Questions About Investing In Chicago

24 Replies

Hello all BPers from Chicago,

My name is Emma. I am an out-of-state investor from San Diego. I am currently looking into Chicago for buying some rental properties because I have heard a lot good things about Chicago. I have some questions about the local rental market:

1. What neighborhoods/zip codes are good and safe for rentals?

2. Any recommendations for good local property managers, wholesalers and conventional loan broker?

3. What's average price(range) for a 3br/2ba SFR? and what's rent$ for the house?

4. Is small multifamily(2-6 units) easy to be rented out comparing to SFR?

5. Any other suggestions/tips about investing in the market?

Thank you so much for your time.

Emma Chen

Hi Emma, I am in CA as well and investing in Chicago. Not sure about your connections, but being raised there is a huge benefit for me.

1. Depends on your risk tolerance, ie, generally more risk, more reward. Being out of town, if you don't have much in boots on the ground there, I would stick to select areas of the southside to get bang for your buck but not Englewood or Roseland.

2. LOL re PMs.  There is the trick.

3. Depends, but you can get a decent area for 70k with a 1,200/mo gross rent.

4. Yes, but higher management needs from out of town and higher turn over.

5. The most buck bang is in distressed properties which raises new sets of issues for out of state rehab.  Turnkeys I see in these same areas IMO are overpriced for equity although the cash flow on paper works. 

Thank you @Dooreuhn Cee  for you response. I will keep it in mind to avoid Englewood and Roseland. 70k house for 1,200/mo gross rent is a great return to me. Could you please name some decent areas/neighborhoods you are current investing in?

Thank you so much.

Emma

In Englewood I would have several breaks ins during a rehab and found usually they are by people living nearby.

In Auburn-Gresham I have had no problems with break ins at all.  I'm able to get 2% there by doing my own rehabs.  First filter is to check Google Maps for board-ups, vacant lots and apartments.  They are very general signs of an undesirable block, although 2 blocks over can be better.  Also check Washington Heights and Pill Hill.

The remote investing model is EXTRAORDINARILY risky if you do not have a local partner (or buy turn-key).

And you'll need MLS access for areas where you plan to invest; otherwise, again, the risk is super high. If you can't run your own numbers, and you're dependent on the numbers people provide in this business, that would not be a good scenario.

I wish you the best!

Thank you @Dev Horn . I have been invested in out state before. I bought 2 rental properties in Memphis. I am open to buying turn-key properties or distress properties. I am not a licensed RE agent so I dont have MLS access. I always run my own numbers and rental or sale comps.

Appreciate your tips.

Emma 

@Dooreuhn Cee  I came across a deal in Chatham. What about this neighborhood? Should I take a look or stay away?

Thank You!

@Emma Chen  

As a local investor, it not as easy as saying Englewood Bad, Aurburn Gresham good.  These areas are so block by block.  I know a very well established investor that is buy as much as he can in specific areas of Englewood.  He knows the blocks and has been in the area investing for the last 15 years.

1. Impossible to answer if you are looking at distressed neighborhoods.

2. Very difficult to find.  Most of the established investors start their own PM because hiring 3rd party can be very risky.  Some PM's won't take on the PM unless they do the construction and the tenant selection.

3. Depends on the location and how you are buying it. Since the south side came up I will assume you are interested there. In a reasonable neighborhood and you are doing a quality rehab, 60-70k for an SFR. Buying it turnkey probably closer to 90k. Buying it in a rough neighborhood and minimal rehab, 30k. Turnkey rough neighbor hood. 75k

4. Again, assuming south side, you are probably looking at subsidized housing. So an SFR will rent better and the tenant will stay longer. 2-6 can be easy, but it will all depend on how nice a rehab you do. The less quality the harder to rent.

5. The market in the city of Chicago is too difficult to look at on paper.  To many variables to decide if it is a good investment or not without local knowledge.  Most turnkey providers typically buy in bad neighborhoods and don't manage it themselves because they don't care.  They aren't going to hold it or manage it.

Chattam can be good or bad.  The NE corner can be quite rough.

Thank you @Cliff Mccue  for your input. A couple follow-up questions based on your response:

1. If I am not looking as distressed neighborhoods, what neighborhoods would you recommend for good cash flow rentals? I am thinking about purchase price $60k to $100k per SFR.

2. I am considering Chicago city-wide for investment, not only south side. If I buy a $90k turnkey property, how much rent $ can I expect per month?

Thank you for your time.

Emma Chen

@Emma Chen  

1. I can't think of any except maybe some south suburbs where you can get stuff at those prices and I don't know the neighborhoods well enough.  What I do know is that when you get outside of Chicago proper property taxes rise dramatically.  

2. For a 3 br you'd be looking at between $1250 and $1350. Expenses are going to are going to be around 40-45% WITHOUT CAPEX.

@Emma Chen  There are some pretty good areas in Chatham. Feel free to PM me for more specifics on deals you are considering. I can also help you with the long distance issue given that I have spent 8 years building a system for myself and a few other clients.

@Cliff Mccue  has some really great points. Chicago and the suburbs can really be block by block. This side of the street can be awesome, then you cross the road and it is a war zone. The dividing lines can literally be that sharp. 

