Questions about my first investment property
Hey everyone,
So for the past 2 months my brother and I have been looking for 2-4 unit property in Chicago. Our plan is to live in one unit and rent out the other units. We found a place that is listed for $250,000. It's move-in ready. There are 2 legal units and rentable basement. There is a two bedroom and a one bedroom and a basement unit with 2 bedrooms but no kitchen. Overall, my realtor concluded we could get $2400/month in rent if fully rented out (In reality it would be less since my brother and I would be living in one of the units). Basically this is her analysis and I'm wondering what you think...
List Price: $250,000
25% Down Payment: 62,500
Mortgage Amount: $187,500
Gross Monthly Rent: $2400
Gross Yearly Rent: $28,800
Expenses
Taxes: $5058
Insurance: $1400
Water: $1300
Gas and Electric is separate
Vacancy (5%): $1440
Total Expenses: $9198
Net operating Income: $19,602
Mortgage Amount: $187,500
Monthly Payment (4.5 interest rate, 30 year fix): $950.03
Yearly Mortgage payment: $11,400.36
NOI/ Yearly Mortgage Debt: 1.72
Two things I've never heard of NOI/ Yearly Mortgage Debt. Also she said she did not plug in a cap rate or GRM because on 2 units these numbers are not the best to use for comparing 2 unit properties one to another, as they can very so widely from property to property. I thought cap rate and GRM were important to evaluating 2-4 unit properties. Any thoughts would be appreciated.
Most Popular Reply
As a rental this violates my 1% rule. I.e. Monthly rents should be at least 1% of purchase price before I look at it.
At full asking price I see about 4% cash on cash return for your investment.
Assuming $1200/unit/month, I'd buy this place at $164k. That meets my 15% cash on cash return AND $100+ cash flow per door per month.
Expenses as I see them at $164k and $2400/month in total rent:
Mortgage Rate 5.00% (this could be lower if owner occupied)
Length of Mortgage in years 30
Monthly Mortgage payment $660.29
Taxes $421.50
Sewer and Water $108.33
Trash $-
Heat/Utilities $-
HOA $-
Cap Ex and Ops $150.00 (this is my minimum per month per roof)
Insurance $116.67
Mgmt Fee $240.00 (10%)
Vacancy $120.00 (5%)
Total Expenses $1,816.79