Need Some Advice... Chicago Suburban Condos

Hello all!

I am looking at trying to learn the basics of analyzing properties for REI purposes, and I want to learn enough to avoid this "analysis paralysis" virus I keep reading about. I will describe my process and ideas, and then anyone can tell me if I seem to be on the right track.

I want to look in the western suburbs of Chicago (I'm buying a TH in Lombard on Wednesday... not for REI, but for principle residence... got about 5K in equity at closing, and we're going to finish the basement for 5K adding a family room, 3rd bedroom, and a full bath, and lots of storage!). I am looking for 1BR and 2BR condos in and around that area (Lombard, Downers Grove, Lisle, etc.) for REI purposes. Judging by the advertised rental rates I've seen in these areas, some of the condos on the market could be break-even or small cash-flow properties. Is this even on the right track?

The way I look at it, if I can bring in a little cash from a condo every month, that's a plus. Here's an example of my math: If I buy a 125K 2BR condo with 5% down ($6250), I will finance 80/15/5. My 1st payment will be $570 (30yr@5.5%), with my 2nd payment of $110 (interest only 7.0%). With prop. taxes of $1500, that is $125/mo. This is about $800 a month, plus assessments, which I am estimating from $75-125 a month, for a grand total of about $900 a month. The going rate for 2BR rentals is probably between $850-1150 a month, depending on many factors.

This is how I look at it... even if I am breaking even every month, I am paying down $1350 of the 1st principle in the 1st year, and I get a $6800 write-off for interest and $1500 for prop. taxes that year. Even at a 25% tax rate, this is another $2000. Am I way off here? I know the math is right, but should I even be thinking about this? If I got a $100 a month cash-flow, that 's another $1200. Improvements over time would be cheap labor... I have many skilled tradesmen in my family, and I'm learning more and more all the time. Not to mention the added benefits of depreciation deductions and having my own small business to do the REI.

My goal for 2004 is to aquire one quality property... small goal, so easy to achieve). With mortgage rates so low, it's a great time to be a REInvestor, right? Once they go up, rental properties will be better for young people who can't afford to buy. Unfortunately, I'm finding that the Chicago area is a hard market to crack. It's tough to find the good deals out there. I foreclosure market is very competitive.

I'm sure I'm missing out on something big. I'm trying to learn to make the numbers work. Obviously, having extended vacancies would ruin this plan. I also will try to find properties with already cheap prices, and properties on the market for a while. I'm getting in close with several realtors to help me find the good deals when they first come up. If anyone has some advice or comment, good or bad, please feel free to voice your opinion. I'd rather be called a fool than do something stupid and look like one. It would be a very expensive lesson to learn. Thank you very much.

Jeff