Should I continue to invest in Illinois or focus on Indiana

17 Replies

Hello BP,

I own 3 multi-family buildings in Chicago. I have plans to ramp up my real estate investing. I would love to acquire another handful of buy and hold rentals over the next few years. I have also been contemplating aiming to do one or two flips per year. I am very close to the Indiana border. Over the last several months I have been seeing a lot of articles about a mass exodus from Illinois to surrounding states due to high property taxes and other factors. At the same time, I work for a property tax firm, and it seems that there are still many investors that see potential in the Chicago area. Does anyone have any advice as to where i should continue to invest. I don't think I currently have the access to funds to invest in higher end properties at this point.

@Dolores Gonzalez

Hey Dolores

There are a lot of factors, but one of the most pressing is tenant rights laws in Illinois vs Indiana.  Where are they more favorable for you and your future properties?  Taxes are high in Illinois too, so where will you be able to maximize your dollars and security?

That's what I'd be looking at.  Congratulations on your success!

Stephanie

@Dolores Gonzalez

Few things:

1) Population decline in the state is higher than the city's decline

2) Population decline in the city of Chicago is concentrated in higher crime areas and low income communities. Lower income folks are leaving as taxes are rising.

3) Why is there so much new commercial development happening in the loop, north-side, south loop, and surrounding burbs? These commercial builders do tons of market research and since the city crane count is a  record high right now, that tells me that serious investors/large firms see a lot of potential in Chicago.

4)Lastly,  employers are moving to the city to find younger talent: McDonald's, Walgreen's, Kraft-Heinz, Tyson-Hillshire, and ConAgra to name a few.  And just last week Elon Musk announced his new development as well:

http://www.chicagotribune.com/business/columnists/...

http://www.chicagobusiness.com/article/20180613/BL...

With that said, is Chicago the best city in the world with no issues? Not at all. But what is Indiana doing better than Chicago in terms on commerce? Price point wise compared to other major cities, Chicago is a great place to be!!

my 2 cents :-)

You're in the Midwest so you have a lot of options! Congrats on the success of your other properties. 

I think the answer lies in how much money is at play, what kind of lending options you qualify for, and what property type you focus on. Indianapolis has a lot of flipping going on. Lived here for 5 years. It drives me crazy that I waited so long to get into the game. 

I have to lean towards Indiana. I grew up at Great Lakes Naval Base and have a lot of friends from that area. Almost all of my friends now live in Hammond, Merrillville, and Crown Point. They didn't live in high crime areas and none of them are low income people.

FedEx is doing a 1.5 billion dollar expansion at the Indianapolis Airport. They will be nearly doubling in employment.

InfoSys is hiring about 4,000 tech jobs for the 141 acre campus that it's building. Currently, I believe that they are operating at the SalesForce tower downtown.

SalesForce.com is still hiring hundreds of more people this year.

#1 Airport in the US sixth year in a row

Direct international flight to Paris out of Indianapolis with plans to add more direct international flights

Tech Incubators are gaining more traction as new tech companies move to Indianapolis

Carmel and Fishers have both been listed as #1 cities in US

Tons of multi-national conventions (USA Today rated #1 Convention City,) NCAA headquarters, annual NFL combine, the #1 annual sporting event in the world (Indy 500 = 3X the superbowl attendance)

I'm always surprised at how many people don't have Indy on their radar. Indianapolis is a finalist in the Amazon HQ2 list and many of our residents don't even want it. We have the lowest unemployment in the midwest with a huge labor participation rate. I'm not sure how they think they are going to fill 50,000 jobs... that's more than the amount of unemployed adults in the metro area. 

When I think of Chicago, I think of over-price, over-regulated, city of corruption (at least 2 politicians in federal prison I think) that's located in a fiscally unsound state. I guess people keep believing in the Chicago of 100 years ago. Many people keep old maps stored internally without watching what's really going on in today's world.

When you research today's world, you see that Chicago isn't really as appetizing as it used to be. I have a few clients who invest in Indianapolis but live in Chicago. While I personally invest in Indianapolis, I am actively looking at opportunities in NW Indianapolis.

I do like to visit Chicago, but it's expensive and the weather sucks. Indianapolis is much more affordable and the weather is considerably better. It has many things that are the best in the world (check out our world class museums) and it's very affordable to live with great jobs all around.

I spent a lot of time trying to reconcile the exodus from IL and what I've been seeing in the market and eventually came to understand that while the population in Chicago is dropping the density within the desirable areas is spiking. The macro-trends of people moving towards cities holds true but the neighborhoods on the periphery are taking the biggest hits. If you are looking to invest primarily for immediate cash flow it will be tough to find a deal in the A markets in Chicago but I'm a firm believer that it's a great place to own over the long term. 

Originally posted by @Alex Fraher :

I spent a lot of time trying to reconcile the exodus from IL and what I've been seeing in the market and eventually came to understand that while the population in Chicago is dropping the density within the desirable areas is spiking. The macro-trends of people moving towards cities holds true but the neighborhoods on the periphery are taking the biggest hits. If you are looking to invest primarily for immediate cash flow it will be tough to find a deal in the A markets in Chicago but I'm a firm believer that it's a great place to own over the long term. 

