Too good to be true pro-forma?

Question

Feedback appreciated. The property is at 10111 S Ave. L, Chicago IL. 35% IRR with 0 appreciation projected seems almost to good to be true or am I just used to north side? Comps show as-is rentals $900 and rehabbed $12-1300.

I have driven this neighborhood and it has low crime for the southside by calumet park. East side chicago. 4 units 3brs and 1 garden. I normally run analysis on nice neighborhoods on the northside with low caps. Am I way under on vacancy or operating expenses for south side? Being so close to Indiana I assume cheaper labor can be sourced for repairs, correct? The units are usable shape/rented right now but interior is not shown.

I did 7.5% interest as I plan to use velocity mortgage due to difficulty proving business income.

P.S Not personally ready just yet to make the jump so if anyone else is interested I can open door for you or do skype showing for out of towners. Would be happy to meet some fellow bigger pockets members. Also ignore the 3257 n ridgeway old address forgot to take off the DCF.

Scott Steffek · Answer

Henry,

I did some quick calculations and it's look as though your cash on cash return is over 16%. That's a good CCR. Obviously I don't know what kind of shape the building is in, but $32k in rehab doesn't go far with a 4 unit building. However,  if you were to increase the rehab costs by $20k, you're still coming out with a 14.87% CCR. Your expenses look reasonable, but who will take care of the lawn in the summer? Who will do the snow shoveling? Who pays for garbage? Are the tenants paying all of the utilities? Who's paying the common area electric bill? Usually in Chicago, the landlord pays for the water.  So these expense need to be added in.  Your maintenance costs are 7% and typically, that's not enough, IF you have to pay the above mentioned items. However, if you add $2400 a year to maintenance, these other bills should be taken care of and your CCR is a respectable 13.46%. As far as cheaper labor, not really. My Indiana based contractor increases his price when he rehabs in Illinois, because of the additional costs involved to him. You might be able to save a little bit on costs, but not much. Best of luck.