Advise for new investor in Chicago

Member since 2019 · 26 posts · 7 votes

I'm thinking about purchasing a property in Chicago IL that is already rented out to section 8 tenant. Does anyone have any advise for a first time investor that is out of state?

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Brie SchmidtBusiness Member

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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes

@Erik Hatch - Chicago isn't considering rent control, there is a state wide ban on it. So first the state needs to repeal it. The bill you are referring to was killed about 9 months ago and didn't get very far in the process. I think it is the 5th time they tried to overturn the statewide ban in the last decade and it never got far enough to even be taken seriously.

I have been a landlord in Chicago for 8+ years and have yet to have a section 8 tenant apply for one of my apartments. Cook county added section 8 to it's list of protected classes, but the applicant still need to meet your credit and income criteria.

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Mike B.
Developer · Chicago, IL · Member since 2013 · 433 posts · 356 votes
6y
Make sure you have your property manager lined up before making a purchase. They will make or break your investment.
Take the time to get on a flight and view the property and neighborhood before purchase.
Get a third party inspection done.
Speak to the tenants and ask them about the building.
Get an opinion of value from an uninterested third party.
Network to gain some contacts in the area in case something goes wrong with the property and/or management co.
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Eudith VacioPro Member
Real Estate Agent · Chicago & NWI · Member since 2015 · 860 posts · 521 votes
6y
@Rene Smith make sure you have a PM knowledgeable with the area and section 8. I would almost recommend investing in a less risky area or your state given its your 1st time investing and you are not familiar with Chicago.
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Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
6y
Your costs for PM and Section 8 requirements will likely make it not a great first investment from afar. Section 8 is very consistent on the pay side, but tenancy can be an issue in some. Out-of-state investing is hard for first-timers and when you add on more things like Section 8, need of a PM, maybe no plans to be there, HOA requirements and potential assessments if it's a condo or townhouse, it's a lot to bite off for a first one.
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Account Closed
Investor · Ormond Beach, FL · Member since 2019 · 78 posts · 73 votes
6y
I would avoid Chicago/Cook County if at all possible. There is a new assessor that ran on a platform of reform. This past year, the North and West suburbs of Cook County were re-assessed under the new regime and while overall commercial property owners received an unpleasant shock, multifamily owners were particularly hit hard with higher assessments. The South Suburbs are being re-assessed this upcoming year (2020) and the City of Chicago itself in 2021. I can almost guarantee your property is looking at a significant assessment increase. At the very least, I would underwrite your RE Taxes assuming an assessor-assigned fair market value that is consistent with your purchase price. Cook County unnecessarily complicates the process used to calculate assessments and RE taxes. You will need to get familiar with the formulas. Finally, underscoring my advice to avoid Cook County altogether, I will add that the public employee pensions are severely underfunded. Elected officials are more than likely looking to shore these up via RE transfer taxes and overall RE tax increases. I hope you are successful in your endeavors.
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Erik Hatch
Rental Property Investor · USA · Member since 2018 · 325 posts · 222 votes
6y
@Rene Smith I’d advise against Chicago. Cook county is out of control with taxes and is contemplating rent control. Then adding section 8 isn’t too desirable in my opinion. There are so many many more desirable markets than Illinois. I live here so I’m boots on the ground half of the year.
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Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
6y
@Erik Hatch - Chicago isn't considering rent control, there is a state wide ban on it. So first the state needs to repeal it. The bill you are referring to was killed about 9 months ago and didn't get very far in the process. I think it is the 5th time they tried to overturn the statewide ban in the last decade and it never got far enough to even be taken seriously.
I have been a landlord in Chicago for 8+ years and have yet to have a section 8 tenant apply for one of my apartments. Cook county added section 8 to it's list of protected classes, but the applicant still need to meet your credit and income criteria.
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Erik Hatch
Rental Property Investor · USA · Member since 2018 · 325 posts · 222 votes
6y
@Brie Schmidt as @Rene Smith said the property is already rented to section 8, not my ideal tenant. I guess I’m wrong about the rent control issue. It’s just my opinion if Rene is out of state there are much better markets versus Illinois. It’s a bit unstable for me.
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Rene Smith
OP
Member since 2019 · 26 posts · 7 votes
6y
@Erik Hatch what markets would you reccomend for a first time investor?
@Brie Schmidt do you know anything about the 60628 zip code? What is your opinion about the increase from the assessor office that Craig Schumacher referred to?
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Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
6y
@Erik Hatch and @Rene Smith the great thing about Chicago's section 8 program is that if you mess up, they will ban you permanently. So while I know nothing about 60628 (except that I am not stepping foot in Roseland outside of an armored car) I know many landlord who have positive experiences with CHA.
Right now the increase is speculation in residential assets. Commercial assets have started to get hit hard but like Craig said, anticipate it now. For years we have been running our analysis for clients assuming the assessor will increase to the purchase price so investors aren't blindsided down the road
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Joseph Konney
Real Estate Agent · Forest Park, IL · Member since 2014 · 255 posts · 141 votes
6y
@Rene Smith - in a rough neighborhood, I would be very cautious to rent single family homes. When there is vacancy, it's a prime target for break-ins. I do invest in rougher areas of Chicago in Multifamily and install security cameras for piece of mind and mitigation of those issues. I've also been experimenting with the Ring alarm system which does monitoring for only $10 a month (no additional cellular or internet/WiFi required) on vacant property. It could potentially be an issue as you will get charged for false alarms, but it would help me sleep at night to know the property interior is still in tact. I also find that rougher neighborhoods of Chicago are taxed quite attractively compared to other parts of Chicago and the suburbs. I agree with @Account Closed that if you are concerned about being re-assessed you should try calculating and running your numbers at fair market value regardless of where they are at. Also look on the county tax website to see if they have any tax exemptions that you would not qualify for that are reducing their currently stated property tax.
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Erik Hatch
Rental Property Investor · USA · Member since 2018 · 325 posts · 222 votes
6y
@Brie Schmidt I’d like to connect with you. Maybe I just don’t know what I don’t know and you could show me some opportunities. Do you know @John Warren ? Been meeting with him occasionally.
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Keith Jablonowski
Property Manager · Lombard, IL · Member since 2013 · 99 posts · 82 votes
6y
Out of State, 1st time investor. I would stay far away from 60628. That area needs a seasoned, hands on landlord I would strongly advise against looking at this area and Chicago in general for your 1st property. Where are you located?
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Brie SchmidtBusiness Member
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Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
6y
@Erik Hatch - yes I know him well, we work for the same company.
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Eric M.
Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes
6y
Originally posted by @Rene Smith:
I'm thinking about purchasing a property in Chicago IL that is already rented out to section 8 tenant. Does anyone have any advise for a first time investor that is out of state?

