Is the Chicago Flipping Market Done?
Rental Property Investor · Chicago, IL · Member since 2016 · 98 posts · 52 votes
Is the Chicago Flipping Market Done?
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Real Estate Consultant · Chicago, IL · Member since 2014 · 720 posts · 439 votes
8y@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!
75 Replies
- Real Estate Agent · Rockville, MD · Member since 2015 · 39 posts · 16 votes8y
@Lumi Ispas and @John Casmon Thank you so much for the detailed response, the Midwest market sounds like the market outside of DC proper, in DC proper the market has transformed into one continuous spring market, it does not matter when you put a home on the market, it will sell if it is priced accordingly.
Maryland has a seasonal market as well as some of the best schools in the nation. I was previously flirting with the idea of moving to Chicago because of the way the market is currently but now that I have read multiple posts on this forum, I'm taking the Chicago market much more seriously and this flirtation is going from lust to love but the winters really do concern me.
@Ryan E. Sure thing, most of the articles were on Crain's Chicago Business, I'll send you everything I've read through.
@Malick Guindo This is also my main reason for considering Chicago but I do not think I could invest from DC, I would suggest learning the market from the ground up before investing, I get calls every few weeks from people who want to invest in DC's hot market but live in other places and they do not understand that investing from far away and paying a property management company is not full proof, DC has tenant rights that seem similar to Chicago, however, correct me if I am wrong.
- Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes8y
Flipping is not my area of expertise, but I can tell you I have seen a slow down of the SFH sales on the north side, similar to the areas where @John Casmon mentioned. I think too many rehabbers jumped on the bandwagon of 2-4 unit deconversions into mini-mansions on the north side. Now there is a surplus of inventory in that market.
On the other side of the coin, 2-4 units which is my speciality, we are seeing a lack of inventory and everything is multiple offers over asking price. My brokerage company only works with 2-4 unit buyers on the north side of Chicago and I can tell you I only had 2 clients get a property under list price YTD. One was overpriced and we offered for about 5 months straight and the other is a total gut job that was also overpriced.
You can ask any of my clients, and they will tell you how frustrated they are offering $20k + over list price and still getting outbid over and over again.
and @Lumi Ispas nailed all the reasons why I love Chicago and why I think it is a great market to invest in (cross your fingers for the Amazon HQ)
Second City Real Estate4.821 Reviews - Rental Property Investor · Chicago, IL · Member since 2016 · 98 posts · 52 votes8y
@Brie Schmidt, thanks for your insight!
All, here's where I am: I've decided not to chase the market and will watch for buyer reengagement before making aggressive offers. Additionally, I am falling back to my fall/winter 2016 pricing when looking for deals in Chicago.
My advice to fellow Chicago flippers: Going forward, make sure your flips can cash flow as rentals just in case.
- South Holland, IL · Member since 2017 · 376 posts · 432 votes8y
Malick, because NY City is so dense, it’s a lot easier to gentrify. Chicagoland area is huge and there is more than enough housing that’s not near black people (I’m black) that precludes gentrification. Near west side (Latin), near south (Asian/Latin) and North Side all have plenty of areas available where the HAVES can purchase. When you say those in the South and West sides should “change habits” do you mean reverse systemic racism’s historical process of redlining black neighborhoods, depriving them of access to quality early education and good paying jobs? investing their tax dollars only in those areas full of capital investment (Mayor Emanuel said tens of millions of TIF dollars were invested in the South Side. We later found out he meant McCormick Place which anyone from Chicago knows is not the South Side, more like downtown South). “Their” predicament has been socially engineered so the responsibility of “changing habits” should be the duty of a system that created it. Gentrification is a horrible process for the have nots and I know this is an investment forum but it’s oily to not divert assets to improve the condition of those that have been generationally deprived and celebrate their continued descent for a extra profit.
- Real Estate Broker · Chicago, IL · Member since 2015 · 122 posts · 103 votes8y
Lots of good stuff here @Demetrius Davis!
Definitely increase the volume on your direct marketing campaign if you can. Letters seem to be getting a response for us right now. Also, good 'ol fashioned traditional leg work like window-stickers and door-knocking always works. However, don't expect a TON of leads that way. Your lead volume may go down with these last two methods, but your conversion rate should be much higher.
MLS is very competitive right now as we all know, but we're picking up the ones that we track months down the road after our initial offer. Definitely be sure to track those!
Hope this helps! Feel free to contact me if you're looking for other methods that are working for us. We're here to help.
