Chicago suburb: My first investment

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Chicago suburb: My first investment

Sam Tomar
Investor · Bay area, CA · Member since 2017 · 9 posts · 2 votes

Hello all,

Since California RE is getting out of hand, I decided to do a small investment in Schaumburg/Hoffman Estate area. Can you please chime in if this is a reasonable investment in that particular part of Chicago suburb. My offer just got accepted, and deal expected to close by end of July.

Property type: Condo (3bd/2ba) 

Purchase Price: $145,000 (cash deal)

Rent: $1500/month

HOA+Taxes+Insurance etc : approx $750

School ratings are good.

Is this a good investment?

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Mark AinleyBusiness Member
Property Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
4y

@Sam Tomar both Schaumburg and Hoffman have rental license programs through that village so be sure to account for that. Also many HOAs have rental caps so be sure you know what that looks like. Feel free to DM me as we manage a unit now or in the past in almost every HOA between the two cities. Talk soon and know these are great areas.

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  • Ronaldo Marion
    Rental Property Investor · Arlington, TX · Member since 2022 · 21 posts · 9 votes
    4y

    @Sam Tomar 6.2% cap rate.

    0Reply
  • Ronaldo Marion
    Rental Property Investor · Arlington, TX · Member since 2022 · 21 posts · 9 votes
    4y

    @Sam Tomar i meant cash on cash return not cap rate

    0Reply
  • Eudith VacioPro Member
    Real Estate Agent · Chicago & NWI · Member since 2015 · 860 posts · 521 votes
    4y

    Hey @Sam Tomar - is there a reason you decided to go all in with only cash? Your cash on cash return as @Ronaldo Marion mentioned is pretty low at 6%. I try to aim for 15-20% on my deals. 

    In my humble opinion, I think there are waaaaaaayyy better deals out there, on top of the fact that HOA fees tend to rise especially if it's an old building, that or you may have special assessments.

    Either way, best of luck!

    1Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    4y
    Quote from @Sam Tomar:

    Hello all,

    Since California RE is getting out of hand, I decided to do a small investment in Schaumburg/Hoffman Estate area. Can you please chime in if this is a reasonable investment in that particular part of Chicago suburb. My offer just got accepted, and deal expected to close by end of July.

    Property type: Condo (3bd/2ba) 

    Purchase Price: $145,000 (cash deal)

    Rent: $1500/month

    HOA+Taxes+Insurance etc : approx $750

    School ratings are good.

    Is this a good investment?


    I will say it's a safe investment, not necessarily a good investment because of all the cash you ave tied up. Even if you attempt to get some financing on this deal and pull 70% of your cash out, your P&I payments will be around $780/month (calculated at 6% interest). When adding in the HOA, taxes, insurance... the property would have a negative cash flow at $1500/month. It will be a good investment if the expected appreciation is large and you can increase the rents.

    312-681-7487
    1Reply
  • Sam Tomar
    OP
    Investor · Bay area, CA · Member since 2017 · 9 posts · 2 votes
    4y

    Thankyou @Ronaldo Marion @Eudith Vacio @Crystal Smith for your feedback.

    I have been looking surrounding area around Schaumburg (since I have someone locally there) but I can't seem to find any good deals. Also, not all places with HOA allow rentals from get go. I'm not sure how much appreciation to expect as prices are all-time high now.

    Monthly HOA is around $435, and I have a feeling if it goes any higher, my property value will probably drop....and that's the biggest concern.

    Any insights into what to look into HOA docs that might be a red flag?

    0Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    4y
    Quote from @Sam Tomar:

    Thankyou @Ronaldo Marion @Eudith Vacio @Crystal Smith for your feedback.

    I have been looking surrounding area around Schaumburg (since I have someone locally there) but I can't seem to find any good deals. Also, not all places with HOA allow rentals from get go. I'm not sure how much appreciation to expect as prices are all-time high now.

    Monthly HOA is around $435, and I have a feeling if it goes any higher, my property value will probably drop....and that's the biggest concern.

    Any insights into what to look into HOA docs that might be a red flag?



    Over the past year Condo's have appreciate about 8% in Schaumburg.  Between 2020 & 2021 the increase was only 4.6%.  I'd use 4.6% for planning purposes.  Regarding HOA docs- Look for limits on the number of rentals, the HOA having any say in approving renters  or any say in evictions. You don't want the HOA in your business.  Also look for any special assessments coming up. 
    312-681-7487
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  • Travis Pirtle
    Investor · Schaumburg · Member since 2015 · 6 posts · 3 votes
    4y

    I know this doesn’t answer your question, but 1500 for a 3/2 in the Schaumburg area seems very low. I would think closer to 1750 minimum. 

