Is the Chicago Flipping Market Done?

56 Replies

I've flipped two properties this year, with the most recent one sold in mid-September.  I was excited to line up my next deal, but after speaking to my agent I learned that the market has hit a strange slowdown throughout Chicago.  Suddenly, nearly no one is showing up for open houses, and many agents are reporting that they're getting few if any calls on their listings.  Also, prices for distressed properties have increased significantly, as banks are trying to get top dollar for their foreclosures.  Labor costs have increased significantly too.  So now we have higher investment costs and the potential for slow resale or depressed resale prices.  I've begun digging into research and am seriously considering shifting my strategy back to buy and hold, as I fear the window for flipping may be over.

I'm interested in knowing how other investors are thinking about approaching the Chicago market as we end 2017 and prepare for 2018.  Is the flipping market in Chicago done?  Is this the end of the cycle?

I personally think there are very few opportunities to flip right now. The current market right now cause many people to not buy because as you stated everything cost so much. 

It's actually funny as I look for properties to either wholesale and or fix and flip and I see a REO or a seller wanting close to a 100k or more for a house that needs between 60-90k in rehab lol...although I'm very aggressive I haven't had good luck getting the price down good enough where the numbers would make sense for a potential deal. There are still opportunities out there. They are just much much harder to find. I tend to think in abundance, so I know that if a seller or bank is asking for too much money I know that it will sit. But overall inventory is extremely low right now. But I hope many people don't get into real estate thinking there is always a streak of nice deals every year. It's a reason why it's one of the riskier industries to enter.

When houses are dirt cheap again and the market is down everyone will try getting into real estate......I don't think think its over but many people are going try to wholesale or flip when prices are low again. Have you thought about flipping in Indiana or  Milwaukee?

@Demetrius Davis Where were you finding your deal previously? MLS... Then maybe it is time to direct market. I live in Utah and our market is hot but has cool a little in the last 3 months. Even though the market has adjusted the direct marketing or distressed sellers need an out. I might avoid the bank stuff and focus on marketing to a certain area in Chicago,

@Elbert Dockery I haven't considered flipping in Indiana or Milwaukee. Are there areas you'd suggest within those markets?

@Eric Gardiner MLS has been my main source, but you're right, I may find better success through direct marketing.

I haven't entered the Milwaukee market.....yet.....I'm still working on forming a team there. Anyway it's no different in Indiana than Illinois for flipping. The high end areas are usually the flipping ones. Places like Dyer, scherville, Munster, Lowell,  some parts of crown point, some of Merriville, some of cedar lake. Those are the only areas I know and or have been to and seen. I been to Indianapolis but I don't remember exactly if that was a buy and hold area or flipping one. I would think it's both. @Demetrius Davis  

But as of now Indiana is just as dry as Illinois as far as finding good deals. So I guess you shouldn't be sad lol it's dry everywhere. 

I think what also has to be considered is that not as many Chicago millennials will buy as we would have initially thought.  Their skepticism of home ownership is one factor, as they saw their parents lose a ton of equity or lose their home entirely.  Also, student loan debt is a factor, as it really hurts their debt to income ratio.  Lastly, people generally have to remain a lot more mobile as job opportunities arise.  Even for high income earning millennials, would they really want to purchase a home when they may be one headhunter phone call away from a dream job in another state?  More and more, I am paying attention to the big bets that have been placed on rental housing by hedge funds.  Fannie Mae and Freddie Mac have even begun backing loans to support mega (30,000+ units) and medium size landlords.

@Demetrius Davis

Congratulations on the two flips you've done. I work with a lot of investors that rehab and flip properties, and have been doing this for 13 years as an attorney, 9 as a CPA, and a combined 22 years as an investor. In the Midwest market, fall and winter see a significant slowdown in owner-occupant buyers. To the untrained eye, this appears to be a grim reflection of the market. However, many investors use this as a time to acquire properties, in preparation for the Spring market, which officially/unofficially starts the weekend after the Super Bowl, assuming the weather cooperates. 

Happy hunting!!!

I feel it has a lot to do with people in IL esp in Chicago tired of being taxed to death. I personally know several young families that are not purchasing because they hope to transfer out of IL ASAP. I for one am also tired of living in IL but I can't transfer with my full time work till my REI takes off. Numbers don't lie IL was one of the states with the highest amount of people leaving in 2016 and I'm sure 2017 won't be much different.

@Russ Fry you make a great point!  The population decline is a very real factor.  I am very concerned about Illinois's mixture of high tax and fiscal problems.  My day job is in a Chicago charter school, the entire district is being impacted by declining enrollment due to families leaving the city or the state altogether.  A part of it is tax, the other piece is public safety, too few high quality educational options, and high rent.  Even buy and hold investors in Chicago need to be aware of this issue.  When buying, everyone should stress-test their deals to ensure they can cash flow with a rent decrease.  As more people leave Chicago, there will be less competition for rentals and prices may drop a bit.  Also, we should watch out for the major influx of luxury condos.  If there is an oversupply, they will begin offering concessions and the ripple effect could be felt down market as renters realize they can get more their money.

