Lessons From Chicago’s South Side: How Looking Beyond Numbers Can (Literally) Save Your Life

24

It is 11:00 a.m. I am lying down in the front seat of my car, and there are guys shooting at each other in the middle of the street. This isn’t the beginning of a movie. This isn’t a catchy start to an article. This is my real life. This is what woke me up.

Back in 2009, I started working with an investor who was buying properties at county auctions. It was a time when there were very few people willing to buy anything, let alone a house. Competition was limited. We were literally buying houses for 10 cents on the dollar. If you wanted, you could buy a house every single day for less than $10,000. Some were gems, some were garbage. It was thrilling. We would go out before the auctions and walk the outsides of these properties, take a guess at what the condition of the property was and buy it.

We ended up buying a lot of property sprinkled all over the South Side of Chicago. The city of Chicago is 234 square miles. The South Side is larger than both the North and West Sides. So the South Side is at least 117 square miles. To put that in perspective, Manhattan is 22 square miles. The South Side is made up of dozens of different neighborhoods, and we were buying in all of them. We didn’t care because we were buying the properties for $10,000, rehabbing them and renting them. It didn’t matter to us because the numbers on paper looked incredible. (What a mistake that was.) We didn’t have the time to learn about the different neighborhoods. All we did was look at the numbers.

Related: We’ve Done the Math: You Can’t Make Money on $30,000 Houses. Here’s Why…

How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties

This is the dream right? Going from zero to 10+ rental properties, providing stable cash flow and long-term wealth for you and your family, and building a scalable business model to boot! Learn how this investor did just that, in this exclusive story featured on BiggerPockets!

Click Here For Your Free eBook

Following the Numbers

So about a year and a half into this, we’ve bought and rehabbed a couple of dozen properties in various neighborhoods. There had been a few problems along the way in certain neighborhoods. We had a few break-ins at the properties. We justified it by saying, “But look at the numbers on paper.” So we hired house sitters.

A house sitter is where you pay a person to live in the house while you are doing a rehab to watch the house.  Probably this should have been a red flag, but we thought, “Look at these numbers.” We tried to recruit contractors who refused to work because of some of the neighborhoods. But another voice stopped us from taking action: “Do you see this 20% return? We’ll just have to find someone else to work on it.” We had contractors call us and say they heard shooting outside. We said, “You’d better stay inside then. I am going to make some money on that property.” We had contractors robbed coming out of the property to their truck. “It was just part of doing business. Nothing to worry about; have you seen these numbers? I am going to be rich!” I kept thinking.

So now there I was, praying to God to get out of this. I don’t know how long I was hiding there. I don’t even remember going home. The first clear thought that I remember was, “I’m doing all this for a lousy $300 a month.”

After that happened, it was a total shift in my perspective. There were plenty of neighborhoods in Chicago on the South Side that were safe. We already owned properties in some of those neighborhoods. While looking at those properties, I questioned, “Why am I buying in bad neighborhoods? Is risking my life worth it to make a little bit of money?”

Unloading the Properties

We immediately started to try and unload the properties in the bad neighborhoods and guess what? There were no buyers. I even showed them my pro forma and income statement. I said, “Look at these numbers. It is a gold mine.” No takers!

We lowered the price, from a profit to a break even. Still nothing. No takers. We lowered it to a loss. Nothing. We lowered to an even bigger loss, and finally after a few months of this we had a buyer lined up. It was another investor. He was buying properties in the neighborhood because of the returns that he could get. I told him good luck and never looked back.

Related: Should I Buy Several Cheap or a Few Pricier Houses? An Investor’s Analysis

Lessons Learned

We lost a lot of money on those properties, and to be honest, I was willing to lose more to get rid of them. I realized there are tremendous opportunities in real estate without having to take those types of risks. We continue to buy property on the South Side. There are a ton of great neighborhoods that are safe with great returns. Not as high as other neighborhoods, but I feel safe when I am there. I always cringe when I overhear a new investor who tells me their primary way of deciding whether a property is a good buy or not depends upon what their Excel spreadsheet spits out.