    1Reply
  • Sam Tomar
    OP
    Investor · Bay area, CA · Member since 2017 · 9 posts · 2 votes
    4y
    Quote from @Travis Pirtle:

    I know this doesn’t answer your question, but 1500 for a 3/2 in the Schaumburg area seems very low. I would think closer to 1750 minimum. 


    I agree, but that's what current tenant is paying who signed the lease last year.
    1Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    4y

    @Sam Tomar you purchased a town home in a B+ or A- type of area, and this will be a very solid investment. You will need to raise rents as the tenant likely is $300 or more under market value in terms of the rents. I think you do these types of deals all day long. As others have said, I would put debt on the property, so you don't tie up all your liquidity in one town house. 

    2Reply
  • Paul De Luca
    Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
    4y

    @Sam Tomar

    You can achieve higher returns with that money by using debt and that way you could buy more properties. That is a fairly low CoC and could be perceived as "lower risk" but the risks are just different such as HOA assessment could increase, possible special assessments, and rental restrictions. I don't think it really matters if the property value dips in the short term. I would think you would be more concerned with the cash flow.

    0Reply
  • Nicholas MischPro Member
    Investor · Broadview Hts, OH · Member since 2016 · 310 posts · 280 votes
    4y

    I am not an expert on Chicago, though I love the windy city. Cleveland may be a great place for your next investment. 

    0Reply
  • Sam Tomar
    OP
    Investor · Bay area, CA · Member since 2017 · 9 posts · 2 votes
    4y

    Thankyou @John Warren @Paul De Luca !! Plan is do cash out refinancing in next 3-6months after taking the possession. Do you guys see any issue?

    0Reply
  • Mark AinleyBusiness Member
    Property Manager · Roselle, IL (Chicago Suburb) · Member since 2013 · 2k+ posts · 1k+ votes
    4y

    @Sam Tomar both Schaumburg and Hoffman have rental license programs through that village so be sure to account for that. Also many HOAs have rental caps so be sure you know what that looks like. Feel free to DM me as we manage a unit now or in the past in almost every HOA between the two cities. Talk soon and know these are great areas.

    [email protected]630-781-6744Podcast Guest on Show #72
    GC Realty & Development LLC4.61066 Reviews
    WebsiteView Page
    2Reply
  • Paul De Luca
    Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
    4y
    Quote from @Sam Tomar:

    Thankyou @John Warren @Paul De Luca !! Plan is do cash out refinancing in next 3-6months after taking the possession. Do you guys see any issue?


     Are you doing rehab to the unit?

    0Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    4y

    @Sam Tomar I think you made a solid investment. It would be good to have your gameplan down for management, and @Mark Ainley would have been my next call either way. 

    0Reply
  • Michael K.
    Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes
    4y
    Quote from @Sam Tomar:

    Hello all,

    Since California RE is getting out of hand, I decided to do a small investment in Schaumburg/Hoffman Estate area. Can you please chime in if this is a reasonable investment in that particular part of Chicago suburb. My offer just got accepted, and deal expected to close by end of July.

    Property type: Condo (3bd/2ba) 

    Purchase Price: $145,000 (cash deal)

    Rent: $1500/month

    HOA+Taxes+Insurance etc : approx $750

    School ratings are good.

    Is this a good investment?


     Looks reasonable at first glance. What kind of financing are you bringing?

    0Reply
  • Sam Tomar
    OP
    Investor · Bay area, CA · Member since 2017 · 9 posts · 2 votes
    4y
    Quote from @Mark Ainley:

    @Sam Tomar both Schaumburg and Hoffman have rental license programs through that village so be sure to account for that. Also many HOAs have rental caps so be sure you know what that looks like. Feel free to DM me as we manage a unit now or in the past in almost every HOA between the two cities. Talk soon and know these are great areas.

    Will reach out to you once I get closer to the closing date. I'm still waiting for HOA docs to check on rental restrictions and other details.
    0Reply
  • Sam Tomar
    OP
    Investor · Bay area, CA · Member since 2017 · 9 posts · 2 votes
    4y
    Quote from @Paul De Luca:
    Quote from @Sam Tomar:

    Thankyou @John Warren @Paul De Luca !! Plan is do cash out refinancing in next 3-6months after taking the possession. Do you guys see any issue?


