All Forum Posts by: Sinnard Michael Scott

Quote from @Nakyo Heo:

Hi Sinnard,

You and I are in very similar situation (and location) I just joined BP a couple days ago! I'm just starting to learn about RE.

I just read yesterday in the Forum that the non-conforming unit doesn't always mean illegal unit in Chicago.

Have you checked that the garden unit is in fact illegal and you absolutely need to rehab & change zonings?

Hey great to meet you, Nakyo 💪🏾! I've checked - we had a HUD consultant come out to inspect the property. Great guy, super knowledgeable, and when he saw the kitchen in the garden unit he said "Yeah, we'd have to rip all of this out because the ceiling height is too low meaning there's no way it's a legal unit."

The zoning is also RS-3 (2 units only, but apt. is in the Accessory Dwelling Unit zone) so to my knowledge we’d need to change the zoning.

Quote from @Nicholas Coulter:

@Sinnard Michael Scott do you really like the area? If you do i think its fine. Make some great improvements and see if there is anything the city can provide to help the cost of the ADU permits.

I love this area and have rented in the neighborhood for entirely too long without buying. Will look into ADU subsidies!

Hi Crystal! Thanks for the advice. When I look at the comps for the area, I suspect the ARV will barely be higher than the renovation costs we're incurring. We receive the HUD consultant's report this Thursday. Our rehab budget is $90K for this particular home, and halfway through the inspection the consultant estimated > 50% of the budget will likely go towards bringing things up to code. If the inspector is right, the ARV won't be much higher than our purchase + reno costs. I'm assuming no but it doesn't hurt to ask haha; does bringing things a tenant or prospective buyer won't see - plumbing, type of electrical wiring, roof, etc - up to code increase the value much?

Thanks Hemang! Will dm you! As I was doing my calculations I didn't take into account the possibility we and tenants could be disallowed from occupying the building while the rehab occurs. The six requirements you layed out make perfect sense - and I'm becoming less and less confident in the potential cash flow. The 203K "required" updates are what's really taking up a lot of rehab budget - the only way I see this making sense is if the seller drops the price by 10s of thousands (unlikely) or we switch to a loan that doesn't have so many required changes.

Quote from @Bob Okenwa:

Quote from @Sinnard Michael Scott:

Quote from @Bob Okenwa:

Find another deal. A $300 cushion before expenses means you'd be in the red once they are added in. I'm not an appreciation gambler and the goal of investment properties should be cash flow. If it doesn't cash flow on day one, I'd move on and find something else.

Thanks Bob! I think we might have some emotion wrapped into the home which is why I'm looking at the number knowing it might not cash flow and still considering it. I'm still trying to detach from these place emotionally haha. What amount do you think I should aim for before expenses on this?

 You have to find a number you're comfortable with. After all expenses, I like to see $300/mo cash flow. I consider deals that don't hit that number, but only if it makes up for it in other areas such as being in a better location or needing rehab.

That's helpful Bob! I'm going to see if there's a reasonable way to get this thing to cash flow at least $500 after expenses. Right now it doesnt seem likely though. Might make sense to use the inspection contingency to stop the deal since lots of unforeseen things needing rehab popped up during it.

Quote from @Mark Ainley:

@Sinnard Michael Scott On the surface this does seem like alot to bite off.  If you want more education on digging out basements connect with my podcast co host @Tom Shallcross as he has the connection and experience to explain what that process looks like.  Couple of questions:

1. Depending on your address are you in the ADU Ordinance areas(https://www.chicago.gov/city/e...)

2. Have you ran the numbers of simply duplexing down vs making a third unit.  This will be less repair money, less management, less people in the building, and still higher rent for unit 1.  might be a lower ceiling which if you are only digging down 6 inches I am thinking this can be a fine finished basement.  If unit 1 is now a 3/1 duplex down and make it a 4/2 and maybe add a common area laundry in the back for both units.  Instead of 5300k in rents you might get 4600-4800k but spend alot less.

3. If ceiling height is an issue you can also keep the ceiling exposed, clean up the wires, and spray it so it feels a little more open.

4. If unfinished attic how about duplex up?

5. 203k loans are tough and we had a past guest on episode 147 Perry Farella that talks about 203k alternatives.  You may have better negotiation leverage not going 203k route.

If you want to DM the address I am happy to look at the property online with more feedback and specifics.  Good luck on this journey!

Hi Mark! We are in the ADU ordinace area so that's good news. You make a great point about duplexing down and duplexing up. I'm going to do some comps for the duplex up and duplex down to see what the potential rents could be. If we duplex down, we'd be able to create a 4/2 and if we duplex up we could make a 3/2. I'll also reach out to Tom to understand his experience digging. Will DM you the adddress so you can get a better sense of the property. And lastly, going to listen to the podcast episode today! Haha

Quote from @Bob Okenwa:

Find another deal. A $300 cushion before expenses means you'd be in the red once they are added in. I'm not an appreciation gambler and the goal of investment properties should be cash flow. If it doesn't cash flow on day one, I'd move on and find something else.

Thanks Bob! I think we might have some emotion wrapped into the home which is why I'm looking at the number knowing it might not cash flow and still considering it. I'm still trying to detach from these place emotionally haha. What amount do you think I should aim for before expenses on this?

Hi Chicago BP peeps, this is my first post here so I’m still getting my bearings straight haha. Here’s our key question; is this a purchase and rehab you’d do or are we crazy for trying to take this on?

Im attempting to purchase a legal 2 unit building two blocks from the intersection of California and North Ave. for about $500Kusing a 203K loan with a 3.5% down payment and the seller is covering the closing costs. The building has an unfinished attic and a 3rd non-conforrming garden unit. To make the unit conforming, we’d have to dig 6 inches deep and also add a stairwell to the front, and to use the 203K loan, we have to bring the property up to code. In total we’d need to pay about $90K in cost simply to have the opportunity to create the 3rd unit (digging, front stairwell, meeting code). We’d incur about another $30K to actually furnish the 3rd unit. So, $120K rehab costs in total. We would also need to change zoning on the property so a 3rd unit is allowed. 

Potential mortgage is $5K and rents in the area are $2K on average so total monthly rent for 2 units is about $4K. The rent for a garden unit is roughly $1.3K. All in all, after we move out, total rent we would collect is about $5.3K with a $5K mortgage, this doesn’t include expenses like vacancies, etc.

Given all of the above, would you do this? I feel like we could get it all done, but is this even a good deal to begin with paying $500K for that area? We’re not even sure our rent estimate is accurate. Our goal is to house hack and live-in flip 1 property every 2 years and have the properties cash flow after we move out. Should we move on from this deal and find another? Should we try to negotiate the seller down?

Thanks so much for any help and advice for the newbie here. Really hoping to become a great member of the BP community since we’re so new to all of this!