I have got this question a lot from investors, shall I buy a studio, one bedroom or two bedroom unit? Which one has a better return? Since the rental market went up so much this year and looks like it is continue going up, the studios look like have a better return, not talking about how much appreciation about the property value.
For example, I have two clients bought in the last two month at the new eastside neighborhood. One client bought a studio for $132,500 and rented out for $1,300 per month, the monthly assessment is $249 per month and the annual tax is $1,284, that is $107 per month. So let’s assume this is a cash deal, then the monthly cost is $107 +$249 = $356, if we use 1 month for the finder fees, then the annual income is $1,300*11 – $356*12 = $10,028, if we use the annual income divided by the purchase price of $132,500, then the rate of return is 7.6%.
Another client bought a one bedroom condo with better view, newer building, balcony, double the size of the studio with a parking space for $320,000, we have rented it out for $2,200 per month, the monthly assessment is $393, and the annual tax is $3,289, which is $274 per month. Let’s again to assume this is a cash deal, then the monthly cost is $393 + $274 = $667, if we use 1 month for the finder fees, although this could be eliminated if the tenant renews the lease. Then the annual income is $2,200 *11 – $667*12 = $16,195. The rate of return is 5%.
Although the rate of return is lower compare the one bedroom to the studio, and the cash requirement is almost 3 times higher. But as I have mentioned before that when the appreciation comes, the newer the building, the better the view and the larger the unit would appreciate the more.
Therefore, I would recommend people to purchase larger unit with better view in the newer building for good return with higher appreciation in the future. If you are interested in buying a place, please use the link below to search:
http://helpfulchicagorealtor.com/chicago/advanced-search
