I have been looking at the market almost daily for the past half year as my wife and I are currently selling our house as part of a contingency on another property we are planning on buying. After remodeling, we should have a substantial amount of money in the bank with which I planned on starting to invest with. We live in the southwest suburbs of Chicago and I have been looking at possibly condos to rent out but more recently I began to look into cheap houses. I am not entirely familiar with the areas that I am looking at, although a $30,000 home is very affordable. How do you determine what areas you want to stay away from and where you are good with working in. I am particularly looking into the Park Forrest/Chicago Heights areas which I do not believe is very violent. Does section 8 housing play a role in your decision making? What am I looking for in these areas to know it can make money? I am fairly confident in my ability to inspect a house and know how much money I would need to put into it, just not sure how to determine how much is too much in a low-income area.
@Mark Cios I am no expert, but I have a unit in the Pullman area and looking to expand. I chose Pullman because it is a national park/historic district (1st in Chicago), recognized by the US park Service. Also has a Metra, highway, two colleges nearby, and new commercial development (walmart, potbelly, ross, planet fitness, etc.)
Moral of the story, look for stuff that attracts good tenants. Low income areas are not the same as a warzone!! understand the difference is the first step!! Put feet on the ground and do not shop by price.
Usually transportation and commercial development is key. I don't do Section 8 housing either! Not everyone uses gov assistance.
@Ibn Abney, I planned on putting boots on the ground and checking out the area before I buy. I think my concern is that I am just more hesitant than anything. I can't really see buying a house at such a low cost as being a big risk and so I am trying to see if there is anything that I am missing in my calculations. For instance, Buying the cheapest condo on the market in Chicago Ridge will run me over 60k and have less of an income than a house in Park Forrest for 40k. Seems like common sense, I am just skeptical. Is there a benefit to having a section 8 approved home in the sense of being able to have a higher rent asking price? I assume I cannot raise rent for section 8 people just due to that, although I have heard that landlords make more money from section 8. I want to maximize my income without discriminating and so that is why I ask.
@Mark Cios When you accept a Section 8 tenant, the housing authority will do an inspection of the property and recommend repairs or modifications you need to make to meet their standards. They will also review the proposed lease and give you their offer for rent. I've seen clients get offers lower than the lease amount and they had to decide if they were going to take it. I've also seen clients get offers higher than the market rate for a tenant. It all depends on the area and the size of the unit. Also keep in mind you may have to wait a couple months before you receive your first payment due to the paperwork process.
Many investors prefer to have section 8 to remove the day to day stress of collecting rent.
@Bob Floss II Thanks, that was helpful. So they go off of the area/property, thats good to know.
Advice from another local south suburb investor. Don't just get sucked into the price of the property, look at the taxes immediately. Go to the townships webpage and see the tax history for the entire area and gauge how volatile they are. Reason being, the suburbs around here fluctuate a lot. Look at the difference between Palos Heights and Palos Park...you could be talking the difference of 10-15k a year just in taxes and insurances. Speaking from my own experiences...taxes traditionally only go up and you may run into issues dealing with low-income tenants when you want to raise the rent another 40 bucks which might break the bank for your tenant. Screen heavily regardless of income because you get good and bad no matter how much money they make. I would rather have a tenant who couldn't afford raised rent but took care of the place and paid the 1st of every month at 6 a.m. than a rich tenant who constantly gave me late fees and tore up the place.
This sure is fun, isn't it!?