First Deal, Good or Bad?

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First Deal, Good or Bad?

Giovanni Garcia
Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes

Hey Biggerpockets!

I am looking to buy my first investment property; it’s a 3 unit building. I’ve made some steps as to show what my cash flow and other aspects of the property entails using my Cash Flow Analyzer.

Here is the listing from the MLS

http://www.realtor.com/realestateandhomes-detail/3144-W-Jackson-Blvd_Chicago_IL_60612_M83228-42313?source=web

file:///Users/giovannigarcia2013/Desktop/IMAG0117.jpg

file:///Users/giovannigarcia2013/Desktop/sheet%201.htm

After I did some running of the numbers, I believe this property as great potential to be a good investment. This property is an a C neighborhood and being rented already cash flowing at about $1900 a month. The cash on cash return is at a 60% which what really grab my attention. Also, the building as some upsides because the first floor unit can become a duplex of course with some repairs and the laundry is coin operator. On the outside of the building it as billboards for advertisement and the option to buy the empty lot next door anywhere from $1,000 up to $5,000. I believe this is a good buy but this is why I am here on biggerpockets to see the inputs of others.

Thanks for you time!

Giovanni Garcia

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Matt Devincenzo
Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
13y

There you go those numbers look much more realistic to me. I'd say it's a pretty decent deal from the looks of what you posted.

One thing to ask about is the coin-op laundry. If it is the owner's then it's not as difficult but you will need to fix them every now and again, if it is a lease contract ask for a copy of the lease and yes the lease will likely stay with the building. Sometimes owners will sign the contract with a big payment up front and then all that they get the rest of the time is like $5/ mo and you're still paying for the water but don't get any money out of the deal...speaking of which you didn't account for water for the coin op laundry.

As for making the bottom a duplex that would be pretty nice, but don't use that to evaluate anything too much. I've seen agents, sellers, and ever Joe schmo in the world mention the better use like "you can build a home in the rear", or "you can add a unit" or whatever it is that makes the deal have this silver lining for the future. It is very often that it isn't possible it is either 100X more expensive because of one single item like say connecting to the sewer, or that zoning limits have already been met for the number of units or square footage. So buy it for what it does today and if you can do your conversion later then it's all gravy.

Good luck looks like it should be good for your first deal.

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  • Raymond B.
    FL · Member since 2009 · 2k+ posts · 357 votes
    13y

    Giovanni Garcia,
    Your file/users etc., can not be opened.
    It would help if you post all of the actual numbers, purchase price, monthly Income, etc.

    Raymond

    0Reply
  • Richard Lee
    Houston, TX · Member since 2013 · 17 posts · 2 votes
    13y

    Hmm,If you are comfortable with the neighbourhood, I guess it is fine.
    Did you check the population growth in the area, jobless rate,demography, household income, criminal rate?
    It is a little bit scary in this area of Chicago, isn't it?

    0Reply
  • Kyle B.
    Highland, IN · Member since 2012 · 253 posts · 36 votes
    13y

    Richard Lee, Giovanni Garcia, yes this is Garfield Park which isn't the best neighborhood in Chicago. Richard is right - I'm sure there are great investments in these areas as long as you are comfortable/familiar with what you are doing. Just keep that in mind - if you know this area well, then sounds like it could work out well for you.

    Good luck!

    0Reply
  • Wendell De Guzman
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    13y

    Giovanni Garcia, how did you come up with 60% CCR for this?
    Have you factored in expenses in operating the building, like vacancy factor, repairs, replacement reserves, taxes, insurance, property management, trash removal, etc?

    The link you sent was not working...so maybe it was there.
    If you are not familiar or you don't live in the area I wouldn't do the deal. I did a deal once in a war zone because the numbers are phenomenal. It turned out to be my WORST investment ever because I bought into an area that I am not familiar with.

    0Reply
  • Giovanni Garcia
    OP
    Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes
    13y

    Wendell De Guzman Yes I did factor in all the numbers and my CCR come out to be 60%. The links just need to be copy and paste in the address bar and it should pop up. I know the area well and more then comfortable making this my first investment property. I'm just wondering if the numbers work out.

