How is the situation in Chicago?
BROOKLYN, NY · Member since 2017 · 7 posts · 5 votes
Hello,
I'm from NYC and looking to make our first purchase of a multi-family in Chicago. I've been coming up with a list of close to a hundred multi family properties which i'll dive deeper into. This is for a buy and long term hold. Focused more on cash flow than appreciation. I'm a little concerned because the numbers for these multi families look a little too good. I know there is a population decline but job growth continues in the right trajectory, and we all know the story with the crime. What's currently scaring investors the most in Chicago? Also, how big of a deal is the whole "split block construction" issue i've been hearing about?
Thanks!
This thread is a mess. You have people claiming that it's "redlining" to tell people that some parts of the city are rougher than others (hint redlining only pertains to lending, not the correct term here). Then you have some guy from Florida making the super in depth one sentence "don't go to Chicago, stay in NYC" comment despite the fact that he isn't in either place. None of these responses really add much to the conversation.
Chicago does have higher returns, that's for sure. That's just a function of land and buildings being abundant here. This city was built to grow to the size of NYC and had a peak population (in the city limits) of 3.8 million people. 2.6 million people now live in that area. Simply put there is a lot of supply. This also means there are a lot of not so great parts of the city where those 1.2 million people used to live and now moved out of leaving a bombed out shell of what once was. Those areas are, in fact, largely on the South and West sides of the city. Does that mean those areas are a terrible place to invest? No. There's a niche for everyone here and for some people that niche is grabbing properties for cheap in not so great areas and making a much higher return as a reward for that extra risk. There are also people who make money buying basically zero risk properties in super wealthy areas. It's all about understanding what risks you are taking and whether your investing style works with the areas and properties you are looking at.
It's important to note that Chicago is extremely block by block. So while people will make sweeping generalizations about the South side or the West side, there is actually extremely fine grained detail to that. Hyde Park is one of the nicest and hottest areas in Chicago and it's right in the middle of the South side, but within Hyde Park there are really nice areas where BAM you cross the street and it's very seedy. There are also really bad neighborhoods where you can find islands of super nice, clean, housing with very few criminal elements on the block. Sometimes there will be a whole pocket of a neighborhood where every block has a block club and they just don't let the crime or decay set in. Those can be great areas to invest if you can find and identify them.
At the end of the day the answer to the question of whether or not you should invest here is actually another question: Are you willing to put the time and effort in to get to know the markets you are considering on a fine grained enough scale to be able to invest with confidence that you know exactly what you are buying? You WILL get burned if you jump into Chicago and start buying willy nilly without even seeing the place. There are simply too many places that are challenging for an absentee landlord, too many bad property managers, or the off chance a drug dealer sets up shop in your building. But if you are willing to spend enough time here actually visiting the buildings and areas you are looking at and willing to get out of the car and walk some of these rough around the edges areas, you can and will do quite well.
My anecdotal example is a corner of a neighborhood on the SW side which is known for being pretty rough and gang infested. A few years ago I found out there were some serious big name companies making some flashy investments in one corner of the hood. I identified potential and got established along what is basically a 4 block by 10 block corridor following a beautiful commercial street and shadowing a L line. I now own dozens of units in that area and control a quarter block in one place. This has allowed me to further leverage those investments made by much larger players in the area by selectively targeting the few truly derelict properties in my corner of the neighborhood. I intentionally go after anything that is vacant or blighting the area. 95% of the properties are working class families keeping their homes well maintained, but there is a constant turnover of that other 5% that opens the door to me. I grab the properties holding the area down and thereby increase the values of the buildings I already hold in the immediate area by eliminating places that gangs or vagrants might set up shop in. This has compounded the big commercial investments I've mentioned which already caused an increased police and security presence. Now I am actually worried that other people are catching on to what I've been doing for 6 or 7 years now because I'm starting to see investors buying and turning over other less derelict properties in "MY" hood.
