Using the 50% Rule on Small Multi families in Chicago

[Trevor Fritz]

Hi everybody,

I have been searching for about 6 months for a 3-4 unit multifamily unit in the Chicago area, preferably north side. I am also planning on using an FHA loan, which has made the process more difficult.

At the same time, whenever I run through numbers on my spreadsheet using the 50% rule as a first check, the cash on cash returns are almost always in the negatives. For the record, I run side by side FHA 3.5% down as well as 20% down scenarious. My numbers are run with an FHA loan that considers factors Is the 50% rule too conservative, or are there simply not good buys right now in Chicago. I run any decent looking property that I get sent to me on the MLS through this and time and time again I find near 0% Cash on Cash returns.

Are people in Chicago simply buying for appreciation or am I missing something? Thanks for the insight!