     Are you doing rehab to the unit?

    @Paul De Luca no rehab is needed. Tenants are currently in place and are willing to stay.

    0Reply
  • Sam Tomar
    OP
    Investor · Bay area, CA · Member since 2017 · 9 posts · 2 votes
    4y
    Quote from @Michael K.:
    Quote from @Sam Tomar:

    Hello all,

    Since California RE is getting out of hand, I decided to do a small investment in Schaumburg/Hoffman Estate area. Can you please chime in if this is a reasonable investment in that particular part of Chicago suburb. My offer just got accepted, and deal expected to close by end of July.

    Property type: Condo (3bd/2ba) 

    Purchase Price: $145,000 (cash deal)

    Rent: $1500/month

    HOA+Taxes+Insurance etc : approx $750

    School ratings are good.

    Is this a good investment?


     Looks reasonable at first glance. What kind of financing are you bringing?

     

    @Michael K. so per the offer, it's a cash offer w/ option for loan. I can close using the cash on hand, and then do a cashout refinance later. I'm also thinking of getting a HELOC on my primary home, and I might just end up using HELOC (@4.75%) to finance the deal.

    0Reply
  • Michael K.
    Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes
    4y

    @Sam Tomar does the property have some sort or defect that would make it difficult to get conventional financing? Or are you already maxed out on conventional loans? I think right now might be a good time to keep some cash reserves. Stock valuations are looking better and may fall even further, and it doesn’t appear that real estate valuations will be making any large downwards moves in the foreseeable future.

    0Reply
  • Sam Tomar
    OP
    Investor · Bay area, CA · Member since 2017 · 9 posts · 2 votes
    4y
    Folks, I have been debating if I should spend $450 on inspections? This is a condo on 3rd (top) floor. Other than kitchen appliances, there is no other appliances to inspect. No water heater, no heat furnace inside the unit to inspect. Water heater/furnace/Coin laundry are maintained by HOA.

    Current tenants are living there for last 1 year, and kitchen appliances are in functional condition. They are not brand new but functional. Bathroom plumbing/toilets all are working fine.

    Is there something that might become a bigger issue later on if not inspected and corrected now?
    0Reply
  • Sam Tomar
    OP
    Investor · Bay area, CA · Member since 2017 · 9 posts · 2 votes
    4y
    Quote from @Michael K.:

    @Sam Tomar does the property have some sort or defect that would make it difficult to get conventional financing? Or are you already maxed out on conventional loans? I think right now might be a good time to keep some cash reserves. Stock valuations are looking better and may fall even further, and it doesn’t appear that real estate valuations will be making any large downwards moves in the foreseeable future.

    @Michael K. Conventional financing option is also open. I agree that it's time to have some cash in pocket. There will be some good opportunities in next 1-6 months in California also as market has started to slow down here. Do you think Chicago metro RE market is also showing signs of slow down?

    0Reply
  • Michael K.
    Investor · Chicago, IL · Member since 2018 · 352 posts · 176 votes
    4y

    @Sam Tomar based on my own experience (and looking at macro data) It looks like we’re experiencing a slow down. Higher rates have caused prices to stop rising - but have yet to send them in the other direction. We’re still at historically low inventory, so it’s hard for prices to drop all that much with such limited supply.

    0Reply
  • John Warren
    Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
    4y

    @Sam Tomar I would at minimum have someone walk the unit to verify condition and make sure there are no active leaks, etc. Actually, doing an inspection in some condos may feel like a waste of money. If you aren't planning to negotiate based on findings, then use your best judgement. 

    0Reply
  • Paul De Luca
    Real Estate Agent · Chicago, IL · Member since 2018 · 1k+ posts · 1k+ votes
    4y
    Quote from @Sam Tomar:
    Folks, I have been debating if I should spend $450 on inspections? This is a condo on 3rd (top) floor. Other than kitchen appliances, there is no other appliances to inspect. No water heater, no heat furnace inside the unit to inspect. Water heater/furnace/Coin laundry are maintained by HOA.

    Current tenants are living there for last 1 year, and kitchen appliances are in functional condition. They are not brand new but functional. Bathroom plumbing/toilets all are working fine.

    Is there something that might become a bigger issue later on if not inspected and corrected now?

    Considering you may own the condo for a while it could be worth it to spend the money. Without an inspection it is possible something could get overlooked and cause you problems down the road. Tenants continue to live with problems in their units all the time, although they may be more like minor inconveniences.

    0Reply
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