I am finishing up doing a rehab on a 6 unit building on the southside of Chicago, now I am ready for my next building (again looking for 6 to 12 units).  To my surprise, prices have gone up on properties (I thought they would have gone down or stayed the same because of Covid-19 and the recession).  My wife tells me that I should wait and not buy anything because Chicago has too many tenant friendly laws and that people are not paying rent.  She has a friend that purchased a building, and none of the tenants in that building are paying rent because they know that they cannot be evicted.  The mayor and governor keep pushing back evictions, so people are taking advantage of it and not paying rent.

I understand her concern, but even if I were to purchase a building today it would be 60 days before I close.  I am hoping that by the fall Chicago will at least open the courts and begin evicting people.  Also, I am concerned that prices will continue to go up not down.  Should I buy now or wait until after Covid-19 is over (whenever that is)?

we dont know when covid-19 will be over, we will need to adjust and live a new "normal". if you find a good deal then buy now as prices will only continue to go up. 

@Michael Taylor First, congrats on finishing your first multi. Second, I agree with Jonathan that prices will probably go up. There might be a dip in the next year. However, that is not certain. The key is how much money would you lose if you waited a year to invest again.

Fyi! I invest in the southeast side. We should talk.

@Michael Taylor keep looking for cash flowing, value add properties. With Covid I'm sure there will be more motivated sellers looking to get rid of some of their headaches. Buying a property with occupied with current tenants there is always the challenge to either evict or wait until the lease ends to get rid of problem tenants regardless of Covid. If you can find great deals now I'm sure you will be happy to deal with getting rid of the tenants later. Short term problem to deal with for long term cashflow, loan pay down, and hopefully appreciation.

@Michael Taylor

Congrats on your purchase.  You raise two important points.  First Chicago is completely tenant friendly and you are correct way to many rules for my liking.  This is why I don’t invest in Chicago.  I stay in the suburbs.  The second point about the COVID, no one knows how long this will be with us.  Prices have not dropped and in some areas have gone up.  Apparently people are still buying even with the high prices.  Investors need to be more careful.  I just talked to a bank this week about ROE’s there holding onto.  I have bought a number of properties from them.  They are working with homeowners who are handing keys to there homes back to the bank.  Just waiting for the court to sign off.  We are going to see an increase in foreclosures eventually.  Wait for the right deal and I would buy it.  It might be a while but a good deal is a good deal.

Thanks everyone for your comments, just what I needed.  I wish there was a way to hit a "like" button on your comments like there is on FaceBook.  @Kenneth Garrett, despite the tenant friendly laws in the city I have purchased on in the city of Chicago because of the tax difference compared to the suburbs.  My six unit taxes are less than $6000 a year, in the suburbs they were about $13000 for a similar building.  

Walter, in my humble opinion you should ALWAYS buy RE in a right location and do your due-diligent and never wait for the right time because you may missing out on a good deals.

It's difficult to assess when to buy or wait; everyone has a different criteria for investing.

Do you want cashflow or are you trying to buy and flip? 

Is it going to be longterm or shortterm?

What kind of financing terms are you planning to get?

If you buy now and tenants don't pay do you have enough reserves to pay the mortgage?

Will you be able to sleep peacefully with your decision to buy or not buy? 

I also agree that you should always be on the lookout for good deals...Few dates to consider though - a lot of them are in next 6 months:

1. When Federal Eviction Protection Ends - EX: in Vegas, there are over 5000 evictions a month (in a regular market) so over last three months 15,000 evictions (maybe more) didn't occur

2. When Federal Stimulus Ends - that extra 600$/week from federal government ends, may be more opposition when we come back

3. Foreclosure Suspensions - usually over 50,000 foreclosures a month, in May there was just 8,000 (lowest number in history).....these could be piling up in the background

4. When Forebearence Ends - 4+ million people are leveraging mortgage forbearance, what will these people do when they have to make payments

5. July Unemployment - numbers in June don't reflect spike in corona virus cases

Account Closed

I wish I knew the answer. As every economist says "it depends". I did some digging for a few relevant articles. Hope this helps!

