Saint Charles, IL · Member since 2017 · 12 posts · 3 votes
Based on the current economy with rising taxes and a slow exodus, what would your investment strategy be and why? Is it still a good opportunity for rentals or should we be looking to get in and get out (flips) as fast as possible? I know the play is different in the city vs rural areas, but I'm curious where everyone thinks Illinois is going.
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
9y
My strategy never changes based on the economy- I buy and hold, only consider 1% or better deals within a certain area and price range. If you change your strategy based on the economy, you are bound to have problems. I don't have any idea about the market in Illinois, but for me, when the economy changes, the only thing than changes for me is how many of those deals I can find; In a "hot" market or economy, fewer deals, more competition, easier to get money. Everything is opposite in a cooler market climate.
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
9y
My strategy never changes based on the economy- I buy and hold, only consider 1% or better deals within a certain area and price range. If you change your strategy based on the economy, you are bound to have problems. I don't have any idea about the market in Illinois, but for me, when the economy changes, the only thing than changes for me is how many of those deals I can find; In a "hot" market or economy, fewer deals, more competition, easier to get money. Everything is opposite in a cooler market climate.
To tag on what Corby mentioned, no one can control the macro level.
Most parts of Chicago are growing, not so sure with the rest of the state. I have both rentals and flips going on, but I will keep buying and selling - as long as the numbers make sense.
The network of investors I know in the Rockford area are still buying properties to hold when the numbers work. With prices climbing this summer it is important to not get caught up in emotion.
Personally, I am still looking local but am also working to expand my knowledge of the surrounding areas in Wisconsin and Indiana plus other areas that I have connections to in Alabama and Pennsylvania. I will continue to invest in Illinois but will also diversify when it makes sense (and that time is getting closer).
Have you been looking out of state? If so, are you looking at turnkeys?
Ottawa, IL · Member since 2016 · 242 posts · 107 votes
9y
I agree with @Corby Goade said. And to follow up with that (and as you said) I think it's really strategy should really be based on the demands of that market. I think certain places will always support flips (more or less) and others will always support rentals (more or less).
For me, what I see here, rentals are still great, but we could really use more flippers here for the lower end (not luxury flips) that can get more of our buyers into houses. Our market has always been nice to good flippers though and likewise, we have a very big number of people who invest exclusively in rentals (SFH, multiunit and complexes) with good results! I don't see it as an economy issue all that much.
Flipper/Rehabber · Crown Point, IN · Member since 2009 · 482 posts · 216 votes
9y
I agree with what has already been said. If you can find a good deal, then I wouldn't worry about the economy too much. You also might want to look into Northwest Indiana. The property taxes are much lower than Illinois and that only adds to your profit. We have a lot of investors buying out there and for good reason. I'm not saying to stay out of Illinois, I just think NW Indiana has a lot to offer. Purchase prices are also very reasonable and the rent prices are not much lower than Illinois. Plus Illinois is losing people in droves and many of them are moving to NW Indiana. So home values are on the rise as well.
Real Estate Consultant · Chicago, IL · Member since 2014 · 720 posts · 439 votes
9y
@Casey Wohl , Cash flow is king! Buy with the best terms possible, if it's up to four unit, get residential, fix 30-year loans and make sure you have good cash flow, also, buy in the best neighborhood you can buy. Markets next to the hottest neighborhoods. You can ride all markets with these type of properties!
Saint Charles, IL · Member since 2017 · 12 posts · 3 votes
9y
@Craig Wilcox,
I considered turnkey but I'm new to REI and need to cut my teeth before I take the easy way out.
I have looked at Northern Indiana but need to play in my backyard before figuring out how to invest at a distance.
All,
I appreciate everyone's feedback. It reassures me that as long as the numbers make sense and you have multiple exit strategies, we can survive the market changes.
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
@Craig Wilcox"What will you do if you see another 2008 coming?" That's the thing, you won't see it coming. It won't be derivatives on the secondary market with questions about who actually owns the overly inflated note, this time. It is more likely to be a domino effect called "contagion" of some financial event like failures of major banks in Italy and Cyprus or some other odd "black swan". We made it through the Savings and Loan crisis, we made it through the Tech Bubble burst, we made it through 9/11, (boy has that been expensive), we made it through 2008, albeit painfully, and we'll make it through the coming challenges. The key is to not have exposure when that happens. That is one difference between conventional buy & hold vs Subject To. With Subject To, you have less risk and weather the storms.
Here is a list. I have a spread sheet as well. When you buy a house conventionally, you put 20% down so a $200,000 house means you are into it for $40,000 plus closing costs and carrying costs.
When I buy a $200,000 house with Subject To, I am into to it $100 down, maybe $5,000 to the seller for "walking money" and some closing costs. I'd much rather rather risk about $7,000 than $40,000 etc.,
OPTION 1:
OPTION 2:
When Seller Uses RE Agent & Your’e Using Property For a Rental
When Buying Subject To & Selling to Tenant Buyer
Pro:
Doesn't require specialized knowledge
Pro:
Little competition
"Adequate" cash flow - Nothing Exciting
Can be little $ down
You get appreciation if property goes up
Can do Unlimited number
Can Get Started Much Sooner
Get down payment (Cash $) back immediately
Great Cash Flow
No Bank Approval Needed
No Maintenance or Repairs
Con:
Have To Have $45,000 Cash for Down Payment
Con:
Have To Have $15,000 Cash For Reserves (just in Case)
Have To Have $15,000 Cash for Closing & Carrying Costs
Manvel, TX · Member since 2017 · 21 posts · 7 votes
9y
@Account Closed I would definitely be interested in learning from your spreadsheet as well- if you are offering. I was already searching the BP podcasts for Subject-To episodes, and this criteria fits my needs perfectly.
