Is this a good buy? Chicago 2 flat

[Marvin Anaya]

Hello!

Is this a good investment? I would live in the basement 1st year and rent out all 3 units afterwards. Thanks!!

First time home buyer here, just put an offer on a 2 flat in Chicago. My offer is $184,000 and I am financing via FHA at 3.75% with 3.5% down. As part of the FHA terms, in my offer I am requesting a 3% closing credit from the seller. This is a Fannie Mae property. I am estimating that I will pay about $1,000 out of pocket to cover the rest of the closing costs.

Unit 1 and Unit 2 are the same - 2 BR, 1 Bath apartments. Basement unit is 2 BR, 1 bath but is smaller. Units 1 and 2 I can rent for $850 and the basement $650, totalling $2,350. Taxes are a whopping $3,800 per year (2014 data). Here is my BP analysis:

[Andy Mirza]

Originally posted by @Marvin Anaya:

This would be a long term hold for me, yes. This property would be my foot in the door and I would hold it as long as I can. I'll also take a look into the capital gains exclusion. I'm married so I assume I could exclude above $250k?

You're right. $250k if you're single, $500k if you're married. 

Another question I have is - if I make upgrades/repairs to any of the rental units, I can deduct that in my taxes correct? Is there anything else I should know tax-wise that I can take advantage of?

Yes and No. It depends on how you classify your repairs and upgrades. Typically, small ticket items are easy to categorize as "expenses" and are easy write offs. "Capital repairs" as I've known them (I think people here on BP refer to them as "CapEx" or "Capital Expenditures") are different. I believe that they are added to your cost basis and that you get to depreciate them over time. I'm sure there are lots of threads on BP that talk about this topic and others will have better and more accurate advice than me. Ultimately, you need to confer with your accountant to see what you can write off immediately versus what you can write off over time. 

Lastly, what is the best way to screen tenants? I am willing to pay for a 3rd party to get me good, quality tenants (on paper.. in reality it's always a toss up, I'm sure).

Again, this is a topic that I'm sure you can find discussed in a lot of detail in other threads. My property management companies screen tenants for me. You want to get a complete and thorough application with the tenant's personal info, a credit check, verify that income is at least 3 X the monthly rent, and check references at the very minimum. Swinging by the prospective's tenant's current residence to "drop off paperwork" is a good way to see how they are likely to treat your place. You can check their social media profiles to get a better sense of their character. Check out threads here on BP that discuss this and you'll get a better idea of what you'll want to do. Take the time to do a thorough screening before the tenant moves in to mitigate your risk. Yes, they still can turn out to be problem tenants but the more work you do on the front end the less likely you'll have to do work on the back end if you have to evict the tenant and rehab a ruined unit.