Trying To Sell a 2-Flat Greystone For Nearly 5 Years: 1524 W. Byron in Lakeview
We’ve chattered about this 2-flat greystone at 1524 W. Byron in the Southport neighborhood of Lakeview several times over the last couple of years.
See our January 2010 chatter here.
It actually originally came on the market nearly 5 years ago in June 2007.
The 2-flat has been on and off the market every year since then.
Recently it returned to try it’s luck once again.
If you recall, the units have separate utilities, including central air, and hardwood floors.
The listing says they have “updated kitchens.”
There is coin laundry in the basement.
Last summer, the old listing said “rent currently low. too be increased soon.”
You can see what the new rents are in the current listing:
- Unit #1: 2 bedrooms, 1 bath, rented for $1275 (was rented in 2010 for $1200 a month)
- Unit #2: 2 bedrooms, 1 bath, rented for $1275 (was rented in 2010 for $1195 a month)
There is no parking. The listing says the building is “land locked.”
There is an auto repair business next door that is adjacent to Ashland.
Since July 2008, the property has reduced $69,100 to $429,900.
The listing says it is “priced to sell.”
Does this 2-flat finally make sense for an investor?
Greg Viti at Prudential Rubloff still has the listing. See the pictures here.
1524 W. Byron: 4 bedrooms, 2 baths, 2-flat, no parking
- Sold in 1995 for $209,000
- Originally listed in June 2007
- Was listed in July 2008 for $499,900
- Withdrawn
- Was still listed in January 2010 for $499,900
- Reduced
- Was listed in April 2011 for $449,000
- Reduced
- Currently listed at $429,900
- Taxes of $9973 (were $9452 in January 2010)
- Rental income: $30,600
- Separate central air/heat
- No parking
I saw this over the weekend and just knew Sabrina would feature it.
I would say it being land-locked eliminates it from SFH conversion candidacy.
Yuck. It’s shocking the rent is so high here.
Could buy a 2BR in River north for 300-350k (with parking) and rent it out for $2200-2500 / month. Taxes would be lower but common charges would add some cost. There will always be demand for rentals in RN though. I think cap rate needs to be 7%+ for the regular investors.
“It’s shocking the rent is so high here.”
$1200 is a lot for 2 bedroom?
Not a good investment. Rents do not cover expenses and potential for increase in value is limited.
Yes $1300 is very low rent for a 2 bedroom. I assume it has laminate counters, etc. I have a tiny 2 bedroom along southport that fetches $1750/mo. Rent is going up 10%/year…
At full offer, with NOTHING down, the mortgage is $2,050 @4%. Taxes are $833/mo. Total monthly is less than $2900/mo . Again, this assumes full price with zero down. Any discount or down payment only lowers the nut.
Given current tax deductions (obviously subject to change), about $1000 of that nut will come back as a tax deduction.
So, $1900 per month net costs. $2400 per month rent = cash flow positive.
(And, appraised valuation can be challenged after purchase, lowering taxes meaningfully)
dd- how does that not cover expenses?
Voss – you couldn’t pay me to take on the risk of buying an investment CONDO in any neighborhood: assessments increasing, potential special assessments, possible distressed sales in building, caps of renter occupancy, etc.
I personally don’t like this location (landlocked, crap views, Ashland), but you guys are nuts saying this building doesn’t work from an investment standpoint. It does.
My bad: Looks like rents were raised to $2550, from $2400. Even better.
“Given current tax deductions (obviously subject to change), about $1000 of that nut will come back as a tax deduction.”
What’s the tax deduction on investment property? Or are you presuming that a buyer of this place would lie on their taxes?
“What’s the tax deduction on investment property? Or are you presuming that a buyer of this place would lie on their taxes?”
What’s not a tax deduction on investment property? The interest and taxes are deductible, as are any maintenance costs, and then there’s depreciation.
TB – You need to look at the capitalization (cap) rate when looking at real estate investments. Cap rate = (Rental revenue minus (tax + maintenance costs)) / Market Value. It is independent of mortgage costs and gives you the “yield” on your investment to compare to what could be earned in another instrument (treasury bonds, high yield, another investment, etc.). Cap rate here = (30,600 – 9,973) / 429,900 = 4.8%. Note this doesn’t include maintenance of the property which will reduce the cap rate. I would prefer to do my diligence on a condo and find a place that currently offers 7%+ cap rates including maintenance.
“What’s not a tax deduction on investment property? The interest and taxes are deductible, as are any maintenance costs, and then there’s depreciation.”
Oh, that all reduces your OI tax? So, if I have AGI of $100k from my job, and own investment real estate depreciating $100k annually (but otherwise breaking even), I pay $0 in income tax? Is that how it works?
Or is it that you can zero out your “income” from the rent with your expenses and depreciation?
