What is a good deal?

2 Replies

Hello I am Mark. I live in Chicago IL, on the south side. I want to be a real estate investor and make this my second income / business as a long term goal.

I want to start out with a owner/ occupied tri plex or fourplex. I read many books on real estate including the biggerpockets books. 

I have a question, and that is what is considered a good deal for a triplex / fourplex in the Chicago area ? ( $100,000 a unit )?

I see many ranging from $315,000 to $400,000. I wouldn't mind working on it and improving it myself. 

Obviously with the rental property calculator I can analize the deal. 

Should I just shoot for 8- 10% Cash on Cash return?

$200 a month per unit in net profit ? 

I would be paying 20% down on a property to avoid PMI/ MPI

I don't mind the area that much as long as its safe, clean, and functional building.

Some areas that come to mind are Berwyn IL, Archer Heights,  La grange, Bridgeview , Stickney, and any other areas. Anything around Midway Airport and within 35 mile radius or so.

Also, Is there a way to find out which zip-codes have the lowest property taxes ?

What would typical expenses be on a triplex ?

Insurance 

Water/ Sewer

Garbage

Thank you so much. 

@Marek Javorek Great question but very relative. Will depend on exact area and location.

1) to help answer the question better, I would analyze the deal as if you weren't living there.

2) I personally look for 12%-15% CoC return minimum and min. $400/door in cash flow.

3) I know some folks who just purchase a 6-unit around 40th/Wabash for $425K off the MLS. So I think $100K per unit is very high.

4) If you are looking south of 60th and east of state street, your ARV sounds realistic ($400K range). You will need to buy a value add opportunity for a better all in price.

5) I love the MDW area, esp east side by the orangeline. You wont find a 4-flat, maybe a 3flat for $400K. Try east against the lakefront like Bronzeville. Brighton Park is a upcoming area as well.

good luck!

@Marek Javorek I work in some of the areas you have mentioned (Berwn, La Grange and Stickney). In these areas, most of my clients are looking to spend a maximum of 250-275k on a 3 unit. I haven not met any investors who have been successful in "A" class areas like La Grange, but I have a lot of investors who buy in Berwyn, Forest Park, Stickney, Lyons or Brookfield. A lot depends on the utilities setup as some of these buildings have heat separated out, while others have a central boiler heating system. 

I would also encourage you to reach out to a lender to discuss loan options. Putting down 20% may seem "conservative", but avoiding PMI will not necessarily help you maximize your cash on cash returns. Keep in mind that your tenants pay your debt. As long as you have healthy cash flow, it won't matter if your tenants are paying your PMI for a while.

Feel free to PM me if you want to chat more offline.