Chicago Real Estate Deal Breakdown

[Michael J Scanlon]

Last week I broke down a deal for an investor of mine in the Chicago area so I wanted to break down another.

Investor was buying a 3 unit. List price $199,900. Rental income $2500 ($1000/800/700).

After back and forth negotiations, landed on $188,200 as an accepted gross price with a full 3% closing credit ($5646).

Buyer was using a 5% down conventional home possible loan. Building was newly rehabbed and in great shape.

Inspection turned up very few issues except that the flat portion of the roof had been done by presumably unlicensed individuals because it was done incorrectly and had subsequently been patched repeatedly. After some negotiating and working with the listing agent (trying to convince her why her seller shouldn’t walk), we agreed to a $7000 repair credit given in the form of a price reduction to $181,200. The max allowable seller credit of 3% dropped slightly to $5436.

Tax proration was 105%. Buyer closed at the beginning of November and thus did not make the first mortgage payment until January 1.

Total required down payment was $9060 and the closing credit covered all closing costs. Buyer was credit $2500 for November rent and $2500 for security deposits. Then after receiving the tax proration of $1890, it brought down his down payment due at closing to $2170. In December he received $2500 rent which replaced the security deposits leaving him into the property for $2170 by time he first paid a mortgage.

The first tenant already moved out for the new year and rent on the $700 unit was raised to $850. This brought total rental income to $2650 with a payment of $1350. With 20% reserves, cash flow is still going to be $770 a month with $530 going to reserves in year 1 after he moves out. This will produce 426% cash on cash return with $6360 going to reserves each year.