Short Sale Alert: Could an Investor Make Money Here? 8 W. Monroe
8 W. Monroe, the mid-rise conversion building in the Loop, has its share of investor owners.
The building is in a convenient Loop location, has in-unit washer/dryers and parking is available.
This 2-bedroom unit recently came on the market as a short sale.
The listing says that renters are occupying the unit until September and are paying $1800 a month.
If $1800 a month is the going rate for this type of unit, could an investor buy this condo on the cheap and actually make money as a landlord?
Bradford Miller at Keller Williams West Loop has the listing. See more pictures here.
Unit #1403: 2 bedrooms, 2 baths, no square footage listed
- Sold in June 2006 for $330,500
- Currently listed as a “short sale” for $259,900 (parking extra or available to rent)
- Assessments of $474 a month
- Taxes of $4591
- Central Air
- In-unit Washer/Dryer
- Bedroom #1: 10×15
- Bedroom #2: 9×10
- Living room: 11×14
- Kitchen: 9×10
Stevo’s back of the envelope calculation puts its value at $257,295, so I’d say no.
As a reminder:
12*(1800-474)-4591/.055/.8 = 257,295
Assessment and taxes are a little too high. Might be a decent risk if you wanted to live in it initially, as you’d get a cheaper loan and pay less RE tax.
They probably meant to say that the tenants “were” paying $1,800 a month. If I found out my landlord stopped paying the mortgage and was trying to short sale that’s what I’d be doing.
“The listing says that renters are occupying the unit until September and are paying $1800 a month.”
Its a great location at a decent price. The issue is will it actually sell for 260k? I’ve seen a lot of short sales where it almost appears the price is a teaser, likely to start bidding wars, then it gets held up in the bank approval process then disappears into a black hole.
The bank will likely hold this and try to get 300k for it, and the market will continue its downward march. The bank also probably is valuing its real estate portfolio & securities at 96c on the dollar despite the market value is less than half this amount. No MtM accounting = banks can play the zombie game.
Well that answers the question right there. This unit is sliding into foreclosure despite having tenants paying $1800/month. Even if I did have the larger downpayment required for an investment property, the rate is still higher and this place costs almost $900 in tax/assmts. Definitely not for an amateur investor.
“No MtM accounting = banks can play the zombie game.”
Dude, no MtM, Citibank doesn’t report a Q1-09 profit.
Their Q1 profit was **smaller** than the gain recorded b/c of the lower market price of C’s corporate obligations. Apparently, Lehman had the same thing going last summer–the debt was trading lower, pricing in the increased risk of default, which allowed for “profit” b/c of MtM.
> I found out my landlord stopped paying the mortgage and was trying to short sale that’s what I’d be doing.
You would stop fulfilling your obligation? Nice.
“You would stop fulfilling your obligation? Nice.”
My landlord is a model to me as he is a successful RE baron, wanting to be just like him I would follow his every move.
It makes perfect sense to screw the landlord once he starts screwing you. It is implied that your landlord will use your rent money (And probably a bit of his own) to pay the mortgage. If he decides that he wants to keep the money for himself instead of paying his obligations, and puts you at risk of eviction due to foreclosure or what not, the he has breached the contact. The tenant lives rent free for sometime; that’s just issue of the landlord letting the unit go into foreclosure.
Short selling (not paying the mortgage) and pocketing the rental income. This guy is slick! I’d expect him to be filing a Ch.7 sooner than later.
I heard from people that it’s getting harder to find legitimate rentals in some southside ‘hoods. Lots of properties in foreclosure and just as many scammers lookin to take your security deposit in exchange for the keys to a home in foreclosure. Some asset managers are now offering $1,000 for non-rent paying tenants to move rather than file evictions.
Can anyone explain the downside of stopping the rent payments when the landlord goes into short sale? Unless I’m missing something, he can still go after you for the rental cash, right? So why would you stop paying?
I ask because our landlord pulled a similar stunt, though we didn’t find out about it until after the last check had been sent.
The answer is no.
homedelete, what steps should a renter take when he discovers his landlord is letting the place get foreclosed on? Should the rent payments be escrowed? Should the renter deliver a written notice informing the landlord of what is happening?
I agree that nobody should be paying rent knowing that they will soon be evicted in foreclosure since the landlord obviously breached the lease, but what must be done to keep the landlord from having a chance to sue for non-payment of rent?
At around 150,000 this place could make sense as an investment.
The downside if you stop paying rent to the landlord (b/c he stopped paying the mortgage) is that you will probably have to pay the assoc. dues instead. The assoc can evict you in a couple of months time for non-payment of assoc dues but the bank can take a year or longer to evict you for non paying the mortgage. Most times, if you do the math, it’s cheaper to pay the back assessments and current assessments going forward instead of rent. Theoretically the landlord can sue you for non-payment but come on; that’s a total scumbag landlord if he did something like that. I’ve rarely seen that be the case. THey usually only do that in some misguided attempt to ‘make it all work’ or whatever. Usually what happens is their fiancial world just falls apart and they walk away from it all, including the collection of rent.
“#jr on April 27th, 2009 at 11:42 am
Can anyone explain the downside of stopping the rent payments when the landlord goes into short sale? Unless I’m missing something, he can still go after you for the rental cash, right? So why would you stop paying?
I ask because our landlord pulled a similar stunt, though we didn’t find out about it until after the last check had been sent.”