 Exactly.  Chicago is gentrifying.  Upper middle and upper class people are flooding into the city at record numbers.  Lower and working class people are leaving at about the same rate.  I read an article the other day about people making 6 figures+ are moving into Chicago at a rate higher than ever before.  A lot of people from the big coastal cities are finding Chicago to have the same amenities with a significantly lower cost of living.  

“With that said, is Chicago the best city in the world with no issues? Not at all. But what is Indiana doing better than Chicago in terms on commerce? Price point wise compared to other major cities, Chicago is a great place to be!!”

Well, NW Indiana is basically a suburb of Chicago so we get to enjoy what Chicago is doing since many who live here work there. Yet we get lower taxes, lower cost of living, landlord friendly laws (15 day evictions), and lower home values so you're dollar stretches more.

I'm not saying Indiana is better than Illinois or Chicago. Invest where you feel comfortable investing if the numbers work. Even though Illinois has higher taxes and isn't landlord friendly, I'd jump the border and buy a property there if it made sense. I'd adjust my numbers (like increase anticipated vacancy since evictions take so long) but as long as my projected ROI is met, I'm a buyer.

There are many places in Indiana with a decided property tax advantage over Chicago. That said, after recent property tax referendums, Northwest Indiana is not one of them. Effective property taxes in Chicago are for the most part well lower than one will find in suburban Chicagoland, Hammond, Munster, etc. Are there risks that they continue to go up? Of course. Since the crash I have invested in property both in Chicago and NWI. I wish I had done way more in Chicago. If one can add a unit or units or get a zoning change in Chicago in an up and coming neighborhood or near TOD zone, that’s the play and it’s not close. You just have to be super selective.

Originally posted by @Rick Pedi :

There are many places in Indiana with a decided property tax advantage over Chicago. That said, after recent property tax referendums, Northwest Indiana is not one of them. Effective property taxes in Chicago are for the most part well lower than one will find in suburban Chicagoland, Hammond, Munster, etc. Are there risks that they continue to go up? Of course. Since the crash I have invested in property both in Chicago and NWI. I wish I had done way more in Chicago. If one can add a unit or units or get a zoning change in Chicago in an up and coming neighborhood or near TOD zone, that’s the play and it’s not close. You just have to be super selective.

You can't group all of NWI together because Hammond had a voter approved referendum passed that will bump taxes for 3 years. NWI is a boring place to invest in. The long term appreciation potential isn't there like on the east and west coasts or parts of up and coming Chicago neighborhoods going though regentification. But it's also boring during the slumps (which you know are coming eventually) meaning prices don't tumble nearly as much. You also have to take your analysis deeper and consider lost income due to long evictions. I rarely miss a month of rent because I can evict someone and have a new tenant in all within 30 days. I retain security deposit and that makes up for the lost month. No way you can do that in IL with the super long eviction process. But again invest where you're comfortable. If you're looking for solid cash flow in a steady landlord friendly environment, NW Indiana >>> Chicago.

There has to be a distinction drawn between the city and suburbs. I have city Multi’s where I’m paying an effective prop tax under 1%. Even before referendums I was 2%+ in NWI. Now @ 3%+ in Hammond & Munster. Whatever. Is what it is. On an apples to apples comparison, NWI trounces virtually all Chicago suburbs. The city is its own animal.

There are deals to be found in any market.  I concentrate on Northern Illinois Suburbs and Southern Wisconsin.  There are plenty of deals to be found.  There is a lot of complaining about how tenant friendly Illinois is and that is true.  I have not run into a great problem.  Couple evictions but if you follow the law its not that bad. I can't speak for Chicago, I avoid it too many rules and penalties.  I like the suburbs better.

Pick better areas C+/B and you will get better quality tenants and higher rents.  You can make money in any market provided you become an expert in the market.  Educate yourself so you can weed out the properties that are a waste of your time. 

@Tim Polk So, there was so much great insight on this post. We just got done renting and refinancing our last project (a 3 unit in Chicago). We are going to start looking for our next deal and decided that both Chicago and Indiana are good options. We are going to follow the advice of the post that suggested that we keep an open mind and pursue an investment as long as the numbers work.

@Dolores Gonzalez

I think the summary of all the responses is invest in both!  I have a few buildings in Chicago that I am very happy with (for now) and feel like I need to diversify a bit so I am also looking at Indiana.  I figure I got my feet wet in the city I know, now it's time to get my feet wet in cities I don't.  I'm starting to look in NW Indiana and SE Wisconsin.  If the numbers work and you do your homework on where it is you are buying, you should be able to make it work regardless of what state or city.  Everyone is going to have their reasons for buying where they buy.  As long as there are people buying in an area, that's an area as an investor we should want to consider, right?

Marcin

Dolores,

Have you considered looking into southern wisconsin? We have numerous clients enjoying cash on cash returns north of 20% in the area. Feel free to look into it or message me if you are curious! Beloit and Janesville, specifically have been very efficient as far as returns go. Properties in these areas can typically be purchased for between 50k-100k. Let me know if you are still looking and I would be happy to share some more information! Best of luck on your pursuit!

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