Rental Property Investor · Chicago, IL · Member since 2016 · 98 posts · 52 votes
The past few weeks have left me very pessimistic. I'm feeling that the good times are very likely winding down for finding good deals in Chicago. Seems that lots of properties are overpriced and good deals are wrapped up in multiple offers within several days of hitting the market. I am preparing to close on a flip, but am feeling like my goal of picking up 5 more units (good deals) this year will be tough. What are you seeing/experiencing in the Chicagoland market?
Fair to say you've not looked at the South side of Chicago? There absolutely are deals to be made in neighborhoods which are nice, and are fairly obviously going to appreciate in a few years. As an idea, anything around Jackson Park, where the Obama Presidential Library will be put. You can still buy property cheaply in that area to fix up and flip, or hold onto for appreciation and cash flow. I literally just bought a two flat in that neighborhood this week. I guess it depends on what type of investing you're looking for and how much you want to hustle to do it.
I'd agree, there's not nearly as many properties where you can get a good bang for your buck. I find this particularly true in what most would have deemed up and coming neighborhoods such as Logan Square and Avondale.
Chicagoland has a lot of sub-markets. It depends on where you are focusing on, but overall it has been competitive.
As long as there is cheap money, and tons of gurus and TV shows, there are always going to be other investors. Perhaps you could JV with other investors such as @Wendell De Guzman
I had to blow up a 1031 due to a lack of deals. It came down to, do I overpay for a property by $40k, or eat the $30k in taxes. Paying the taxes ended up the better option.
Naturally a month after the exchange expired, I found a decent property I am closing on now.
Inventory was really bad March - July. Since last month I have seen a few more potential deals pop up. I am in Chicago and looking at buy and hold opportunities, and it is a lot rougher than previous years.
Your 1031 situation is a reality that likely not many investors prepare for. I had never considered "what if there were no good deals to be had when I'm ready to 1031?" Thanks for sharing.
I've noticed that the MLS in Chicago has not only totally dried up of good deals, but in some places dried up completely. There is a giant goose egg along Milwaukee from about California Blue Line to Central Park and Milwaukee and four or five blocks out from Milwaukee where there isn't a single SFH or MF listing and hasn't been for months. Anything that comes on the market in that area instantly evaporates.
I've seen a ton of garbage lately in the northwest, west, and southwest sides around $180k. On the NW side like Montclare, fine, that's a low end price, but not on the west and sw sides. Anything good is flying off the shelf within days, many multiple offer situations. In the next couple weeks I'm thinking of going door knocking on behalf of one of my clients to see if anything might pop up for them.
Here's some fancy graphs from the MLS for Chicago:
@Matthew Olszak, thanks for the awesome graphs! To your point, anything good ends up with multiple offers. This happens so often that I no longer rush to call my agent when I spot a deal that's only been on the market for several hours. I know without a doubt that even if I'm first to view and offer, the seller will get multiple offers, some sight unseen within the first 48 hours.
I've also noticed the earnest money requests for REO's have skyrocketed. I'm being routinely asked for 10% earnest.
@Demetrius Davis I've noticed the 10% too, and also seen 5K or 10%, whichever is greater for cash offers. More and more I've been reading showing instructions as well that "No blind offers will be accepted, seller won't play the bid high then drop after inspection game". Goes to show that locals aren't the only ones jumping on this market, plenty of outsiders are too. As well as unqualified folks making crazy offers.
I'm also very skeptical of the HUD deals getting swooped up during the owner occupant period in Chicago. I'm suspicious that these are being taken by investor. I missed out on a 4-unit in Englewood to a so-called owner occupant.
Yes, the HUD situation is definitely being taken advantage of. You can get away with it for a buy and hold, but not flips. I had at least 3 taken from me for the so called owner occupant
@Demetrius Davis you are correct that there are less deals. I've been studying the metrics in Chicago and inventory is down. The months supply has also gone down. It's a seller's market right now but I expect things to balance out next year. I recently witnessed 27 offers on a hot property in less than a week. Great for sellers if the home is priced right, but tough for buyers. I am also noticing buyers paying more than market demands. As a smart investor one should not get caught up in the buyer frenzy and stick to their principles of smart investing.
