Finding a market in Chicago

[Cristian Castillo]

Looking to find a buy and hold property so I started to do some research on a market.

I started to look at some factors but not sure if I’m missing some information or if I have enough to make an educated decision.

I started looking at zip codes in Chicago that had homes selling for less than 100k (multi-families to be specific). Out 72 zip codes 27 of them had 1 or more homes for sale.

I decided to look a little deeper and these were the things I’m looking at to make my decision on a market:

This area had 1 home for sale for 52k

266 homes sold in this area

Average price sold: 246k

123 rent listings in this area

Average rent: 1888

Population: 92339

Population growth %: - .66

State population growth: 3.62

US population growth: 11.61

Median house price: 193900

16 crime reported incidents on crimereports.com

What I came away with this analysis was:

There is only one house under 100k

266 homes for sale means a lot of homes selling

Crimes isn’t horrible in this area

And rent is higher than what I want to make

Population growth was negative

I feel like this market would be ideal if it wasn’t for the population growth.

Would you think this market has potential to be a good investment or do you need to look at other data before making a decision?

Thank you for all the feedback in advance!

[Eric M.]

While I can appreciate your desire to dig into these numbers and many of them can matter, I sense you may be at risk of falling prey to analysis paralysis. You are local. Drive the neighborhoods, walk the neighborhoods. Go to open houses. Visit properties as a potential renter. Those are the ways to get to know a neighborhood and whether you want to invest there, in my opinion. Not looking at stats. 

I can give you plenty of stats to make Chicago look like a great place to invest and plenty that will make you want to run for the hills.

Otherwise here are some of my comments about your take away comments

>What I came away with this analysis was:

>There is only one house under 100k

This stat is meaningless with no context. 100K is an arbitrary number, why is it meaningful to you? Is only 1 under 100K a good thing or a bad thing in your eyes? There are many neighborhoods with lots of houses under 100K which are great, solid neighborhoods and some with none under 100K which are great solid neighborhoods. They will be different neighborhoods but both good for investing. This stat has nothing to do with the desirability of a particular property or whether a neighborhood is a good place to invest. 

>266 homes for sale means a lot of homes selling

No, it absolutely doesn't. Again, this is meaningless without context. 266 homes on the market tells you NOTHING about how many are "selling". Days on the market might give you some insight to what is selling and actual properties sold in the past X months will tell you what IS SELLING. But this only tells you what is for sale...supply. 266 could be a lot, could be nothing, without historical trends or data for the same area we have no idea. Is that big supply or small supply? This doesn't tell us.

>Crimes isn’t horrible in this area

Completely subjective statement. What is not horrible to me, might be horrifying to you or to a renter. Or the opposite. This is fine for your personal analysis but it means nothing to us really to comment on. Again, don't make this judgement based on crime stats. Walk the neighborhood...that is the way to know if crime is really bad. If it is a comfortable place to live. Stats are often misleading. Most crime is not reported.

>And rent is higher than what I want to make

Have no clue what this means.

>Population growth was negative

This is a common debate here on BP and in Chicago in general. Everyone has lots of opinions but few actually look at more data or think through the reasons for the decline. Yes, numbers of people are down in many areas and the city as a whole. The question is what does that mean for RE prices or desirability of an area. That is very much up for debate. 

I live in a very desirable area with huge price increases during a time the population in my neighborhood went down significantly. What happened was hundreds and hundreds of 3-5 flats have been torn down or converted to single family. In my personal house, 14 people lived in the property before my house was built. Now 3 do. So if that happens all over the neighborhood, population drops alot. So that is bad for prices right? Nope. Property value is doubled. Tax base is doubled. Rents increased tremendously. Supply of units for rent went down more than population went down. 

In other areas, like Cabrini Green, large public housing has been torn down and thousands of people left. In their place are townhomes, SFH's and fancy apartment buildings. 1/3 as many people but a much higher tax base, etc. Rents up, values up. They are not bad areas anymore. And in still other areas, population is down because people fled and homes are abandoned. The point is population decline can happen for several reasons, some good for investors, some bad.

Gentrification has happened all over the city. It often involves population decline but it isn't always bad. It is much more complicated than that. It also can include low density, low rise commercial being replaced with high rise residential. Which will skew the population numbers. Which might be good. Or some people might say it is bad for affordability. Population is just not enough information to make a decision. Growth is not always good. Decline is not always bad.

Again, there is no substitute for going there, hanging out at all times of day and night and "feeling" what it is really like. It is more subjective but IMO, more accurate than this kind of statistical analysis.

But in the end, what is going to matter wayyy more to your success are the numbers on the property you invest in. That is where to dive in on numbers. Plenty of good deals in bad places and bad deals in good places. The property you choose to buy will dictate your success much much more than all this analysis. IMO