I’m back from my Memorial Day Weekend trip and have got some news to report! Over the past weekend, my brother and I took a tour out to see some rental properties in Chicago and Indianapolis. After meeting the local ground teams and seeing many properties, I now have a much better feel for what each market brings to the table. I spent the weekend going over my choices, and ultimately decided to invest in Chicago.
Here is a brief summary of the pros and cons for Chicago:
- South side properties generate high rents ($1000+) for each side of a 2-flat.
- Purchase prices, relative to rental income are relatively low (below $180k).
- Properties offered are fully rehabed. The units have been stripped down to the studs and fully gutted. New electrical, plumbing, roofing, windows, countertops, cabinets, tubs, etc. You pay a premium, of course, but the rehab is very impressive and extensive. This will do a lot to reduce maintenance and repair costs over the short-term.
- Provider also supplies the property management team.
- Rent is hedged by having two tenants. If one flat is vacant, I still have enough to cover the mortgage.
- Tenant friendly laws. Difficult to evict, as the process can take up to 90+ days to complete.
- High property taxes. Around 2% is typical in Cook County.
- Lots of variation between neighborhoods over a small driving radius. One block may have a whole street full of boarded up homes, while the next corner will feature a wonderful, vibrant, and safe community. As a result, one needs to do their extra due diligence to make sure they aren’t buying into a “warzone”.
Overall, I walked away very impressed. I got to see many properties, and the various stages they go through before they are ready to be flipped to investors such as myself.
Here are some photos:
As you can see from the above picture, the properties are completely transformed, and the end product is something to be proud of. In a neighborhood where most of the properties were built in the early 1900’s, I’m guessing it’s extremely rare to find something so “new”.
I would imagine that if I were a prospective tenant, I would be putting my name on the waiting list as soon as one of these rehabed properties hit the market. I can’t imagine it being very difficult to find a tenant. Who wouldn’t want to live in a brand spanking new building with all the fixings???
As such, I decided to secure a property prior to returning to California. That’s right, I put in a reservation form and am now in contract to purchase Rental Property #3!
When I stop to think about it… it’s a bit surreal and hard to believe. After all, it hasn’t even been a full year since I won Rental Property #1. In less than one year, I could potentially have three rental properties under my name, and four tenants. Kind of crazy, really. The really nice thing about this new property is that the cash-on-cash returns are amazing (compared to what I was getting previously). Here is a breakdown of the numbers:
Purchase Price: $157,500
Downpayment (25%): $39,375
Mortgage (5% Interest; 30 Years Fixed): $634.12
Property Tax: $266.67
Property Manager: $168
Vacancy (5%): $105
Repairs (5%): $105
Monthly Payment: $1533.79
Rental Income: $2100
Monthly Net: $566.21
Cash-On-Cash Return: 17.26%
Since Rental Property #1 brings in about $450/month in semi-passive income, and Rental Property #2 brings in about $320/month, this will give me a total of ~$1230/month. If so, I’d be well on my way to reaching my original target of $1500/month. Not to mention, this would all be accomplished before executing any 1031 exchanges. I’ll probably sit tight and wait another year before going that route. Though I would love to tap into the $100k+ in capital gains! More details to come, as they arrive.
P.S. I’ll most likely be forced to sell my remaining shares in TSLA to have enough funds for the downpayment. It’s probably about time to capture the rest of the appreciation and put it to good use! Appreciation is nice, but I must remember that the month-to-month cash flow is what will help me retire early!