Chicago Investing / Property Taxes

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Chicago Investing / Property Taxes

Edit B.
Rental Property Investor · Sacramento, CA · Member since 2016 · 93 posts · 85 votes

I'm originally from Chicago, but moved out to the west after college and bought my first MF duplex in Sacramento. Sacramento investing has a lot of bonuses -taxes are pretty low(~1%), rents are high, appreciation is high, and fairly new construction. The only con at the moment is high competition, and prices have sky rocketed. So naturally I'm looking elsewhere and I still have family in Chicago.

The picture I'm getting from Chi is low appreciation, fair rents, fair prices(not a very hot market) and very very high property taxes. So my question for you guys is how do you swallow the tax pill? I'm looking at a property on MLS going for 430K being taxed at 13.9K. That, that's roughly 3.2% and unbelievable to people in other states.

Considering all of this, what is your cash flow looking like? Is it increasing/stable or declining year by year? Are rents keeping up with increasing taxes? What makes it worth it for you guys? - For me it seems like a pretty risky market,  taxes can kill cash flow and property values

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Crystal SmithPro Member
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Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
9y
Originally posted by @Edit B.:

Considering all of this, what is your cash flow looking like? Is it increasing/stable or declining year by year? Are rents keeping up with increasing taxes? What makes it worth it for you guys? - 

Chicago is worth it for us because it is the 3rd largest Metropolitan Statistical Area (MSA) in the US, which includes Chicago proper, south & northern suburbs & western suburbs out to Naperville & Joliet.  Chicago proper has 77 distinct communities & when you add up all the suburbs the number of communities is well over 200.  We think of Chicago as  100+ sub-markets, which make it a target rich environment to find opportunities where we can meet our hurdle rate goals.  Some submarkets are better than others for our particular strategy where we combine purchasing SFRs to flip along w/ purchasing distressed Multi's to renovate then hold.  We buy in other markets as well but Chicago remains the focus because of its size & costs.  

Regarding taxes- We've increased rents ~7% between 2016 & 2017 on our holdings.  Expenses, including taxes, have increased ~4%.  In some locations the property value has increased 10 to 15%;  in others, there's been no increase. 

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  • Elbert D.
    Real Estate Entrepreneur / Investor · Chicago, IL · Member since 2016 · 688 posts · 367 votes
    9y

    how's it going @Edit B. that's good you started investor early as possible. Yeah I heard how competitive it is in California now. Not just Northern California but also southern. The same thing I heard about is happening in Florida as well. Chicago is actually appreciating well in some areas. The north side is really good for flips. That's if you jump on it very quickly. And overal if you look in the right area taxes are below 4500. Lowest I seen was 1400ish. Also consider Indiana especially if you are lookjng for rentals. The Taxes are lower and the laws favor landlords compared to Illinois. The cash flow is excellent in both states you just have to know where to look. PM me and I can discuss in more details and help you further. 

    1Reply
  • Van Blackman
    Real Estate Broker · Chicago, IL · Member since 2015 · 122 posts · 103 votes
    9y

    Hi @Edit B.!

    Couple things:

    1. As in any market, there are areas in Chicagoland where taxes are low, appreciation is high, and cash-flow is STRONG. One of these areas in the Chicago area would be Dolton, IL, for instance. You can find $80k homes here that will rent between $1200-$1500 per/month! That's close to a 200% rent figure compared to the value. Taxes, I'd imagine, are low here. The truth is, there are a lot of areas on the south side that are worth investing in, but you really need to be educated on these areas before you dive into it. A couple blocks in several directions could take you into an area you may not want to be.

    2. I want to suggest a slight argument to your comment above on Chicago not being a hot market. Of course, it may not be as, say, Denver, but inventory is extremely low in Chicago right now, and prices are going up. No need for a supply & demand lesson right now, but it's a sellers' market. If you're an investor, as long as you can find a deal, once you go on to sell, or lease, you should be in good shape depending on the quality of your work and pricing.

