Is this an OK first deal?

[Ariella Sherman]

What do you think of this deal? 

$1,100,000 for a 6 unit multifamily, newly gut rehabbed, in Chicago 60645. Rental income is 9000 + 400 for laundry and parking. Expenses are 2834/month. 

This would be my first deal. It doesn't need to be the best deal of the century, but my goal is to get started and not get ripped off. Looking to pay market rate.

Right now 2 units are rented, 1 for 1250 and 1 for 1550. Seller claims he will fill the other 4 units in the next 30 days @1650 each. My concern is that rents are high now because its all brand new, but in a few years when it's not brand new anymore, rents will go down to 1400 each. Also, because it's a fix and flip, I'm concerned what quality of work was put in and that I won't find out until it's too late and falls apart. How can I figure out if this is a real concern?

[Greg Scully]

@Ariella Sherman - Get it professionally inspected by an experienced multifamily inspector, it may run you a couple of hundred dollars per unit.  

A couple of things jump out:

- if the seller fills the vacant units, you will have no control over the quality of these tenants.  They may be putting "warm bodies" in there to push occupancy.  Typically when you get something under contract, your approval of leases is part of the deal.

- You are modeling 10% down.  Most lenders will want 20-25% down, especially from new investors. I would not expect 30 year terms.  5 yr term over 20-25 year ammo is more likely.  Also your closing costs are likely to be 4% of purchase or higher.

- Your expenses are very low.  About 50% is typical (excluding debt service).  I don't see anything for contract services, legal fees, capex (200-300 per unit per year for future expenses).

Perhaps you've got lending lined up already, if not, I would talk with a lender to get a better idea of what your terms may be.