Help! Chicago Foreclosure Triplex--Deal Analysis Question

[Alex N.]

Hi everyone:

My wife and I are under contract on a Homesteps foreclosure property – it’s a triplex in the Tri-Taylor neighborhood in Chicago (average cap rate about 5.8% we think). There are city violations and a lot of deferred maintenance to be done. We’ve run the numbers over and over and wanted to hear your collective wisdom on whether we should go through with this and whether it is still a good deal? Any insights would be greatly appreciated—we are relatively new to this and have learned so much from the community here.

The purchase price is $326K with 20% down. Comps are about $430K. Each unit could rent out for about $1,400.

Required repairs due to city violations include (according to contractor quotes): $27K for brick work; $16K for roof (flat roof); $18K for wooden porch.

In addition, we anticipate deferred maintenance of about $61K for tuckpointing the masonry (3 walls), $13K for HVAC, $8K for bathroom/kitchen renovation, $4K for electrical/plumbing, $9K for footings on foundation beams (foundation seems ok), $5 miscellaneous. This does not have to be done immediately but should be soon.

We wanted to know if these figures seem reasonable and also whether the numbers make sense. Any thoughts you guys had would be greatly appreciated!

[Doug Shapiro]

Hi Alex,

I agree with Lumi.  If you just look at the purchase price and repair costs, it isn't a good deal at all.  

Purchase price: $326k

Comps: $430k

Repair work needed: $27k + $16k + $18k +$61k + $13k + $8k + $4k + $9k + $5k = $161k...

Do you really want to end up paying $487k for a property when the comps are $430k?

Jay