That said, there can be some really great deals in the area. It hasn't recovered as quickly or completely as other places in the country, and the winter is a horrible time to try and sell, so getting a deal in the next couple of months is possible.

Your best bet is to partner with someone in the area to get eyes on the property and surrounding areas. If you buy wrong, your renters will see the bad neighborhood and stay away. Good luck!

Emma:  Everything is the posts above is right on.  

1. What neighborhoods/zip codes are good and safe for rentals?- Chicago has 77 communities, each with different personalities.  You can utilize tools like Trulia that include a crime map, to determine if a neighborhood is safe.  But... the map won't tell you where major investments are being made by the city, major companies... gentrification is alive & well.  Regarding Chatham- Great area for flipping or buy and hold.  

2. Any recommendations for good local property managers, wholesalers and conventional loan broker?  We have a preferred list.  Send me a PM & we'll provide some references.

3. What's average price(range) for a 3br/2ba SFR? and what's rent$ for the house?

In & around the Chatham area you should be able to get in & out of a property; (purchase price & renovation for ~$100K. (Give or take a few thousand) This is if you're plan is to purchase & flip the property.  If you plan is to hold the property, you may be able to get away w/ a lower cost renovation.  Market Rents for 3/2 will be ~$850-$900.  Section 8 or Voucher will actually be higher- ~1K.  

4. Is small multifamily(2-6 units) easy to be rented out comparing to SFR?

Much depends on the size of the units in the multifamily.  This is a metropolitan area where people are accustomed to living in apartments or condos.  The more bedrooms & the larger the size of the rooms the easier it is to rent.  Honestly I think there may actually be much better opportunties to cash flow in the multifamily area than SFRs.

5. Any other suggestions/tips about investing in the market?

It's all about your team here;  attorney, realtor/property finder, inspectors & General contractor/handymen; Title company.  One area of caution- General Contractors & the building department.  We've gone thru multiple GCs.  They always start out good then something happens.  So we are constantly adding to our list of GCS and monitoring home many jobs they may be on.   

Loved the breakdown of the Chicago market on this thread.  I live right down the road, so it's very tempting to me.  Thanks everyone!

@Crystal Smith  Thank you so much for your detailed answers.

We are buy& hold investors for passive income. I have not checked out Section 8 tenants yet. It's seems that Chicago is a popular section 8 rental market. Will need more education and help from management companies if we consider section 8 tenants. One of our houses in Memphis we bought recently because previous owner lost money on section 8 tenant. The previous section 8 tenant in the house default on rents but it took PM 8 months to evict the tenant and place a new tenant in. 

I wounder if there is special renting regulations or laws about evicting Section 8 Tenant in Chicago. 

Happy Thanksgiving to everyone! I am so Thankful to all your help.

Emma Chen

@Mindy Jensen  Thank you for important tips about partnering with location partners. 

Thank you!

Emma

Emma, 

I agree with @Cliff Mccue  : the Southside is block by block and property values can change drastically from one block to another. 

In addition to what others have told you, I suggest before you invest in Chicago - that you actually fly up here and get the FEEL of the neighborhood. Investing is NOT just about the numbers. Listen to my podcast - http://Biggerpockets.com/show65 so you'll find out how I learned this the HARD way and you don't have to repeat the same mistakes I've made.

Before we started buying houses in Ft Myers FL, we had to fly there. We talked with PMs, contractors, real estate agents, and other real estate investors. It's one thing to see the market statistics, or look at a crime report for a certain area - and it's quite another to actually go there and "feel it". Once you get a feel of it, you'll be knowledgeable about neighborhoods and the different blocks. You can tell if the property is east of a certain major street that it's A, B, C, D or F neighborhood. Having this down-to-the-street level of know-how is crucial specially if you plan to buy-and-hold.

Thank you @Danny Duran  & @Wendell De Guzman  I will try to connect with Mark and listen to two mentioned podcasts. I believed I listen them before and I will re-listen them.

@Cliff Mccue @Wendell De Guzman 

One more question about Chicago market: what is annual vacancy for a non-subsidizing SFR in North and South side?

@Danny Duran 

@Dooreuhn Cee  

@Crystal Smith  

Thank You!

Emma

Emma:  I'm sure there's a statistic somewhere w/ the breakdown of the vacany rate on the south and north, but I don't know the number or have the stats.

@Emma Chen  i should go back in time and figure out an actual number, but today i have no vacancies other than current rehabs, and last month I was 92%...  if you call it overall lost rents to inclue non-payments, I am guessing 10% holds on the southside

@Emma Chen I noticed you mentioned Chatham I'm very familiar with the area. I family have property in Chatham for 49 years. They belong to two churches in the area.

If you have particular addresses from time you are interested in. I could take pictures of the property and the block and give you information to help you narrow your search.

After you narrow your search I probably would do what @Wendell De Guzman suggest fly in and look at the final property/properties.

I'm familiar with Chicago as a whole from traveling to my clients. If you would like some assistance you may contact me.  

                             Enjoy as you prosper.....

@Emma Chen Check out www.neighborhoodscout.com You can put in an address and it will tell you stats about the area including vacancy.  Neighborhoods on the North Side are generally 2%-6% whereas the south side can be 6% -30%

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