Looking for feedback on Chicago market for multifamily CRE
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Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
3yQuote from @Tri Ly:
I'm looking for my first investment property in Chicago markets. I'm interested in higher-than-average income neighborhood, even better with upside possibility (gentrifying). I'm mostly looking at urban, smaller size (6-10 units) that are in good neighborhoods. I see a lot of those in Chicago neighborhoods around downtown and NW of downtown.
Any brokers from these areas that I can pick your brains? My questions are:
- What is the trending CAP rates on these market these days? I would prefer positive leverage (6-8%)
- Potential for appreciation? My understanding is that Chicago is more cashflow play
- Rental market / local economy prediction?
- Any upcoming property tax or regulation that I should be aware of?
Are there other Midwest markets that could fit into these criteria? Thank you so much in advance.
First thing- Chicago the city has 78 neighborhoods, so you have to be more specific with your questions. At a macro level Chicago's CAP Rate is around 6%. I'm not sure what you consider a good neighborhood but I can imagine & in those neighborhoods the CAP Rates are going to be 4 to 5% or less.
IMO the potential for appreciation lies in some of the neighborhoods which you may not consider good. But they are the neighborhoods that are in the same position today as the good neighborhoods were 10+ years ago. Transitioning/gentrifying.
Regarding the rental market- As with the sales market, there's downward pressure on rents, but people and businesses still need someplace to live and conduct business so there are always opportunities.
Regarding property tax or regulations- Again hard to answer at a macro level. Easier to address at a neighborhood level.
Other Midwest Markets you should consider- Milwaukee, Indianapolis & Columbus
8 Replies
- Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes3y
Hey @Tri Ly - You should connect with @Eudith Vacio she works primarily with investors and splits her time between 2-4 unit and 5-20 unit multifamilies or @Michael J Scanlon.
1. Do you have some specific Chicago neighborhoods you are targeting? I only ask because cap rates will vary greatly between neighborhoods.
2. Chicago is huge. You can find cash flow or appreciation
3. Chicago is a massive metro area, it's never going anywhere long-term. We try to focus on providing a good product so that we attract solid tenants.
4. Always.....underwrite conservatively for taxes. Likely the whole city will allow ADUS.
Consider checking our Indianapolis or Cincinnati
Quality Builders4.966 Reviews - Member since 2018 · 1k+ posts · 1k+ votes3yYou are looking for a giant unicorn. If an area is bad enough to actually gentrify (as opposed to just "improve") AND has higher-than-average income, then you are looking at the tail end of gentrification for that area at best. You might find appreciation, but you are paying for the privilege. You are not going to find the appreciation that gets you a thumping great packet.
Quote from @Tri Ly:
I'm interested in higher-than-average income neighborhood, even better with upside possibility (gentrifying).
Keep in mind that Chicago is financially shaky (read "beyond bankrupt") and is pro-tenant to the point of asininity. Check out northwest Indiana. - 3yEudith VacioPro MemberReal Estate Agent · Chicago & NWI · Member since 2015 · 860 posts · 521 votes
Thanks for the shoutout, @Jonathan Klemm
Hey @Tri Ly , I would definitely research the various neighborhoods in Chicago. Northside is excellent for appreciation, but downside is cashflow is lower and property taxes are a killer & south side is heavier on cash flow, but downside is lower appreciation. I invest in the south side for all those reasons and you should be able to find some commercial properties with 6-8% CAP rates in the south side.
- Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes3y
Quote from @Tri Ly:
I'm looking for my first investment property in Chicago markets. I'm interested in higher-than-average income neighborhood, even better with upside possibility (gentrifying). I'm mostly looking at urban, smaller size (6-10 units) that are in good neighborhoods. I see a lot of those in Chicago neighborhoods around downtown and NW of downtown.
Any brokers from these areas that I can pick your brains? My questions are:
- What is the trending CAP rates on these market these days? I would prefer positive leverage (6-8%)
- Potential for appreciation? My understanding is that Chicago is more cashflow play
- Rental market / local economy prediction?
- Any upcoming property tax or regulation that I should be aware of?
Are there other Midwest markets that could fit into these criteria? Thank you so much in advance.
First thing- Chicago the city has 78 neighborhoods, so you have to be more specific with your questions. At a macro level Chicago's CAP Rate is around 6%. I'm not sure what you consider a good neighborhood but I can imagine & in those neighborhoods the CAP Rates are going to be 4 to 5% or less.
IMO the potential for appreciation lies in some of the neighborhoods which you may not consider good. But they are the neighborhoods that are in the same position today as the good neighborhoods were 10+ years ago. Transitioning/gentrifying.
Regarding the rental market- As with the sales market, there's downward pressure on rents, but people and businesses still need someplace to live and conduct business so there are always opportunities.
Regarding property tax or regulations- Again hard to answer at a macro level. Easier to address at a neighborhood level.
Other Midwest Markets you should consider- Milwaukee, Indianapolis & Columbus
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes3y
The gentrifying areas I recomend are… Albany Park, Avondale, Irving Park, Portage park for north side you will see 5-6 caps but if do updates can get rents way up increasing caps. These areas get high rents with cosmetics done.
For southside Pilsen, Brighton Park and Bronzeville will still get good tenants and bit cheaper price points.
These areas will get cashflow + appreciation + rent growth. Many of the north side gentrifying areas have been seeing double digit rent growth annually, my rogers park 4 unit has.
Taxes you can do a search for 2021 taxes in cook county per property. One interesting thing about chicago is our tax rates don’t correlate to new sales price like many suburban areas do, its more off sq ft. - Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes3y
@Tri Ly as soon as you jump to the 6 units or more space, you will need to network a lot more to find deals. Several of us on this forum are active residential agents, but even for me as an investor friendly agent, I have to network with the commercial brokers who focus on this inventory. They control 75% of the deals, and you won't have the same exclusive relationship as you would have with your chosen residential agent.
Now to your question about Cap rate, cap rate is a very subjective thing in my opinion. Most of the north side deals I see are probably at a 2,3,4 or 5 cap if you run actual, long term operating expenses. The 50% rule is very valid, and when you are looking at these beautiful, 100 year old buildings, you have to ask yourself how you are going to keep your expenses to 35% of the gross (which is often advertised...).
If you are looking in a neighborhood that is transitioning, you might find a real, stabilized 6 or 7 cap. 99% of the time, if you see a cap rate of 7 or more then you are really looking at a value add.
I would have to go on the record as disagreeing partially with our NW Indiana friends. I think Chicago will still be viable for a long time due to the tremendous size of the economy (21st largest in the world). This is overlooked way to much by folks who invest in smaller markets. With that said, Chicago is very tenant friendly which is a risk factor you have to consider.
The biggest property tax change that is coming out is a new program that mirrors the old Class 9 program. If you are in affordable housing (many B- or C locations) then you can do renovations to your building and get a long term 25% reduction to your assessed value (which is huge). We are in the middle of this process on multiple buildings in Berwyn, and this could raise the value of our buildings substantially.
- Member since 2022 · 38 posts · 8 votes3y
Quote from @John Warren:
The biggest property tax change that is coming out is a new program that mirrors the old Class 9 program. If you are in affordable housing (many B- or C locations) then you can do renovations to your building and get a long term 25% reduction to your assessed value (which is huge). We are in the middle of this process on multiple buildings in Berwyn, and this could raise the value of our buildings substantially.
John can you tell me more about the property tax change you referenced here?
- Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes3y
@Gurleen B. for sure. I can PM you the link.
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