You don't have to go as all out as that, but opportunities like that exist here. In what other major city can you basically claim a little area as your own "sandbox" and start building your own little castle? Where else can you pick up units for $20k a piece on a block where you just had a six unit you rehabbed appraise for $1.1 million? Only in Chicago. We are just rebuilding from the second Great Chicago Fire, huge swaths of the city have been systematically devastated since WWII. After the first devastation of Chicago in 1871, the newsmen from Chicago were on the first train out the next morning to all corners of the United States on their way to proclaim "You will never have another opportunity in your life to make a fortune as you will in the rebuilding of Chicago". I'm very much saying the same here, the city has been destroyed again this time at the hands of man, not nature. But Chicago is a city that if only because of geography MUST EXIST. If you can find a way to invest wisely here, you will never see another opportunity to make a fortune like it anywhere else.
I own property in the hood of Chicago, and now it's doing well. Send me a PM and I can give you some advice.
Hello,
I'm from NYC and looking to make our first purchase of a multi-family in Chicago. I've been coming up with a list of close to a hundred multi family properties which i'll dive deeper into. This is for a buy and long term hold. Focused more on cash flow than appreciation. I'm a little concerned because the numbers for these multi families look a little too good. I know there is a population decline but job growth continues in the right trajectory, and we all know the story with the crime. What's currently scaring investors the most in Chicago? Also, how big of a deal is the whole "split block construction" issue i've been hearing about?
Thanks!
Hey Will. Glad to hear of your interest in Chicago. A few thoughts I've had as I've read through this thread...
Crime in Chicago is very much neighborhood, and even block, specific. It has become trendy for certain media outlets to attempt to make political statements by portraying the entire city as a war zone, but this is really far from the truth. The majority of the violence occurs in a few specific neighborhoods where rival gangs have been in bloody turf wars. The majority of the victims are gang members. Many people simply avoid these neighborhoods to avoid these issues. The vast majority of the city is very safe.
Chicago's landlord laws certainly are tenant friendly, but in many areas, the supply/demand curves heavily favor the landlord and this somewhat negates this issue. My properties are in A/B class areas, so my experiences are different than some, but my property manager, for example, has a blanket policy of not accepting anyone with an eviction on their record, period, no exceptions. Because vacancies receive so many applications, landlords can be choosy and avoid tenants with a negative history. Tenants are also very aware that if they're ever evicted, they're essentially screwed in the future. I had a tenant who lost her job and stop paying rent, as soon as we began the eviction process, she moved out the following Saturday to avoid an eviction on her record. We were able to get the unit cleaned and rented again within a week and lost less than one month's rent from the situation...and this was in the slow rental season.
There are certainly issues with unpaid pensions due to political incompetency decades ago, both in local and state government. There have been some creative ways to solve some of these problems, as well, however...unfortunately the county caved and overturned the obesity tax, but the city and the state will continue to find ways to manage the situation. Chicago's property taxes are relatively very low, so even if we do get hit with some property tax hikes, they'll still be very manageable. For example, I pay $4800 for a three unit property worth about 450K. From what my friends tell me in comparable cities on the coasts, that sort of number is unheard of in places like NYC, Boston, Seattle, etc. You tell me since you're from NYC, how does that compare to the tax rate on a property in NYC? Additionally, I calculate my #'s factoring in an increase in property taxes going forward and the numbers still work out very well...especially because rents have been going up at a rate faster than property taxes. A unit I rented for $1280 just two years ago now rents for $1450. With these sort of rent increases, I can weather a 10% property tax increase without much of an issue.
The population of the city is growing, but it is also changing. As a whole, lower and working class people are leaving the city, while yuppies are moving into the city at a slightly faster rate. The city is absolutely booming in terms of growth from yuppies, fueled by a booming tech industry, as well as the relocation of corporate headquarters into the city. Moving to Chicago is still the chic thing to do for graduates of Big Ten and other mid-western colleges and universities and thousands of them come flooding in each year.
As a whole, the city is a great place to invest right now. There are 54 high rises under construction in Chicago right now. There's a reason why big players nationally are investing heavily into the city. Best of luck as you look further into Chicago!