Deal or no deal? What am I missing?
Hey everyone,
I just put under contract a 2- flat building in the Chicago area. This is a class C neighborhood. Can you please give me some advice and criticize my analysis below? The first unit is renting for 700 (long term tenant). The second unit will be rehabbed. Each unit is about 850 SQ .
Are my numbers being conservative? There were very few comparables that I was able to find. And some of them were cash deals so I decided to value the deal using the cap rate formula. Please let me know what are your thoughts on this:
| Investment | ||
| Property | 35,000.00 | |
| Rehab costs | 20,000.00 | |
| Closing costs | 2,500.00 | |
| Inspection | 500.00 | 76,133.33 |
| Total investment | 58,000.00 | |
| ARV based on cap rate formula | 76,133.33 | Class C neighborhood: 12 % Cap rate, NOI: 9,136 |
| Equity available | 0.238178634 | 1-(b31/b33) |
| Income | Monthly | Yearly | Assumptions |
| Annual Gross Rent, first year | 1,500.00 | 18,000.00 | Unit 1 renting for 700. Unit 2 can rent for 800 based on market rentals |
| Vacancy | 150.00 | 1,800.00 | 10 % vacancy rate |
| - | |||
| Operating Income | 1,350.00 | 16,200.00 | |
| Expenses | |||
| Property Taxes | 191.67 | 2,300.00 | Based on cook county tax records from the last 3 years |
| Insurance | 100.00 | 1,200.00 | 7 % (Need to do more research) |
| Management fees | 135.00 | 1,620.00 | 10 % of operating income |
| Maintenance | 94.50 | 1,134.00 | 7 % of operating income |
| Water | 67.50 | 810.00 | 5% (need to do more research) |
| - | |||
| Operating expenses | 588.67 | 7,064.00 | |
| Net performance | |||
| Net operating income | 761.33 | 9,136.00 | |
| Debt service (Heloc 3.5 %) | 175 | 2100 | Heloc rate at 3.5 % |
| Cash Flow | 586.33 | 7,036.00 |