Multi units in the city vs SFR in the suburbs.
Chicago, IL · Member since 2017 · 10 posts · 2 votes
Multi units in the city vs SFR in the suburbs.
Most Popular Reply
Real Estate Broker · Chicago, IL · Member since 2015 · 102 posts · 53 votes
5y@Jorge Leon keep your mind open to all investment types and options. There is nothing wrong with diversifying and owning a little bit of each. If you find a deal that you like, the numbers make sense, and the area is primed for long term stability or even better, improvement, then go for it! Right now there are renters out there looking for every kind of rental. I say spread it out. Having a few places in the city and a few in the suburbs and a mix of multi unit and SF is a great option. Most importantly, have a good team in place to help you identify solid deals. If you'd like some help, feel free to reach out.
Now, for all you Illinois bashers out there... it's getting pretty old. If you don't like investing in Illinois then why are responding to a message about investing in Illinois? Why do you feel the need to lecture someone and bad mouth a city, or state? The question wasn't asking IF he should invest in Illinois, it was regarding the types of properties. Leave your rants out of it. AIN'T NOBODY GOT TIME FOR THAT!
15 Replies
- Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes5y
The cheaper properties in IL actually often have little to no/negative cashflow as the taxes and cap/ex can still be high. Even $1000 rents very easily gets eaten up by operating expenses on IL houses. I would definitely recommend buying 4 unit properties or a larger building such as 6-12 units. For 4 units the city and suburbs works well for 6-12 units bronzeville can be a great option. I'd avoid the really high cashflow (on paper) high crime parts of city and stick to working class or better tenants on first deal some good areas Brighton Park, Mckinley Park, Bridgeport even Pilsen can work on the 4 units and 5+. I like these areas as they cashflow today and are seeing strong rent growth+appreciation.
I own a 4 unit in Rogers Park/Edgewater and it works great. Also have sold a few 4 units in suburbs recently that are performing great.
- Chicago, IL · Member since 2017 · 10 posts · 2 votes5y
Thank you, very helpful.
Originally posted by @Henry Lazerow:The cheaper properties in IL actually often have little to no/negative cashflow as the taxes and cap/ex can still be high. Even $1000 rents very easily gets eaten up by operating expenses on IL houses. I would definitely recommend buying 4 unit properties or a larger building such as 6-12 units. For 4 units the city and suburbs works well for 6-12 units bronzeville can be a great option. I'd avoid the really high cashflow (on paper) high crime parts of city and stick to working class or better tenants on first deal some good areas Brighton Park, Mckinley Park, Bridgeport even Pilsen can work on the 4 units and 5+. I like these areas as they cashflow today and are seeing strong rent growth+appreciation.
I own a 4 unit in Rogers Park/Edgewater and it works great. Also have sold a few 4 units in suburbs recently that are performing great.
- Member since 2018 · 1k+ posts · 1k+ votes5y"My family and I are looking to invest about 3-4 million dollars in rental properties. We are deciding between a couple 3-5 units in the city or several (cheaper) SFR in the suburbs and outskirts."
-------------------------------
Don't be an idiot. Do NOT invest in Illinois rentals. Do northwest Indiana or in a REIT based on landlord-friendly states.
Why? Consider:
Rent laws are TOO friendly to tenants. I'm all in favor of protecting tenants from rapacious landlords, but Chicago and Cook County go off the deep end. The penalties for even minor, inadvertent, breaches, with no harm to the tenant, are draconian.
Rent control is coming. This is especially true now that Madigan has resigned. The pressure to turn Illinois into a bastion of "progressive" liberalism is overwhelming. Rent control is a high priority of the progressives (I'm center-liberal myself, but the wackos are going off the deep end). Keep in mind that they are utterly ignorant of economic principals and have rose-colored glasses when it comes to tenant behavior. You cannot talk sense into them. I am reminded of the old Will Roger's joke: "Some people learn by reading. Some people learn by observation. The rest have to pee on the electric fence for themselves." Trouble is, they're using your money for their lessons -- and the lessons don't involve reading.
Inability to convert/upgrade properties. Google Chicago gentrification ordinances 2021. The attitude will spread to the rest of the state as the poverty pimps take over. 'Nuff said.
