Analysis of deal

[Isabel Rao]

Hello: 

I am under contract for a 2u, 2B1Bath multifamily in Avondale/logan square. Currently it's 340k but needs 160-180k of repair(estimate given by HUD consultant) Will probably need 50k to build out the attic in addition so I can duplex it up. Other buildings in area have sold for 650-700k but I am estimating mine to be 625-650k because it doesn't have a parking spot/garage.

rents likely will be 2k each unit without attic. With attic 3k + 2k. There’s potential for airbnb. 

Basement is too low to build a liveable space, house sits on the back of the lot so no ADU can be build in front.

Is it a good deal or should I walk away from it? It has been difficult to find deals in the Chicagoland area. 

[Alex Morales]

Let me run through the BRRRR math on this one.

All-in estimate with attic: $340k purchase + $180k rehab (high end) + $50k attic = $570k total invested. Your ARV at $625k without parking seems reasonable if comps with parking are going $650-700k.

If you refinance at 75% ARV: $625k x 0.75 = $468k loan. That leaves roughly $100k of your capital still in the deal after refi. For a true BRRRR where you want to recycle most of your cash, that's a lot left behind.

On cash flow with the attic buildout at $5k/mo gross: After PITI on a $468k loan at current rates (call it 7-7.5%), you're probably looking at $3,200-3,400/mo debt service. That leaves $1,600-1,800 before expenses. After vacancy, maintenance, CapEx reserves, and Chicago property taxes which are brutal, you might clear $800-1,000/mo positive. Not bad, but not amazing either.

A few things I'd verify before moving forward: First, get a GC walk-through in addition to the HUD estimate. HUD consultants are great for loan purposes but an investor-focused GC might catch things they missed or have different pricing. Second, confirm the attic conversion is permitted under Chicago zoning. Adding habitable space in Avondale can be tricky depending on your lot coverage and setbacks. Third, double check your rent comps are based on actual leased units, not just asking rents.

If the numbers don't tighten up after deeper diligence, there might be better opportunities out there. But if you can negotiate the purchase price down or the rehab comes in lower than estimated, it could work. What's your situation on financing - are you going 203k or hard money for the initial acquisition?