Chicago cap rates South Shore neighborhood

Multi-Family and Apartment Investing
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Chicago cap rates South Shore neighborhood

Brent Mattison
Homeowner · Chicago Heights, IL · Member since 2014 · 105 posts · 8 votes

I was wondering what the going cap rate is in the South Shore area. I have been looking at 6 unit buildings with 2 bedrooms and 1 bath.

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Mark Killion
Real Estate Broker · Chicago, IL · Member since 2010 · 33 posts · 33 votes
9y

I just did a quick analysis of closed transactions for South Shore Chicago.

I focused on Multi-Family Apartment Buildings only.

This was for sales that took place in 2016.

About 20 transactions closed on the MLS this year.

The estimated median Cap Rate was 10.9%

I estimated the Cap Rate by looking at the Gross Income.

I then assumed 50% expenses to get the Net Income.

I like doing this because some sellers may play with the expenses

to make them look lower than they really are.

Many feel that the 50% rule is a pretty good estimate of expenses.

Then I divided the estimated Net Income by the Selling price.

I arrived at a median Cap Rate of 10.9%.

So this should give you a good idea of where Cap Rates are in the

South Shore neighborhood. 

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  • Account Closed
    Investor · Chicago, IL · Member since 2016 · 105 posts · 58 votes
    10y

    Depending on the type of building, number of units, etc. we've seen cap rates anywhere from 8.5% to 11%.

    1Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    10y
    Originally posted by @Brent Mattison:

    I was wondering what the going cap rate is in the South Shore area. I have been looking at 6 unit buildings with 2 bedrooms and 1 bath.

    Much depends on the stability of the property. If it's stable then expect CAP Rates between 8 to 12%. Unstable then the CAP Rate will balloon to 20%.

    312-681-7487
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  • Brent Mattison
    OP
    Homeowner · Chicago Heights, IL · Member since 2014 · 105 posts · 8 votes
    10y

    Thanks for the information @Account Closed.

    0Reply
  • Mark Killion
    Real Estate Broker · Chicago, IL · Member since 2010 · 33 posts · 33 votes
    9y

    I just did a quick analysis of closed transactions for South Shore Chicago.

    I focused on Multi-Family Apartment Buildings only.

    This was for sales that took place in 2016.

    About 20 transactions closed on the MLS this year.

    The estimated median Cap Rate was 10.9%

    I estimated the Cap Rate by looking at the Gross Income.

    I then assumed 50% expenses to get the Net Income.

    I like doing this because some sellers may play with the expenses

    to make them look lower than they really are.

    Many feel that the 50% rule is a pretty good estimate of expenses.

    Then I divided the estimated Net Income by the Selling price.

    I arrived at a median Cap Rate of 10.9%.

    So this should give you a good idea of where Cap Rates are in the

    South Shore neighborhood. 

    1Reply
  • Yoseph Kalman
    Architect · Chicago, IL · Member since 2017 · 13 posts · 3 votes
    9y

    @Crystal Smith would you consider the property "stable" if it was moderately updated and  100% occupied with section-8 voucher holders?  

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  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    9y
    Originally posted by @Yoseph Kalman:

    @Crystal Smith would you consider the property "stable" if it was moderately updated and  100% occupied with section-8 voucher holders?  

    You can't get much more stable than 100% occupied w/ long term leases & guaranteed payments from section 8. This assumes that the rents are high enough to provide a positive cash flow after all expenses & PITI are covered.

    312-681-7487
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