Chicago's South Side--good market or bad?

Question

Trying to wrap my head around the Chicago Southside sub market. Hoping to hear from folks who have invested there or professionals in that market for multi families. Been doing some research and learned from some articles and research reports that there's negative population growth, fairly stagnant wages, and Chicago has had a 50% increase in homicides in the past year. The properties (8-16 units) I've reviewed generally look attractive based on some very simple NOI calculations, but if stagnant incomes don't support rental increases it seems like the operating expense inflation will destroy cash flow in only a few years. Does anyone have on the ground knowledge/experience who can speak to the ability to increase in rents and operating expense inflation in the area to include utilities, insurance, property taxes; and what affects they have seen over the past year given the increase in crime? Neighborhoods I've looked at include Englewood, Jackson park, Bronzeville, Hyde Park, South Shore.

If anyone has recommendations for apt building property managers pls pm me.

Thanks

Michael

If anyone has recommendations for apt building property managers pls pm me.

Thanks

Michael

Crystal Smith · Answer

Our experience

• General Comment- We've seen no correlation between wages & ability to increase rent in Chicago city proper (Southside).  We have seen such a correlation in certain South Suburbs.  Regarding crime- The so called increase are in pockets.  Those who live here know the pockets & if you invest or offer properties outside of those pockets there's usually no issue getting market rent.  
• Englewood- We don't invest there.  Investments are being made to improve the area  but it's a long term bet.
• Jackson Park- Recent decision to put the Obama library on this site so it may be a good mid term bet.  This is another pocket area.
• Bronzeville- The closer you are to the South Loop the better.  Good stock of properties especially if you can get one that has the potential for a condo conversion later.
• Hyde Park- If you find a deal there, jump on it.  Excellent area w/ the University of Chicago as an anchor.  Ton of police presence due to the University.
• South Shore- Long term bet.  Pocket by Pocket

Marc C. · Answer

27 shootings in SC over Xmas weekend. Ridiculous, but it's not like I know the solution.

Can't speak from experience in the submarket, but a close investor friend made a lot of money working 1-4 unit rentals there in the past 3 years. He's been getting 2%/mo. or better on gross rents. But he says the management-intensive nature of the investments "almost" makes it not worth it. Constant management issues, requiring being pro-active. So the other posters' advice to hire the PM first and discuss to them specific streets and neighborhoods they recommend and won't mind managing seems applicable. (True for about any market, in my opinion).

Traditionally, the greatest profit potential is in the lowest-income areas. But you really have to work at it. Good luck!

Michael Newman · Answer

Mark, Mike -- thanks  for the insight. If you have some property manager recommendations  would you mind sending me a PM? Thanks.

Mark Ainley · Answer

@Michael Newman  The Chicago submarket can vary within itself.  There are different areas of opportunity and other areas just becoming inflated by investor run up.  Then even within the specific submarkets there is pockets that are better then others.  Pockets can mean a corner of a neighborhood or even down to specific blocks.

I think all of us that operate within the Chicagoland area and even more so the southside areas dont listen to the headlines that outsiders listen to such as crime, population, and taxes.  We feel/know that nothing moves fast in this state or city so we will have time to react if needed.  Crime stats that reflect an area often change by the time they make the news and taxes are pretty low per unit at this point even with recent increases and the new fees for garbage pickup for 1-4 units(garbage tax doent effect 5-up unit buildings).

I always tell out of state investors to find a property manager first and work with your PM relationship to find where your ideal investment is.  The PM doesn't have to represent you in a purchase but you need a trusted adviser that will point you in the right direction or advise you on specific areas or sizes of buildings.

I am not sure how it is with other PMs in the area but about 50% of our tenant base has some form of rent subsidy so the "wages" concern really doesn't worry us.

Mike B. · Answer

I wouldn't be too concerned about negative population growth, but I would have a good property management team in place before I even reviewed a deal. PM will make or break your investment there.

As for inflation, I worked on over 50 multi units in the areas you listed. We were able to rent the units at market rate but we also added considerable value in the rehab process to get there. The layout of the apartments will be a big factor in what you're able to rent them for.

Feel free to PM me if you have any other questions I can help with.

Chicago's South Side--good market or bad?

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