High End Neighborhoods in Chicago Condo Rentals

[Ruthvik B.]

I've been reading through a few posts here and got mixed feedback about condo rentals.

I'm currently focusing on doing condo buy and holds in the most popular neighborhoods in Chicago (Gold Coast, Old Town, Lincoln Park, Lakeview). I'm willing to take the trade off of lower returns for the reduced risk where I know there will always be rental demand and typically the type of renter is better as well. Vacancy rates for the entire neighborhood are less than 5%. The condos themselves are high rises with full amenity (24hr security, gym, pool, etc).

I was wondering how much people adjust their ROI, Cap rate targets for these types of deals?

The current deal I'm looking at is as follows:

Sale price: ~$125k

Down Payment (25%): $30k

Closing Fees: ~$5k

Rehab: $20k

Rent: $1500/mo

P&I: ~$450/mo

Taxes/Ins/HOA/Vac: ~$550/mo

Monthly Cash Flow comes out to +$500/mo. ROI about 10-11% but the cap rate is a little on the lower side around 7-8%. This is with self management which I also think is a little easier with these types of condos.

For investors who go for this niche of the market, based on the cash flow alone would you go for this type of deal and how would you rate it? For buy and hold, is the cash flow more important than cap rate?