Estimating Costs in Chicago rentals

5 Replies

Hi BP,

I'm new to the community and just wanted to thank you all for being so open and generous with sharing information. I have spent a lot of time exploring the site and forums, and have already learned a ton and gained some really good insight into the Chicago market. 

In the next 6 months or so I plan to start buying 2-4 flat units in certain areas of Chicago, rehab them and either sell or refi-hold. To get started, I've been putting together my own spreadsheet to pro forma deals. One thing that I've had trouble pinning down is cost for purposes of coming up with an accurate NOI. I've read about the 50% rule but I tend to think this may be underestimating true cost.

Do you all have any other better methods or advice?

Thanks!

@Ross Cosyns

There're a lot of factors involved, and ultimately they're all projections. 

Factors include

Condition of the building

Quality of the rehabs (if it's TK)

Quality of the tenants (section 8 or market tenants), better areas usually lead to better tenants

If you feel 50% is low, go higher in your calculations says 60% - 65%. Some of the podcasts mention that costs of MF are closer to 60% expenses. 

@Ross Cosyns

I agree with Chris, there are a ton of factors...  If you are doing a rehab on it, then your expenses will be pretty low once it is done.  On my Chicago rentals my expenses are less than 25% for my stuff that is already rehabbed.

Depending on where you are buying, vacancy can be 3% - 50%

If everything is new then repairs and capex will be pretty low, but I would still put in 5% and 3%

Water is about $400/unit

You should know the taxes and insurance is around $2000 for a $500k property

@Brie Schmidt @Chris T.

Thank you for the responses! My plan is to stick to nicer areas versus rougher and don't plan on participating in any voucher programs.

Brie, that is exactly the type of info I was looking for. Basically I'm trying to come up with an ARV and to do that I need an assumption for expenses. Maybe 50% is on the safe side after all.

Thanks!

@Ross Cosyns - Your ARV is one thing and it's value as a rental is another. You could have a property that will leave you will $100k equity and break even vs a property that will give you $25k equity and cash flow $500/mo. Run each analysis separately and look at the pros and cons

Multis in Chicago can be very complex.  A good agent should know the numbers off the top of their head depending on the property.  

It's definitely important to have a good Realtor run the comparisons for you if you are planning on buying and flipping and also run comparisons if you are buying and holding. Principal, interest, taxes and insurance is different for everyone and for each property so it's important to know that number,then consider your expenses, and of course your rental prices to determine more of an accurate NOI.

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