“but what must be done to keep the landlord from having a chance to sue for non-payment of rent?”
If I *knew* that the LL is not paying the mortgage, I would be pretty comfortable risking being sued by the LL. I’d be more concerned about the LL being a psycho and stealing from me or worse.
I would definitely set up a separate account at your bank and deposit the “rent” in it, as evidence of your good faith.
Pete, if your landlord stops paying the mortgage (and you find out about it); call him on it. It is unlikely that he’s going to sue you for rent. Even if he did, how can he release it now that’s obviously in foreclosure? Furthermore, there’s a new law out there that says that if you are a renter being foreclosed upon you can get 120 days from an eviction judgment or until the end of your lease, whichever is shorter, as long as your rent is current. Now I don’t think anyone really yet knows what keeping rent current on a foreclosure means or how they’re going to disprove that or what not, but the point is you got time. Playing it conservatively, I wouldn’t stay longer than 6 months rent free before moving out; you could stay up to a year without any real problems; beyond that you might actually have a court appearance or two. But even 6 months rent free isn’t too bad. That’s a few thousand dollars in your back pocket.
the easiest and safest rule of thumb for condo investing is the rent should be 1% of the purchase price.
So, it should be $180K for $1800 per month rent.
Historically speaking interest rates have been much higher, and one must plan for that accordingly. SteveO’s back of the envelope calc doesn’t plan for 8% interest rates, which could be back sometime.
PS So, 1% monthly rent means 12% unleveraged annual return on cost. Subtract vacancy factor and other expenses, and then you are at say, 10% return, which used to considered only so-so.
If you have an 8% interest rate norm, then you are slightly positively leveraged and earning cash flow after debt service.
this used to be the way people thought, not writing a check each month to cover negative cash flow and paying even more for the “investment”.
I wish my landlord would stop paying the mortgage. I’d happily stop paying rent and try to delay the enviction process for as long as possible.
How do you find out if your LL is even in forclosure?
cookcountyassessordotcom enter address to look up the PIN.
ccrddotinfo enter the PIN to look for a lis pendens filed by the lender.
225K seems like a price where an investor can feel comfortable with his purchase.
How do you know if your landlord is in foreclosure? Easy way: the Sheriff is gonna drop a complaint and summons off at your front door, as you are unknown tenants and occupants. If you don’t answer he’ll stick a copy in between your screen door and front door just to let you know he was there, but he’ll be back.
Harder way: G’s suggestion to look for the lis pendens.
The room sizes look tiny.
The facts say its still overvalued by 22% !
A fair market value for this condo, assuming $1800 rental income, is $200,000.
As with all condos, assessments are the achilles heel to their valuation. Specualtors have learned this slowly, bagholders are still living in denial.
Looks like homedelete was abscent on business ethics day. He should get in the adjustable rate mortgage business. Homedelete could then help his client qualify for a mortgage that they couldn’t afford, tell them to just stop paying after a couple of months and finally strip the place of all valuables (appliances) prior to eviction. After all the bank will just clean up the mess.
John S.:
You think 5.65% is an appropriate cap rate? Seems a little low to me, given all the risks on a property like this. 7% cap rate sez it’s worth $162k, and that’s assuming the $1800 rent is repeatable.
Huge building, but the reserves were around 500K earlier this year. They’ll need to get to 1 million.
Look at the length of time many of the units have been on the market. Several of the 2 beds exceed 365 days. Sellers aren’t budging on the prices and buyers aren’t purchasing. Stalemate.
When the bank took over our building at work, they just said cut the rent checks to us (well they hired a management company and then they pay them). They were happy to have paying tenants and the bank isn’t going to change anything if they’re being paid. Sure they’d like to not own the building, but w/paying tenants the mortgage is now being paid!
I love how people justify being a deadbeat, if your landlord is burning the money who cares it’s none of your business so long as your lease obligations are being met.
What are the chances your deadbeat landlord is going to return your security deposit, or fix your fridge, or repair the toilet, or cut the lawn? Zero. He’s probably been putting your hard earned rent money up his nose instead of paying the mortgage. Now you’re at risk of being evicted because your FB landlord screwed you over – and you’re going to keep sending him money so you can feel better about meeting your lease obligations?
“Dan on April 28th, 2009 at 6:35 am
Looks like homedelete was abscent on business ethics day. He should get in the adjustable rate mortgage business. Homedelete could then help his client qualify for a mortgage that they couldn’t afford, tell them to just stop paying after a couple of months and finally strip the place of all valuables (appliances) prior to eviction. After all the bank will just clean up the mess.”
“Nate on April 29th, 2009 at 4:36 pm
“I love how people justify being a deadbeat, if your landlord is burning the money who cares it’s none of your business so long as your lease obligations are being met.”
i like homedelete’s ethics. if he was a re atty i would send him business. i want attys who fight for their clients
Anybody know what the percentage of vacant/unsold units is in this building? I keep seeing shortsales for this building pop up and am having trouble telling them apart.
Nate,
Leave your boyscout sachel at the door next time. You have no more authority to parrot your “ethics” from your civics class than I do to do what I choose. If you really think most of the players in this whole RE meltdown acted ethically and honestly you are fairly naieve.
Ethics to me is behaving in a manner that keeps me out of jail and from my legs being broken. Its a standard that works fine for me. I sleep fine at night, out like a lamp.