Demetrius, there is no doubt in my mind that good deals are hard to come by in Chicago. The options are either pay more for lower returns or go out and find the deals on your own. The MLS does bring some good deals, but not very often and when it does, it is multiple offers as you say.
Or, you can go to some areas that are less "hot" but can still support a flip. You may have to travel outside of your comfort zone but maybe you can do more deals relatively easily. I've considered going to neighborhoods outside of my target markets to do just that.
@Salomon Lino, wow 27 offers! Discipline is the name of the game. Cap rates and cash on cash returns in Chicago are lowering to the point where I'm considering whether it's even worth it to buy. I may be better off investing my money through crowdfunding. This way I get 10%+ through investing without having to buy or renovate a property.
@Demetrius Davis Agreed. I'm looking at sfh in the west suburbs and see nothing worth purchasing. Cap rates are dropping off quickly and it will only get worse for us.
@Elbert D. I'm hoping this winter things will get better for investors in Chicago. However, the points that have been made about the cheap money being out there and its effects on the market are crucial. Crowdfunding really may be saturating the market with lots of access to capital for so many investors (experienced and inexperienced) that things may simply be too hot to find good deals for a while. I see an opportunity for wholesalers, as many investors are more interested than ever in having strong off-market deals presented to them.
Over the past few days, I have been rethinking my investment strategy, as I am pessimistic that I will be able to reach my real estate goals in this current market. I'm considering diverting more of my income into tax advantaged accounts, as it's not worth paying taxes on the income now if I can't find good opportunities to invest the money. Much better to let it earn interest pre-tax.
If only my money had been "right" in 2010/2011. Heading into 2017, we may be facing the real possibility that the party is over. My two cents.
Wow.....well I am trying to get in with wholesaling so maybe I can make some
Decent money here wholesaling. I do want to become a landlord and buy and hold for awhile. Demetrius Davis have you looked into the surroundings Midwest region as well? I was thinking about investing in Minnesota or Indiana as well.
@Elbert D., I am looking at Lake County, Indiana, as it's only 35 minutes from downtown Chicago. There are better deals there than Chicago, however competition is heavier than I expected. I was attempting to buy a SFH in Gary, IN a few weeks ago, and it was snatched up during the owner occupant exclusive period with HUD. I'm also interested in Milwaukee County, WI
I haven't considered Minnesota. For now, I'm interested in properties that are within a 2 hour drive of Chicago.
What are you seeing/experiencing in the Chicagoland market?
I don't want to give away any secrets on a public forum, but there are multiple studies/surveys/data from sources such as realtor.com that show Chicago in the top 10 cities to flip properties w/ median income of $76K per flip. The deals are there, both listed & off market. You may have to expand where & how you're looking for the deals. You may also want to start looking at properties differently.
Be very careful with Gary. I live in Crown Point and I know the market extremely well. You didn't say how much you were paying for the Gary property, but I can get you homes in Gary for less than $25k that need little or no work. Gary can be a good rental city, but you better have a very strong property manager or you could have major issues with rents not being paid and people tearing up your properties. I know other investors that buy in Gary and they do very well. But they have a great team and are very experienced. It can offer high returns if you have a solid strategy and a solid team behind you.
@Scott Steffek, I agree $25k and under is the price point to target for Gary. I don't have a team lined up for the area, but would love some referrals.
I have my own rehab crew. They're out of Griffith Indiana, which is right next door to Gary. He'll do rehabs for others, if he's not busy. But currently, we're swamped! You might want to call Karen at Property Boss for property management. She's no BS and takes her time finding quality tenants. You can find her on the internet or you can PM me and I'll give you her number. She's out of Hammond. Tell her I sent you. Also, If you need low cost properties in Gary that are in good shape and in decent areas, let me know. I have a lot of connections for that city and the cities surrounding them.