United Mechanic Builds Rental Empire, Keeps Day Job

In 1990, Jeff Coleman was 21 and just starting out as an aircraft mechanic for United Airlines when he saved a $4,500 down payment to purchase his first home for $120,000 in Calumet City.

It was a small two-unit, fixer-upper he bought for his family under a first-time homebuyer FHA program "that put a roof over our heads," and offered a sense of security against the threat of company layoffs. That bare-bones plan took off when Jeff got the idea that he could leverage his modest investment to build wealth in real estate.

Today, Coleman is rich -- at least on paper. Over a 20-year period, he has amassed more than 220 rental units in a dozen buildings mostly on the South Side. Some of the properties were once abandoned eyesores that languished for years in undesirable neighborhoods. Now, they're worth millions.

"I started out to do this in case the bottom fell out of things," Coleman said. "We did most of the work ourselves -- fixing toilets, broken plumbing, drywalling and painting. Once we got the buildings up and running, business was good."

Jeff is among many bootstrappers building wealth in Chicago neighborhoods. Bootstrappers, as defined in author Seth Godin's book, Bootstrapper's Bible, are resourceful, entrepreneurial types who get ventures off the ground from scratch with less money, more smarts and fewer connections than other folks. Their winning edge is focus. They also work their butts off.

"Bootstrappers built this country starting out with nothing and a good idea," Godin said. "They are in it for the long haul. Surviving is succeeding. The journey is the reward."

The rewards of being a Chicago landlord are expected to continue to meet the demands. In Chicago, 57 percent of residents are renters, according to Judy Roettig, executive vice president of the Chicagoland Apartment Association, whose 300 members own or manage 130,000 rental housing buildings in the metro Chicago housing market.

"Not only is Chicago a rental town, it is a city of small rental buildings that make up the neighborhoods. Rental housing is a very strong element of every community," said Roettig, whose members' rental buildings are usually nine units or less.

Overall, two-thirds of the city's rental buildings have fewer than 50 units. "The high-rises, while very visible and part of the city's architectural landscape, are the exception," she says. "Many people purchase small rental buildings as a way of having a stable place for themselves. [They] understand the investment value. It appreciates and allows them and their children to certain level of financial security." Roettig says the exact number of rental property owners is elusive since so many properties are held in trusts.

Chicago's style of bootstrapped real estate has its roots among Eastern European immigrants and African Americans, some of whom came from humble beginnings and worked their way up from being janitors to being landlords to operating real estate companies. They endured the ups and downs and often bought in troubled neighborhoods with low property values. In some cases, they are leading the way for more affordable rental housing.

"Real estate is the perfect bootstrapping system for many people," said Tom Jackson, senior loan officer for the Community Investment Corporation, an Illinois not-for-profit mortgage lender that provides financing to buy and rehab multifamily apartment buildings in depressed neighborhoods. They're at work in Austin, Uptown, Edgewater, and on the West and South sides of Chicago.

"Many property owners have strong ties to the community and are very hands-on," Jackson said. "They understand the mechanics of their buildings and usually do their own work themselves or work alongside subcontractors."

In the residential rental market, property owners generate income from markups on rents, which typically must exceed expenses for the venture to be profitable. They accrue equity from increased real estate values and leverage that to purchase other properties.

Coleman's pride and joy is a once-abandoned 15-unit rental building that he and partner Heath Ballard purchased for $150,000 seven years ago at 89th and Ada on the South Side. It's now a gem of the community and lists for $900,000.

While they've earned the sweat equity, they continue to keep their jobs at United Airlines. "There's a difference between being a real millionaire and being rich on paper," Coleman said. "You don't get paid until you cash in at the closing table to collect on the sweat equity."

Coleman's strategy was to tap equity from smaller properties, and borrow from friends, family, private investors and partners, and go to special financing programs for community development, like CIC. He also cashed in a portion of his 401(k) to secure and rehab larger buildings.

There's also risk in owning real estate, he admits.

"When I bought the four-unit at 73rd and Michigan, it was more of a headache than you can imagine," he said. "The eight-flat was my introduction into the big leagues. At $225,000, I had to borrow from everywhere to come up with the 20 percent down payment -- about $40,000. I almost bankrupted my family. My brother thought that it was way too much work. But the building later started putting out $800 to $900 a month income -- and that was cool. My brother has since quit his job to manage our buildings."

With 200 rental units in 11 residential properties on the West Side, businesswoman Johnnie Herron is passing on a legacy to the family's next generation. All three children -- Melanie, 50, Lori, 38, and Lawrence Jr., 48 -- are actively involved in the property management enterprise she began with her late husband more than a decade ago.

"They have caught the gene," Herron said. "The buildings are something the children can perpetuate and work for themselves."

The Herrons initially dabbled in real estate to supplement their regular 9-to-5 jobs. She was a corporate sales manager; her husband, Lawrence, a Chicago police sergeant. They also owned a restaurant and convenience store. During an "ah-ha" moment, they tapped each other on the shoulder. "We realized that we were spending more time on our jobs than building something." They began concentrating on restoring distressed properties and providing more affordable housing. "My husband and I were both dreamers. We saw what was and envisioned what it could be."

"We were concerned that in a few years, the people who live here were not going to be able to stay here unless people like me staked a claim and dug in," she said. "We knew that the cost of land and property would soon mirror that of the North Side."

The Herrons upgraded 1-, 2- and 3-bedroom units, ranging from $680 to $950, and they gained a good deal of satisfaction from helping families to remain in the community. Her strategy: "Make each building earn its worth. At the end of the day, does the property serve a purpose? If yes, it's a good day," she said.

Tracey Robinson-English is a Chicago-based freelance writer.

TIPS FROM PROS:

Property owners advise wannabees to seek professional consultants and develop a plan with long-term and short-term goals. Be careful not to pay too much for property and don't underestimate the amount of rehab. It tends to always be more than you expected. "It's a fallacy to think that one good piece of property will take care of you," said Johnnie Herron, owner of Herron Development Co. on the West Side. "There is a cost of maintaining property and holding it, especially when it goes vacant or when tenants do not pay the rent."