” find a place that currently offers 7%+ cap rates including maintenance.”
Right. This place *maybe* makes sense (assuming zero asset appreciation speculation value) at $350k, and becomes a reasonably solid play under $300k, assuming no significant deferred maintenace.
anon (tfo) – The deductions are only good for the property and will not apply to other income. And the depreciation is great for current income but you will have a large tax liability when you sell because your tax basis for the property is being reduced each year.
Yoss-
You are telling me that at offer (no negotiations) this property yields 4.8%, yet your threshold for suitability is 7%, therefore it makes no sense TO YOU.
Further, $1275 rent is low for 2BRs in Lakeview, $429,900 can/will be negotiated down, and assessed value/taxes can be lowered thru appeal. These 3 variables can all boost the returns on this property.
Free standing building : No assessments, (regular or special special), no cap on rental occupancy affecting marketability/financing versus condo.
$1200 to live next door to a dumpy looking auto repair shop is not what I call nice, especially since there is just one bathroom.
TB – Sabrina asked if it is attractive to an investor. I am giving my opinion backed up by data as to why it is unattractive relative to some places in River North (an area I’m very familiar with). A 4.8% cap rate (WITHOUT including maintenance) is not very attractive on an absolute basis. You can take the same risk (Chicago real estate risk) and get a 50% better return (WITH maintenance) if you buy a rental downtown – so its not attractive on a relative basis either. Any investor with half a brain will be comparing those two scenarios. And to your point on the rent – they are obviously current market rents since the listing last summer indicated they were too low and the owner since renegotiated them. I highly doubt there is upside to the current rents.
$1,200 seems about right to me for the area. this would have been $1,000 10 years ago.
yoss: “The deductions are only good for the property and will not apply to other income.”
Yeah, I know. Rhetorical questions based on this: “about $1000 of that nut will come back as a tax deduction.” ALL of it reduces your income from the property; none of it “comes back to you”, as the phrase is commonly used here.
Based on TB & Yoss tête-à-tête, it sounds like more experienced investors would take a pass. Would it be a good starter project for someone trying to get into the investment property business?
“Would it be a good starter project for someone trying to get into the investment property business?”
Because making money is less important to such a person? Or they’re only getting into the business because they are really good at it, so they’ll do better than someone more experienced?
Because they don’t have the connections and know-how of an experienced investor to view this as a not worth my time I can make so much more money elsewhere stand point. Yet location, cost and ROI make it safe enough to take a chance on?
“Because making money is less important to such a person? Or they’re only getting into the business because they are really good at it, so they’ll do better than someone more experienced?”
I will give my opinion too, regarding Lakeview, (an area I’m very familiar with). $1275 is still under market rent for these places. $1350 is reasonable and not overpriced.
At asking, cap rate is 4.8%.
If hypothetically purchased at $407k (95% of ask),
Assessed value is $639,580. Appeal it to $407 = Annual taxes of roughly $6350,
Raise rents to $1350.
Cap rate is:$32400-650/407,000= 6.4%
It could be a decent for someone. Especially as an owner occupied building. Attractive to Heitman? No. Attractive to Joe sixpack? Maybe.
Icarus – I would target a 2/2 downtown with a cap rate above 6% (including taxes and maintenance). The downside is you have a condo board and could get wacked with a special assessment so make sure the building is well established and funded (I would avoid a new build for this reason). The upside of a condo is a liquid rental market (can always find a renter downtown) and a liquid buy / sell market (can sell in a hurry if you really need to). Also many of the properties have been sold in the past so you can get a benchmark for valuation (ie maybe you are buying at the price the seller paid in 2000). Be sure to stick to the math and don’t make any investment unless “the math” works out. I wouldn’t advise anyone to buy a 2/2 to live in unless they are empty nesters as “the math” never works out if you sell within 5 years because of the brokerage commish.
“Especially as an owner occupied building.”
This changed fact changes everything. And was discussed in one of the prior threads on this place.
Sure… halfway down the block, I can easily imagine a place going over well over $1200 a month, but why would anyone want to live next to an auto repair shop if it can be avoided?
Jenny – “why would anyone want to live next to an auto repair shop if it can be avoided?”
its cheap. and they’re renting for a year. who cares about the auto repair shop if your 23 and are throwing parties. it might be a boon.
Also – i wouldn’t own a condo as an investment. I would rather have a lower cap rate and own the whole building to avoid associations.
County Assessor website says 2011 assessed value is $639,580. 2012 assessed value was reduced already to $470,820. So, all slse being equal, taxes will be going down without any effort.
I’ll shut up now, and surely get a ‘thumbs up’ for that. 🙂
G_rant – I understand your preference. With 100% ownership comes a 100% share of the costs but you have more discretion over those costs.
“Attractive to Heitman?”
