Can a B area cashflow today? (Chicago)

[Edward Kuk]

Hi BP,

I currently live in Chicago and focusing on small multi-family units (2-4 units) in the surrounding areas. I'm pretty new to this and currently focusing on 1) identifying the area I'm interested in 2) understanding how the numbers work. Given my current situation at work (time-consuming), I'm focusing on B area units that are turnkey / require light rehab.

I've been running the numbers on a few properties that I've seen and with the estimates I've made, these properties are so far from cashflowing that I'm becoming skeptical if 1) I'm doing this correctly 2) there are actually cashflowing properties in these areas

My main concern is whether my expectations are too high and thus will never pull the trigger unless another '08 happens again. 

To give you an example, I'm looking at 1718 W Morse Ave in the Roger Park area. This is a duplex that is going for 459K. The total rent for both units is around $2950. 

After including all the cost estimates, the property has a -$600/month cashflow. In order for me to get a $100 / cashflow, this unit needs to go for 300K - 33% lower! I know the landlord purchased this in 2001 for 380K, so that will never happen. 

The landlords are investors themselves so the numbers for them can't be that bad. If I use 380K and remove property management (which I know they don't use), I can get a neutral cashflow but then this was 18 years ago when the area was probably a C and rents were likely lower. 

My question for the group are:

1) Is this the norm you are seeing where duds are actually that big of a dud? I've only looked in Chicago right now but how do other B areas in other cities compare?

2) Anything I'm missing when assessing these properties? Am I being too conservative?

I've attached a picture of my spreadsheet for reference.

Key assumptions:

20% down, 30 year loan at 4.5%

Property management fee estimated at 9% (includes fixed and variable)

OpEX - 5% of rent

CapEx - 6% of rent

Vacancy - 5% of rent

Insurance 0.4%

Property tax - I used 2017 numbers and bumped it up by a bit

I assumed no up front CapEx to simplified things but likely there is some work involved