    0Reply
  • Giovanni Garcia
    OP
    Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes
    13y

    Richard Lee Yes I very familiar with the neighborhood and yes it's not
    the best locations but I could work with it and the police station is only 2
    blocks away.

    0Reply
  • Giovanni Garcia
    OP
    Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes
    13y

    Raymond B. Sorry about not posting the links
    the right way but all you have to do is just have to copy and paste
    and they should show you my calculations.

    0Reply
  • Giovanni Garcia
    OP
    Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes
    13y

    Kyle B. Thanks for the concern I believe I can handle this type of property in this neighborhood and I think it can work out well for me.

    Thanks

    0Reply
  • Raymond B.
    FL · Member since 2009 · 2k+ posts · 357 votes
    13y

    Giovanni Garcia,
    I followed your Instructions, and the copy and paste does NOT work.

    Raymond

    0Reply
  • Giovanni Garcia
    OP
    Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes
    13y

    Raymond B. I have no idea why the links are not working but if anyone can help me that would be great thanks. Also Im sorry for all the confusing.

    0Reply
  • Giovanni Garcia
    OP
    Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes
    13y

    ......

    0Reply
  • Giovanni Garcia
    OP
    Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes
    13y

    http://www.realtor.com/realestateandhomes-detail/3144-W-Jackson-Blvd_Chicago_IL_60612_M83228-42313?source=web

    0Reply
  • Giovanni Garcia
    OP
    Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes
    13y

    Trying to see if this link works!

    0Reply
  • Andrew Herrig
    Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes
    13y

    Can you explain how you got to 60% cash on cash return? Just from a very high level that seems hard to achieve with a purchase price of $170k and rents of $1900 per month.

    0Reply
  • Giovanni Garcia
    OP
    Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes
    13y

    maybe this link works!

    http://s23.postimg.org/6555k3na3/cashdvdsc.jpg

    0Reply
  • Giovanni Garcia
    OP
    Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes
    13y

    Raymond B. can you see if the above link works now?

    thanks

    0Reply
  • Giovanni Garcia
    OP
    Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes
    13y

    Andrew Herrig http://s23.postimg.org/6555k3na3/cashdvdsc.jpg

    I ran the numbers using a cash analyzer which gave me a 60% CCR.

    0Reply
  • Mehran K.
    Investor · Wichita Falls, TX · Member since 2010 · 3k+ posts · 603 votes
    13y

    Giovanni Garcia Instead of posting the picture of the analyzer, just break down the relevant numbers here. Take the time to type it out and I have a feeling people will take more time analyzing/responding to it.
    Some things to include:
    Purchase Price
    Financing Terms/Assumptions (down payment, terms)
    Rents for each unit individually (verify actual rents and market rents)
    Projected expenses -property tax, insurance, vacancy(5% is too low! I use 8.3% minimum), repairs/maintenance, Property Management?
    Individually metered?

    0Reply
  • Raymond B.
    FL · Member since 2009 · 2k+ posts · 357 votes
    13y

    Giovanni Garcia,
    The last 2 links that you posted, are working links.
    Thank you.

    Also, I agree with Mehran Kamari's suggestion, about posting the relevant numbers here.

    Raymond

    0Reply
  • Wendell De Guzman
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    13y

    Giovanni Garcia, where did the rent of $3,450 come from? I thought the rent is only $1900/month? If that was a typo or came from a previous deal, your CCR is NOT 60%.

    $1900/mo rent less operating expenses of $746.50 less $765.51 of mortgage payment equals $387.99 a month cashflow.

    Multiply that by 12 and divide by cash invested of $35,650 results in a CCR of only 13%.

    Also, your $35,650 - that is just the downpayment to get the investment. What about REPAIRS or renovation? You have to add that to your downpayment to get your total cash invested.

    0Reply
  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    13y

    Ok so I took some time and pulled your numbers out of the screen shot and plugged them into my sheet I use for an initial pass on evaluating a property. The things I see that you are missing is Management even if you self manage account for it(14%: 10%/mo+ leasing or release fee), vacancy seems low (9%), Professional services (acct, legal, ect 5%), and turnover costs for things like utilities between tenants (I use $300 per unit per year which comes to $75/mo).

    Ins seems a little low but I am used to FL which does have some higher premiums so I left it as is. I didn't include anything for this but there is no landscape/snow removal?