@Demetrius Davis , I can see why you are concerned about taxes and people leaving town. What you have to be aware of is the business coming to Chicago. Google opened up their 2nd largest Headquarter in the city of Chicago. McDonald's is moving next year to their Worldwide Headquarters in the City. Pepsi, Boeing, United,  Walgreens, Statefarm, Kraft Foods, Budweiser, Glassdoor, Uber, Groupon, Abbott Laboratories, Motorola, Etc are located here.

Chicago is the top 6th most powerful city in the world because of all the companies that call the city home. Who you are seeing living is the low and middle-income citizen. 

Who is coming is the city is the high earners, which will switch things around in time. Chicago is the number one Tech destination in the nation today, not San Francisco! We have the infrastructure, and one of the best city transportation in the country today. All this attracts the millennials who are the most educated & powerful group at this moment. 

Taxes are part of the rent to live here, a city that offers a lot of jobs and might as well call them well-paying jobs.

I sell houses every day, and due to universities and hospitals in Downtown alongside all these above-mentioned companies, I see a huge stream of incoming people, and all making a lot of money.

When I buy houses, my focus is on the cash flow. If after tenants paying all expenses (including property tax) the cash flow is high - then that's a property for me. Regarding income tax, my depreciation offsets that, so there is nothing to worry. 

Plus, I better have lots of income to be taxed than low income and low tax!

Demetrius, City of Chicago's properties went up in value at least 7.9% depending on where you were buying and by at least the same the previous year. We are behind the growth rate in the other big cities: NY, LA, Miami, therefore, we can gain in catching up on value by owning properties.

And lastly, every time the property tax increase, most landlords pass the buck on the tenants, so the rents increase and the landlords make even more money! 

If I can give you one advice: when following the market trends and look at all the data and different statistics, as only one or two articles could be misleading. 

Good luck to you and hopefully you'll keep investing here at home, where a lot of out of town and out of country investors come to invest!

I have many clients who have been rehabbing in the Chicago area and with reasonably good success. I also understand that the market slows drastically in the winter months, now through February/March. The higher labor price may be due to a number of tradespeople may be going to Houston or Florida due to the work following the hurricanes for the winter. That means those who remain will raise their prices to do the work.

@Lumi Ispas very good points, some of what I was going say you said lol. 

I also want to add that just thinking about it.....starting next month until early Jan is the holiday season....no one really thinks about real estate during those months. Its actually funny since the prices drop down a little during those months. But in summary, to reiterate there is always opportunity, its just getting harder to come by right now. Keep looking and exhaust all options you have.

I don't know if the flipping market is done, but I do know that I've had a house in a B-/C+ area listed below comps and still can't get an offer. It looks like the market took a shift after June/July and slowed down considerably. 

There are a lot of things to like about Chicago as a whole, but many investors that I know have experienced some pains with single family flips in recent months. 

@Lumi Ispas you make some great points about what Chicago has going for it!  I believe it will remain an attractive place for high income earners despite its challenges. Thanks for reminding us of this!  @John Casmon 's post speaks to exactly what I was referring to in my first post:  There's something going on in the market and it's been with us since mid-summer.  @Richard Weber 's thoughts about the season change makes sense, however this slowdown happened in July and has persisted.  The concern for me as a flipper and I'm sure many flippers share this sentiment, is as we grab deals this winter, what can we reasonably expect the market to look like in the spring?  Will it return to spring 2017 norms, or will we continue the challenges of mid-summer 2017?  Answering this question wrongly can have great implications on one's real estate investment business, as our work is all about accurately estimating the margins.

And to speak a little more about the margins: I believe that due to tight inventory, many of us have been settling for tighter margins than previously.  I had made offers recently on deals that would have netted me $35K in profit.  After learning about this strange market slowdown, I realize that most of that $35K could have been eaten up in price concessions to get it resold.

What are your thoughts in the Chicago market more of a buy and hold rental market or a flipping market?

@Russ Fry

Chicago is so massive with such diverse neighborhoods that you can employ any exit strategy here from flipping, renting, Airbnb, etc.

Cannot talk about a city of 3M in general terms. The MSA is 9M.

Best to specifically ask about neighborhoods (ex. is Lakeview a flip or rental area)

Cheers!

Hello All,

This thread seems and a few others in the Chicago subthreads seem to contradict everything that I am reading online. I'm sorry to hijack this thread for a moment but is there a mass exodus occurring in Chicago?

I understand the elected officials are corrupt, the taxes are fairly high, the city has a good deal of murders occurring on a daily basis but in my experience I have found that most of the information published online and talked about on the news channels seem to be a few months behind what is actually happening on the ground.

This interests me because I am a real estate agent currently in the Washington DC area and the Chicago market at this current time is similar to Washington DC in the mid-2000's before it went gangbusters and everyone was buying up places in the "nicer" parts of the city.