Thanks,
Van
- Real Estate Consultant · Brookfield, WI · Member since 2014 · 873 posts · 350 votes8y
You can find a good deal on MLS but that doesn't mean that you will get the deal. Many investors are overpaying for the property. Find a good wholesaler, if you can become a reliable buyer you will get exclusive deals.
- 8yNikki KofkinPro MemberReal Estate Agent · Chicago, IL · Member since 2016 · 82 posts · 32 votes
I wouldn't go so far as to say it's done, but as an agent myself, I've cast an extremely wide net on my search and I have to be more creative in my searches. I check the new listings every day, sometimes multiple times a day. It's time consuming, but I found an amazing opportunity last week that I'm jumping on. One thing that definitely helps is having a strong team that's familiar in the areas you might not be as familiar in. For instance, I'm working with a builder who specializes in the neighborhood where the flip is, and he brought a ton of new insight and expertise to the table that I never knew because the area is not in my usual radius.
- Rental Property Investor · Chicago, IL · Member since 2016 · 98 posts · 52 votes8y
@Nikki Kofkin thanks for your thoughts. And congrats on the find! As an agent, are you feeling as confident about resale prices as you were 4 months ago? Or are you planning for the flip to work at a price below previous comps?
- 8yNikki KofkinPro MemberReal Estate Agent · Chicago, IL · Member since 2016 · 82 posts · 32 votes
@Demetrius Davis This would be my first flip, so I might not be the best person to answer that question, however looking at the whole picture I felt very confident with the numbers. After I sent that message yesterday I was bummed to find out there were 16 owner occupy offers, and investors aren't allowed to make an offer for 4 more days...I'll make a very strong backup offer though. I still think the deals are out there, it's just harder to find them and get them.
- Real Estate Broker · North Aurora, IL · Member since 2014 · 130 posts · 82 votes8y
@Ryan E. I was wondering where you house was in Montgomery as I am very active there...
This is a great thread and a great read. I have found decent success in the mls for deals, but have also had great luck just using word of mouth. For example, whenever I buy a house in a neighborhood (especially a rental) I always go around the houses near me and introduce myself, hand out my card, and let them know who I am and what I intend to do with the house that I just bought. I let them know I am an investor and cash buyer.
I will often find the chatty cathy of the block who is glad to meet me and tells me all the details around the area. I just talked to a lady who told me of another house that was vacant right on the street (you would never know it, super well maintained). She also watches my rental house like a hawk :)
Another good example I have, I talked to a fsbo seller and made an offer on his property and we did not come to terms on a deal but he gave my card to his neighbor, and we worked out a great deal for everyone. I bought the house and the previous owners are now my tenants for a period of time.
I have also been calling owners of properties that I want to target. If I see in the tax records that someone owns multiple properties, I will attempt to reach out to them (preferably call) and strike up a dialogue.
If nothing else we are both investors and should have some common ground to strike up a conversation over. Do that a dozen times and you will be surprised the people you can meet, the leads you can generate, the ease at which you can expand your circle of influence.
Hope This Helps Someone Out There!!
Good Luck!!
- Rental Property Investor · Aurora, IL · Member since 2017 · 19 posts · 6 votes8y
JAMES MY TEAM AND I WILL BE IN OSWEGO TOMORROW HAVING A PROPERTY TOUR ! YOU SHOULD STOP BY AND MEET US
Originally posted by @James Ihssen:
@Ryan E. I was wondering where you house was in Montgomery as I am very active there...
This is a great thread and a great read. I have found decent success in the mls for deals, but have also had great luck just using word of mouth. For example, whenever I buy a house in a neighborhood (especially a rental) I always go around the houses near me and introduce myself, hand out my card, and let them know who I am and what I intend to do with the house that I just bought. I let them know I am an investor and cash buyer.
I will often find the chatty cathy of the block who is glad to meet me and tells me all the details around the area. I just talked to a lady who told me of another house that was vacant right on the street (you would never know it, super well maintained). She also watches my rental house like a hawk :)
Another good example I have, I talked to a fsbo seller and made an offer on his property and we did not come to terms on a deal but he gave my card to his neighbor, and we worked out a great deal for everyone. I bought the house and the previous owners are now my tenants for a period of time.
I have also been calling owners of properties that I want to target. If I see in the tax records that someone owns multiple properties, I will attempt to reach out to them (preferably call) and strike up a dialogue.
If nothing else we are both investors and should have some common ground to strike up a conversation over. Do that a dozen times and you will be surprised the people you can meet, the leads you can generate, the ease at which you can expand your circle of influence.
Hope This Helps Someone Out There!!
Good Luck!!