Pensions. State and Chicago politicians have been criminally negligent with respect to properly funding pension plans, and have ZERO backbone in standing up to unions. That means taxes WILL go through the roof. Liquid assets can walk away. Illiquid assets can't. Therefore, illiquid assets will bear the brunt of the tax increases. Did I mention that real estate is an illiquid asset? Now combine tax increases and rent control and tell us what you get.
Corruption. By rights, Chicago should have 15 aldermen, not 50 (same per capita as New York City). The result is 50 corrupt hands -- elected on the basis of race, ethnicity, religion, everything-but-ability -- in your pocket, not 15 competent managers who had to appeal to wide swaths of the population with their capabilities. Don't believe me? Just google Alderman Burke and the Burger King at 41st and Pulaski in Chicago.
I could go on, but you get the idea (I hope). - Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes5y
@Jorge Leon I personally always lean towards 2-4 unit properties. With the way property taxes work in Cook County, you will always cash flow better on a 3 or 4 unit than you will on a SFR. You can still find properties well above the 1% rule in the suburbs, and in the city you can as well in the more affordable neighborhoods.
To me, single family homes are typically only going to give you appreciation here in Chicago.
- Real Estate Broker · North Aurora, IL · Member since 2014 · 130 posts · 82 votes5y
@Jorge Leon I would reconsider Illinois for a long term investment unless you can grab a deal with equity in place at purchase, maybe a value add type of deal. Illinois is very expensive in terms of taxes and the future does not look especially bright considering the long term financial woes of the state in general.
My properties' taxes are equivalent to an annual salary and they keep going up, squeezing my cash flow. In other states my properties' taxes would be 30% of what they are now and while the rents are high here, they are not equally proportionate. I cannot raise rents as fast as the local jurisdictions are raising taxes. It is perplexing too because I remember there was a lag in tax assessments going down during the real estate recession but it seems like that there is no lag in taxes going up in this rising market.
With that kind of buying power I would recommend not competing with the consumers for single family and 1-4 multifamily properties in this highly appreciating and highly in demand market. I would look at auction properties where you can raise rents and add value, either with a 3-5 year exit strategy or even a long term hold.
There are some interesting opportunities out there. Let me know if you have any other questions.
- Real Estate Broker · Chicago, IL · Member since 2015 · 102 posts · 53 votes5y
@Jorge Leon keep your mind open to all investment types and options. There is nothing wrong with diversifying and owning a little bit of each. If you find a deal that you like, the numbers make sense, and the area is primed for long term stability or even better, improvement, then go for it! Right now there are renters out there looking for every kind of rental. I say spread it out. Having a few places in the city and a few in the suburbs and a mix of multi unit and SF is a great option. Most importantly, have a good team in place to help you identify solid deals. If you'd like some help, feel free to reach out.
Now, for all you Illinois bashers out there... it's getting pretty old. If you don't like investing in Illinois then why are responding to a message about investing in Illinois? Why do you feel the need to lecture someone and bad mouth a city, or state? The question wasn't asking IF he should invest in Illinois, it was regarding the types of properties. Leave your rants out of it. AIN'T NOBODY GOT TIME FOR THAT!
- Member since 2018 · 1k+ posts · 1k+ votes5y"Leave your rants out of it. AIN'T NOBODY GOT TIME FOR THAT! "
-------------------------
if you don't like a message, scroll past it. Suggesting options to someone (REITs if way out of state, northwest Indiana) helps when they're fixating on some location.
As for not having time, I think the only people lacking said "time" are those who are paid on commission if there's a sale in --say it -- Illinois.
Experienced pros like John Warren can handle the Illinois market. The original poster doesn't have a lot of experience if I read his post correctly. He needs to stay away from Illinois. - Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes5y
@Jorge Leon you are getting a lot of view points on here. I am enjoying all the comments as this is what forums are all about! I had a few follow up thoughts for you. 3-4 million would allow you to do other types of investing as well. You could invest in syndications as a limited partner, you could buy a whole apartment complex, you could do triple net investing, etc. I invest locally because there are some very advantageous things in my local sub market that allow me to build wealth quickly. I can get large rent bumps as I am located near the city, and I can control my investments 100% since I self manage.
