year end taxes. Do a consult with your accountant though so you can know what he wants you to collect for him along the way.

All the best!

Randy

Thought this would be a fun post. Here is a list I created. This is targeted more towards beginner investors so I left out the advanced/high cost strategies. Feel free to add to the list with any of your own tips. Happy investing everyone! 

• 1) The best bang for your buck value add is adding in-unit laundry. This will cut your vacancy rates down significantly and in many north side neighborhoods can bump the price of the unit up $100-200 per a month.
• 2) The second best value add is new counter tops/sink and paint. These are things you can do cheap without pulling permits and make a world of difference in the rent you can achieve. I like to steer first time investors towards buildings that already have the modern HVAC systems (furnaces no boilers) so they can do an easy value add such as steps #1 and #2. Having to change HVAC can be $20k+ by itself if doing it legally.
• 3) White is the desirable look for kitchen rehab rentals right now. Doesn’t have to be high end or expensive finishes but the all-white look with Stainless Steel appliances sells. 
• 4) The Chicago market is seasonal. An identical property can sell for 5-10% higher in April-May then it would in October-November. Late in the fall around the holidays significantly less people are shopping for properties which means less competition and sellers start to get desperate accepting lower offers/doing price drops. To give some context had a $850k contingent in November which had sat unsold 2 weeks then broke contract mid January all of a sudden multiple offers sold for $900k. Potential $50k saving by shopping when others are busy with the holidays. If you want the best deal this is the time of year!
• 5) Rentals are also seasonal in Chicago. The prime rental season is March to July. If you buy a building in the off season the best practice is to rent it up on leases that will end between March and July for example a 9 month lease or a 15 month lease. You may have to rent the units under market rate especially if you get stuck in the late fall.
• 6) 5% down conventional is often the best option for your first house hack and available in many of the gentrifying Chicago neighborhoods. You can check the census track through this link to see what exact neighborhoods this loan is available in for non-income restricted buyers. http://www.freddiemac.com/homepossible/eligibility.html
• 7) Property management on the north side is a lot cheaper than what you may see quoted on Bigger Pockets for other parts of the US. I can name a handful of managers that charge 5-7% for 3-4 unit buildings.
• 8) Leasing fees in Chicago are 1 full month if you are buying from out of state, etc. be sure to calculate this in your analysis. The good north side property managers will open their portfolio up to all the little leasing companies in Chicago which gets these units rented quick vs trying to make more money themselves pocket listing both sides ask your manager what their policy is on this.
• 9) Vacancy rates should be sub 5% if you are priced right in A or B areas. If units are sitting longer you may be over priced or lacking in unit laundry. Make sure to start marketing units 8 weeks in advance of a tenants lease ending. You should have a signed lease before a tenant vacates when done right. I helped lease 1100 north side managed condo/2-4 units when first got licensed so saw the vacancy trends on a larger scale. It's good to be conservative though so run 5-7%.
• 10) Chicago is a very pet friendly city. Accepting pets will both help reduce vacancy and bring in pet fees. You can charge pet rent $25 per month or a one-time fee of $250-350. No aggressive breeds.
• 11) In Chicago the norm is a move in fee and no security deposit. Chicago has strict laws with security deposits and most landlords choose to just take a non-refundable move in fee.
• 12) Parking in Chicago can be worth a lot depending on area be sure to add this into your analysis. It’s not uncommon for parking to rent $100-150 per spot in class A/B. Do not include it with a unit always charge extra for it to max out your cashflow. Whether the parking is garage or a pad it will still rent well. Exceptions are areas with lots of street parking available a good trick to drive by property at a few different times of day.
• 13) The real profits from north side investments will be over the long term as rents grow and your mortgage stays the same these are typically not high yield in day 1 properties with the exceptions of buildings that have an un-zoned extra unit. There may be ups and downs but over the long run rents will statistically rise. This is especially true in the gentrifying neighborhoods.
• 14) Run your own market rent analysis. On the good deals you will often see rents very low from old mom and pop landlords. Look at this as an opportunity and don’t get scared when it’s $600 or $800, etc.
• 15) My hot list of gentrifying neighborhoods…. Avondale, West Logan Square, Hermosa, Humboldt Park (North of North Ave. or between Western Ave. and California Ave.), Albany Park, Irving Park, Rogers Park, West Edgewater, Pilsen/Heart of Chicago, Little Village, Mckinley Park, Bridgeport and Bronzeville. These areas have a ton of upside and the numbers still work for house hacks if you find the right deal.

• There are a lot of moving parts when purchasing a rental property. A good real estate professional who is familiar with the area will be able to help you navigate through this list. 
•   Why did I create this list? A few years back I built a new home as a rental and afterward found out a small portion of the lot was in the flood zone. If I would have used this checklist it would have saved me a lot of time and some money. 
• 1. Is this property in an A, B, or C neighborhood?
  