Investor · Scottsdale, AZ · Member since 2016 · 1k+ posts · 885 votes
9y
@Joseph Ali Sure, the spreadsheet I am working on doesn't yet have the elegance & visual simplicity that I am striving for but it will do for now. This is part 1 - I'll post the next section immediately following
When Seller Uses RE Agent & For Using Property as a Rental
When Buying Subject To & Selling toTenant Buyer
Asking Price MLS
$225,000
$225,000
Balanced Owed
$223,969
$223,969
RE Agent 6%
$13,500
$0 No Agent Involved
Seller Brings to Closing
($12,469)
$0 So No fees
Asking Above ARV
$0
$0
Seller Walking Money
$0
$0 Sometimes Walking Money
If I Use ConventionalFinancing
If I UseSubject To
Asking Price MLS
$225,000
$225,000
Amount Down - 20%
$45,000
$100 (I Give $100 Down)
New Loan Amount
$180,000
$223,969 I Take Over Loan
Title Report
$600
$600
Closing Costs
$1,250
$1,250
Monthly Payment
$1,151
$1,225 I Take Over
Existing Payment
You can readily see that Conventional Financing requires much more money along with good credit. Subject To doesn't require much money and no credit requirement
Based on the current economy with rising taxes and a slow exodus, what would your investment strategy be and why? Is it still a good opportunity for rentals or should we be looking to get in and get out (flips) as fast as possible? I know the play is different in the city vs rural areas, but I'm curious where everyone thinks Illinois is going.
Our strategy w/ respect to Illinois is to continue to invest in the Chicagoland region. This includes single families to flip & multis & apartments to hold.
Why?- While Illinois may have some problems the Chicagoland area is the 3rd largest MSA in the country (New York & Los Angeles are #1 & 2) It's large & diverse. & when compared to trying to do business in NY & LA, it's affordable.
Based on the current economy with rising taxes and a slow exodus, what would your investment strategy be and why? Is it still a good opportunity for rentals or should we be looking to get in and get out (flips) as fast as possible? I know the play is different in the city vs rural areas, but I'm curious where everyone thinks Illinois is going.
Buy and Hold is normally a strategy that makes it through even the hardest times.
Saint Charles, IL · Member since 2017 · 12 posts · 3 votes
9y
@Ken Min This sounds great for a buyer but what are the Pro's and Con's for the seller? How do you have a conversation with them to make them feel at ease with the process?
Investor · Away · Member since 2017 · 167 posts · 131 votes
9y
Wow I learned so much on Subject To's here, that was great, thanks! As to what you should do as an investor, well you might want to look for macro solutions to macro problems. If you are concerned that people are migrating I would look to see where they are migrating to and begin to size that market up for expansion. Texas has something crazy like 45%-50% of the total national internal migration numbers but if I were to look specifically at cook county I can tell you that there is a ton of migration away from there primarily to Arizona, California, and Florida. Thats not hypothetical that is census data so you might want to look into going one or all of those places. Another tact to take is to look at your one area of control, expense, and lessen it by investing to hold in states that are going to tax you the least. That is my two cents on the matter and without knowing you or your portfolio exactly we can only speak generally. Good luck!
My strategy never changes based on the economy- I buy and hold, only consider 1% or better deals within a certain area and price range. If you change your strategy based on the economy, you are bound to have problems. I don't have any idea about the market in Illinois, but for me, when the economy changes, the only thing than changes for me is how many of those deals I can find; In a "hot" market or economy, fewer deals, more competition, easier to get money. Everything is opposite in a cooler market climate.
Corby can you explain what you mean by %1 or better deals??
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
9y
Hey @Cam Jimmy, sure. I look for properties that the monthly rent will be 1% or more of the price of purchase, closing and repairs. That's generally a good way to quickly determine if I should look more closely at a property. So, in general, if purchase price is 85K, closing is 5K, repairs are 10K, it would cost me $100K to get a place rent ready. If I don't think I can either get the purchase price down to $85K or less OR rent of $1K per month or better, I move on to the next deal.
There are many more variables, but that's a good quick indicator for me.
Real Estate Agent · Jacksonville, FL · Member since 2015 · 1k+ posts · 1k+ votes
9y
The trend is your friend. Granted, there are always exceptions to the rule. I follow the numbers where ever the market takes me. A few years back I was buying at the beach, now I am in town. I have seen multi family generating great numbers and SFH. I rarely find the number taking me to A neighborhoods. As long as I stay true to my numbers, I am going to be fine in a worst case scenario. I can rent my properties below market and meet my fixed expenses and get through any storm. What will change is if I am net buyer or seller. Today, i am a net buyer. I will reassess that decision every day.