If I was investing a few million, I would consider a lot of different options where I was completely passive. I am in full growth mode now, but maybe think about whether you are in growth mode or capital preservation mode?
One last thought would be that if I was getting into the institutional sized stuff like 100 unit or more apartments, then I would probably not stay in Illinois at that point. Our inventory is ideal for 2-4 unit investors as well as small commercial sized apartments like 6 units. Once you jump to larger deals, you can get on site management and a regional manager... so you can be anywhere! At that stage, I would agree with @John Clark and I would go somewhere warmer and more land lord friendly.
- Rental Property Investor · Chicago, IL · Member since 2015 · 275 posts · 271 votes5y
@Jorge Leon It all depends on your cost basis in a property. Just a suggestion. Don't buy based on appreciation, buy based on the basic fundamentals. Equity (May have to be forced equity based on rehab), cash flow, DCR (Debt Coverage Ratio).
Next is depend on your style of investing. NW suburbs and western suburbs are tough in terms of finding real values unless you really go off market for properties. Far west and south suburbs you can find value as well as great cash flow but all the suburbs are not the same. Some have no commercial base so the taxes are very high. Even through you can find the properties relatively cheap the taxes are high. Also consider the tenant base. There are suburbs where you can still pick up reasonable numbers in terms of purchase prices but the area economics is not good.
If you have a good chunk of change to deploy. Look for a off market strategy to find deals with good cost basis at the end of the day all the numbers fall in place when you cost basis is right. Purchase + Rehab. Chicagoland area does have a tough climate for landlords yet because that hill is steep the cash flow and the values that you can find here are really pretty wide but right now you have to look for deals off market.
Obviously NW Indiana is an are people often point out but again the parts that are good solid B areas the you have to go off market to really find good value.
When you are thinking about deploying capital in a market I would consider a good deal finding strategy rather than just forcing MLS deals.
- Property Manager · Lindenhurst, IL · Member since 2016 · 854 posts · 506 votes5y
This is just my opinion...
Done right, you can be successful in Chicago (or Chicagoland,) even with high property taxes and the current regulatory environment. You just have to spend more time buying right. Also, if anything, there will be more regulations (just my opinion of course.) Case in point, there will be a rent control hearing tomorrow (Illinois General Assembly - Bill Status for HB0116 (ilga.gov).) For the record, more or less the same thing came up for the last few years and got defeated every time.
Different people have different opinions about this, but I'm comfortable buying almost retail price in North West Indiana. So far cash-flow and appreciation are good there.
- Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes5y
@Jorge Leon - Either option will make you money....I think you have to reverse engineer and figure out what your end goal is, risk tolerance, and whether you want this to be an active or passive investment.
If you were looking for a passive investment you could take the couple million and throw it into a REIT. Personally, I like the city, but that is simply because that is what I know best. The surrounding suburbs are great too though. I wouldn't get stuck trying to figure out the exact best strategy the easiest way to figure it out is trial by fire (maybe just not all the millions at once haha)
The key to getting ahead is getting started....
Quality Builders4.966 Reviews - 5yEudith VacioPro MemberReal Estate Agent · Chicago & NWI · Member since 2015 · 860 posts · 521 votes
I am very comfortable buying retail price in NWI, as well :) I like the city of Chicago but when you can go next door and get a property of similar value with higher cash flow, I am all in!
But I definitely agree with @Jonathan Klemm, it's all about taking the first steps and getting started!
- Flipper/Rehabber · Louisville, KY · Member since 2008 · 1k+ posts · 1k+ votes5y
I have heard almost every one of the complaints that @John Clark rants about that... "will destroy Illinois!"... since I moved here......in 1987. Corruption is going to destroy investment? LOL. It's been the same or much worse, since the 1950's...maybe the 20's. Yet it hasn't exactly been a hinderance to investment.