The fact is, you could make more money in real estate than you could ever imagine, but it is more complicated than just numbers on a page. It requires a lot of hard work and the 4 Ps: Passion, Persistence, Patience and Process.

Investors: Have you ever bought properties that you’ve immediately regretted?

Let us know your stories in the comments section below!

About Author

Mark Ainley

Mark Ainley is founder of GC Realty and Development and GC Realty Investments. Mark has been an active real estate investor since 2003. He started slowly by flipping condos and acquiring a couple of investment properties. Since 2003, Mark and his team have successfully renovated and stabilized over 200 properties.

24 Comments

  1. Mike McKinzie

    Mark
    Having been around Real Estate my entire life, I can’t count the number of seminars that I have sat through. I remember very little from any specific seminar, but I do remember a few gold nuggets. One “guru” said one thing, and this I remember word for word.
    -Never buy a rental if you have to carry a gun to collect the rent!

    Now, there is a small clique of investors who RELISH this type of investment. One who has not been on BP in years, I think his name was Mike O. He even wrote posts on what Caliber of Handgun he carries when he collects rent. I think he said he either rode a Harley, wearing Black Leather or a 40-50 year old pickup truck, when he would visit his properties. BUT, most of us do not want to have to do that to collect rent. We want to own houses that we would feel safe having our mother’s live in them.

    Money can be made on B properties if it is done right, I even have a few of them in Central California. But I avoid C properties, I sold my last C property in 2012, what a NIGHTMARE! My father had purchased it many years ago thinking it would be rezoned commercial and be worth a lot of money, due to the area. But his hopes did not come to fruition. So I just sold them, invested in LESS rent, but MORE profit.

    Great article on the dangers of investing in “South Side” properties.

    • Mark Ainley

      Thanks Mike for the comments. I definitely realized there is a middle ground and funny thing is it really only was a 8-12 blocks away and $15-$20 thousand more in most cases. Realizing it helped remove additional unneeded drama in the management, daily safety concerns, bankers concerns of areas, & improved our tenant basis drastically. See you around!

  2. Joshua Diaz

    Mark

    Thank you for blogging this experience. I have yet to buy my first property but I’m gearing up to do so. Thankfully, due to BiggerPockets, I already had the inclination to research the area I’m going to buy in but reading this really hammered the point in. I’ll definitely do my due diligence on an area before i even think about investing in it.

    Awesome article and thanks again!

  3. Mark Ainley

    Joshua, thanks for the feedback! Don’t sit on the sidelines too long but also do your due diligence. Like the article there is a middle ground so find that more comfortable middle ground and jump in sooner than later. Crime reports don’t always tell the story either. A funny indicator for us to determine a quality of a neighborhood Chicago is if the AC unit is in a cage or sits there free of any protection.

  4. Jennifer Kinzle

    Mark,
    Wow, I had no idea. I guess I knew it had gotten bad, but this really brings it home. Thanks for sharing your first hand experience with this post. What a turning point that must have been. “All for $300 a month”. I grew up on the south side and I don’t go back there. If I can’t take my kids to an area, I take an instant pass. I’ll find something more suitable, even if it means a longer search. I hope more folks read this and learn from your experience!
    I hope you will continue to blog more.

    • Mark Ainley

      Thanks for your response!! I never want to paint the south side with a broad brush but there are bad pockets. We are still happily and successfully investing there in quality south side Chicago neighborhoods with great cash flow and future appreciation.

  5. Kimberly Land

    Mark:

    Interesting article. I grew up on the South Side. I played outside everyday, I walked to school with no problems, played in the park, took the bus safely to hang out with my friends and built relationships with families and good, hard-working people. We even lived in a house in Englewood for a time and it was safe then–more families and stronger bonds between neighbors. It bothers me that kids can’t have the same childhood experience I had. I drive through Englewood sometimes now to see my patients and it breaks my heart what has become of the area. Some patients in need I have to turn down because I don’t want to commit to driving to the area.