Foreclosures:

https://www.attomdata.com/news/market-trends/foreclosures/attom-data-solutions-may-2020-u-s-foreclosure-activity/

Evictions

https://www.cnn.com/2020/06/20/success/evictions-moratoriums/index.html

Mortgage Forbearance

https://www.housingwire.com/articles/8-8-of-u-s-mortgages-are-in-forbearance/

I would keep my eyes peeled on new Opportunites. Chicago seems to have a bunch of opportunities as of right now which in that cause you might want to buy.

1. Awesome deal!!!

2. I expect prices will continue to appreciate; FHA made a major move in April to slow down Buyers, by decreasing its max debt to income ratio that change reduced purchasing power for a lot of Buyers.

3. FHA changed course in June and took what I believe is dramatic action to drive Buyers (a) they increased their max DTI and (b) interest rates in my markets are now at 2.875 for a 30 year fixed. On balance the combination of these two changes adds $10,000 - $15,000 in purchasing power to a Buyer in my markets purchasing a property at the median price.

Low interest rates drive asset prices upwards.  We have stayed aggressive, we just put a property under contract this morning and will continue to look for properties that meet our criteria.  

I hope this helps & again, congrats on the completed project!!! 

@Michael Taylor

Less supply on market when demand stays the same = prices go up

If vaccine takes years to be available (like the flu shot for example) are you willing to stop buying for years because of the unknown?

@Michael Taylor

Specific market conditions aside, I would make sure to also evaluate your cash reserves at this time. Real cash, not LOC or stuff like that. Those holding higher reserves are better positioned to ride the rough road.

@Michael Taylor

You're wife's right about not buying in cook county. Why bother with the tax law, the horrible court process, and the anti-landlord legislation. If you find a steal there, buy it. You've got Indiana right next to you that's extremely landlord friendly and better cash-flowing, and wisconsin on the other side. Let's not forget all of the markets that are further away from you, which will force you to landlord without being present at your property (if you master this, you will thank yourself for investing the effort to learn it). 

As far as timing goes, just bake the risks of the current market into your purchase criteria and find a deal that meets it. If you're worried about income, hunt until you find a cheaper deal that considers the current economic risks. Find a good wholesaler, or if you have the bandwidth try out a marketing campaign.

I've bought a property once a month every month in good condition for no more than 40% of its current market value since the start of everything Covid. I've got a substantial acquisitions engine in my business that makes this possible, so for you... set the bar at 70 or 75% of current market value, roll your sleeves up, and scrap!

Prices are gradually easing and going slightly down however massive influx of fed capital will continue to drive rates down and prices up but the balance will be an evening out of these forces and hence there will be pockets of low price good deals mostly conning from non investor type sellers and few from older investors who were at the sell point of their "career" and who cannot risk a 5 year downturn- so they cautious/panic sell.

Conclusion is that you will see no changes in this market until you look carefully.

Originally posted by @Michael Taylor :

I am finishing up doing a rehab on a 6 unit building on the southside of Chicago, now I am ready for my next building (again looking for 6 to 12 units).  To my surprise, prices have gone up on properties (I thought they would have gone down or stayed the same because of Covid-19 and the recession).  My wife tells me that I should wait and not buy anything because Chicago has too many tenant friendly laws and that people are not paying rent.  She has a friend that purchased a building, and none of the tenants in that building are paying rent because they know that they cannot be evicted.  The mayor and governor keep pushing back evictions, so people are taking advantage of it and not paying rent.

I understand her concern, but even if I were to purchase a building today it would be 60 days before I close.  I am hoping that by the fall Chicago will at least open the courts and begin evicting people.  Also, I am concerned that prices will continue to go up not down.  Should I buy now or wait until after Covid-19 is over (whenever that is)?