    So that comes out to $1710/mo CF.

    Now cash invested for your COC is off. You didn't include closing costs or repairs.

    So using my numbers you get a COC of 25.8% still not bad but definitely not 60%. And your new CAP would be 11.5...those are just my quick numbers but I think those are probably more realistic in terms of what you will actually get.

    0Reply
  • Giovanni Garcia
    OP
    Investor · Chicago, IL · Member since 2013 · 22 posts · 0 votes
    13y

    Mehran Kamari Wendell De Guzman Matt Devincenzo

    Hopefully this is able to clear up some numbers.

    Purchase price will 142,600
    Loan Term of 30 years
    Interest rate 6%
    Mortgage payment $855
    Down payment 35,650
    Rent unit 1 $1150 monthly 3 bdrm
    Rent unit 2 $1150 4 bdrm
    Rent unit 3 $1150 4 bdrm
    Potential Rent income $44,100 Annual
    Property tax $4.600 annual
    Insurance $250 monthly
    vacancy $1150
    Property Manger $365 monthly
    Yes everything is individually metered.
    There is also extra income from the laundry units.
    I also have the possibility to make the first floor unit into
    a duplex which raised an eyebrow. I would have to put anywhere from
    $3000 to 5000 to remodel.
    Some extra upsides to the building is that it has advertisement on the side. Its stands by itself on a corner block with an empty lot adjacent to it for purchase.

    Excel worksheet

    https://docs.google.com/spreadsheet/ccc?key=0AuLyW-bfvp_IdDRpTTh4OGFXMGxYbUEwRE5rNGlwbXc&usp=sharing

    Thanks for the comments everybody!

    0Reply
  • Mehran K.
    Investor · Wichita Falls, TX · Member since 2010 · 3k+ posts · 603 votes
    13y

    Giovanni Garcia The spreadsheet is not set to public and I can't access it!

    But from my quick run of the numbers you provided, this is a slick deal.
    What are some of the things you need to do in the remodel?

    Make sure you verify all the numbers the right way. Did you confirm these rents are the actual market rents for those unit mixes in the area? Leases, PM contracts, rent roll, actual insurance quote, actual utility bills.
    Be sure to get a super detailed home inspection. Remember, not all home inspectors are created equal. I'd make an Angie's List account and find a high rated one in your area.

    Again, seems like it's a real solid deal. Just be sure to triple check & verify everything to be accurate.

    0Reply
  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    13y

    There you go those numbers look much more realistic to me. I'd say it's a pretty decent deal from the looks of what you posted.

    One thing to ask about is the coin-op laundry. If it is the owner's then it's not as difficult but you will need to fix them every now and again, if it is a lease contract ask for a copy of the lease and yes the lease will likely stay with the building. Sometimes owners will sign the contract with a big payment up front and then all that they get the rest of the time is like $5/ mo and you're still paying for the water but don't get any money out of the deal...speaking of which you didn't account for water for the coin op laundry.

    As for making the bottom a duplex that would be pretty nice, but don't use that to evaluate anything too much. I've seen agents, sellers, and ever Joe schmo in the world mention the better use like "you can build a home in the rear", or "you can add a unit" or whatever it is that makes the deal have this silver lining for the future. It is very often that it isn't possible it is either 100X more expensive because of one single item like say connecting to the sewer, or that zoning limits have already been met for the number of units or square footage. So buy it for what it does today and if you can do your conversion later then it's all gravy.

    Good luck looks like it should be good for your first deal.

    1Reply
  • Wendell De Guzman
    Investor · Chicago, IL · Member since 2013 · 2k+ posts · 1k+ votes
    13y

    Giovanni Garcia, one thing you do not have in your expenses is REPLACEMENT RESERVES. This means the roof, mechanicals, carpet, etc are going bad over time and you have to start saving for these on a monthly basis.

    Example: let's say your cost of roof: $10,000
    Lifespan: 20 years
    Replacement reserve: $10K/20 years = $500/year or $42/month

    You can find out what your replacement reserves need to be by having an inspector give you the deferred maintenance items and estimate how much this will cost.

    Other than that, it seems like you have an awesome deal.

    0Reply
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