According to the Heitman method, this place is a damn steal, as-is:
[($2550*12)-10000]/.05/.8 = $515,000 = INSTANT EQUITY!!!!
Note that I did adjust the 5.5% to 5% to reflect lower current rates. Even at 5.5, it’s “underpriced” now.
Put some coin-operated laundry machines in the basement and the proforma really starts to hum!
“County Assessor website says 2011 assessed value is $639,580. 2012 assessed value was reduced already to $470,820.”
I’m getting excited thinking something like this will happen with my assessed value for 2012.
Jenny makes my heart pitter-patter.
Looks like pretty nice units for only $1,250/mo. A great deal rental, actually — especially if the landlord allows a dog. Then it most definitely is a deal to a renter.
@anon (tfo)
“Oh, that all reduces your OI tax? So, if I have AGI of $100k from my job, and own investment real estate depreciating $100k annually (but otherwise breaking even), I pay $0 in income tax? Is that how it works?
Or is it that you can zero out your “income” from the rent with your expenses and depreciation?”
As usual with the tax code, it depends. No, you can’t end up paying $0, but it can reduce your income. If you count it as passive (because you have a day job, you take the schedule E loss (rent minus cost minus depreciation). Form 8582 limits the loss to $150k – MAGI / 2. So, if you have $100k from your job, your schedule E loss limit would be $25k. If you had $100k in losses, you’d be able to claim $25k of it and only pay tax on $75k of income. Also, that loss comes in as an adjustment, not a deduction (ie lowers your AGI).
So, nonya, can you also get (marginal rate)*interest and tax expense as a deduction from OI while *also* using it to offset your rental income? Which seems to me to be the double counting suggested above that I first questioned.
Not deduction, tax benefit. Sloppy; sorry.
Who wouldn’t want to pay what will soon be premium rent to live next door to a crappy auto repair shop and not even have a spot to park their own car?
The #’s work but for what purpose?
The dirt is worth little as its landlocked, You’d have to undermarket rent it due to the shop next door. You’d be getting complaints from Tenants after they move in due to air rachets going at 11pm at night because the mechanic is doing side jobs. No parking…I can go on an on
Yes the #’s work especially when considering depreciation
There are better deals out there than this.
beside being landlocked and right next to an auto repair place, the auto repair place is on the corner of Ashland and Byron. This building will also be hearing the rumbling of traffic on Ashland, and whatever through-traffic Byron generates, not to mention having all that traffic dirt blowing into the place any time you open a window.
feh.
so perhaps a better question is at what price does this make sense as an investment property?
Don’t forget to factor in $5000/year for repairs, plus touch-ups when tenant turnover occurs. Location is likely to attract high-turnover tenants, several roommates rather than an established household, likely with litle credit, so factor in another $2000/year for turnover.
Looking at the photos only, it looks that rear yard abuts a condo parking lot. If so, worth exploring whether it’s possible to purchase access through that lot. Unusual, but perhaps doable, even if only for construction access to rearyard. If back porch ever needs replacement, looks like all building materials otherwise need to be carted by hand and all demo debris likewise too.
Regarding tax appeals, note that Cook County Assessor isn’t seriously considering recent sales for reassessments. It’s focussed on tax base defense, particularly in areas where property values are still relatively stable. Remember that south and west-sides are in deep distress with significant tax delinquency rates, but Cook County and Chicago still need to reliably collect tax revenues from their stable areas. Assessment might go down a smidgen, but don’t expect assessment to reflect a $420,000 sale price.
“Looking at the photos only, it looks that rear yard abuts a condo parking lot. If so, worth exploring whether it’s possible to purchase access through that lot.”
What condo parking lot? I don’t see any such thing on the aerial photos from google. There is only the car repair shop/lot next door.
Regarding tax appeals-
I bought a year ago and sucessfully appealed my property valuation from $756k to $470k (actual market value) for 2011 tax year. My case was very well documented (in triplicate, per the instructions), with a fresh bank appraisal and lots of comps. So, it can be done. But, you’ve got to be good at following very detailed instructions and dealing to robotic County employees.
“so perhaps a better question is at what price does this make sense as an investment property?”
Under $350, maybe, under $300 probably, at $250 its a easy winner. All barring deferred maintenance/structural issues.
“Regarding tax appeals, note that Cook County Assessor isn’t seriously considering recent sales for reassessments. It’s focussed on tax base defense, particularly in areas where property values are still relatively stable.”
Then how did my first pass AV go down 16%? Is my place the exception that proves your rule?
@anon (tfo)
“So, nonya, can you also get (marginal rate)*interest and tax expense as a deduction from OI while *also* using it to offset your rental income? Which seems to me to be the double counting suggested above that I first questioned.”
Sorry, didn’t catch your drift about double counting. Obviously not. You offset the rental income first, and then any losses leftover can reduce your AGI.