Should I sell Park Forest, Illinois

Question

Hi all, just wanted to get some advice before make a decision. I have a rental property in Park Forest, Illinois & everything has gone up in cost & the taxes are ridiculous, as with many South Suburbs of Chicago. But the taxes doubled this year! Would you sell if you were in this situation?

Courtnye Nicole · Answer

Thanks so much, I'm still trying to figure out what I'm going to do but I will reach out! I appreciate it.

Christian Beecher · Answer

Hi! The fact that you are thinking about it may indicate the property is more stressful than it's worth. I'm all about peace of mind and if it doesn't bring peace it has to go!

But if the property does bring peace and the it's still cash flowing I would keep the property and you would have to figure out how to replace that income (if any). If you do end up selling I'm a local real estate agent and would love to assist you with the process.

Please reach out anytime!

Mike H. · Answer

This is an absolute no brainer.  The house is paid in full but, by renting it out, you're not cash flowing anything or maybe just a little if you bumped the rent? SELL. SELL. SELL. Now I would question your rent amount to see if thats really a bigger part of the equation.  I don't know of any area in the state north of kankakee even that you can rent a house - even a 1 one bedroom house for less than 1200 these days.  I know park forest is a bit of difficult area but still.  Are you sure you aren't WAY under market and not just a little? I did a quick check and the absolute cheapest home for rent in park forest right now is 1800/mo.  And thats a 3/1 , 900 sq ft home.  Is this a condo or something? If its an actual single family home and its in decent condition, you should be at least 1600/mo - and that changes the scenario quite a bit!That being said. If it were me. I would still sell.  You've got a free and clear home. But its in a less than desirable area so the bump in prices isn't going to continue - partially due to the high taxes those areas are seeing.  Sell the house. Take your money and find two houses in a better area at a bit of a discount (say you can get them for 90% of what theyre worth) and split your money from the  sale of the home to use as the down payment on the two new investment homes.You should be able to get 100k to 120k for a house in park forest if its fixed up.  That means 50 or 60k down on each home so you'd be looking for homes in the 200k range. Move up to a better area and leverage your cash to go from one home to two.  If you could turn one home worth 120k into two homes worth 200k apiece (albeit with loans on them), you'll be setting yourself for more rental profits and more net worth via appreciation by being in a better area.Maybe jump down to crete where you can get some smaller homes in move condition around that 200k mark and the rents are really strong there and the better area will give you more appreciation over time.   To me this is what I would be looking at:Sell the park forest house and get 110k net. Then buy houses at about a 10% discount.Buy house 1 for 180k and put down 45k and use 10k for some minor refresh (paint, new appliances go a long way).Buy house 2 for 180k and put down your 45k (25%) and use another 10k for some minor refresh.Now you owe 360k in loans. YOur houses are worth 400kYou owe 270k. (135k each).  So now you have 130k in equity still.Your payment on each loan is 850/mo.  Taxes and insurance on 200k is another 450/mo or so. Thats 1300/mo.  Rent for each house is probably 1800/mo or so (3/1, 1,200 sq ft home maybe).   So you're grossing 500/mo each.  After avg repairs and vacancy, maybe you're netting 200/mo each? So you're making 400/mo total or 5k a year and it would all be tax free.But here's the value in growing to two.  Right now you have a 110k house (i'm guessing completely on its value obviously). You're renting for 850 and making very little profit at all.  You're only getting appreciation on one house in a bad area so typically that isn't much.  At 5% you're making 5k a year in appreciation.  But you have no loan so you're getting no principal paydown.Your net worth on this house is only going up with appreciation and its only going up 5k a year if that.  Thats NOT how you build wealth in real estate.  Now if you sell and get into a better area and use leverage, here would be what your numbers would look like.1) More rental profits.

2) You would be paying down your loans every year. About 150/mo or 1800/year x 2 loans = 3,600 in principal paydown in the early years. That adds directly to your net worth.3) Your appreciation would now be on 2 houses worth 200k apiece and they'd be in a nicer area that could appreciate more.  But lets say 5% for this area too.  Thats 5% of 400k which would mean 20k a year in appreciation. That adds directly to your net worth.And lets look at what that would mean in 20 years assuming the value of both scenarios were to double in 20 years.If you kept the one house you have and it double in 20 years - you'd have a house worth 220k. And lets say your rents doubled from 1k to 2k.  But now you're paying 800/mo in taxes instead of 500.  Your gross profit would be 1,200/mo?   That blows for owning a house 20 years.If you sold and bought the two other houses instead and they doubled in 20 years, you'd have two houses close to being paid (you'd still owe about 65k each) off that would be worth 800k total.   And your rental income, assuming it doubled as well, would be 3,600 per house or 7,200 per month.  And lets bump the taxes up for these too from 400/mo to say 700/mo or 1400/mo for both.  That means your gross rental profits would be 5,800/mo.  Thats a nice chuck of revenue even after repairs and vacancies.  Thats a HUGE difference.  To me this isn't even a question. Sell the house.  Use the money to buy two houses in a better area. And buy them with leverage to grow your net worth so that in 10 or 20 years, you're looking at a bigger and better portfolio so that you can do the things in life you enjoy.  You won't get there owning one house free and clear in a somewhat bad area with those kinds of taxes.

Jeremy Ellis · Answer

Since the property is paid in full, and if you're not enjoying the landlord experience with this particular property, have you considered offering owner financing to the tenant or in general? This way, maintenance, repairs, and taxes are the responsibility of the new owner, while you continue to collect principal and interest, potentially as tax-free income.

I'm not a CPA, just a heads-up 😄, but you could possibly avoid capital gains tax with this approach. However, you would also lose any tax benefits you currently gain from holding the property.

Will Tse · Answer

@Crystal Smith love it ! You really know what you’re taking about !

Allan C. · Answer

@Courtnye Nicole have you appealed your taxes before? How long have you rented and how much depreciation do you have on the books?

Courtnye Nicole · Answer

Okay, thank you! Will do, I appreciate it :)

Crystal Smith · Answer

If you decide to approach your tenant about them purchasing the property I recommend you contact a mortgage broker first to let them know what you are considering  Your objective is to get an idea on what the potential rates they may charge your tenant when it's time to exercise the option to purchase.  Hopefully it will be a rate and a payment that will be less than what you are currently charging for rent.  So when it's time to approach your tenant you can show them the financial benefit of purchasing instead of renting.  Good luck.

Courtnye Nicole · Answer

Thank you, the taxes are now more than $6K but I hadn't even thought about selling to my tenant, that is something to think about if I decide to sell.  I appreciate it

Courtnye Nicole · Answer

That's what I was thinking as well, thanks!

Should I sell Park Forest, Illinois

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