Which property would you choose

Question

I am looking at a 4-unit in Kankakee, IL. or an 8-unit in East Chicago, IN.

79K for the 4 unit

225K for the 8 unit.

As this will be my first multi-unit building, should I invest in the cheaper one?  I live about 1 hour from each property, so I will be using a more local management company, but with checks and balances to go through me (I want to see a prospective tenant's information; I also want to see repair estimates before any work is done).

Both buildings have had some remodeling done to them.  The 8 unit is 5 3-bedroom, 2 2-bedroom, and 1 1-bedroom).  It has good cash flow.

The 4 unit is all 1 bedroom apts. in a good rental area.

Both are in class C neighborhoods.

James

Crystal Smith · Answer

We run every property we purchase for thru a 5 year Financial Analysis.  In a case like yours, we'd put the properties side by side & the one that provides us w/ the greatest value becomes the winner.   The analysis includes an evaluation of the current Net Operating Income (NOI) along w/ projections on the future NOI based on rental increases,  expense projections, vacancy trends...  The analysis also includes an evaluation of the potential future value of the properties based on improvements, appreciation & what we would potentially net if we sell at the end of 5 years.  The property which would provide us the most income over the 5 year period gets purchased.

James Bitakis · Answer

Yes, taxes and insurance was added.  Landlord pays common electric & garbage which is included in the expenses they showed me.  After everything, conservatively, the 8 unit will cash flow 1300/month total with 25% down.  That is with a property manager.

Scott Steffek · Answer

James,

You can evict in less than 30 days in Indiana, if you need to. It's very friendly towards landlords. You didn't say if you added in taxes on your numbers. Don't forget insurance and don't forget things like landscaping in the summer and snow shoveling in the winter. Who pays the electric bill on the common areas of the buildings, if there are any? Who pays for garbage? These all have to be factored into your cash on cash return percent.

Miguelito Fernandez · Answer

Well, was the $3,900 property taxes included in your assessment which produces $1,300-$1,400 cash flow? If not then you're looking at $975 monthly cash flow based on $1,300/month cash flow X 12/months - $3,900 property taxes. If $975 is good for you then go for it (assuming you took in everyone's input on this post). Right now I'm leaning on the 4 unit and I'm assuming you are too because you mentioned towards the end it being " in a good rental area."

James Bitakis · Answer

The 8 unit will have a 1300-1400/month positive cash flow.  The 4 unit will have a 600-700/month positive cash flow.  This is after expenses and 10% (vacancy), 10% (management), 10% (capital repairs). Tenants pay their own utilities.  Just wary about Kankakee's taxes $3900/yr on a 79K building?  I have heard that Indiana is investor friendly (if I had to evict, I heard it is easier in Indiana vs. Illinois).

Michael Totman · Answer

Define "cheaper one."  Without any other info I don't know which is the cheaper one so I can't help you. Hopefully you're not relying on price alone to define "cheaper" as price means nothing by itself. Maybe the 4 unit will cost you $500/month whereas the 8 unit will provide a positive $200/month? In that case I'd consider the 8.  The old adage it's not how much you make, but how much you keep that matters is in play here. Or I'd say it's not how much you pay, it's how much you return that matters is more applicable.

Scott Steffek · Answer

James,

I know East Chicago well. I just sold 3 multi units out there to one investor. I don't know the cash on cash return numbers for the unit you're looking at purchasing, but I got this investor 3 different multi units for a total of $285k. Yes, they need work, but I'd be weary of spending that much money out there, when there's plenty of others to be had. However, if your CCR percent is good, that's it's probably a good deal. PM me for more information. Best of luck to you.

Brian Hoots · Answer

What are the rents and expenses of the properties,  that would be the more important decision for me,  I would shy away from Kankakee.  I live in the Kankakee area and own rentals in Bradley which borders it.   The Kankakee RE taxes are out of control at this point unfortunately.   I would be interested to hear who you have found for a local property manager in Kankakee? There are not too many of them that I know of.

Quincy Lockett · Answer

I work in East Chicago, Indiana and I've noticed killer deals in multi-units that seem too good to be true. The quip about lenders not lending in Chicago is pure fallacy. I own in Chicago and I am closing on another in 3 weeks. But I feel there's a reason the mult-units in East Chicago are so cheap. It is a fairly depressed area and I think the management may be challenging. I personally wouldn't invest in either.

Which property would you choose

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