Hey guys, I was looking for some advice/input from some experienced investors on a property that I’m in the process of purchasing. I’ve already put an offer in and just went through the inspection process. The address is W. Polk, with the purchase price being 564,500. It’s a 3 unit (9 beds 6 baths) in Tri-taylor a few blocks from the Blue Line Western station. Current rents are 1,100 on first floor, 1350 second floor, and vacant top floor (where I would be moving into). Both renters are section 8, with first floor being on month to month currently. First floor is under market for rent, and is a hoarder so if I do end up with this property I’d look to make some improvements and look for new tenants, ideally grad students within the UIC medical district area.

Now for some more numbers, I was looking to put 5% down at a 4% interest rate putting my monthly payment right $2,600. After taxes and insurance as well as PMI I'd be put right at $3500. Taking current rents into account I'd have a negative 1050 cash flow as I would be living in the top floor. The building is 17 years old, but was construction as a section 8 farm essentially. Low quality construction throughout and all the issues that come with it. A/C units (3) are 17 years old, roof is 17 years old with skylights currently leaking, there is staining in some of the bedrooms that are near the bathroom showers, and the utility closets are moist and rusting. The biggest issue that worries me is the steps to enter the house are concrete decked with a steel supporting structure. This steel is rusted severely and I worry what the cost of a total replacement would be, or even the cost to have it sanded, painted, and beefed up a bit.

After moving into the property my plan was to live in the top floor as is, end the first floor units lease with 60 days to move. Then I’d look rent single rooms on first floor with utilities included in the cost for a slight premium as it’s single rooms. Putting locks on the doors and having the shared living space should get around $700 per room, allowing me to carry the higher vacancy rate as two of three rooms rented give $1400/mo – 200/mo for utilities.

Concerns, I have a lot of them! First and foremost, I’m overpaying and I know it. I don’t think by much, but I believe the property with all it’s issues and current rents is worth more to the low-mid 500’s instead of the high, but reflecting on what I made as an offer (550,000 and their counter of 564,500) it’s because I believe it’s a decent area to be in. My other big concern is that all the utility/appliances/roof are at their end of life. I’d be replacing things as they fail, but I would still feel the cost especially when the roof will need replacing in a few years.

So guys with more experience and cooler head than I, am I making a mistake or is this a decent deal? I’ll be paying for everything with my fulltime job, and being 22 there definitely tons of time for me to play the long game. But I wouldn’t want to start out on a losing property, and I’m trying to pay the smallest tuition fee I can to learn the industry. Thank for reading and your input!

Chicago, Illinois

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