4 Unit in Chicago (Bridgeport)

[Bryce Renicker]

Hello everyone, hoping I can get some feedback on a 4 unit I am negotiating on in Bridgeport. I feel like the purchase price is a really good deal but I still cannot get a cash flow based off of my numbers. Hoping to get a little feedback on my numbers and to see if anyone has insight in the Bridgeport neighborhood that I may not. 

Purchase Price - $445K with 10% down ($44,500)

Principle and interest (7.5%) - $2800
PMI - $197
Taxes - $705
Insurance - $155
Water - $150
Common Electric - $25
Vacancy 5% - $250
Maintenance 5% - $250
Capex 5% - $250

Total Monthly Expense = $4785

Monthly rent - $5000  - approximately $1300 per unit of (3) 2bed/1bath and $1100 for (1) 1bed/1bath

Rehab cost estimated at $5K per unit so about 15-20K investment in repairs 

So total basis of down payment, closing costs, and rehab is $65,000-70,000

Cash flow = $215/month = $2580/year = 4% cash on cash return. 

Im pulling my hair out thinking this is a bad deal but its well within the 1% rule. Is cash flow really just this hard to find right now or am I missing something ? It feels like a lot of work and risk for such a low return, even though I do know there are other benefits such as loan paydown, tax write off, potential for appreciation, etc. Would love to hear others thoughts and thank you so much. 

[John Warren]

@Bryce Renicker make sure you also understand how the utilities are set up. Most buildings in Bridgeport would have a central boiler that you would pay heat for as well as potentially one hot water heater as well that you cover. 

4% COC isn't very exciting, its true. The rapid rise in interest rates has shocked the market and made year one cash flow harder to come by. I would argue that if you are buying a good building with a true 4% year one COC (including all your costs) then you might be winning here. Rents are on the rise, and your debt is fixed once you lock it in. If rents go up another 7-10% in the next two or three years (not unrealistic) then you look a lot smarter.

The other side of this is that no one knows where interest rates are going. Earlier this year, we were in the low 6's for most of our clients. Now we are nearly at 8. What if things sag back down and you can refinance? What if rates go up and it gets even harder? 

Ultimately, I think you have to decide how rooted you are in a community and if you are in this for the long game. I don't think this is a good time for folks who want to do a quick house hack and then may move in a year or two.