Chicago, IL

I am reviewing some properties for one of my investors today and it just amazes me that people think, wish, hope, that they can get a certain selling price on their 2-4 unit building here in Chicago but the rents aren't supporting the value!!!

Let's look at what the investor and the bank looks at:

• Leases
• Who pays the gas on those leases?
• Is the water metered or non-metered?
• How much is the insurance for the building?
• Real Estate Taxes
• Electrical Bill for Common Areas
• Maintenance (snow removal, landscaping, plumbing breaks, accidents, painting, light bulbs)

Then they look at this:

• Remaining Life on Roof on Building and Garage
• Remaining Life on Stoves
• Remaining Life on Refrigerators
• Remaining Life on Furnaces
• Remaining Life on Central Air
• Remaining Life of Hot Water Tank
• Remaining Life of Washer(s) and Dryer(s)

So the bank and my investor know how long each of the above Seven Systems would be and so what they do is look at the cost to replace and divide the remaining years of life those Seven Systems and then divide it by twelve months to come up with the required reserves that need to be subtracted from the monthly income to replace those Seven Systems.

Oh, we forgot about the vacancy rate. Well, I didnt' but I hope I got your attention on this one. You are basing your value on 100% occupancy and that everybody pays on time. Wrong. Dead wrong. I would average in two months of income losses each year for your building right now, in this economy. That is harsh but I am not in Cinderellaland here folks. You need to be realistic about how the bank, the investor looks at their pocketbook and how empty yours may be. Don't get mad at me. I've seen alot of landlords and accidental landlords being eaten alive financially because they don't understand this system.

So, a three unit for non-owner occupancy requires, I believe 25% down payment right now with the banks.

So, you have a property that is selling for $1M and has a GRI (Gross Rental Income - not monthly but annually) of $63,000.

1. Your real estate taxes annually are $8,500 or $708.34 per month.
2. Then there is the water bill for building which has 2 bathrooms and a washer, dishwasher, refrigerator bar for all three units. The water bill is "unmetered" and so instead of $100/annually as this listing agent reported, you are going to be receiving bills in the area of $125 a month for water.
3. You have common electrical for the motion detectors and hallway lights and that will run you $45.00 a month (high end).
4. $100.00 maintenance for lawn, snow, fertilizer, the man or service crew behind these must maintenance needs.
5. Your insurance is based upon the value of the building, the number of units, whether it is owner occupied or not, it's modernization, your credit and then your coverage and deductibles.

So, let's now look at the monthly reserves. Monthly reserves are the Seven Systems mentioned above that have a ceretain life (also know as "life expectancy") to them. Once again, you need to take the cost to replace these items and divide it by the number of years that the manufacturer determines. So,

• a new tear off rubber roof would run for an average size building in the neighborhood of $10,000 with a life expectancy of 20 years.
• If the roof on the building is "pitched" then a tear-off roof (I would suggest architectural shingles for buildings, especially in Chicago because of all the wind) would run you approximately $4,500 and the life expectancy is 20 years for architectural shingles. 10 years for standard shingles.
• The garage roof would cost $1,500 for a tear off (I suggest, like most garages, they have slats for sub-roofing) and I would replace with CDX 1/2" board with ice/water shield membrane around all edges and pitch lines. The additional cost for material and labor for adding the CDX and Ice Shield/Water Membrane is roughly $500 - $750 more but well worth it!
• Stoves: Depending on the stove: Estimate $400 to replace the stove with a life expectancy of of 15 years.
• Remaining Life on Refrigerators: $550 to replace the refrigerator with a life expectancy of 15 yaers.
• Furnaces: $3,000 to replace the system with a life expectancy of 18-20 years.
• Central Air - $2,500 to replace the unit with a life expectancy of 12 years (if you don't wrap it up type during the winter and keep putting freon in it every season.
• Hot Water Tanks: Life expectancy is only 10 years (but I have seen them last alot lot longer) with a replacement cost of $1,100 for labor and material.
• Washer and Dryers: Cost varies and life expectancy is between 12- 15 years.

SO NOW, LET'S DO THE MATH:

MONTHLY INCOME: $5,250.00

$1,000,000 Selling Price with 25% Down Payment:

Mortgage: $750,000 @ 6.5% = <$4,875.00>

MONTHLY EXPENSES:
Real Estate Taxes: $708.34
Water $125.00
Electrical $45.00
Insurance $75.00
Maintenance $100.00

TOTAL MONTHLY EXPENSES: $1,053.30

LOSS OF RENTAL INCOME (VACANCY RATE)
$1,200/RENTAL X 2 MONTHS = $2,400
divided BY 12 MONTHS = $200.00 $200.00

RESERVES:

We are going to estimate that everything
is new on this building for knowledge purposes.