    Hope this helps! Feel free to contact me for any reason!

    Good luck.

    Best,

    Van

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  • Jeff Burdick
    Investor · Chicago, IL · Member since 2016 · 515 posts · 247 votes
    9y
    Originally posted by @Edit B.:

    I'm originally from Chicago, but moved out to the west after college and bought my first MF duplex in Sacramento. Sacramento investing has a lot of bonuses -taxes are pretty low(~1%), rents are high, appreciation is high, and fairly new construction. The only con at the moment is high competition, and prices have sky rocketed. So naturally I'm looking elsewhere and I still have family in Chicago.

    The picture I'm getting from Chi is low appreciation, fair rents, fair prices(not a very hot market) and very very high property taxes. So my question for you guys is how do you swallow the tax pill? I'm looking at a property on MLS going for 430K being taxed at 13.9K. That, that's roughly 3.2% and unbelievable to people in other states.

    Considering all of this, what is your cash flow looking like? Is it increasing/stable or declining year by year? Are rents keeping up with increasing taxes? What makes it worth it for you guys? - For me it seems like a pretty risky market,  taxes can kill cash flow and property values

     I imagine your example is in the suburbs?  I have a multi-family in the city of Chicago worth about 440K and its taxes are $5500.  

    I disagree that Chicago is not a very hot market.  It might not be as hot as some other cities, but deals are very tough to find right now and prices have been going up rapidly over the last year-plus now.   

    Rents have been steadily going up as well.  A unit I have that was rented for $1280 just a year and a half ago is now renting for $1425.  Some of this is neighborhood specific though.  What neighborhoods/class/price range are you interested in?  

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    9y

    @Edit B. - I have no idea where you are looking, but where I work on the north side it is a very hot market with good appreciation.  here are examples of what clients are seeing on the north side of Chicago

    https://www.biggerpockets.com/files/user/chicagobr...

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  • Edit B.
    OP
    Rental Property Investor · Sacramento, CA · Member since 2016 · 93 posts · 85 votes
    9y

    Thanks for all the helpful feedback, this put me on the right path to beginning to understand Chicago better. I stand corrected on the type of market- it looks like in general its a warm sellers market. I'm a little conditioned by living in an extreme demand area over here, and compared to this everything seems like a cold market. 

    Aside from the above it looks like Chicago is more diverse in at least a couple ways. One, it seems like its very block by block, or neighborhood by neighborhood, and I'll need to do a good amount of research on very small regions within Chicago as opposed to just north,south, etc, as it is here by me. Second is taxes. A fun fact for anyone interested in CA- In California we have state legislation(Prop 13: https://www.californiataxdata.com/pdf/Prop13.pdf) preventing property taxes from increasing by more than 2% each year and it resets to 1% every time the property is sold which allows owners to estimate taxes and make more knowledgeable decisions. With this legislation local jurisdictions were no longer able to uphold their own rates. Which is why I was confused about Chicago but now I understand that different jurisdictions have different rates. 

    @Van Blackman, @Brie Schmidt, @Jeff Burdick, @Elbert D. do you recommend any good regions or neighborhoods that are growing and good in terms of rental potential. By good, I mean around B areas, good CAP rates, and decent appreciation. I'll be flying down to do my own research in person but want to start by looking at them on paper.

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    9y

    I think anything in this area @Edit B.

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  • Vincent Mazzaferro
    Rental Property Investor · Elmwood Park IL · Member since 2016 · 45 posts · 10 votes
    9y

    What is a good cap rate where your at in California? In Chicago, I see MLS listings usually priced around a 5% Cap rate.

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  • Edit B.
    OP
    Rental Property Investor · Sacramento, CA · Member since 2016 · 93 posts · 85 votes
    9y

    I'd say about 5% is where they are at right now on MLS- slightly higher in South of Sacramento, but those are mostly D areas

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  • Ashley Pimsner
    Rental Property Investor · Saint Charles, IL · Member since 2014 · 304 posts · 222 votes
    9y

    @Edit Beluli. To hone in one expense when evaluating an investment property in a parricular region is very short sighted and counterproductive...analysis by paraysis.

