So I have been looking at properties on RedFin for about 2 years. I have no real estate experience. But I am close to 100K saved up.
I notice that in poor/rough neighborhoods, like the West side of Chicago, properties are much cheaper, yet the rent is roughly the same as in good neighborhoods given similar conditions. I assume that the only people who are buying these properties are investors and not the residences who actually live there, hence the lack of buyers presses the prices down.
Hence that is where I am targeting my first property.
I am targeting:
* 3-4 unit building
* West side of Chicago
* 200-250k price
* 10% down payment
* No property manger; self manage except when I need to fix things
Based on the above profile, the rent that I see in the RedFin postings usually are around 3000 per month total. On 10% down, the principle, interest, taxes, property insurance, and mortgage insurance usually totals to around 1500 per month.
So according to my math, I estimate that I need 500 more per month to cover maintenance, vacancy, eviction, water, garbage, umbrella insurance, etc.?
So I come to a final figure of 1000 net profit per month based on the above situation.
Is this roughly correct?
Is it too optimistic?
How far west are you looking? If you have sub par tenants then you’ll have to figure in higher costs such as longer periods of vacancy and possibly the headaches involved
East Garfield Park, North Lawndale, etc.
Jun, There are great cash flow opportunities on the west side. The tenant base can be challenging to manage, but the potential for high net cash flow is there. It depends on how much uncertainty you can tolerate.
If you're considering these west side areas, I'd recommend looking into owning section 8 rentals. Section 8 housing vouchers will pay over market rent. And likely get you close to the $3000 gross rent per building you mentioned.
I have some experience with these kind of rental properties in sub par neighborhoods. Message me if you wish
@Jun Zao I think you're either being too optimistic, or you're planning to gut the entire place before moving any tenants in, requiring more capital upfront. The buildings in that area are largely much older homes, requiring more maintenance. Old plumbing leaks, boilers need repair, that's not even taking into consideration the cost of bigger jobs, such as a roof, tuck pointing, water heater or boiler replacement, and tenant flips (paint, carpet, etc). Also, who's going to cut the grass and shovel the snow?
If were to tell me that your budgeted $1000/month for expenses I'd still say that you're on the low end, but much closer to reality.
You're on the right track, just keep hammering out the details. 🔨 🔨 🔨