Rental property in west of chicago

[Jun Zao]

So I am looking at a 7-unit building in North Lawndale of Chicago.

Asking price is 400K

NOI is 54K. It already includes property management fees.

So if I put down 25% and assuming closing cost is 5%, I would have invested 120K.

According to RedFin, I'll roughly pay $1400 a month for principal and interest.

So 1400 X 12 = 16800.

So my annual profit is 54,000 - 16800 = 37200

And my rate of return is 37,200 / 120,000 = 31%

Does this sound about right?

Given that this is a leveraged position and the fact that these units are highly il-liquid (making them less attractive investments), 31% doesn't sound all that outrageous?

[John Warren]

@Jun Zao make sure the management company has been managing that asset for a long time. You are looking at a fairly challenging neighborhood to manage in, and if the underwriting you are seeing has low vacancy rates, low repairs, etc, then you will know that you are over paying. You need to buy cheap and have someone that can really manage in those neighborhoods to see the returns. 31% COC sounds great on paper, but I would guess that your 7 unit will not perform anywhere near that well in the real world.