MONTH RESERVES REQUIRED FROM INCOME:

Roof on Building $41.67
Roof on Garage $13.89
(3) Refrigerators $9.17
(3) Stoves $6.67
(3) Furnaces $37.50
(3) Compressors $52.08
(3) Hot Water Tanks $27.50
(3) Washer & Dryers $62.50

TOTAL MONTHLY RESERVES REQUIRED: $250.98

TOTAL MONTHLY EXPENSES: <$1,504.28>

NET OPERATING INCOME: <$1,329.28>

This is a negative NOI people. Investors want a cash flow when they put 25% down. Your property is not worth $1,000,000 to the bank or the investor. You will not sell. Bottom.

DISCLAIMER: Remember this is based on a new building. The expenses and maintenance will be higher on older buildings with older mechanics.

NOTE: If your property is vacant, the bank will estimate your rental income at the low end of the market rental income factor. The "long term tenants" a/k/a "below market rent" will be the factor and will also be the low end for your selling price.

You have questions? You know where to find me.

BTW, that agent reported an annual $51,200 on NOI! I saw a loss of $15,951.36 (that included the mortgage payment). And you wonder why you didn't sell?

Happy Fourth, Folks! Please enjoy the holiday - but be safe!

Perhaps you are from Canada. If so . . . Happy Belated Canada Day!

Our Team Member, and my wife, Sue, found a summary of Chicago and Chicago Area Fireworks and other Fourth of July Weekend Festivities for you to enjoy. Here's her overview -

If you haven't had a chance yet to get over to the Taste of Chicago, it wraps up this Sunday over at 100 E. Congress Parkway, in Grant Park. Click here for hours, food ticket prices, music schedule and more.

The 17^th annual African-Caribbean International Festival of Life is this weekend as well. Located at 5500 S. Cottage Grove, this Washington Park/ Woodlawn neighborhood festival features two stages of live music along with food vendors, exhibits, games and much more. Click here for prices, hours, music schedule and more.

On a smaller scale, what would the 4^th be without B&BQ? Head on over to the Bull & Bear, located in the River North neighborhood at 431 N. Wells St. for some of Chef David Blonsky's BBQ grillings at their sidewalk patio - The BullPen! Click here for menu, hours and drink specials as well.

Finally, for all you fireworks enthusiasts (please leave it to the professionals), here's a run down of displays being offered today, the Fourth of July -

4^th of July Fireworks at Navy Pier, 600 E. Grand Avenue.

4^th of July Fireworks Cruise, Shoreline Sightseeing Cruises, located next to Navy Pier.

And finally, the July 4^th suburban displays -

Evanston Fireworks, Dawes Park, 1700 Sheridan Road. Daytime activities are provided with a parade along Central Street at 2:00 p.m.

Naperville Fireworks, Knoch Park, 700 S. West Street. Presented as part of the Naperville Ribfest.

Oakbrook Terrace Fireworks, Terrace View Park, 1 Parkview Plaza. It's a community celebration with food, live music, carnival rides and more.

Again, gang - enjoy the holiday . . . SAFELY! OK?

Here's Sue's Friday post via BlogChicagoHomes.com.

DEAN & DEAN'S TEAM CHICAGO

Enjoying the Fireworks, folks?

Staying away from Downtown Chicago tonight - it's a madhouse down there. But trying to remain festive, and patriotic!

In this week's Chicago Neighborhood News, Team Member Cathy Mallers covers the Chicago Neighborhoods of Norwood Park, Lincoln Park, Lincoln Square, and The Loop, and the Chicago Suburb of Evanston IL.

There is still pretty of Summer left! Having a party or summertime get together? Let us know, and we'll help spread the word around.

Dean's Team Chicago offers the highest-rated Active Rain Blog in Chicago and across Cook County IL!

Here are Cathy's Chicago Neighborhood Notes -

Fourth of July in Chicago has a slew of events happening. We've chose a few favorites that really highlight not only the holiday but also the neighborhoods that celebrate them.

NORWOOD PARK

Sometimes finding independence has nothing to do with coming to the United States, but going home. That's what Stephanie Andersen-Samayoa found when she relocated from Chicago to El Salvador.

The family's abandoned coffee plantation needed to be reclaimed, the debris cleared and the hacienda returned to its natural glory. Andersen-Samayoa took a leave of absence from work, followed by an extended leave and finally packed her things and moved to El Salvador.

Now you can purchase Finca Los Angeles coffee from her ex-husband, Bill Dugan, at Fish Guy Market, 4423 N. Elston. To read more, click here.

