First Venture into rehab/hold - Posted by Matt–IN
Posted by Matt–IN on October 19, 2001 at 09:41:27:
First I would like to thank everyone here that takes the time to post solely for the benefit of others. I have been reading everything on this site for as long as my wife will let me everyday for about two months, this site is invaluable.
Now for my question. My partner and I are looking to buy a building in Chicago. It has been abandoned for about a year and a half. It is typical multi-use building in that it has a first level commercial area with a small apartment in the rear, and four apartments above. Two units are slightly larger than the other two, both are 2/1. The building needs significant rehab, we had a couple contractors look at it and they are giving bids on Saturday.
Our intention is to get the units ?Section 8 ready?. By that I guess we want them livable and approvable by Section 8. We had thought of making the commercial area and the small apartment two units giving us 6 units total. The area is very rough on the south side of Chicago, although the building is on a main street (Ashland). The commercial area was a pizza place for about 20 years and the people who owned the building died, the niece of the former owners sees it as a headache and needs to get rid of it. We have an agreement with her for 45k. We figure the rehab to come in at around 65-75k, but we will see Saturday. Comps are anywhere from 135 to 175k. This would be our first venture into anything of this magnitude and I would appreciate any suggestions. We have a lender that finances rehabs up to 100k rehab and property. This would only leave us 55k to work with at a 45k purchase, The seller is willing to carry a second for whatever we need, but she wants 55k purchase price to hold paper.
If anyone has a better way to purchase I?m all ears. Also, what are the possibilities of getting a refi. after a year? Of getting a mortgage after the rehab? Are the banks going to frown upon the area? I have heard/read all of the Section 8 horror stories and plan to screen tenants as closely as possible.
We have the deal penciled thusly:
(Six units @ $525, this is low end rent estimate)
Other income: $1000 (Billboard on lot next door)
Effective Gross: $36,910
Insurance: $2500(High estimate)
120k (45k purchase 75k rehab) @ 7% = $800 x 12 = $9600
Cash Flow: $15,430 / 12 = $1285/mo.
Any thoughts or help is welcome.