- Real Estate Broker · North Aurora, IL · Member since 2014 · 130 posts · 82 votes8y
@Gail Govednik I apologize I missed you. I was actually in Madison this past weekend scouting out some opportunities. I will give you a call today and we can connect. Good Luck in Oswego, I know that area very well!!
- Investor · Oak Forest, IL · Member since 2016 · 7 posts · 2 votes8y
@James Ihssen when you say, "If I see in the tax records that someone owns multiple properties" what tax records do you refer to? I know how to search the cook county recorder of deeds, and I know how to find PIN numbers, but where are 'tax records' found? Do they show the last installment thats been paid, and also, this site lists contact info of said buyers?
- Real Estate Broker · North Aurora, IL · Member since 2014 · 130 posts · 82 votes8y
@John James The Tax Records are the assessor records available from the county. Typically they show the last installment paid and all of that relevant data. They also show the mailing address of the tax bill, and if that is different than the property address, then you know you have potential investor or absentee landlord or any number of potential non owner occupied situations.
There are also database services that aggregate and sift through this data for you, instead of individually pecking away at individual property addresses at the county web site (Which IS a great way to learn and do simple research, btw), but when you are ready to aggregate the data and mine the county databases for specific pieces of information (eg. absentee owner, lis pendens, etc.) That is the Real Treasure!
Best of Luck!
- Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes8y
@Demetrius Davis have you considered looking closer to home? There are some petty fantastic markets right around Oak Park for flipping. Forest Park and Berwyn come to mind right off the bat. My rehab project is about one week from completion, and should be a solid investment. We picked it up off the MLS!
- Chicago, IL · Member since 2017 · 10 posts · 0 votes8y
Originally posted by @John Warren:
@Demetrius Davis have you considered looking closer to home? There are some petty fantastic markets right around Oak Park for flipping. Forest Park and Berwyn come to mind right off the bat. My rehab project is about one week from completion, and should be a solid investment. We picked it up off the MLS!
How did everything work out with your project in Berwyn? Any good recs on contractors in the area?
- Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes8y
@Tony Mondalano my property is listed! Address is 3536 Gunderson Ave.
I would be happy to help if you need a contractor in the area. I didn't use a GC though if that is what you need.
- Chicago, IL · Member since 2017 · 10 posts · 0 votes8y
@John Warren really nice work, the house looks amazing! I’m just getting into real estate & currently looking for my first project. I see your also a real estate agent from the area, if you have any listings that I might be intrested in please let me know.
- Member since 2018 · 1 post · 4 votes8y
Originally posted by @Bola Williams:
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?
That is no hijack, as it is extremely pertinent to answering the OP. Yes, this thread is six months old, but it is such a good question that it deserves a good answer. A lot of real estate is image, and many local realtors will paint overly rosy pictures.
The Chicagoland and Chicago markets are indeed diverse, but there are some general trends. Year-to-year population change in Chicagoland is near zero, but there has been a net flow of population out from the city to the suburbs. The peak of the relocation is a band running through the north, northwest and west suburbs, about 30 miles out from the center of the city. Life in the city is expensive and crowded, and a lot of young families are leaving to commute in. A lot of businesses are also relocating from the city to the suburbs.
The politics is beyond corrupt. A loose coalition of mobs run Chicago and Illinois, and they have not only legalized their rackets, they have imposed them, along with new forms of coercion and extortion you would never dream of. The bosses, themselves the Party leaders, have anointed many of the minor politicians and bureaucrats. Forget whether the box has dim bulbs and bright bulbs, most of the bulbs in this box don't light. This is intentional, to secure leadership positions and prevent challenges from below. Illinois' political leadership is best described as incompetent and delusional. Most residents are unaware of this, but they all feel the pain: slow and incompetent bureaucracies, massive traffic congestion, high income tax, high sales tax, and property taxes outside of the city are between 3% and 10% of property value. The mob maintains power through a massive election fraud operation (aka getting out the vote), which some estimates put at 7% of the total vote in Illinois. Political change is highly unlikely. You bet there is an exodus, and it has been increasing at an exponential rate. As people leave, the tax burden on those who remain increases.
As noted, the property taxes outside of the city are high. The residential taxes inside the city are low. Chicago leeches much of its money from the state (i.e. suburbs), which has placed a higher tax burden on the suburbs. Despite this awesome arrangement, the city's mismanagement has caught up with it, and property taxes inside the city are beginning to skyrocket.
