Would this be a good Buy for a Newbie

Buying & Selling Real Estate
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Would this be a good Buy for a Newbie

Cenddie Alaban
Chicago, IL · Member since 2017 · 61 posts · 15 votes

My Strategy is Buy and Hold a Duplex in which I plan to live in one and rent the other (if I can afford it); and my niche is an area within 50 miles from O'Hare International Airport, Chicago, IL. It took me months before I found a property which satisfy my criteria. The property is at Tinley Park, IL. It has 3 beds and 2 baths on the second floor, 5 beds and 2 baths on the first floor which is duplex to the basement. Total square footage is 2,770, sitting on a 5,095 sq ft lot. It was built in 1979. It has an 8 year old roof. Current owner pays $167/ month for insurance, $100/month for water and $55 per month for scavenger. Rent total is $2,850. The list price is 250K and I offered 210K which the owner accepted. This is a short sale and according to my agent it will take for the bank to decide 3-6 months if they gave it to me or not. I'm going to send the escrow money today but I have a lot of doubts;

1. My rental property calculation shows that at $210,000 purchase and 15% down, the Monthly cash flow is -$94.73 and Cash on Cash ROI is -2.64%. On the other hand, at 20% down, the Monthly cash flow is $76.64 and Cash on Cash ROI is 1.72%.

2. The seller seems to agree with my offer so quickly.

3. Although the Duplex is just 37 minutes away from work, it would take me one hour and 15 minutes to travel per google maps.

4. I started investing without a team; real estate agent, inspector and attorney. So I have to look for an attorney and inspector today since we signed the offer agreement last July 15, 2017 and because my coworker told me not to hire the ones my agent recommended.

So, should I buy this property or not? Your advise is highly appreciated.

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Jeff Valentino
Residential Real Estate Broker · Winston Salem, NC · Member since 2011 · 345 posts · 120 votes
9y

Hi there @Cenddie Alaban I'm pretty sure I know the area of Tinley you are looking in. Here are a few points to consider-

It sounds like the current owner has it as an investment and doesn't live there right? If you plan on living there you will get a homeowners exemption on your property tax which will help your cashflow numbers. Especially with how high taxes are in Tinley.

So you trust your co-worker more than your agent when it comes to choosing people on your team? Can I ask why? 

Part of a good agents job is to make sure the transaction goes smoothly, and to take some of that burden off of you. Your agent should have multiple good recommendations that they have worked with in the past. It's much easier than just googling people and hoping you get a good one imo. 

Did your agent give you rental comps to show what you could get in rent? Did you see purchase comps to come up with your offer, or how did you come up with it?

If the owner is under financial hardship, that would explain why they took your offer so quickly. 

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  • Cenddie Alaban
    OP
    Chicago, IL · Member since 2017 · 61 posts · 15 votes
    9y

    @ Crystal Smith it could be the rate. According to my agent, this area is at the high end for rentals.

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  • Cenddie Alaban
    OP
    Chicago, IL · Member since 2017 · 61 posts · 15 votes
    9y

    @David Faulkner Thank you for making time in giving your opinion. Yes, I think you're right, this might be a moot point. With the improvements the seller has made, my current estimate of the property is $30,000 above listing price and I offered $40,000 below the asking price. The likelihood my offer will be accepted is low.

    I listed the comps as a response to Jeff Valentino's advice.

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  • Cenddie Alaban
    OP
    Chicago, IL · Member since 2017 · 61 posts · 15 votes
    9y

    Hi @Mindy Jensen, So this one of the reasons why similar houses that are next to each other have different prices. Please don't apologize, I know how busy you are. Thank you for the information, I'm one more rung smarter now. 

    The inspection showed a normal wear and tear of a used house (being not a new house) but I still will negotiate for a 10K lower price.

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  • Rick Pinney
    Melrose Park, IL · Member since 2017 · 49 posts · 15 votes
    9y
    Cenddie Alaban it looks like your numbers are using the 50% rule. Do you have a reserve that you will be using to account for CapX? Do you plan on maintaining the property yourself or are you going with a property management company? I am closing a duplex in Melrose Park and have my home owners insurance down to 125$ a month with very good coverage. What I did was run the numbers with myself paying rent. I also filed an appeal for property taxes since the appraiser came off with a number I was happy about initially. Property values have increased In cook county and in order to get home owners exemption you must file it this year if you want it for the 2018 year. For melrose park deadline is Aug 14th I would look into this. I am conservative and with my numbers I will be at 1.4% rule currently. Yet I am also gaining 35k in equity right off the bat and after I force some equity should be able to sell for around 150k profit. (Lots of work but not too much in materials) Are you planning to hold for more than two years? One thing that can also make a deal sweeter is talking to your CPA and planning out tax strategies to take a loss on your personal income. It may be able to offset some of your numbers yet I do not take it into my calculations. If you work in the city think about public transportation if you are up for it. I saved 600$ a month for a year with no car. I have a budget that is down to the dollar now and my personal budget vs conservative expected once I take possession on the 1st. If you have any questions feel free to DM. -Rick
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  • Rick Pinney
    Melrose Park, IL · Member since 2017 · 49 posts · 15 votes
    9y
    Cenddie Alaban if I wanted to take reasonable rents I can get a 1.98% rule once I rent both sides out. It is possible even here in Chicago, yet a bird in the hand is worth two in the bush.
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  • Cenddie Alaban
    OP
    Chicago, IL · Member since 2017 · 61 posts · 15 votes
    9y

    Hi @Rick Pinney Thanks for the many tips. I'll try to bring down the insurance thru homeowners insurance - that's a great idea!!! I also read somewhere in BP about Tax Strategist, I will look into this. Thanks for letting me know about the possible deadline in Tinley Park, I'll look into this also. 

    I initially thought that this is a good property for appreciation, but it looks like it would be an average. However, these are all my guess. I will not know if I won't push thru. I will know in three weeks if the Seller's Lender will accept my offer for this short sale.

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  • Rick Pinney
    Melrose Park, IL · Member since 2017 · 49 posts · 15 votes
    9y

    @Cenddie Alaban good luck!!! And it has been said by many, but you make your money when you buy, not when you sell. 

    And like I said I am conservative, I don't want to speculate on appreciation, until I know that it won't be the factor that makes or breaks the deal. 

    Keep us all posted! 

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