    Case study- purchase price 164k for a 3 flat built in 2008 in Little Village, Chicago 60623, real estate taxes $3723 or 2.27% of PP closed 3/17.

    Rental income $3264-fully occupied when purchased,  or 2.13% which exceeds 2% rule? 

    $2326 out of $3264 is section 8 directly deposited into my account.

    Appraised for 212k-48k over PP of 164k.

    Are real estate taxes still important?

    0Reply
  • Ashley Pimsner
    Rental Property Investor · Saint Charles, IL · Member since 2014 · 304 posts · 222 votes
    9y

    Apologize for mispellings, but you get my drift.

    0Reply
  • Ashley Pimsner
    Rental Property Investor · Saint Charles, IL · Member since 2014 · 304 posts · 222 votes
    9y

    PITI=$1285

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  • Edit B.
    OP
    Rental Property Investor · Sacramento, CA · Member since 2016 · 93 posts · 85 votes
    9y
    Ashley, I catch your drift. In your specific case your rental income reduces all other variables to almost nothing. But you're talking $3264 monthly income on a $166k investment. Where do you find something like that if you dont mind me asking?
    2Reply
  • Ashley Pimsner
    Rental Property Investor · Saint Charles, IL · Member since 2014 · 304 posts · 222 votes
    9y

    @Edit Beluli

    Copied from prior post.

    Case study- purchase price 164k for a 3 flat built in 2008 in Little Village Chicago 60623, real estate taxes $3723 or 2.27% of PP closed 3/17.

    Granted this is a C to C- area but I lost 12 straight deals over 6 months in this area before I landed this one and know it well.

    I walked up and spoke to police officers sitting in their vehicles and told them I was an investor and gave them addresses and they in turn told me which addresses and areas were good and bad. One officer was actually an investor herself and had a few multis in the Humboldt Park area of Chicago so she gave great insight into area.

    My point is that these deals are still available in Chicago even with higher taxes (certain areas of city qualify for 19% tax abatement if rented by section 8) and I protest taxes every year on every property- but I had to lose 12 straight bidding wars over 6 months before I got lucky.

    1Reply
  • Crystal SmithPro Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2014 · 2k+ posts · 1k+ votes
    9y
    Originally posted by @Edit B.:

    Considering all of this, what is your cash flow looking like? Is it increasing/stable or declining year by year? Are rents keeping up with increasing taxes? What makes it worth it for you guys? - 

    Chicago is worth it for us because it is the 3rd largest Metropolitan Statistical Area (MSA) in the US, which includes Chicago proper, south & northern suburbs & western suburbs out to Naperville & Joliet.  Chicago proper has 77 distinct communities & when you add up all the suburbs the number of communities is well over 200.  We think of Chicago as  100+ sub-markets, which make it a target rich environment to find opportunities where we can meet our hurdle rate goals.  Some submarkets are better than others for our particular strategy where we combine purchasing SFRs to flip along w/ purchasing distressed Multi's to renovate then hold.  We buy in other markets as well but Chicago remains the focus because of its size & costs.  

    Regarding taxes- We've increased rents ~7% between 2016 & 2017 on our holdings.  Expenses, including taxes, have increased ~4%.  In some locations the property value has increased 10 to 15%;  in others, there's been no increase. 

    312-681-7487
    6Reply
  • Marc Allen
    Golden, CO · Member since 2016 · 23 posts · 9 votes
    9y

    Hi @Edit B.  - I asked a similar question a couple weeks back. 

    https://www.biggerpockets.com/forums/556/topics/45...

    My post is more targeted at the Chicago suburbs, rather than the city. Property taxes are absolutely crazy and just keep increasing. While the city is still cheaper than the Chicago burbs, after average increases of 12.8% last year, and around 10% this year, we'll see how quickly it catches up.

    0Reply
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