• - Since everyone has their own definition this will vary. 
• 2. What is my cashflow?
• - How much $$ is left over after ALL expenses? (don't forget to account for vacancy, future repairs, and PM fees)
• 3. What expenses were accounted for in the proforma?
• - Vacancy __ % 
• - Future Repairs ___% Built before 1985 8%, After 1985 5%, 2000 and newer 3%
• - Taxes (Where was this info sourced and how does the municipality calculate future increase)
• - PITI Principal, Interest, Taxes, Insurance (if you are using leverage)
• - Property Management Fees – included but tax-deductible this why some sellers may quote cash on cash before mgmt. fees.
• 4. Is the property vacant or occupied?
• Vacant – How many leads does the property manager have on this home, and what measures are being taken to find a quality tenant? Is the target rent achievable?
• Occupied – When does the lease begin and end? What can you tell me about the tenant? How much of a security deposit is being held, and how do you determine if it or a portion of it is returned?
• 5. Detailed Scope of Work that shows all work being performed on the property.
• Your big-ticket items are 1. Roof, 2. Mechanicals 3. Trees 4. Flooring – hard surface flooring in high traffic areas and wet areas.
• 6. What appliances are included? & is there a Washer/Dryer Hookup?
• 7. What amount and type of crime is in this area?
• 8. Weather conditions?
• - Average snowfall, high wind or tornadic activity, costal concerns?
• 9. Copy of a sample Purchase and Sales Agreement - If I'm considering any RE purchase I want to review the paperwork thoroughly during the due-diligence period and possibly have my attorney review.  What contingencies are in the agreement?
• 10. Copy of a sample property management contract - what fees are charged and what commitments do I have to the PM company?
• 11. Copy of a sample lease - I want to see the lease my tenants will sign with the PM company managing my properties. 
• 12. A complete step by step game plan to purchase - Any realtor or company selling homes to out of state investors should have a well-defined process of working with their clients. 
• 13. Company Bio – Who am I dealing with? How long have they been in business?
• 14. Photos, Photos, Photos - and videos. They say a picture is worth 1000 words. Ask for close up photos as well as the "glamor shots" I want photos that give me a look at the home "through the eyes of an investor" 
• - PRO TIP: take a photo of the sticker on the AC unit, google the serial number and you will know the year the unit was manufactured. 
• 15. Comparable sales - I want to know how an appraiser would determine the value of this property. 
• -Comparable sales should be recent, within the same vicinity, same bed/bath count range, similar sqft range, and of the same or similar condition. 
  16. Comparable rents- what are similar homes in the area renting for?
• 17. What inspections will be required for this purchase?
• - 3rd party home inspection $300
  
• - Mold inspection $250
• - Termite inspection $125
• - Sewer scope report $250
• 18. What are my hazard insurance options?
• 19. What size is the lot?  ___ x ___ = ____
• *An acre of land is 43,560 - my rule of thumb is that I do not own rental properties with more than .5 acres
• 20. Foundation: Basement? Monolithic Slab? Crawl Space? Split level?
• 21. Is this property located in a FEMA flood zone?
• 22. Exterior construction:
• Brick, Vinyl Siding, Aluminum Siding
• Roof: Age ___ material?
• Windows?
• 23. How close is this property to major employers?
• 24. What shopping is available in the area?
• 25. What parks and outdoor features do the residents have?
• 26. Are there sidewalks and streetlights?
• 27. What type of resident will be attracted to this home?
• 28. Who provides utilities, fire, police, etc.?
• 29. Public Sewer or Septic? Public Water or Well?
• 30. Is the property Attached or Detached? 
• 31. What type of Storage is available for my residents? Closets, shed, utility room?
• 32. Parking: Driveway, 1-car carport, 2-car carport, 1-car garage, 2-car garage, Street parking only
• 33. Is there an HOA? If so, how much are the annual dues, and what does that cover?
• 34. What is behind the property? Another house, Commercial building, Cemetery? 
• 35. Preferred lenders? List of available lenders
• 36. Square footage? Source? _______ / Appraiser, Tax Assessor, Realtor, Current owner. 
• 37. Type of property: Ranch Style SFR, 2-story SFR, Duplex
• If you have checklist items please share in the comments below!
• @Stephanie Jones thank you and others for helping me with this list. 

Hey team, dumb question: Where should I start looking for tax breaks as  someone doing a house hack via a duplex? I have my 1098 from my mortgage company, and kept receipts from some big repairs, but I also recall we're able to write off depreciation? Or maybe I'm over complicating it? Since it's my primary residence and not solely an investment property  than I can just think of it like that? Thanks in advance!

you can cross collateralize your other property with your land