Illinois has two saving graces: New York and California. Apart from nearly equally incompetent and delusional leadership, those two states have a shortage of elbow room in their major population centers. It is no joke. The high earners in the City of New York, Silicon Valley (San Francisco) and Silicon Beach (Los Angeles) cannot afford their neighborhoods. Technology and other professional services companies are moving to Chicago; however, most of these "headquarters" moves are just shells, for the top execs to be able to hob-nob with other execs. The bulk of their staffs are going to places like Omaha. Technology can be developed almost anywhere, so why pay $150k for a stressed-out engineer in Chicago, when you can pay $100k for a less stressed, more productive engineer living in Omaha?
The population moves are creating an interesting dynamic in the real estate markets. Poor and lower middle class neighborhoods are emptying out, and the MLS prices are dropping. Flippers are probably picking up these "deals" and then getting burned on properties they cannot unload. More affluent neighborhoods have gone nuts, as in bonkers. Transplants from New York and California are paying well above market for new construction and recent renovations. It is almost routine to watch streets full of 40-year-old, 2600 sqft (plus 900 sqft unfinished basement) houses sit for another year at $400k, while a brand new 3500 sqft (including the finished basement) sells for $700k right across the street. Why? Because the buyer just sold a cardboard box and porta-potty on a 0.1 acre lot for $800k, and they want the nice new home.
The gentrification is happening. The tear down market is doing pretty well near the higher middle class areas. The homes being torn down are livable homes, generally 1000-1500 sqft on 0.25 to 0.50 acre lots, and they are being turned into 3500 to 4500 sqft (incl. basement) homes without side yards. With people caring not what they pay for a new home, no wonder; however, there are only so many suckers.
As mentioned, the total population has been holding nearly constant, but new construction continues. For example, consider two years ago that 5,000 buyers had 5,100 homes to choose from. Sellers could almost name their price. Consider one year ago that 5,000 buyers had 5,200 homes to choose from. The change in inventory is small as a percentage of the 3+ million homes, but it is large as a fraction of the number of buyers.
The exodus is also changing, transforming from a trickle to a flush. People have largely given up on the political salvation of the state, and there are a lot of retirees primed to flee. The taxes are high enough that walking away is an option. This year, it might be 5,000 buyers and 6,000 homes, with a net population loss. In that territory, buyers can name their price.
At this time of year, there should be a drop in available inventory, and while most of the Midwest has witnessed said drop, Chicago has seen a slight drop followed by a sharp uptick. The affluent suburbs have also seen an uptick in inventory. Non-MLS inventory is also exploding in the area.
My recommendation for Chicagoland flippers: don't hold. Get the off-market or auction steal (more of those than listings on MLS), make it livable and presentable, and unload it. For that matter, you might buy at auction, make sure the title is clear and sell as-is. If you do auctions routinely, you might consider auction buys as a service, in which you make sure the title is clear, do other pre-auction footwork and represent the buyer at auction for a fee and percent (saved).
- Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes8y
Interesting post about flipping in Chicago, which evolved into population leaving Chicago. When there is loss of population, then demand goes down, which in turn supply goes up.
Other issues in Chicago include high property tax, crime, and government corruption. Below is an article that just compounds the many issues in Chicago. The mayor of Chicago, Rahm Emanuel, offered incentives to police and firemen, to buy homes and live in high crime areas. Only 2 took up the offer. This is a bad omen.
http://www.miamiherald.com/news/nation-world/natio...
Terry
- Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes8y
How much incentive would you want to live in a high crime neighborhood? The fact that only 2 took him up on a test offer of a test program is not indicative of anything about Chicago. It is simply indicative that that test offer of that test program did not work. Maybe the program needs tweaking. Maybe the program won't work at all. It was just an idea. How many would you expect to take up the offer based on results of other cities? Oh yeah, none because no information about other cities trying this so you don't know what success looks like and what failure looks like. And you conveniently forgot to mention the other 550 public safety officers who have taken advantage of similar programs over the past 2 decades to live in problem neighborhoods. That sounds pretty decent to me....or maybe you only read the headline??
It's just so funny how a thread about the demise of flipping because in the real world too many people are paying too high prices to buy homes in the Chicago area becomes a claim that Chicago is dead because of corruption and crime and taxes and population growth , etc etc. They can't both be happening.
Terry claims......When there is loss of population, then demand goes down, which in turn supply goes up.
This is a fundamental misunderstanding of the laws of supply and demand. Loss of demand has does not automatically make supply go up. Supply can also go down as demand goes down when production of supply decreases (for example when 4 flats are converted to SFH). When population goes down, demand could go down....or demand could go up if people who don't live here buy investment properties (check out the number of threads here about out of towners buying Chicago rentals) or people who live here buy multiple properties. Just as an example, if 2 people making 20,000 a year move away and 1 person making 100,000 a year moves in, the population is down by 1 but what happens to the tax base and the economy? If I bought and knocked down a 4 flat worth 500,000 where 8 people were living and built a single family home worth 1.5 million where 3 people now live. The population may have decreased (some of the 8 may have to leave the city), the housing stock in terms of units might have decreased, but what has happened to the tax base? Tripled.
