Chicago Market for First Investment Property - Yay or Nay?

Question

Hello Everyone,

I'm interested in purchasing my first investment property in Chicago next year.  Trying to gather some thoughts/opinions on the market and maybe some specific neighborhoods to research further.

I'm currently renting in metro-Detroit and originally planned on setting up show here due to lower cost of living and affordability.  However, I love the city of Chicago and see the future potential from an investment standpoint.

If anyone has any thoughts/opinions (negative or positive) I would love some feedback.

Brian Moore · Answer

@Marcin Talaga Chicago is far from becoming the next Detroit. It all comes down to employment growth which will drive real estate demand. People talk a lot about the Chicago and State of Illinois issue of scarily underfunded pensions but employers have "voted" for sticking in Chicago by employing 450,000 more people since the bottom of the great recession. Chicago has about 100,000 more people employed now than ever before and all those working people need places to live.

See my recent posts showing employment for Chicago and Detroit here.

(NOTE: These are my counterpoint to @Sid Franklin's hysterical rants about higher taxes coming. Of course higher taxes are coming, but so are higher property values and Cook is not anywhere near the highest taxed counties (as a percent of property values) so it is not unexpected.)

Jeff Valentino · Answer

I don't work much in the city but keep an eye on it for some clients. I also typically recommend first time investors stay out of the city for reasons mentioned above unless they really know what they are getting into. My rentals are in the suburbs and most outside of Cook county.

All that being said, real estate in Chicago and suburbs is doing fine. Speaking as an agent dealing the retail and investment markets I can tell you that well priced properties move quickly and competition for "deals" is high. There is still plenty of money around and lots of transactions are being done. Rental demand for quality units is still high. Proper marketing usually gets multiple applicants etc etc.

It is a massive market-you can find deals and tenants. July saw the following sales #'s by county

Cook 62k sales at avg price of 301k

DuPage 14k sales at avg price of 312k

Lake 10.5k sales at avg price of 299k

Kane 7k sales at avg price of 232k

Will 10.5k sales at avg price of 220k

Even rough neighborhoods like Englewood are still seeing steadily less inventory, lower market times and climbing prices. I live in the suburbs in Cook county, so I get the problem w taxes and issues here, but I still prefer IL vs IN for right now.

Good luck!

Marcin Talaga · Answer

Chicago is tricky because it almost has this feel that it can become the next Detroit.  The whole city and now state are so poorly managed and in such financial disarray that just living here is worrisome, not to mention trying to invest here.  If you are going to start investing around Chicago, I'd get familiar with the  suburbs, especially outside of cook county.  I started off investing in Chicago but have myself decided to start looking at the far suburbs in Dupage county or going over to Indiana or Wisconsin.

Stavros B. · Answer

Hey Andrew! You should connect with @Eric La Pratt, he used to live in Ferndale (house hacked a Duplex) before moving to Chicago. He's now in the middle of a rehab of a quad somewhere in the city. I'm sure he can lend some insights!

Chris T. · Answer

@Andrew Abbott Trust your local connections who are involved in RE. And they can point you to a few areas.

Keep in mind not only does Chicago love its taxes, the state of Illinois is not doing well either. Which means either 1. Higher taxes 2. Reduce services and/or combination of both. Personally I would avoid HOA but it's tough to do that in the city.

You make money when you buy, AND location, location, location especially (close to public transportation)

welcome!

Eric La Pratt · Answer

Hi @Andrew Abbott. Thanks Stavros B..

I'm interested in the driving force behind why, of all the places in the world, you've come to narrow your REI search between Chicago & Detroit. It sounds like there is more behind it other than cost of living + affordability vs. future investment potential. Certainly I think there may be better options in terms of markets than those two (not knocking either as Stavros mentioned I'm in both).

What are your goals? What are you looking to create?

Crystal Smith · Answer

What are your investment goals?  That would help in providing some guidance.

Marcin Talaga · Answer

@Brian Moore Good insight and love the confidence.  It feels like Chicago is constantly growing, and lots of great things are happening especially in the west loop and some of the hot Chicago neighborhoods but it just feels like the middle class is constantly being beat up.  Every year property taxes are increased yet it feels like nothing is done with the extra money.  Roads are the worst, schools are closing, not nearly enough cops on the job, etc.  Garbage collection is supposed to be included in our property taxes, yet they increased property taxes and then added a garbage fee on top of that.  The sales tax is one of the highest in the country, they've raised the cost of water and sewer tremendously over the last 10 years, and so it just starts to feel as unless you are really banking you won't be able to afford living in the city.  I thought I would be a Chicagoan my whole life, but every year it becomes harder to justify staying in Chicago, and therefore I just feel if I might end up having to move out of here myself, maybe I should invest outside of it as well.

Christopher Barrett · Answer

@Ryan Canfield Hi Ryan,

No we haven’t started looking yet, we just moved to Chicago in the past year so looking to buy one next year. We need the year to continue saving the rest of our down payment and research the neighborhoods in Chicago.

That is good advice to start looking early because as we are on the same page, I also foresee finding a place that my fiancé will be happy to picture herself living in that will also cash flow.

Was the 3-flat you bought needing work or had it already been rehabbed?

Thanks!

John Casmon · Answer

@Andrew Abbott Since you need a place to live I would recommend buying a small-multi and house hacking. Taxes are high, but the local economy is diverse and people love the city. Looks like you're in Ferndale now, my wife lived there for a few years. Take a look at somewhat comparable neighborhoods like Irving Park, Logan Square, Avondale and West Town.

Chicago Market for First Investment Property - Yay or Nay?

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