Hey All! New Member Here! From NJ, moving to Chicago

19 Replies

Hey Everyone!

Newbie here, born and raised in central NJ! I've been spending the past many months reading and reading and reading, and 2018 is the year to start diving in! I've learned a ton both on this site (the sheer volume of information and helpful folks is outstanding!), listening to podcasts, and books, and I'm ready to put pen to paper and take some action. That said, I'm hoping by getting involved with the community, I'll continue that learning process and meet some awesome people while I'm at it!

As a long term goal, I'm hoping to build a portfolio of rentals that will eventually replace the income I make now so I can retire early. I'm a Consultant specialized in Marketing/Sales, and while I like what I do, I don't want to do it forever! To supplement my 401k, IRA, and brokerage accounts, I want to use real estate as an additional vehicle to invest in.

To start, I'm currently looking in Northern Indiana (e.g. Warsaw, IN) for single family or small multifamily properties. While I'm local to NJ, the prices in this area are a bit steep, especially for my first purchase to get my feet wet. I honed in on Indiana for a couple reasons. 1. I have cousins in the area to provide some boots on the ground for when I can't travel (which I plan on doing!). 2. I'll likely be moving to Chicago in the next 2-3 months so I'll be a bit more local shortly, at least within a drive.

I'll close by saying I'm looking forward to getting involved, looking forward to meeting people, and looking forward to finding my first deal!

Thanks!

Regards,

Jeremy

@Jeremy Holzwarth Welcome! I'm also a new investor relatively new to the forums. Sounds like you're pretty set on investing in IN. Have you looked at Trenton in NJ? I recently took a trip there and seems like there are a lot of affordable single and multi-families which would make great first investments. 

@Dave Visaya Thanks for the welcome! Glad to be here and I'll be sure to jump in and ask around for help!

@Jinyu Shao Thanks for the welcome as well! Trenton is a great suggestion and you're spot on that in NJ, it's one of the areas where you can find some affordable properties. I looked into it for the exact reason you mentioned, but personally not my cup of tea for a couple reasons. 

1. NJ really as a whole has absurdly high property taxes. The effective property tax rate in NJ is 2.35% (for comparison, in Indiana it's 0.87%). That means for a $180k property, I'd be paying around $4,200 annually in NJ (in Indiana it'd be $1,600). I've run some numbers on some Trenton (and New Brunswick and Newark) properties, and while it's not insurmountable by any means, it certainly makes it more difficult!

2. Trenton specifically has a lot of C and D class neighborhoods and you really need to know the area intimately well to know which areas are good to buy and which aren't. It always seems like certain neighborhoods are "2-3 years away from being on the up and up", but yet I feel like I've heard that same story over the years. 

I'm sure there are great opportunities in Trenton, but especially for my first investment, the conclusion I came to was that a tricky area like that would be a bit risky. Certain open to other opinions though!

@Jeremy Holzwarth Trenton is definitely not for everyone but is a great way to get in and learn the process of investing on a local level. If you plan on moving and investing in Indiana I think it's a good idea to stick to your plan. If you bought property here and moved you'd have to hire a Property Manager which will cost 10% of your rent to manage. 

As Justin mentioned, definitely come out to our Princeton meeting this month. You'll meet a ton of great people (including me and Justin!) there. Check out our calendar of events on sjreia.org

Couple comments I'd add.
1) You're moving FROM the cold (NJ) TO the cold (CHICAGO)? I'm questioning your decision making skills already. But welcome to the Arctic Circle that is Illinois. :-) 

2) You're right about property taxes being much better in Indiana. Wait til you buy a house in Illinois though. There are towns where the tax rates are 4 to 5%.  

btw: Indiana has a cap on taxes for owner occupants that they can be no higher than 1%. But for investors that cap is 2%.  So keep that in mind when looking at property taxes. Those taxes may have been based on an owner occupant owning the property and you may end up paying more as an investor.