Being out of state you are entirely at the mercy of your property manager. Happen to find a great one, wonderful. Happen to find a bad one, hold on to your wallet because its going to be a rough ride.
What is your guess? Are most property managers for section 8 housing great...or bad? So odds are not with you. When you call around to different PM's and inquire, the bad ones are going to very very attracted to you as an out of state owner. You are an easy target.
If you don't have a referral from a trusted source (not a random person on BP) for a great PM, I would personally be very wary.

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Rene Smith
OP
Member since 2019 · 26 posts · 7 votes
6y
@keith J- I am located in Southern California.
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Crystal SmithPro Member
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Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
6y
Originally posted by @Rene Smith:
I'm thinking about purchasing a property in Chicago IL that is already rented out to section 8 tenant. Does anyone have any advise for a first time investor that is out of state?
We weren't first-time investors when investing out of state but here's what we do. Have boots on the ground that we trust including:
- Realtor
- Attorney
- Handymen/Contractors
- Property Management
- Plane Tickets
- Local Partner
Essentially we treat out of state investments just like our local investments. I wouldn't sign a contract for an out of state deal until all of those elements are in place.
Regarding 60628- That covers 2 neighborhoods, Roseland & Pullman. Roseland is struggling. Pullman is benefiting from investments from organizations like the Chicago Neighborhood Initiatives, JP Morgan & others. I participated in a Habitat For Humanity Project building a home in Pullman last year. (All women building homes for women) There's a renaissance of sorts happening in Pullman. Pullman Renaissance.
312-681-7487
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Rene Smith
OP
Member since 2019 · 26 posts · 7 votes
6y
@Crystal Smith Thank you for the information.
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