In 3 of the last 5 recessions, real estate prices stayed stable or went up. The reason that prices when down in the last recession was that the recession was directly tied to the mortgage crisis and predatory lending. Given these facts about the past, one should not expect real estate prices to go down.

 

@Michael Taylor the advice about pricing going up is correct from what I have seen. As a local realtor, I saw a short term dip in buyer demand but the buyers have come roaring back. Everything worth buying ends up with multiple offers. There is a lot of doom and gloom, and admittedly times are a little tough as a land lord, but I would still take my B and C class apartment buildings here in Cook County over stocks right now... Last month I had zero missed payments. If an eviction comes up, so be it. With the way people talk about evictions you would think that the goal is to evict people! I have 58 apartments and have only done two evictions in my career so far here in Cook County. 

The other funny thing is to hear about the population decline. Normally you hear about this from people living in towns that are the size of the sub markets I invest in here in the Chicago metro area. Cook County has 5.1 million people... I don't think your 6 unit is going to be in trouble any time soon due to population decline. 

@John Warren, thank you my friend.  Just what I needed to hear.

Originally posted by @Account Closed :

Originally posted by @Jake Celler:

I also agree that you should always be on the lookout for good deals...Few dates to consider though - a lot of them are in next 6 months:

1. When Federal Eviction Protection Ends - EX: in Vegas, there are over 5000 evictions a month (in a regular market) so over last three months 15,000 evictions (maybe more) didn't occur

2. When Federal Stimulus Ends - that extra 600$/week from federal government ends, may be more opposition when we come back

3. Foreclosure Suspensions - usually over 50,000 foreclosures a month, in May there was just 8,000 (lowest number in history).....these could be piling up in the background

4. When Forebearence Ends - 4+ million people are leveraging mortgage forbearance, what will these people do when they have to make payments

5. July Unemployment - numbers in June don't reflect spike in corona virus cases

 Interesting.  You seem like a more sophisticated investor who understands the question of the health of the general economic atmosphere.  There’s always going to be good deal but that’s the question is...is this another 2007?  Looks to me like the initial dumb money enthusiasm is wearing off and the long term reality is setting in.  Despite headlines, the S&P500 is actually down on the jobs report yesterday and that to my mind is a massive problem.  

May I ask the sources of data for #1,  #3,  and #4?  I’d be curious to see what possible justification there is for increasing prices when tens of thousands of evictions and hundreds of thousands foreclosures hit the market while there’s so many unemployed and less renters coming in from Mexico.  FED money printing?  Which is fine but no one seems to have any answers, so buying based on FOMO seems a fools game this month.

I’m a buy and hold cash flow investor looking to replace my job income with cash flow income.  The idea is to use leverage to acquire cash flowing units and then use the increased income to one by one pay off the debt liabilities until the net rental income surpasses my job...then retire early.

From this perspective, low interest rates and high prices are entirely counterproductive given A) there’s less of a write off and B) prices being so high voids out any worthwhile plan to extinguish debt.

I am not very familiar with the US market. In my country prices are falling. It is easy to find discounts of 10 - 15%, sometimes 20% and COVID just started. Now people are still receiving government checks. In a few months the situation will be different and, at least in my country, there will be people with no income.

If you want to look at indicators, benchmarks, I would try to analyze what banks are doing with their mortgages. Assignments, MBS, etc Check how that market is doing, if it is healthy or is showing signs of trouble.

Prior to the 2008 real estate crises banks were very active on that domain, and I particularly recall Deutsche Bank selling pools of motgages, and doing securitizations all the time.. they got rid of as much loans as they could and then the bubble bursted.

 

In my humble opinion buying real estate for investment is always is a good idea regardless of market trends. As long as you buy RIGHT. You should know your target zone area along with market values and rental income. and if you do that it is always a good time to buy and if you wait you may miss your chances on rental increases, appreciation, and payoff of your mortgage by your tenants.