Absurdly good deals in Chicago

[Marc Latreille]

So I am browsing properties all over the country, lately realizing that Chicago has ridiculous deals... I know it is a city with a lot of crime, that most of these areas are really rough...

But how bad can it be? Buildings are literally money-printing machines, even counting a 15% vacancy/unpaid rents. They have 15% net caps, which is at least twice as good as a 'good deal'

There are dozens for sale, some have been listed for a long time. Obviously, I know something is up, but how bad can it be?  This seems to me like the lowest hanging fruit... ever

I feel like more people will realize this and prices will go up... and even if they don't, the ROI is still absolutely great

On the flipside, I have been looking at REI for a long time and am not dumb ... I know if they ain't selling, there is a reason, but I feel like this could be the beginning of a great investment

We had a bad area here in Montreal, two areas actually. Among the worst in the country for decades... until people figured they were both right next to downtown, one to the south, one to the east... since then, they have gotten nicer, safer and so expensive

I see this as a huge opportunity, as crime is going down, house prices are going up... I understand these areas (Englewood, South Shore) are not the best, but I feel like it is changing. It is so close to downtown, how can it not appreciate? We are talking about Chicago, after all, one of the largest cities in the whole world, a true A-class city.

Would you buy these things? Do you see that market changing? 

Comments are very welcomed!

Thanks

Marc

[Tom Shallcross]

@Marc Latreille - I'm born and raised in Chicago and invest in C areas of Chicago (not D nor the ones you mention) while doing flips in A neighborhoods.  Some people make money in these rougher areas, but to be clear, there are plenty of ways to lose money in your above example. 

One eviction in our tenant friendly-city can potentially cost you tens of thousands of dollars.  You literally have a tenant sitting in your property for free for months who can be causing all types of damage.  Add up the months of loss rent, legal fees and the thousands of dollars to get the property back up to par and it can be a large sum (along with the emotional drain).  

A lot of these are 100yr old frame buildings that have 6 figures of repairs and deferred maintenance. In some areas, ARV might only be 100-k125k, meaning no one will spend this type of money on repairs, even if you got the home for free. There's just no equity spread to create wealth.

Chicago has 200+ neighborhoods, yes some will potentially gentrify, but that does not mean all areas will gentrify - that is wishful thinking.  You need people wanting to move to the area and unfortunately, at a macro-level we are negative net-migration with a terrible amount of debt handing over our head.