Investing In Chicago Area

12 Replies

I am new to real estate investing and am looking for some guidance from people in the Chicago area. I have read a few books including "The Book On Rental Property Investing" by Brandon Turner and it has really grabbed my attention on how beneficial investing in rental properties can be to your financial state. I have been scanning the Chicago area and the suburbs west of the city to look for duplexes and triplexes that could get my portfolio going. Unfortunately the properties i have seen do not seem like very good investments. On the other hand i have looked at foreclosed properties in the west suburbs that seem as if they have great potential. My main question is for investors that are in the chicagoland area. At the moment what type of real estate investing is this area good for? i have my thoughts but i wanted to get insight from skilled investors. 

Why Chicago? Landlord/Tenant laws are terribly skewed in favor of the tenant. Property taxes are high, real estate is priced above average, and the better property you purchase, the less your margins will be. Again, why Chicago?

In my opinion, if you can't find one good deal in all of Chicago, you are probably not trying hard enough. Additionally, there are many areas in Chicago with more favorable taxes than the rest of the Chicago area Cook County suburbs. I have several commercial multiunit flats on the West Side of Chicago and am very happy with the cash on cash return here. I look for under market rent and value add situations. 

@Ray Harrell I have seen that the property prices are high here in Chicago. Unfortunately at the moment I am unable to venture outside the state to pursue real estate investing. What I have seen is a good amount of foreclosure properties that have ton of upside potential through forced appreciation. If I may ask what types of real estate investing do you partake in and why do you feel that this works in the Chicago area?

I have a multi-family in a D area, and I'm barely staying afloat. That's why I can't invest in anything else right now.

@Joseph Konney While searching for properties I have come across many that seem as if they have good value add potential. Do you only deal with commercial properties or have you looked at residential properties as well? 

On another note what is your take on the percentage of people renting in the west suburbs. I understand that it can very from city to city. But because I am looking to enter that side of the investing market I want to get a feel if the market is in a good place for this. Also if there is a source where I would be able to locate this information that would be much appreciated.

@Ray Harrell What would you attribute the struggles with? Is it poor tenants because of the area? Continual upkeep because of the location/weather? etc..

Neighborhood, vacancy (due to neighborhood violence), and delinquency (due to unstable tenant base), along with Chicago Residential Landlord Tenant Ordinance!!!!

@Nick Reeser - I look at both 1-4 unit residential and 5+ unit residential. I personally feel the the best value is in 5+ units so that is where I am mostly invested. Outside that, I have a live-in 2-flat in Forest Park. You can still find value with less than 5 units, but in my opinion, it is almost always better value with more units long term. Better for me is cash flow. If you have a heavier reliance on appreciation, the cash flow isn't as important and you may find greater value even with a SFR.

@Nick Reeser That Book is a great start for your education. I have a few rentals in the West Suburbs mainly in Cicero IL and Berwyn IL. Chicago can be difficult especially if you're not familiar with certain pockets. I would focus on the market that you're familiar with. I focus mainly in my areas around Berwyn because I know every block in it. That can be your unfair advantage and can lead to a good deal.

@Nick Reeser the Chicago market is a great place to invest in many ways. We live in the third largest MSA in the United States and there are still plenty of cash flowing opportunities. I recently sold a two unit in Forest Park on the MLS that should have double digit COC returns. The opportunities are there, you just have to be ready to strike when they show up.

I realize you are looking very broadly because you are new and have not focused in one some niche yet. 

The answer is the "Chicago Area" is good for all types of investments right now and most always. That is because the Chicago Area is very large and diverse. All areas of Chicagoland are not good for all types of REI but for every type of REI there are good areas and for every area there are good types of REI.

To get meaningful info you need to look closer and with more nuance. Some local areas are better for some strategies and some worse. The good thing is that you get to pick. The bad thing is there is not one answer to your question that fits all.

As a very general rule, the south side and more working class areas are better if you are a cash flow investor. Those areas and that strategy have pros and cons as all of them do. You tend to have more tenant issues and will have to deal with eviction laws, etc and you will tend to get less appreciation. In these areas, flips are lower priced and faster and make less money per flip so you need to do more of them.

In some nicer areas, you will see much lower cap rates and much lower cash flow. But you will generally see much great price appreciation and have fewer and different type of tenant issues. In these areas, flips are more expensive but if done right can make more per flip and you might need to do fewer to make the same total profit.

In the suburbs, it can be a mix of both depending on the area and the level of the property. 

In every area, there are always opportunities for forced appreciation by rehabbing and repositioning a property. But that is a skill in itself and not always simple and easy. The idea of forced appreciation is fantastic and powerful but there are a lot of ways to do it wrong, especially in multi-family.  Pretty much everyone knows the basics to flip a house to force appreciation. They know what features people want in a house. Multi is different and not as easy in my opinion. But the fact that it is not as easy also makes it an opportunity.

Auctions, foreclosures and distressed properties can be good opportunities or dangerous opportunities anywhere. Buying unseen at a foreclosure auction is a crapshoot, but it is also a legitimate, good strategy if you know what you are doing. In the past several years, there have been many many fewer foreclosures so some would say not as much opportunity there. Things may be starting to uptick there a bit. I am not sure how you are identifying the "forced appreciation" you are seeing in foreclosed properties. It is very hard to analyze these things from public data since you have no idea what type of investment was needed to "force" the appreciation you are seeing. This is also the flaw in ALL the flipping data you see in the news. None of it means anything because you don't know what the investor invested in the rehab.

I know people who only do vacant land and who only do commercial and those people think those are good. There is opportunity in all. None are necessarily easier or harder or better or worse, and there are no guarantees. There is no one right answer to "what is good".

The point is you need to focus a bit more on what you want or where you want to do it. Find something you are interested in and then look for the opportunity within that. There are many paths to success.

@Nick Reeser  At the moment what type of real estate investing is this area good for? i have my thoughts but i wanted to get insight from skilled investors.

Because of the size of the market (3rd largest MSA), pricing compared to the left & right coasts, & the airports Chicago is still one of the best markets for real estate investing.  As with all large cities Chicago has submarkets which go up and down with cycles.  When one submarket goes down, another may go up.  An indication of that is permits.  In 2018 there was an overall 3% decrease in new construction permits year over year but a 2% increase in renovation permits (excluding porches).  (Attribution to Root Realty)

This doesn't include the suburb.  And some of these are large commercial permits, but back to your question "what type of real estate investing is this area good for?"  Just about everything.

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