Please verify if I'm calculating correctly - $500 K 5 unit building

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Hi Everyone,

I have gotten a lot of great information from this site and am currently looking for a property in Chicago. My wife's parents have several properties and have suggested that we look into buying theirs. Now I trust them but I also know that they will try to sell it to us to get it off their plate too.

The property in question is 5 units. 4 are 2/1 and 1 is 1/1. The property is in Oak Lawn, IL.

Here are the numbers:

Purchase Price: $500,000. They bought it for $690,000 in 2005.
Rents: $1k for the two beds and $820 for the 1 bed = $4820 gross rents
Property tax in cook (crook) county - $13,851
I will manage it (no property manager)

I inputted the numbers into the SFH Rental Analysis spreadsheet that is provided in the deal analysis forum.

Assuming expenses will be 54% of the gross rent, the NOI is $26,300.
I will put 20% down for 30 years assuming a rate of 3.8% interest so the mortgage will be $1865 / month.

Total cash flow will be about $4000 per year. This is about 3.2% cash ROI.

This is no good correct? From what I've been reading people are finding much better deals. This building is in good shape and is currently fully rented out but is this a good deal?

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Nilkamal,

I don't know the Chicago multi-family market but that is a really bad deal. If you do the math, we are looking at a 5% cap rate. That is ok if it is a class A asset but I do not know when this was built and either way that cap rate would make more sense for a much larger class A asset (100 units+). My advice would be to walk away from it. You can do much better.