Chicago Housing Market - Too Good To Be True?

Question

Hi all,

I am a soon to be college graduate from outside of Boston MA, and I have begun looking around at different housing markets for good deals in order to secure a property to house hack upon graduation. I have spent quite a while analyzing deals in and around Boston and have been discouraged by the lack of good deals, which I'm aware is due to the high level of competition in this city.

As such, I turned my attention to different cities. I began analyzing deals in and around Chicago and am blown away with the number of cheap multi-family houses that would cash flow positive I am finding on the MLS. I'm talking 6-7 bedroom houses going for $180,000.

My main concern is that it seems like the Chicago housing market is too good to be true - there are just so many deals to be found just looking a few hours on the MLS. Are there any caveats like high vacancy that I should be aware of before investing in Chicago?

Thanks for your time, and I appreciate any feedback provided.

Michael

Czar Cabaneros · Answer

Hi Michael Guay, im Czar and I am also a newbie in buying multi home buildings. I started looking around chicago near the hospital and university areas. I say hospital, because I am a nurse and many of my co workers do look for a place thats close to home. I say Universities because out of state students tends to rent outside of campus for more independence. Location is key. Be very careful with location. Some are nice but very expensive, some are very cheap but crime rate is high, some are okay but very far from civilization. And also, very important to have a good realtor and loan office that can help you out. I have a realtor and a loan officer that helped me alot with deciding which building will be best option.

Michael Facchini · Answer

@Michael Guay, first off, congrats on getting started early on in life with real estate investing!  The sooner the better, so kudos for making the decision to get the ball rolling.  As to your questions above, yes Chicago will seem like a heck of a deal compared to Boston.  We have a lot of investors/buyers that come in from the 2 coasts, looking for all that a major city has to offer, but then are shocked by how reasonable prices are here...it's all relative of course.  That said, like any city there are areas that are more expensive and those that are cheaper, and there are reasons for both.  I'd say that $180k for a home, let alone that size, anywhere near the city would suggest that it needs a lot of work and/or it's in a "rougher neighborhood".  As with any real estate purchase, you'd want to get acquainted with the market and sub-markets, and from there determine which provide you the opportunities you're looking for.  Would you be looking to move here too, or being a remote investor/landlord?  There are challenges to that, so make sure you give this all fair consideration before diving in. Hope that helps, and happy hunting!

Eric X. · Answer

180k for 6-7 bed homes has to be in a rough area(south or west side of downtown)

Don't underestimate the difficulty of managing rentals there as well as living there.  The returns on b/a class properties in illinois/chicago are not great.  Better than Boston but not great.

Michael Guay · Answer

Thanks, Michael! I'm super excited to get started. All of the feedback has been great on this post. After reviewing the property I originally mentioned, I see it is now in a rougher neighborhood, which likely explains the discounted price.

I definitely would move to Chicago and execute a house hack if I found good cash flowing property. I'm looking to go into Software Engineering as a full-time job, so there definitely isn't a shortage of those jobs.

Crystal Smith · Answer

If it’s a 6 or 7 bedroom home in Chicago proper it more than likely needs renovation. Homes here will be less than Boston. It’s always been that way.  Regarding vacancy- CHICAGO isn’t one market. There are 77 sub markets all with different vacancy rates. If you count the surrounding suburbs there are even more markets.

Michael Guay · Answer

Thanks, Henry - this is helpful information. I'll PM you with more detailed neighborhoods on the north side if I find a better deal around there.

Eric M. · Answer

You should get together with the guy last week who posted about there being no deals in Chicago at all.

You can find 2 bedrooms for $1M and 9 Bedrooms for $30K. So just saying you can find X bedrooms for $Y doesn't really tell us much.

There are properties that appear to be very high cap rates. There is more to the story. Might be repair costs, might be gangs, lots of reasons. In some areas and some buildings the appropriate vacancy rate for your calculations is 100%.

But you can certainly find rentable multi families with 6 bedrooms for 180K that you may be able to squeeze very good short term cash flow from. Expect a lot of Capex and expect price depreciation on them. If you have the personality to be a slumlord, it can be pretty profitable.

Henry Lazerow · Answer

I sold 10 million in Chicago last year. Feel free to PM me for neighborhood specific info or to bounce an address off me.

The price point you are mentioning sound like D and F class junk assets. It is true Chicago has relatively high cap rates for being a world class city though but most of our 2-4 units are in 500k+ range and houses 300k+ range. 2-4 units are what's popular with a lot of people house hacking the north side.

Taylor L. · Answer

There's a reason they're cheap. You might be getting reverse-sticker shock, coming from Boston, one of the most expensive housing markets in the country.

Mark Allen Kenny · Answer

@Michael Guay, what neighborhoods are you looking in?  Parts of Chicago are really bad.  I'm originally from Chicago.  But I don't invest there because of high taxes, population decline, poor landlord laws and increasing crime.  But with that said, there are plenty of investors there making money.  It very much depends on the neighborhood and the property class.

Chicago Housing Market - Too Good To Be True?

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