15 tips and tricks for the Chicago market
Thought this would be a fun post. Here is a list I created. This is targeted more towards beginner investors so I left out the advanced/high cost strategies. Feel free to add to the list with any of your own tips. Happy investing everyone!
- 1) The best bang for your buck value add is adding in-unit laundry. This will cut your vacancy rates down significantly and in many north side neighborhoods can bump the price of the unit up $100-200 per a month.
- 2) The second best value add is new counter tops/sink and paint. These are things you can do cheap without pulling permits and make a world of difference in the rent you can achieve. I like to steer first time investors towards buildings that already have the modern HVAC systems (furnaces no boilers) so they can do an easy value add such as steps #1 and #2. Having to change HVAC can be $20k+ by itself if doing it legally.
- 3) White is the desirable look for kitchen rehab rentals right now. Doesn’t have to be high end or expensive finishes but the all-white look with Stainless Steel appliances sells.
- 4) The Chicago market is seasonal. An identical property can sell for 5-10% higher in April-May then it would in October-November. Late in the fall around the holidays significantly less people are shopping for properties which means less competition and sellers start to get desperate accepting lower offers/doing price drops. To give some context had a $850k contingent in November which had sat unsold 2 weeks then broke contract mid January all of a sudden multiple offers sold for $900k. Potential $50k saving by shopping when others are busy with the holidays. If you want the best deal this is the time of year!
- 5) Rentals are also seasonal in Chicago. The prime rental season is March to July. If you buy a building in the off season the best practice is to rent it up on leases that will end between March and July for example a 9 month lease or a 15 month lease. You may have to rent the units under market rate especially if you get stuck in the late fall.
- 6) 5% down conventional is often the best option for your first house hack and available in many of the gentrifying Chicago neighborhoods. You can check the census track through this link to see what exact neighborhoods this loan is available in for non-income restricted buyers. http://www.freddiemac.com/homepossible/eligibility.html
- 7) Property management on the north side is a lot cheaper than what you may see quoted on Bigger Pockets for other parts of the US. I can name a handful of managers that charge 5-7% for 3-4 unit buildings.
- 8) Leasing fees in Chicago are 1 full month if you are buying from out of state, etc. be sure to calculate this in your analysis. The good north side property managers will open their portfolio up to all the little leasing companies in Chicago which gets these units rented quick vs trying to make more money themselves pocket listing both sides ask your manager what their policy is on this.
- 9) Vacancy rates should be sub 5% if you are priced right in A or B areas. If units are sitting longer you may be over priced or lacking in unit laundry. Make sure to start marketing units 8 weeks in advance of a tenants lease ending. You should have a signed lease before a tenant vacates when done right. I helped lease 1100 north side managed condo/2-4 units when first got licensed so saw the vacancy trends on a larger scale. It's good to be conservative though so run 5-7%.
- 10) Chicago is a very pet friendly city. Accepting pets will both help reduce vacancy and bring in pet fees. You can charge pet rent $25 per month or a one-time fee of $250-350. No aggressive breeds.
- 11) In Chicago the norm is a move in fee and no security deposit. Chicago has strict laws with security deposits and most landlords choose to just take a non-refundable move in fee.
- 12) Parking in Chicago can be worth a lot depending on area be sure to add this into your analysis. It’s not uncommon for parking to rent $100-150 per spot in class A/B. Do not include it with a unit always charge extra for it to max out your cashflow. Whether the parking is garage or a pad it will still rent well. Exceptions are areas with lots of street parking available a good trick to drive by property at a few different times of day.
- 13) The real profits from north side investments will be over the long term as rents grow and your mortgage stays the same these are typically not high yield in day 1 properties with the exceptions of buildings that have an un-zoned extra unit. There may be ups and downs but over the long run rents will statistically rise. This is especially true in the gentrifying neighborhoods.
- 14) Run your own market rent analysis. On the good deals you will often see rents very low from old mom and pop landlords. Look at this as an opportunity and don’t get scared when it’s $600 or $800, etc.
- 15) My hot list of gentrifying neighborhoods…. Avondale, West Logan Square, Hermosa, Humboldt Park (North of North Ave. or between Western Ave. and California Ave.), Albany Park, Irving Park, Rogers Park, West Edgewater, Pilsen/Heart of Chicago, Little Village, Mckinley Park, Bridgeport and Bronzeville. These areas have a ton of upside and the numbers still work for house hacks if you find the right deal.