A Tale of Two Properties
When it comes to gut rehabs, it’s no secret that each property is different. This realization rings true when it comes to comparing condos with traditional Chicago homes. The good news is, either property type offers the ability to show how much a full service gut rehab can change the dynamic of a property and increase its value. I have many clients come to me with the idea of working on a small project like a condo because it is “easy” and “more straightforward” than an independent building requiring a larger capital commitment. What many of these investors are not considering is their liability in the details – condo boards, neighbors, bylaws and regulations. Conversely, I have other investors who come to me in August hoping to sweep the late market with a major gut rehab (yay!). My answer to this is “how big?” – why? The larger a property, the longer it takes to close up. In the words of Eddard Stark: Winter is Coming. If winter hits and the property doesn’t have a furnace, well, let’s just say your budget begins escalating.
So, if you’re in the market for a gut rehab, here are some thoughts to consider regarding project type:
Condos:
Pros:
Similar Units: The best part about condo buildings is that you usually know what you’re getting into. Rarely do I work with a newer building and find that I have to do a major overhaul with either plumbing or HVAC - and many times, even if there is an issue, it’s a problem for the condo as a whole. Good condominium associations will have extensive notes about the property - anything from when the property was built, to prior permits that have been approved, and maintenance workers who know everything there is to know about potential pitfalls.This is invaluable. Even more important is that, particularly in a large condo building, your resale value is based on other units within the building so your projected ROI is more reliable.
Smaller Projects: Condos are usually smaller projects that require a shorter time frame. If we’re looking for something short-term, then condos are preferable. Smaller square footage simply requires less time. This is beneficial for occupants because it means it’s...
Cheaper: Since most condo projects require less work and take a short amount of time, costs are far less. Time is money. This is due to the fact that you aren’t messing with the structure or doing MAJOR demolition. There’s only so much you can do.
Cons:
Condo boards: People who live in condos can attest to the fact that boards can be more bureaucratic than the government. Not only can getting approval be a major hurdle, one big issue can be very specific by-laws. Typically, condo associations have VERY specific DOs and DONTs when it comes to construction (using certain walkways, where to go, etc.). Additionally, many newer buildings closer to downtown, have doormen you have to rely on for coordination. A crew member coming up? Wait on the doorman. Materials delivery? Doorman. Lunch delivery? Well - you get the picture.
Set hours to work: Many condo buildings only allow construction between set times - typically 8am-4pm. This time constraint also includes moving materials to and from a truck to the unit - at this point you’re really only looking at a 9-3 work schedule. When working on single properties like a walk-up, Saturdays are our catch-up day - it’s a bonus. In condo buildings? Not a chance. You’re typically stuck with a strict Monday to Friday work schedule. Did we mention parking?
Set up and cleanup are awful: Some buildings may not have an elevator which makes walking up a number of stairs treacherous. If a condo building does have an elevator, you’re wasting valuable time there as well. Older buildings may have incredibly slow elevators that always seem to be under maintenance. Finally, you don’t have the ability to have an enormous dumpster for trash. You have to be meticulous about cleanup and haul your garbage to a downstairs area - some buildings also require that the hallway floors from the elevator to the unit be covered…time, time, time...money, money, money.
Single properties (family homes and walk-ups):
Pros:
Noise Noise Noise: Gut rehabs are a noisy process - especially demolition. Sledgehammers and saws can be deafening. The good news is, if you’re working outdoors, the noise won’t be in a confined space (like a condo). While some neighbors may be a bit annoyed by the construction, it’s nothing like at a condo. You have the ability to be much louder without major repercussions.
Space flexibility: Having an entire lot helps quite a bit when it comes to space - you can put tools in certain areas, and more importantly, have areas for debris. Sometimes people fail to realize just how much garbage is involved with a rehab. Having the ability to have it easily hauled off site is a HUGE bonus - it cuts down on, well, everything..
High-end projects: Some condo units have the ability to sell for millions of dollars, but they are few and far between. There are far more high-end opportunities when it comes to single family homes or walk-ups. Chicago is a very old city - many buildings date back to the 19th century and need to be updated. Chicago is also densely populated – there isn’t a lot of space to buy. So, an independent building on a lot of land is worth its weight in gold (quite literally). If you can invest hundreds of thousands of dollars in a property in Lincoln Park, Lakeview, or Ravenswood, then there will be different investors willing to spend hundreds of thousands to buy it on the back end. The margins are typically much better than a condo.
Cons:
Unseen property issues: When beginning to work on a property, I always expect the worst - and for good reason. A gut rehab can reveal awful things about a property - especially when working with an older Chicago home that may have been constructed 100 years ago. Code violations, termite issues, water damage - you name it, I’ve seen it. When it comes to a gut rehab, you never really know what you’re getting into until demolition begins.
Working outdoors: We’ve been lucky this winter - 30 degrees and sunny in January is a major win. Unfortunately, most Chicago winters aren’t like this - weather has the ability to dictate when we work. Two years ago when the polar vortex hit, almost all companies had to suspend construction on their properties. Even when a normal winter hits, you have to deal with the frozen ground which hampers any work on outdoor areas – there’s nothing like selling a flip with a rendering of the future patio.
Narrow lots and parking: While the ability to work outside and have free space on a property is great - Chicago lots are usually very narrow. You have to be incredibly calculated about what goes where, BEFORE construction. Make sure you have the right materials in the right place once framing begins. You don’t want to waste time having to move a truck to a back alley, then stress out about blocking neighbors. Finally, while you’re able to get parking permits for areas in front of the building, there may not be guaranteed parking nearby - so be careful when you have major materials delivered.
As you can see, both condos and walk-ups have major benefits and many detractors. We have a lot of experience when it comes to both property types and each are unique in their own way.
If you would like to learn more about prior projects, please visit our website at www.integro-rehab.com!