And the effect of supply and demand can have different results at different price points for the same location. It is all much more nuanced than Terry or others want to believe.
What I think he is trying to imply (and others who want to predict doom and gloom for Chicago) is that as population decreases, demand decreases and supply increases....so the thing we all care about ....PRICE...decreases. Well here is the problem. That is the law of supply and demand HOWEVER prices are not decreasing, so you have to go back up and question your assumptions about population decrease and the desirabilty and demand for living in Chicago. The rising prices disprove your entire thought process. Doesn't mean it won't change, but your predictions have ALL BEEN WRONG so far and for a long time they have been wrong.
I have lived here 30 years and have heard about people afraid of crime and Chicago political corruption and families fleeing the bad schools to the suburbs, etc etc for oh....about 30 years. And guess what? The city has boomed for the whole time and is still booming. New construction is everywhere. Prices still rising. Rents tight.
Not perfect but a damn great place to live. And literally every doom and gloom naysayer has been proven wrong.
- Investor · Salt Lake City, UT · Member since 2016 · 287 posts · 270 votes8y
@Eric M. I tend to roll my eyes a bit at the doom and gloomers generally and specifically as it relates to Chicago. At the end of the day the Chicago MSA is THE THIRD LARGEST in the nation. As such, it’s economy is probably larger than many nations’ in the the world. Let’s look at some stats yielded by a two minute google search:
Population of Chicago MSA: 9.5 million.
Chicago MSA population loss in 2017: 13,286.
Total population of IL: 12,802,023
Overall IL population loss in 2017: 33,700
This may be somewhat of an absurd example but if you had 9.5 million dollars and lost 13 thousand, would you claim that you are losing your money in “droves”? There’s a lot of hyperbolic speech when it comes to the population loss of IL. Of course you want to see your population increasing. Of course the property taxes are way too high in some areas but overall I think the third largest MSA in the #1 best country of the world will be just fine long term.
What’s seems frustrating to me, being on the outside looking in, is that some of those issues seem easily solvable. Property taxes are too high? Let’s start dropping them. Oh, we are losing people every year? Let’s do things to entice people to move here...attract employers (Amazon HQ2), lower taxes generally, improve crime as much as possible, etc. Again, I’m not from there and this is a total outsiders perspective who has only researched the Chicago MSA.
- Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes8y
Well I agree with everything except the phrase "easily solvable". This is why I am glad I am not in government. In the real world, these things are not easily solvable. They are only easily solvable to those of us on the outside who don't know how complicated it is and how many moving parts there are.
What does "too high" mean? Many people don't think they are too high. Some people will complain that any taxes are too high. Who do you listen to? Are they too high when people keep buying? How do you simply lower taxes when you are already running a deficit? Are there better answers than simply lowering tax? It is not simple or easy. We entice companies to move here all the time and are very successful at it. That is one of the big reasons we are booming.
The reasons we lose people is very complicated and has to do with the way people are counted, immigration status, conversion of housing stock, closing of "public housing", many many issues.
Again, the experience on the ground is what is the determining factor. Complain all they want, the place is very successful, tourism is way up, all kinds of actual on the ground stuff is way up. Even if there seem to be good reasons for it not to be or even if you read an article or see a statistic. The reality is what the reality is.
- Investor · Salt Lake City, UT · Member since 2016 · 287 posts · 270 votes8y
@Eric M. yes, I apologize and definitley misspoke on the problems being easily solvable. I agree that it’s incredibly complicated.
At the end of the day there are lots and lots of investors making money in IL and Chicago.
- Professional · Anaheim, CA · Member since 2017 · 1k+ posts · 686 votes8y
Major cities like Chicago, Los Angeles, San Francisco, New York/New Jersey have one thing in common...........large populations that tend to vote liberal. These liberal city and state government get voted in by unions and they want something for their vote, and the general population get screwed. It will show up in high taxes, high crime, and corrupt government. There will be a tipping point. I think Chicago reach it as raising taxes will only result in raising more taxes. The people leaving could be across the board on income levels. Beware when the rich start leaving, as the rich in California pay over 50% of the taxes. Having poor come in only makes situation worse, and the poor tend to vote for liberal policies and freebies.
I'm seeing first hand in Southern California.
Terry
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