Looking at a seller’s rent roll and not sure what it’s really telling you? You’re not alone. If you plan to buy or house-hack a two-flat in Avondale, understanding the rent roll is the fastest way to gauge income stability, risk, and financing potential. In this guide, you’ll learn what to look for, how to run the key numbers, and which Chicago-specific checks can protect your deal. Let’s dive in.
What a rent roll shows
A rent roll is a snapshot of income for each unit. For a two-flat, that usually means one line per unit. It summarizes leases, payments, deposits, and status so you can see income at a glance.
Expected fields include:
- Unit identifier (1st floor, 2nd floor)
- Tenant name(s) on the lease
- Lease start and end dates, or month-to-month
- Current rent amount and payment frequency
- Market rent, if included by the seller or broker
- Security deposit amount and date received
- Concessions or incentives (for example, first month free)
- Payment status or arrears
- Utilities paid by tenant versus owner
- Occupancy status (occupied, vacant, notice given)
- Notes (pets, parking, renewals, tenant history)
Related documents you may see:
- Leases: the legal contracts; the rent roll summarizes them.
- Tenant ledgers: the payment history that proves rent was collected.
- Financial statements: income and expenses at the property level.
Key rent roll terms
Current vs market rent
- Current rent is the contractual monthly rent in the lease. It is your baseline for potential gross income if everyone pays.
- Market rent is what you could reasonably charge today based on comparable Avondale units. If a lease is expired, month-to-month, or far below market, lenders and investors often underwrite to market rent instead of the current figure.
Concessions and effective rent
Concessions are incentives like a free month or owner-paid fees. They reduce effective rent. You should adjust your income for the full value of concessions, annualized, so your numbers reflect real cash flow.
Security deposits and handling
Security deposits are not income. They are funds held to cover damages or unpaid rent. Still, deposits matter. If the rent roll shows deposits that do not match leases or ledgers, treat that as a red flag and verify.
Lease expirations and renewals
Leases that expire soon or are month-to-month raise near-term vacancy and re-leasing risk. Longer remaining terms suggest more stable income. This timing affects your underwriting and your negotiation strategy.
Read the rent roll step by step
Here is the common flow for turning a rent roll into usable numbers for underwriting.
- Potential Gross Income (PGI)
- Add all contractual monthly rents and annualize.
- Exclude security deposits and one-time fees.
- Effective Gross Income (EGI)
- Subtract vacancy and collection loss, plus any concessions, from PGI.
- Net Operating Income (NOI)
- Subtract operating expenses from EGI. Include property taxes, insurance, owner-paid utilities, repairs and maintenance, management, and reserves.
- Debt Service Coverage (DSCR) or returns
- Use NOI to evaluate capitalization rate, cash flow, or DSCR for financing.
Simple two-flat example
- Unit A rent: 1,700 per month
- Unit B rent: 1,300 per month
- PGI = (1,700 + 1,300) × 12 = 36,000
- Concession: one free month on Unit B last year = 1,300
- Vacancy allowance: 6% × PGI = 2,160
- EGI = 36,000 − 1,300 − 2,160 = 32,540
- Operating expenses (example): 10,000
- NOI = 32,540 − 10,000 = 22,540
If your proposed loan has annual debt service of 18,000 and your lender needs DSCR of at least 1.20, then DSCR = 22,540 / 18,000 = 1.25. That passes in this example.
Vacancy assumptions that fit small buildings
For Chicago two-flats, a 5–10% vacancy assumption is common in underwriting. Use the higher end if you see month-to-month tenants, recent turnover, or frequent concessions. Use the lower end for longer lease terms and steady payment history.
Lender view of two-flats
Lenders use rent rolls to confirm sustainable income and to test financing capacity.
- Verification: Expect requests for signed leases, 6–12 months of tenant ledgers, and bank statements that show rent deposits and held security deposits.
- Owner-occupied loans: Some programs allow a portion of rental income from the other unit(s) to offset your housing payment. The exact percentage varies by program.
- Non-owner loans: Underwriters often use current rent or market rent, whichever is lower, then apply a vacancy factor. They will ask for documentation to support both rent and deposits.
- Property condition: Appraisal and inspections can flag code issues that impact income or loan approval.
Chicago and Avondale checks
Two-flats in Avondale carry local requirements that can change your underwriting.
- Rental license and inspections: The City of Chicago operates a Rental License and Inspection Program. Confirm the property’s license status and any unresolved violations. Missing licenses or open violations can delay closings or impact income.