LINCOLN PARK

This weekend is time for the all the 4^th of July festivities. Not to be outdone by the holiday is the 8^th Annual White Party, which is sponsored by Tommy Z Productions.

The party is going to be at the club Religion, 720 N. Wells. To read more, click here.

LOOP

Fireworks happen twice over the weekend from the Loop area. If you are looking to watch the ‘works from Grant Park on Friday or Navy Pier on Saturday, you can head out to The Terrace at Trump, located on the 16^th floor of Trump Tower. To read more, click here.

Not to be outdone, West Loop location Market is also opening up their rooftop to view the fireworks. To read more, click here.

LINCOLN SQUARE

Not to be outdone by the 8^th Annual White Party, Lincoln Square's Provenance Food & Wine hosts free wine tastings every Thursday evening. Get your holiday weekend started with a tasting of wines from around the world.

To read more, click here.

EVANSTON

The City of Evanston has an entire website dedicated to its 4^th of July festivities. The city is going all out again this year with a parade, concert and fireworks.

The Palatine Concert Band will be back again this year playing our favorite patriotic music and much more from 7:30 pm to 9:10 pm. The parade starts at 2:00 pm. The fireworks will start off Clark Street Beach immediately after the concert.

To read more about all the festivities being offered, click here.

Enjoy the Fourth, everyone! Safely!

Here's a link to our Chicago Neighborhood News Blog Archive, via our Chicago Real Estate Blog, BlogChicagoHomes.com.

DEAN & DEAN'S TEAM CHICAGO

As I have time to reflect as we go into this holiday weekend, I think back to all that happened in the month of June.

My Personal Market Activity: Buyers re-engaged in the marketplace resulting in sold properties. Sellers who want to sell are listing at prices to sell not just to list. Communication between the Realtors, lenders, buyers, sellers and attorneys is key in keeping the deals together and getting them closed.

I have received negative comments responding to my positive outlook on the market, the first signs we are seeing of stabilization from the numbers that are being published. I have run into agents I know amazed when I say I am busy. They are thinking of getting out of the business. I am not "wearing rose colored glasses" as commented on one of my blog postings. Rather than walk away in frustration, I decided I have to continually educate myself to the dynamics of the ever changing market. Learn from my most current experiences. Most importantly, work to solve the problems that arise from each of the challenges that come with every transaction.

Americans deserve the opportunity to achieve and sustain the American Dream of homeownership. It is still recognized as one of their most important assets. I am a Realtor®. This is what I do.

Happy Birthday America!

Did you know that houses and buildings move? Those cracks that appear with age or settling could always be there.

I want you to look at your hand right now. Go ahead and look at it. See how your skin expands and contracts when there is movement?

Think about when you were a baby. Did somebody put a new body suit of skin on you as you kept growing? No? Yes?

Now, I want you to think about the climate you are in. I'm located in the midwest and hence we have frigid winters and hot summers. So, a house made of frame has a tendency to expand and contract during those seasons. You say, "No Way"? Well, then tell me why your feet and hands have a tendency to swell up during the summer?

If you have a brick building, go outside and look at where the foundation and the concrete sidewalk connect. Go ahead. Now, some of you may have that black tar. Some may have concrete built up in a "swoop" type of technique. Others may have a gap.

One of the problems with moisture on the exterior of the foundation walls of an old or new building, is the connection between the foundation and the sidewalk. If you do not have an good overhang on your roof line (16-24"), you probably are one that has been having problems with seepage into your basement, or a funny discloration to your exterior wall, or that green mold growing on the outside wall ... you know the stuff.

One of the best ways to stop the problem from beginning or when you purchase that older building is to have it inspected by a professional. Not a hobbiest - you know, the ones that can do everything.

I just received a call from a friend and client who told me that this "handyman" she hired a couple years ago put concrete between the foundation and sidewalk in the "swoop" method but it is crumbling all apart and is breaking up. Hmmmmm..... the best way to fill the crack or space between a multi-seasonal home location is to use a silicone material that is condusive to multi-seasonal weather changes.

Think about it. It's like the homes that have the hairline cracks above your doors and someone muds over it and says "that will take care of it". That's true, it will .... but they forgot to finish the sentence "for now". Years ago, I ran into a nice little product called "Crack Be Gone". It is a silicone spray that you lightly spray over that hairline crack. You don't stand it down after you spray. You wait for a couple of hours and then you can paint right over it. So, when you house moves again, sways to the breezes, or the earth shifting, it'll hold and you won't have to worry.

As my Dad has always said "Do it right the first time, and you won't have to worry about it."

Home Fixing Tips 101