None of the fearmongers complaints have come pass to any serious way or driven investment dollars away from the state to any degree. But they still make them and still believe they are going to be correct. The taxes are what the taxes are. When every one of your competitors units has the same taxes it is not a disadvantage. The rents find their level. If taxes were to go down for everyone, the rents would adjust. It doesn't make a difference to the bottom line longer term. If you are stuck with a long term lease with no rent increases and THEN your taxes go up unexpectedly, it can be an issue. If your taxes are over assessed compared with your neighbors, it can be an issue. But the general level of taxes in a location are irrelevant. Just saying Illinois taxes are high is not an argument. Yes, they are on the high side and they will only go higher. Since everyone knows that, it is not a problem.
Chicago is famously tenant friendly. That is true. And it is a pain to deal with and can be frustrating. But everyone has to deal with the same issues. It is one of the reasons rents stay high. You get paid for the hassle. Again, if it were "easier" for landlords, the rents would reflect that.
Rent control! Rent Control! Chicken little has been yelling that one for a while too. Maybe it happens maybe it doesn't. If you think there is not big money to be made in rent control cities, there are a bunch of billionaires in NYC and SF who might beg to differ. When someone finally shows me a city whose RE values were destroyed by Rent Control, it will be a first. They use "Rent Control" as a scary boogeyman just like they use "socialism". Because few know what it really means. It is not scary.
There are plusses and minuses to every locale. It is about the deal. Nothing about the location makes everything a good deal or a bad deal.
- Member since 2018 · 1k+ posts · 1k+ votes5y
Eric M,
The problem I have with your analysis is that it is location fixated in my view. It is that location fixation that I warned the original poster about. He is a rookie looking to put big money in Chicago. My question was, and is, “Why Chicago?” My reason is simple: Chicago is a tough market and you can lose your shirt due to reasons unique to Chicago and Illinois.
Sing and dance all you want, but investment opportunities MUST be viewed in the context of two things: First, does it “hit your numbers” – which includes such non-numeric things as risk tolerance and goals, and; Second – and this is where you fall down in my book – what are the alternative investments that also “hit your numbers” but with less risk? Hitting your numbers without extra risk is the only way to go.
Saying that taxes (of all kinds and shapes) are high for everyone in Illinois and therefore taxes are not a factor is wrong. You assume that investments in northwest Indiana are not available to the person looking to invest in northeast Illinois. The overall tax burden is Indiana is lower than it is in Illinois. The burdens of pension debt and reckless spending are borne by Illinois investors, not Indiana investors. Your statement that taxes are irrelevant is simply wrong so long as alternative locations (NW Indiana, use of REITs) are available.That is why I said that experienced investors, e.g., John Warren, can do okay in Chicago, but rookies should not consider Illinois. The original poster is a rookie.
Penultimately, let us look at rent control, which I mentioned, not socialism, which I did not mention. Here’s a quote from the internet that sums things up nicely:
“As the economist Assar Lindbeck put it, “In many cases rent control appears to be the most efficient technique presently known to destroy a city — except for bombing.”
So strong is the evidence for this that we have that rarest of things – a consensus among economists. In 2012, economists were polled with the following question;
Local ordinances that limit rent increases for some rental housing units, such as in New York and San Francisco, have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them.
81% of them disagreed.”
Source: americanexperiment.org/2018/12/81-economists-agree-rent-controls-bad-policy/
I am sure that your bona fides are as inferior to Mr. Lindbeck’s as mine are.
Lastly, you mention you came to Chicago in 1987. Nice, but irrelevant. I came to Chicago when Jane Byrne was mayor. Also irrelevant.
As I said, if one doesn’t like a comment, one is free to scroll past it. Illinois, however, and especially Chicago, is no place for rookies going big.
- Member since 2018 · 1k+ posts · 1k+ votes5yBTW, Eric, I see from your description that you are a rehab/flipper, a short-term perspective. My comment to you riposte seems to be stuck (I assume due to someone taking umbrage at my comments). The original poster stated that he was looking at buying rental properties -- a long term proposition, specifically: "My family and I are looking to invest about 3-4 million dollars in rental properties."
My question is: did you take into account the original poster's differing investment time horizon when you posted your response to me?
Join the conversationCreate a free account to reply, vote on answers and follow this thread.