Are you thinking about investing in a multi-family real estate in the Chicago area? Well, you have picked an excellent time to do it.Chicago Multi-Family Real Estate Investment Properties

  • The rental market is strong.
  • Rents are increasing while vacancy rates decrease.
  • More people are foregoing buying a house in favor of renting as they wait for the housing market to recover.
  • Interest rates are low and so is the price of Chicago-area rental properties.

So, why the hesitation? Are you worried about getting a good return on investment? Well, let’s take a little time to run the numbers on a typical property and see what they have to say.

Property Details:

14-Unit Apartment Building in Armour Square, Chicago

Five 1/1, Six 2/1, Three 3/2

Purchase price of $700,000

This looks like the perfect property. The previous owner is willing to sell at a discount to finance his move to Florida. The building requires updating, and fortunately, there are no current tenants. Since the property is vacant, you can finish the rehab process in approximately two months. You project that the cost to get the property up to market standards – or a little above – will be approximately $150,000.

Current rental rates in the Armour Square are $1,000 for the 1/1, $1,200 for the 2/1 and $1,400 for the 3/2 units. That gives you a total gross monthly income of $16,400 or $196,400

$5,000 + $7,200 + $4,200 = $16,400

That’s not a bad number, but in order to determine if you are making a good return on investment, we need to look at your expenses. Typical expenses are property taxes, insurance, property management, mortgage service, vacancy and repairs. It can be hard to arrive at exact numbers for these expenses. Most investors estimate and always err on the side of caution.

Estimated Expenses:

Property Taxes: $8,000/year or $667/month

Insurance: $3,500/year or $292/month

Management Fee: $12,000/year or $1,000/month

Mortgage Payment ($680,000 loan at 5.5% over 30 years):$44,172/year or $3,681/monthly

Vacancy (10%): $19,680/year or $1,640/month

Repairs (5%): $9,840/year or $820/month

$16,400 - $667 - $292 - $1,000 - $3,681 - $1,640 - $820 = $8,300

Given our conservative estimates – and the fact that you bought the property cheap – you will have a net cash flow of $8,300 per month or $99,600 per year. That sounds good, but is it good enough. The way to determine that is by the calculating your capitalization rate and the cash-on-cash return rate.

The average cap rate for a premium property in this neighborhood of Chicago is 10. Are you meeting that or exceeding it?

Divide net yearly income by your total purchase price plus improvements to find out. You do not include your mortgage payment in this calculation.

$143,772/$850,000 = 16.9%

That is almost seven points above the market’s premium rate. That’s good.

Since you used leverage to purchase this property, you cash-on-cash return will be even better. You put 20% down to buy this property. You do include your mortgage payment in this calculation.

$99,600/$170,000 =58.5%

You won’t get a return on investment of 58.5% investing in the stock market – not legally.

These numbers are great, and these properties are out there. It’s not just a pipe dream or fantasy created from whole cloth. In fact, many of these numbers are based on a property listed on Equity Build Finance’s investment properties page.

Still, numbers are just numbers, and in order to succeed in rental property investing you need to do your homework and go beyond the numbers. That is why collaborating with a company like Equity Finance is important. They provide the expertise to make the numbers a reality.

by, Jonathan Williams: EquityBuild News Contributor