    It saddens me that this has been your experience as an investor, horrible enough to title your article with “Chicago’s south side” danger. It also saddens me that people worldwide will read this and will continue to form judgements while ignoring this community in need. The south side has really suffered tremendously over the last decade and I often wonder if it will ever be restored. Sadly, even I moved from the south side for many of the same reasons you mentioned above. I look at property and think the same thing, “Wow, I COULD make so much money.” But I don’t want the headache or the danger that accompanies the money. Breaks my heart…

    • Mark Ainley

      Thanks for your reply Kimberly. We are a big cheerleader for the south side and try to increase people’s awareness of the positives on a daily basis. I can talk forever on my thoughts and changes happening but I will just say there is a lot of activists, agencies, investors, and actual homeowners that are making a difference and it is gaining some traction.

  6. Crystal Smith

    Mark:

    Over the 4th of July weekend a friend of mine posted an article on her facebook page about multiple shootings in Chicago. I saw the article, cringed, then my partner pointed out that the 4th of July weekend wasn’t even over yet & the posted article was from a previous year. Today I saw the title of this blog post & cringed again- “Oh no- another bad article about Chicago” Then I saw it was written by you & thought- Ok it should be fair & balanced. Good job.

    I grew up in Chicago- Left for a few years then came back. We continued to invest in Chicago, including the south side, based on numbers. But growing up here & spending some time on the southside in my youth, I knew something about certain “blocks” so we were fortunate not to have some of your experiences. Not to say everything was perfect but….

    With that said- some of those blocks that I knew about back then are different blocks today. This is because of investors, partnering with neighborhood committees, churches, politicians…. (I’m not a big fan of giving politicians credit but there are a few) It’s a work in progress. Chicago needs people like you to stay engaged.

  7. Michelle M.

    Mark,

    Thanks for the reminder. I have been looking at properties to invest in-in Chicago for quite some time now, and was at the point where I was about to buy anything just to get going. I have lived in Georgia for a few years now (born and raised in Chicago) and my daughter and son-in-law (live in Chicago) are helping me find something. So far every property that I have expressed an interest in has been given a thumbs down by my son-in-law because of the area. Of course I do some research on the area before considering the property, but it hasn’t been beneficial.

    My agent mention that Englewood is transitioning and she believes property value in that area is going to triple within the next 3-5 years. I fear buying in that area because of the reputation today. I few months ago there were so many properties available in Englewood it probably looked like a ghost town. I’m sure investors are buying in the area, but I’m a little leery—No, I’m very leery.

    I hope to find something some day.

  8. don alberts

    Mark, great article and insight on the perils of C and D areas with investing. I also grew up on the Southside and I treasure my experiences. I am hoping that the flow of investing will continue in the City and expand to the Southside. Have a wonderful evening. Don

  9. Jacob Vincent

    Mark,

    Thanks for sharing!

    Kimberly Land – I used to live in the South Loop, and what’s happening in “Chi-raq” seems to be a repeat of what I heard happened in the South Loop around the turn of this century. I’m guessing that Rahm is rehashing the Daley playbook and is hoping to retire as a billionaire distressed property investor.

    -Jacob

  10. Carl Ghiselli

    We have a couple of houses on the South Side as well – and it is the story of two majorly different experiences. One has been cash flowing constantly, in a fairly decent part of the neighborhood near a school and park, while the other has been nothing but headaches.

    We had poor contractors, since that’s all we could get, and have had to go back in multiple times to fix HVAC, overflowing plumbing, and numerous other issues. Now that it’s been stabilized, and fixed, we make over 25% cash on cash! The numbers don’t lie – but I think we’d certainly entertain offers. As it seems, when things go wrong, they really do go wrong.

Leave A Reply

Pair a profile with your post!

Create a Free Account

Or,


Log In Here

css.php