First time investing Chicago vs Phoenix

14 Replies

Hi,

I am a newbie from California in the RE world. I am considering to make my first MFR investment, but am trying to decide between Chicago and Phoenix. Some of the criterias that I am looking for are:

1. Property Price in the range of 200-350k.

2. Neighborhood - A,B,C

3. Decent cash flow close to the 1-2% rule.

Reason I am feeling indecisive is because I am finding lot of MFR in chicago area however I am concerned about the job growth prospect and vacancy. Phoenix seems to be getting started with job growth, however I am not finding much MFR in this area.

Need some suggestion from the Pros, even if it means to consider looking at other cities.

Best Regards.

These cities are both good but you're right, phoenix is light on the MFR and Chicago has a lot of them but you've got to watch out where they are.

I think that if you're not finding what you're looking for then to continue searching in other cities.

Are you interested in single families at all? How many units are you looking for?

@Antoine Martel I am open to single family homes if they can provide good cash flows in the price range I am looking for. For Multi family I was looking at about 3-4 unit building.

@Saumya Dash

As a resident of Phoenix for over 10 years, I can tell you that you really won't see the 1% rule here. Homes that go for 200k rent for 1k-1300 depending on what part of the city you are in and how many bedrooms you have. Houses for $350k may rent for around 2k or so here.

MFR is largely non-existing here as compared to the Midwest and East coast. The ones that are here are either in D neighborhoods or are very expensive. I'd study this market very carefully and learns the ins and outs. Feel free to reach out should you have any further questions.

I live in Chicago and we have a lot of great MFR here. Pretty much stay on the north side of I-290 and you will find decent neighborhoods. Your price range is likely going to put you in neighborhoods like Bronzeville, Woodlawn, or East Garfield Park. Usually these prices are decent but you will need to hire a good property manager as well.

For someone investing from afar a lot of advantages to condos where most of the property upkeep is handled by someone else. One of my rental condos have not been in it for a year and 1/2. 

@Robert R. Are you realizing good cash flow in the condos, any particular area that you can recommend from your experience.

I would strongly advise you NOT to invest in real estate in Cook County. Too many risks that I just don't think add up if I were looking to invest out of state and you could pick any area out there.

1) The landlord laws in cook county are some of the worst in the country. Evictions take between 4 to 6 months and can sometimes go beyond that.

2) Crime in the city is forcing a lot of people to move. And while crime is mostly on the south and west sides, its starting to creep into other areas in the city as well.

3) Property taxes just got the biggest bump in history and may need another bump. And the state just boosted the income tax significantly as well. Both the state and cook county have some notable budget issues they're having to address. The state has some draconian law that they can't bump down benefits to govt workers (i.e. if their pensions have grown out of reasonable bounds given what they put in) so the only way both the state and county are going to be able to make up the pension shortfalls they currently have is, likely, by raising taxes significantly - which will drive out even more businesses.

As it stands, some of the counties in and around chicago have some of the worst tax rates you'll find. And they may be getting worse and not better. I have a couple houses I bought in cook county (when I was just starting out and didn't know better) that have tax rates of 4 and 5%. And I'm talking net tax rate not the 1/3. So on a 100k house, the taxes are almost 5k!

If you want to invest out of state, I would look at areas with good landlord laws and more stable economies. Indiana would be a good one. They have a state tax cap of 2%. So the most your taxes can be are 2% of the property value. Not 4 or 5 like some areas of Illinois are in.  They also have much better landlord laws. Evictions take 4 to 6 weeks instead of 4 to 6 months. And their economy is much more stable.

I'd probably put texas on the list as well based on what I've read. Great landlord laws. Good economic growth. 

But there's no way I would ever look at illinois with all the economic issues they're having and with the landlord laws so heavily schewed in favor of the tenant.

Saumya, my last purchase 9/17

Class B area

Class C property

115K

$1500- closing + attorney

$1500 Misc, cleaning paint, plumber

_______

118K total

Income 16,800

Expense 7200

Net income 9600

Will do about an 8% ROI

Oak Park IL

Cook County

Oak Park is in the process of massive luxury condo and luxury apartment construction. 

I do all my own repairs, save plumbing, rent units myself, no management fees, my vacancy rates are negligible, nothing factored in for that. 

Originally posted by @PJ Kolnik :

I live in Chicago and we have a lot of great MFR here. Pretty much stay on the north side of I-290 and you will find decent neighborhoods. Your price range is likely going to put you in neighborhoods like Bronzeville, Woodlawn, or East Garfield Park. Usually these prices are decent but you will need to hire a good property manager as well.

 Do you have a good property manager you would recommend?

Before investing in Chicago contact Jane Garvey who runs the Chicago Creative Investors Association. She has hundreds of members and tons of experience. Chicago is a place where location location location means everything. Some neighborhoods are war zone.

You could also consider the Marion / Carbondale, IL  area in southern Illinois, Home of SIU Carbondale.

You can find 3 unit buildings for around $350k in a decent Chicago neighborhood. Problem is that the only way to make a decent ROI would be to self manage it. If you plan to live out of state and hire a property manager to run it then you'll eat up a lot of that profit. You'd have to be willing to spend around $700k for bigger buildings or take your $350k budget to harsher neighborhoods and hope for quality tenants.

@Saumya Dash hows it going, I can assist you in looking for great cash flowing properties. Its good that you are open to some things. What type of Cash on Cash return are you seeking? Usually 10% is the baseline. IMO If you want strong cash flowing properties, I would not look into North Chicago because things are too expensive. THE CCR is usually about 5-6% compared to 11-15% in a decent area on the west and south side of Chicago. I tell many investors from California and other states that arent in the Midwest, the key to having a successful transition into buying and holding here or flipping is building a team. I would strongly recommend using a property manager for buy and hold. There are many upsides and downsides to investing here, but with risk as many successful said before....its only risky when you dont know what your doing.

PM me and I can give you a full list of details of honest facts and my opinion of investing in Chicago. Its really not bad but there are a few areas you want to stay away from. Chicago is so big and the city has man suburbs that are pretty good cash flow areas too. Always pay attention to taxes when your looking at rental properties in Chicago because they will kill your cash flow if your not careful. 

Also, dont sleep on Northwest Indiana as well. Its literally next door to Chicago and considered an extension of Chicago south side suburbs and you could find high cash flowing properties in Indiana as well. The expressway takes you right there. Taxes are low, laws favour the landlord and overall since your a newbie I would kind of point to Indiana first but its up to you. You can get 2 or 3 properties that cash flow very well with 250-300k. This includes rehab! Its many ways to go about getting set up with either state. The key is having a team and people that you trust.

I also invest buy and hold in Chicago and live in California.   Before settling on Chicago, I searched nationwide and tried Texas, Indiana, and other areas.  

My conclusion is that south side Chicago offers one of the highest rental income rates in the country -- in the right areas! Its hard to go to Texas and move in a renter into a SFH for 75k while collecting 1.5k monthly --- yes 2%. Our tenants include school teachers, firemen, MBA degree holders, etc. on blocks without multi units, board ups or unkept vacant lots.

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