Is the revenue enough?

Question

After a harrowing battle with the bank to get a modification on a rental prop, they finally came through...Or did they? Bought the house as a flip that flopped in 08 and paid 260K. Current value is about 150k and it brings in $1900mth in rent. The bank modified the terms from 30 to 40 years at a locked 3.5%. The current mortgage + taxes are $1700 so there is about a $200 upside. Is the cash-flow enough to support this as a deal or not? Would love to hear some thoughts as my partner is ready to short sale the home as he thinks there are not enough funds for repairs when needed. I would love some advice or thoughts out there...

Thanks

Michael Seeker · Answer

It sounds like the property is probably assessed closer to 260K than to 150K.  If that's the case, it'd be worth it for you to contact the county assessor and work on them to lower the assessment.

As @John Horner mentioned, you probably shouldn't be paying $4300/year for insurance either.  In addition, your payment with escrow is about $1800, not $1700.  You'll definitely be losing money on this place over the long haul.  The first two things I would do would be to call the tax assessor and get my tax bill lowered, then call around to insurance companies and get insurance lowered.  You'll have to insure it for $260K, but that should not run you $4300/year.

Account Closed · Answer

I would suggest as a start, to challenge your assessment. You can look up all the information on a property at: http://www.cookcountypropertyinfo.com/Pages/PIN-Search.aspx

Then I would suggest bringing in the tax appeal expert on your side. That is Andrea Raila in Cook County. http://railaandassociatespc.com/

Brie Schmidt · Answer

@Sean Blanton where in Chicago is the property located?

Elizabeth S. · Answer

$200 is a tight profit. Do you and your partner need to take a profit or can you just let the money pile up? Are there any foreseeable repairs that need to be made in the next 1-2 years? Is the unit easy to rent?

There are a lot of factors that make this a deal or not. Hopefully some of the questions above will help to point some of those out. In response to someone else, I would check on your insurance coverage. Can you get insurance somewhere else for less and if you're covered at the highest limit, is there any room for less coverage that is still safe?

Best of luck with this!

John Horner · Answer

At $260k it is going to take you 23 years just to get back to even, and your partner is right, $200 won't be enough to cover Management, Maintenance, Repair, Vacancy and Eviction.

Hate to say it but this is going to be painful either way.  You either are going to take the hit on your credit for a short sale, or pay out of pocket most years to cover expenses of property.

The upsides of riding it out are:

A. Rents could go up and

B. Property Value could go back up.

Chris Adams · Answer

Cook County taxes are ridiculous, Thats why I moved to Indiana.

If your are $200/ month cash flow on that property its poor from an investor standpoint. But since your upside down in the property and stuck in it, this is the best case scenario you can hope for at this point. There isn't much you can really do other than ride it out.

Treat your tenants well. The only upside is going to be years from now if the value comes back and you can sell the property.

John Horner · Answer

Escrow should account for Taxes and Insurance.  With Taxes at $5200 that would put insurance at $4200/year?  Seems WAY too high.

Sean B. · Answer

Oops my bad...

Principal $186.95

Interest $ 726.24

Escrow $791.58

....Taxes are about $5200....It's Chicago.

Michael Seeker · Answer

$1007.22 to be exact.

Michael Seeker · Answer

P&I on $260K at 3.5% amortized over 40 years is $1000/month.

Is the revenue enough?

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