Does the 2% rule apply to North Lawndale, Chicago IL?

Question

City: Chicago, IL

Neighborhood: North Lawndale

Neighborhood profile: low income, high crime

Property type: rental

Units: 7+

Monthly rent income: $7000+

Does the 2% rule apply to properties with this set of characteristics?

John Warren · Answer

@Jun Zao if you don't know North Lawndale just be careful.  Many of my west suburban investors get excited about the low entry prices in some of the tougher neighborhoods on Chicago's west side, but just make sure you have visited the neighborhood and feel comfortable. 2% may actually not be enough. I just was in a presentation from a gentleman who owns 600 units in North Lawndale, Austin and West Garfield Park and he said his portfolio is currently running at 13-14% vacancy. He also mentioned that he almost hit 40% vacancy during the crash and he barely made it through. This is coming from someone who is a real pro with 40 years of experience.

Matthew McMahon · Answer

There are alot more inputs needed to calculate 2% rule. Go to the TOOLS tab on biggerpockets and click Rental property. It is a great tool to calculate monthly income, expenses, cash flow, NOI, cash on cash ROI, and cap rate, and income-expense ratio (2%). I do not do commercial real estate but for residential real estate a 4 unit building in North Lawndale has a median sold value of 325k, lowest price being around 100k and highest being around 400k. Average 2 bed rent in North Lawndale is $900 and average 3 bed is $1200. There is potential if you can find a property at a discounted price.