What eventually happened was investors moved out of the safe zones and moved into the hood, the most surprising neighborhood being Trinidad, Trinidad was so bad the police blocked off the neighborhood and made you present ID at checkpoints to get into the neighborhood, true story. 5 short years later people are spending 800k on four level renovated rowhomes that are walking distance to shops and restaurants.

I understand the Chicago economy is not held up by the government like the Washington DC market is, but, all the realtor blogs I've read over the last two weeks seem to indicate that certain neighborhoods are "hot" and homes are selling quickly (Avondale, Portage Park, Humboldt Park, Bucktown, Wicker Park...etc), is this still the case?

I've read blog post and articles of people who are planning to move back to Chicago, I can understand why, the architecture of the city and, what I think is the suburbs (Humbolt Park, East and West Garfield, North and South Lawndale) is unbelievable and the Greystones are absolutely beautiful, but, what is the deal? Are people buying homes outside of the downtown Chicago (if that makes sense?). 

I see that there are roughly 5000 homes on Realtor.com for sale in Cook county yet I keep hearing inventory is low? The city seems perfect for house hacking and investing? Am I missing something? 

@Demetrius Davis Again, sorry for hijacking the thread for a moment.

   

@Bola Williams

As @Fernando Angelucci mentioned, Chicago is huge so I'll try to speak in broad strokes. When I say the market has slowed down for flips since July, I'm specifically referring to detached single family homes. I've seen this first hand or from direct convos with other investors in North Center, Irving Park, Belmont Cragin and Portage Park. 

2-4 units in these types of neighborhoods are still doing very well. I recently listed a 3-unit in Avondale and got 5 full price offers the first week and ended up accepting an offer $48k over listing. I'm not certain how condos are performing.

Politics are politics, I wouldn't get too caught up in that other than realizing there will be a lot of resistance for any and everything. The macro economics are poor, but if you drill down you will see more positive signs. The core of the city is seeing strong demand with many corporate jobs coming in to the downtown, River North, and West Loop areas. I still like the Milwaukee corridor. The north side remains steady for the most part with most of the population losses happening on the south side and west side. There's a ton of excitement for the Obama Presidential Library, but I'm personally looking to see if there's an employer that will move in and bring blue collar jobs to some of these neighborhoods. 

@Bola Williams would you mind pm-ing me links to the Chicago blogs you read? I’ve been searching for good ones! 

@Demetrius Davis  My realtor in Chicago is blaming the slow summer on everyone going on vacation due to the high consumer confidence. Not sure how true that is but she has over 100 active listings with only a handful under contract and quite a few with price drops. 

My partner and I have a house listed in Montgomery and while it’s had a few showings it seems very slow. We just lowered the price $5k. 

@Bola Williams , Cook County it's a huge area that includes over 5.2 million people, while Chicago itself is estimated to hold around 2.7 million people. As you can see, out of those 5000 homes you see on Realtor.com, only half are on the Market in the City. 

Inventory is low in the neighborhoods that people really want to move: close to public transportation, close to Downtown, etc.

And Yes, people are buying homes in the suburbs, some of the Chicago Suburbs have some of the best schools in the nation and great standard of living. People are buying homes in the city and the suburbs and we don't have enough of them. 

Midwest market is seasonal, and while the owner occupant buyers have slowed down due to the weather, and the fact that parents and students don't like moving after schools start, the investor market is starting strong. I look at properties every day and everything that works for house hacking or would have great cash flow potential sells immediately with multiple offers.

Chicago is going strong!

Greetings Everyone.
I’m an inspiring RE investor from New York (on the diving board ready to jump by the end of the year :-).
Being from New York, Watching Harlem, Bronx, Brooklyn markets become Investment trends the last few years tells me a lot of what I see coming in the Chicago market.
Yes I’m not an investor in RE and “have no idea what I’m talking about” but I have seen some of the C and D class neighborhoods change demographics within a 2years span.
It might not apply everywhere but from the outside looking in I can see the same thing happening in Chicago, as mentioned companies moving in will force gentrification within certain neighborhoods thus forcing current residents to either change habits and embrace the change or move further and sometimes out of state.
Because New York is such a tight and expensive space, I’m actually looking to make my first move in Chicago. I’ll be there on Tuesday for a 3 day Property Management training, would love to connect with anyone here who might have some leads I can work with or just willing to give some direction to avoid some of the pitfalls, I would greatly appreciate it.

Cheers.

@Demetrius Davis I would say there is definitely more competition in the near western suburbs, but flippers are still making money from what I can see. I would be pretty nervous personally about some of the more expensive markets, as those areas are seeing flip opportunities selling for closer and closer to retail. I am finishing up a flip in Berwyn right now, and anticipate making a solid return. Are you flipping in Oak Park? Or are you in the city?

Finding deals is tough in any market.  When the market is declining, it's tougher to find buyers, when the market is on the upswing, it tougher to find deals.   Know your market and plan accordingly.  

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