1st Chicago Property - How _____ did I do?

[Scott L.]

I am just getting my feet wet in real estate, and figure there is no better first post than my first deal! Below are the basics, let me know if you have questions. Just looking for some basic analysis and advice - would be great from my fellow Chicagoans. Thanks in advance :)

4 Unit Property (3 units in main house + coach house)
Price Paid: $280,000
Money Down: $56,000
Monthly Payment (Incl Ins + Tax): $1970/mo
Current Rents: $3665/mo

This is the basic breakdown without me living there. However, I plan to move into the Coach House within 60 days, after the current tenant moves out at the end of Oct, and I do some moderate renovation.

For at least the first year, I plan to be an owner-occupant, manage the property and put the proceeds directly back into proactive improvements, such as replacing a 50 year old water heater (not joking).

My goal is to hold this property for the long term, and acquire more over time, with the second being within 1 year from now.

[David Beard]

Originally posted by Scott Leitl:

Shouldn't I be going by the the 40% rule since I plan to manage it myself, which if I remember information stated on this site correctly, subtracts the standard 10% management fees from the 50%?

NO. You should always purchase with an allowance for property management built into your numbers, even if you plan to start out self managing. You may need to use a PM at some point for a variety of reasons (you've purchased more property then you can manage yourself, you've been relocated out of the area, other job/time commitments, you suck at selecting/managing tenants, etc.).

Also, future buyers will likely factor in PM costs when they do a proforma computation of the NOI of your property, which directly impacts what they're willing to pay. So, bottom line, enjoy the "wage" you're earning by self managing for now, but build PM costs into your purchase model on the front end.