[Calc Review] Chicago Triplex - Help me analyze this deal

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Hey BiggerPockets,

I have found a potential deal on a multi-family in Chicago that may cash flow but unfortunately is in a C-neighborhood (and also right next to a major metro airport so maybe noise factor will be bad).  However, the building is relatively good condition (constructed in 1983) and could attract local airport workers that don't want to commute. Rent prices for each of the units are above the average for this area for that reason, but maybe that's too idealistic for this C-neighborhood. Any thoughts?

Thanks for the help,
Lewis

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I dropped the price for each unit by $50, but added in the additional income from the garage spaces ($100 x 2/month). Also added some more pictures so you can see that the inside is in relatively good condition. Would appreciate any feedback! 

@Bob Floss II - Thanks for the feedback! As for the sources for the itemized expenses:

1. Water/Sewer rates I got from here (https://www.cityofchicago.org/city/en/depts/fin/su...). I estimated 50 gallons of water per day/ per person. Assuming 1 person per bedroom, there are 8 bedrooms in the entire building. So 400 gals/day, times 30 days, then times the water cost per 1000 gallons ($3.95), came out to around $48 so I rounded up to $60 to be more conservative.

2. Garbage rates I got from here (https://www.cityofchicago.org/city/en/depts/fin/pr...) I assumed meter accounts so I went with $60/month for a 3 unit.

3. For home insurance, I went with an average of $1200/annually, so $100/month

4. Property taxes for this building in 2017 were $4,565.91

5. I assumed 1 month vacancy (~8%)

6. I assumed ~$1200 in repairs annually (this may be where I underestimated, how do you usually do repair estimates?)

Anything else I'm missing?

@Lewis Yuan Not to be nosy, but I did a search and found the building. I still had a concern with the expenses and it was easier to pull up the property so I could look at the information.

Property taxes are determined by using the Assessed Value given by the county assessor.  The assessed value is 10% of the assessor's opinion on the market value of the property. So a property worth $369,900 will state an assessed value of 36,690. The property taxes on this building seem far to low for what properties typically pay in Cook County.  Sure enough, when I pulled it up, the assessed value of the building is 25,145, meaning they think the building is worth $251,450.  Now, the assessed value is very rarely correct (which is why you should always appeal taxes), so this doesn't mean the building is actually worth that amount. However, it does mean if you buy the building for $369,900, you should expect a spike in your tax bill the year after you buy it. Based on buildings in the area, I would expect your taxes to be between $7,000 and $8,000. I also noticed the seller lives in the building because they are getting a homeowner's exemption.  Last year the seller had their tax bill reduced $503 for this exemption. When you buy the building, this will also be added to the tax bill the following year. So estimate being in the mid 7's for taxes. 

I also noticed you are missing a few expenses. The heat/gas for the building is $1,500 a year and the electric is about $750 a year. If you put those in the expenses, the building has a NOI of about $3,000 a year.

In my opinion, the building is great for an owner occupant that wants to rent out the other two units to offset their mortgage. For an investor that wants to rent out all three units, the numbers don't look great. You can try to low ball them or find a better property.

@Bob Floss II - Thank you so much for the fantastic feedback! That was a good catch with the property taxes, I didn't know that. Thanks for educating me on the subject. How did you find the true assessed value of the building?

Originally, I had not included the heat/gas and electricity as I wasn't planning on living there and just renting out all three units. Why do you think the building is better off as owner-occupant rather than renting out all three units? Wouldn't you have greater cash flow if you rent out all 3 units instead of living in 1 and having to rent out the other 2?

Again, appreciate any and all feedback!

@Lewis Yuan I recommended the building to be owner occupied because someone living in the building could use the rent from the other two units to pay most of the mortgage. If you are renting all three units, based on the numbers in your projections, the CAP and ROI are so low I don't think it makes a good investment.

Originally posted by @Lewis Yuan :

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*This link comes directly from our calculators, based on information input by the member who posted.


Hey BiggerPockets,

I have found a potential deal on a multi-family in Chicago that may cash flow but unfortunately is in a C-neighborhood (and also right next to a major metro airport so maybe noise factor will be bad).  However, the building is relatively good condition (constructed in 1983) and could attract local airport workers that don't want to commute. Rent prices for each of the units are above the average for this area for that reason, but maybe that's too idealistic for this C-neighborhood. Any thoughts?

Thanks for the help,
Lewis

 Hey Lewis.  Which neighborhood is this property in?  I personally don't consider any of the neighborhoods right next to O'Hare or Midway to be C- neighborhoods.  

Originally posted by @Bob Floss II :

@Lewis Yuan Not to be nosy, but I did a search and found the building. I still had a concern with the expenses and it was easier to pull up the property so I could look at the information.

Property taxes are determined by using the Assessed Value given by the county assessor.  The assessed value is 10% of the assessor's opinion on the market value of the property. So a property worth $369,900 will state an assessed value of 36,690. The property taxes on this building seem far to low for what properties typically pay in Cook County.  Sure enough, when I pulled it up, the assessed value of the building is 25,145, meaning they think the building is worth $251,450.  Now, the assessed value is very rarely correct (which is why you should always appeal taxes), so this doesn't mean the building is actually worth that amount. However, it does mean if you buy the building for $369,900, you should expect a spike in your tax bill the year after you buy it. Based on buildings in the area, I would expect your taxes to be between $7,000 and $8,000. I also noticed the seller lives in the building because they are getting a homeowner's exemption.  Last year the seller had their tax bill reduced $503 for this exemption. When you buy the building, this will also be added to the tax bill the following year. So estimate being in the mid 7's for taxes. 

I also noticed you are missing a few expenses. The heat/gas for the building is $1,500 a year and the electric is about $750 a year. If you put those in the expenses, the building has a NOI of about $3,000 a year.

In my opinion, the building is great for an owner occupant that wants to rent out the other two units to offset their mortgage. For an investor that wants to rent out all three units, the numbers don't look great. You can try to low ball them or find a better property.

Wouldn't the tenant pay for the heat and electric ?  The building has separate meters. What would you say a fair price for this building is ? What would be fair rents ?