Should I Invest in Illinois ?

Question

Should I invest in the Northern Illinois area, specifically western suburbs of Chicago? Long term I don’t feel like Illinois is headed in the right direction with high taxes and budget issues. I’m aware that each area has it’s positives and negatives and if the numbers work in your favor then it’s a good deal. I’m more so opening the floor to opinions and thoughts??

Eric M. · Answer

This question comes up a lot and the answer is that none of us really knows. In general, Illinois is going to go as the whole country goes. The US economy and housing markets are by far the most important factor. No local factor is more important.

The other thing is that Illinois has had the exact same issues for the 30 years I have lived here...and longer. And people have been worried about the RE market and predicted problems the whole time. And that worry has always been unwarranted.  Always.

The numbers of the deal is what are important. Whatever your criteria is....look for that criteria. If you can find it, you will be fine whether that property is in Illinois, Indiana, Texas or Florida. Does it matter if a 200,000 property cash flows 500 a month in Illinois or Wisconsin or New York? Not really. Sure there are differences in income tax rates and landlord laws which might be better or worse somewhere else. But if you live in Illinois, there is also a big benefit to being near your property. In the end, it doesn't seem all that critical to me....given the same number. When you read advice in a RE investing book, they don't say you should look to buy 75% of ARV in Iowa but you need 72% in Illinois. The general advice for what a good deal is...is fairly constant from state to state.

I know a lot of people complain about property taxes. Some places in Illinois property tax is crazy high. In some places, it is quite low. But I have never understood why that is an issue. The taxes are the taxes, if the net numbers of a property work, do I really care if the taxes are 1000 or 10000? Yes, property taxes are going to go up. I don't know any location in the country they are expected to go down. Your "competition" is the other houses in your town or even your subdivision. Taxes are essentially the same for those.

There are other locations that have had much more dramatic gains recently than Illinois. But for those of you chasing after those "hot" markets where we have seen the biggest gains, I hope you remember the lessons from every real estate downturn. What goes up the fastest and the most, comes down the fastest and the most. The hare seems like the one to bet on, but sometimes the turtle actually wins the race.

If Illinois is a good enough place for you to live...and you want to invest in RE. There is no reason not to stay close to home and invest in ILL RE.

Crystal Smith · Answer

There are 4 words in your post that should be eliminated if you're going to invest in anything- "I don't feel like"  Our opinion- Investing is not about feeling, it's about numbers. Establish a return on investment or hurdle target- If you can find an asset that meets your target in the western suburbs of Chicago then invest. If you cannot find any assets that meet your target then don't invest. Take feelings out of the equation.

Joseph Konney · Answer

Hi @Esteban Ibarra - As with any location, numbers numbers numbers, there are always going to be pockets that appreciate and depreciate in value too. You can always sell/buy with a 1031 exchange (profits are tax free when rolling into another in kind property) out of state after you are comfortable. I have 24 units in Chicagoland and can attest to there being strong cash flowing opportunities and even tax rates of less then 1K per year per unit. Chicago is also the 3rd largest MSA which is great for employment and opportunity.

Eudith Vacio · Answer

Hi @Esteban Ibarra. The questions really depends in the area and the strategy you want to implement. There are always opportunities to cash flow, you just have to find them. There are many investors in Chicago that have had massive success in rentals, flipping, or wholesaling.

Corina Eufinger · Answer

Here's a couple of things to consider with Illinois.  First the courts and laws are tilted towards the rights of the tenants.  It's not a deterrent but definitely something every investor should know who is planning on investing there.   Second, the state has lost a fair amount of its jobs to other states because companies are moving out of Illinois. Again not a deterrent because if you pick an area with diverse employment it won't be a death sentence when one employer moves. This goes for any city or state regardless of whether an investor feels apprehensive about the state environment.

My thought is, since you live in the state and have doubts that's a sign that you shouldn't. RE Investing is NOT just numbers.  It's calculated risk of qualitative and quantitative factors.   If qualitatively speaking you have concern and they outweigh the quantitative indicators (cash flow, equity, etc) then don't.

Matt Williamson · Answer

Hi @Esteban Ibarra - If you don't mind elaborating, I'm curious as to what your thesis and strategy are for investing in Chicago as well as specifically the western suburbs. Are you looking to wholesale, flip, BRRR, etc?

My 2 cents are that depending on the sub-market and opportunity, you might find a good niche and a way to add some value and make money for yourself. Since you're already in Naperville, I assume you'll be able to find the time to get around meet local RE folks and pound the pavement to find deals.

That said, from my own perspective IL/Chicago have some serious challenges over the next RE cycle (or two) that in my opinion make it imperative to have well-defined exit strategy before entering any new deal. I think the overall net migration out-of-state and ongoing fiscal crisis are likely to affect aggregate demand for new home buys and rentals outside of a few (mostly tech-driven) submarkets.

Based upon my (admittedly remote) analysis, it appears reasonable to find a path to cashflow (at least compared to many other markets), but I think one has to stress-test any analysis with the assumption that property taxes are going to continue to rise on a percentage (not just absolute) basis over the coming years. Also, I don't see appreciation being a meaningful feature of any regions/sub-markets (except maybe the very hottest ones) anytime soon so I'd think you'd really need to make it work with your income.

If you can find a way to offset a future tax increase with savings elsewhere in your expenses (buying/financing a deal at a great basis, self-managing at scale, etc), the tax issue might not be as impactful to you as I am predicting it will be to the market overall.

Anyway, best of luck on your journey! I'm still working on getting my first deal as well, so take my opinion for what it is worth to you. I'm originally from the area, and come back a few times a year, and have been looking for SFR/2-4 flat rental opportunities in this and a few other regions.

Curious to hear what others in the area have to say about all this as well.

George Skidis · Answer

If you live in Illinois, then of course you should invest in Illinois. At least the first couple of properties. After you learn more think about investing in other areas.

Stephen Jones · Answer

@Esteban Ibarra

Im not 100% sure what the market is like up north near Chicago. I live and invest on the Illinois side about 30 minutes out from the St. Louis area. I honestly don't see a huge issue in investing in Illinois. I've personally always had good returns ever since I've started investing. Don't get me wrong, the state is corrupt and is not very financially stable, which is why taxes are so high. One way that I see it is, with taxes being so high, who really wants to buy? Thats one way to think about it anyway. As long as the numbers shake out and the deal is good, I think you'll be fine.

Good luck moving forward!

Should I Invest in Illinois ?

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