Chicago Investment Property – Prairie Ave

Today I’m analyzing a 5 bedroom Chicago investment property. Take a look at my analysis of this property and let me know if you agree.  You can also send me an email with additional questions or to learn more about this property.

CHICAGO INVESTMENT PROPERTY OVERVIEW

  • Market: Metro Chicago Areachicago investment property
  • Listing Price: $80,000
  • Rehab Estimate: $5,000
  • Address: S Prairie Ave, Chicago, IL
  • Beds / Baths / Sq Ft: 5 beds / 2 bath / 1,298 sq ft
  • Property Description: Spacious brick home that has been meticulously maintained.

NEIGHBORHOOD GRADE: D

  • Median Income: $37,472
  • Poverty Rate: 29%
  • Unemployment Rate: 24%
  • % with Bachelor’s Degree: 17%
  • % of Renters: 43%

The zip code 60628 is below the average for the Chicago metro area on key economic factors including median annual income and the poverty rate.

RENTAL PRICE EXPECTATIONS: $1,250/MO

The vast majority of rental properties in this area are 3 bedrooms. These homes generally rent for $1,200-1,400 per month with a median of $1,250.  This investment property is smaller than the average 1,400 sqft home, but has two additional bedrooms.  We have assumed rent of $1,250 per month. 

$1,250/mo is bit expensive when compared to the area’s median income which is only 30x the monthly rent. This may limit the pool of qualified tenants.

ANNUAL EXPENSE EXPECTATIONS: $9,668 (64% OF GROSS RENT)

  • Property Taxes: $2,480
  • Insurance: $1,250
  • Property Management: $2,188 (assumes 1.75 x monthly rent)
  • Vacancy: $1,250
  • Maintenance: $1,250
  • Other: $1,250

The expenses for this property are generally in-line with industry standards including the property taxes, which are just under the typical 2x rent.  Since this is a D – level neighborhood I have a assumed one month of vacancy every 12 months and one month of cushion for unexpected expenses.

Property management is set at ~ 1.75 monthly rent.  This factors in regular monthly management fees along with various other new tenant and lease renewal fees that companies may charge.

FINANCIAL SUMMARY

At Listing Price

  • Purchase Price: $80,000
  • Rehab: $5,000
  • Closing Costs: $2,400
  • Total Investment: $87,400
  • Financed Amount: $64,000
  • Cash Investment: $23,400
  • Annual Revenue: $15,000
  • Annual Expenses: $9,668
  • Interest: $3,200
  • Net Income: $2,133
  • Annual Return: 9%
  • Annual Appreciation: $800
  • Total Return Potential: 13%
At Recommended Price

  • Purchase Price: $71,000
  • Rehab: $5,000
  • Closing Costs: $2,130
  • Total Investment: $78,130
  • Financed Amount: $56,800
  • Cash Investment: $21,330
  • Annual Revenue: $15,000
  • Annual Expenses: $9,668
  • Interest: $2,840
  • Net Income: $2,493
  • Annual Return: 12%
  • Annual Appreciation: $800
  • Total Return Potential: 15%

MY RECOMMENDATION

I have analyzed this Chicago investment property assuming a financed purchase.  With a neighborhood grade of D , I would normally target a minimum annual return of 15% with an additional 3% margin of safety.  I think 1% annual appreciation of ~ $800 is a reasonable expectation.  Here the listing price of $80,000 is a bit too high for me.  

I would offer $71,000.  This is still below the typical 18% target, but the annual depreciation of $2,741/yr will help shield the majority of annual income from taxes.  This will help boost after-tax returns to an attractive level when compared to other investment alternatives.

Want to place an offer or learn more about this property?

 

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