Most people in this area are blue collar hard working people.

Although I am not as familiar with the area as I used to be, I DO know that it is convenient to downtown Chicago (290, Blue Line, Pink Line, Metra) and rent ratios look pretty good.

I mean, if I set aside 3% per month for those big expenses that only occur once in a blue moon, do I include subtract that 5% as part of my expenses to determine NOI or no?

nice, blue collar area. 8 unit building. 6 units are 1/1, 2 are 2/14 are ready to go. 1 minor fix, 2 moderate fix. all cosmetic1 down to bare walls.electric heat, plumbing completely removed from basement. upstairs ok6 meters/boxes.

I agree with some of the responses here that you need to understand what you're getting in to, and most importantly understand the 'metrics' of every deal.If the numbers work, and you've minimized your risk by knowing them and gaging your deal by them, then you will be fine, regardless of market conditions.I agree with one of the posts here that just because someone is a loan officer, realtor, or banker/accountant, that does not make them an 'expert' in this arena.If you understand the numbers of every deal, and you know how to apply them, YOU become the expert.EVERY Time.Everyone needs housing, and rentals are a great start right now for newbies, since that market is going to be expanding as we go along here these next few years.People that could have qualified for a mortgage now HAVE to rent, so if your metrics are in order, your exposure should be limited and your upside should be more 'blue sky' than what may appear evident to others.Good luck, and Learn ...Scott Colley :D

Hello Blue and thank you for your response.I have yet to see the inside in its entirety.

Single family on a decent size lot (1 acre) in blue collar neighborhoods that need work.One is priced right from the start with an eager realtor. 230K REO needs landscaping and exterior wood repair...

I know morris county has very low taxs (for NJ), but if you do a rough estimate using the 50% rule which means that in the long term expenses will be about 50% of gross income from a property, then you subtract your debt service from that you need to be making about $200 per unit to make it worth the hassle of ownership.You can also look into putting some money into a bigger deal or Syndication on a larger commercial space which you might find some better metrics then residential properties in blue ribbon school districts in North Jersey.

Most of our buyers are blue collar guys in various trades, not just oil workers. 

Notice I said B-areas which indicates blue collar, low crime.