- RLTO compliance: Chicago’s Residential Landlord and Tenant Ordinance governs deposits, notices, entry, and disclosures. Verify that leases and deposit handling match local rules.
- Zoning and unit legality: Confirm that both units are legal and that there are no illegal conversions. An illegal unit can be vacated by the city and eliminate expected income.
- Cook County property taxes: Taxes are a large expense and can change with reassessment or appeals. Check recent tax history and plan realistic expense assumptions.
- Utility billing: Clarify who pays water, sewer, gas, and electric. If the owner pays some utilities, normalize those costs in your operating budget.
Red flags in small multifamily rent rolls
Watch for these issues when you review a two-flat.
- Rent roll and lease do not match on rent amounts
- Missing or inconsistent security deposit records
- Frequent concessions or repeated free months
- Many month-to-month tenancies with no remaining term
- Cash-only payment history with no verifiable bank deposits
- Non-legal unit or open building code violations
- Chronic arrears or recent eviction actions in the tenant ledger
- Utilities not clearly allocated between owner and tenants
- Rents well below market with no clear explanation
- City records showing liens, unpaid utilities, or tax delinquencies
Due diligence checklist
Use this practical list to verify a seller’s claims and protect your financing.
Documents to request:
- Signed leases for all tenants
- Tenant ledgers or rent receipts for the past 12 months
- Bank statements showing rent deposits and security deposit balances
- Recent 1099s or Schedule E (for investor sellers)
- City of Chicago rental license or registration and any violation history
- Recent utility bills for owner-paid items
- Any property inspection report and list of recent capital expenses
- Rent comps for Avondale two-flats or similar units
- Evidence of occupancy, keys, and mailbox assignments
Verification questions:
- Do the people on the lease actually occupy the unit, with no undisclosed sublets?
- Any verbal rent discounts or undocumented deals?
- Are all deposits accounted for and traceable to an account?
- Any pending evictions or tenant legal actions?
- How often has each unit turned over in the last three years?
- Are rent increases scheduled or restricted by the lease?
- Does the rent roll include seasonal promotions or short-term stays?
Sample rent roll and notes
Here is a simple two-flat rent roll and how you might interpret it.
Sample rent roll:
- Unit A — 1st floor — Tenant: J. Lopez — Lease 7/1/2024 to 6/30/2025 — Rent 1,700 per month — Deposit 1,700 — Owner pays water/sewer
- Unit B — 2nd floor — Tenant: S. Kim — Month-to-month since 2/1/2024 — Rent 1,300 per month — Deposit 1,300 — Tenant pays electric and gas — Concession: one month free applied 6/2024
What to take away:
- PGI = 36,000 per year, but do not stop there.
- Annualize concessions as lost income. Here that is 1,300.
- Use a higher vacancy assumption for the month-to-month unit.
- Add owner-paid water/sewer to operating expenses or treat as a reduction to effective rent.
- Verify deposits in bank statements and confirm terms in the leases.
Put it all together
A clean rent roll is your starting point, not your conclusion. Verify every income figure against leases and ledgers, annualize concessions, apply a realistic vacancy factor, and normalize expenses like owner-paid utilities and Cook County taxes. Then test your NOI against your financing, using DSCR or return targets to guide your offer.
If you want help finding, underwriting, renovating, leasing, and managing a two-flat in Avondale, our team lives in the details. From sourcing and off-market opportunities to project management and leasing, we align your deal math with on-the-ground execution.
Ready to underwrite a deal or pressure-test a seller’s rent roll? Start a Strategic Conversation with the Joe Kotoch Group.
FAQs
What is a rent roll for an Avondale two-flat?
- A rent roll is a summary of each unit’s lease terms, rent, deposits, payment status, utilities, and occupancy so you can evaluate income quickly.
How do I calculate effective income from a rent roll?
- Add all rents for PGI, then subtract a vacancy allowance and concessions to get EGI, which then flows to NOI after operating expenses.
What vacancy rate should I use in Chicago two-flats?
- Many underwriters use 5–10% for small buildings, with higher assumptions if leases are month-to-month or concessions are frequent.
Do security deposits count as income when underwriting?
- No, deposits are not income; verify they are held and match the lease and ledger to avoid compliance or cash flow issues.
How do concessions change the numbers on a rent roll?
- Concessions like a free month reduce effective rent and should be annualized and deducted when you compute EGI.
What local Chicago checks matter before I offer?
- Confirm rental license status, RLTO-compliant leases and deposits, unit legality, Cook County taxes, and who pays each utility.