3) The other plus with NW indiana is that its seeing a lot of growth that is likely only going to continue. People and companies in Illinois are have reached the tipping point in terms of taxes and are jumping ship over the border where possible. And Landlord laws are much friendlier there too. 

The price/rent ratios seem pretty good too. Having the relatives there to manage will be a huge leg up for you.  You should do extremely well.

@Justin Fraser , @Erik Cabral , thanks for the welcome and for sure I'll try to check out SJREIA meetings in the next month or so! I work in Princeton and live right next door in Plainsboro so if I'm in town hopefully I can swing by and introduce myself in person.

@Mike H. What can I say, I'm actually a fan of the cold (I know, my family in Houston and Florida don't understand it either)! I went to grad school in Michigan and my SO is in Minnesota so back to the Arctic Circle I go!

Interesting point about the property taxes in Indiana though, I figured there was some local variation but wasn't aware of the difference in caps for owners vs. investors. Definitely appreciate the insight!

Great to hear there are other benefits in Indiana as well! I'll admit I initially looked in the Chicago area and found exactly what you're describing - high prices and high prices. The landlord laws are a bonus as well, that's something I definitely need to learn more about. Appreciate the kind words and advice!

Hello and a future welcome to you. Im assuming your going be working downtown Chicago or in the west or northern suburbs of Chicago. Also, if your looking for rental properties that cash flow I'll look into NW Indiana as well. The taxes are cheaper than Illinois and it also doesnt take no more than a hour to reach certain towns in NW Indiana to get to downtown Chicago!(excluding the traffic) Of course thats not to say Chicago doesnt still have cash flowing properties, because they do but its much much harder to find due to the taxes killing the cash flow. Not to mention the landlords have to pay garbage and water bill as well.Best of luck to you and safe travels. Let me know if I can assist you.

@Odie Ayaga Thanks for the welcome and kind words! It's a great question - here's a rough plan of how I could see my next 5 years playing out. This assumes I'll be saving $15-20k per year to invest, reinvesting all profits, and the average property I buy costs $100k with 20% down and cash flows $5k per year.

By end of year 1:

Units: 1

Cash flow: $5k

Savings: $15k

Total to reinvest: $20k

By end of year 2:

Units: 2 (1 new)

Cash flow: $10k

Savings: $15k

Total to reinvest: $25k ($5k extra)

By end of year 3:

Units: 3 (1 new)

Cash flow: $15k

Savings: $20k

Total to reinvest: $40k ($15k + $20k + $5k extra from year 2)

By end of year 4:

Units: 5 (2 new)

Cash flow: $25k

Savings: $15k

Total to reinvest: $40k

By end of year 5:

Units: 7 (2 new)

Cash flow: $35k

Savings: $15k

Total to reinvest: $50k ($10k extra)

So long story short, with some assumptions, I'd shoot for around 7 units in the next 5 years and ideally continue to ramp up beyond then. If there are opportunities to accelerate I certainly wouldn’t be opposed since my long term goal would be to completely replace my current salary with passive rental income.

@Elbert Dockery You’re spot on! My job would have me working right downtown Chicago on the northern end of Millennium Park. Thanks for the insight and it sounds like NW Indiana is a solid area to take a closer look at. As I make my way out there, I’ll be sure to keep in touch!

@Grant Rothenburger @Maria C Quimpo Thanks for the welcome!

@George Skidis Thanks for the tip and I will absolutely look into the Chicago Creative Investors Association when I’m out there.

@Bianca G. Thanks for the kind welcome!

@Odie Ayaga At least in the short term I'm focusing on SFH, but I would consider small 2/3/4 plexes as well. In the medium to long term as I start to scale, then I think I'd start to shift focus to larger MFH. Out of curiosity, what's been your focus and strategy? How has it evolved since you first started?

I got into the flipping side of real estate, but I'm moving into notes as well as what I could best describe as real estate consulting. I'd like to get into rentals one day for all the benefits they provide but more at the point where it's more like 50 units

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