Is multifamily investing in Illinois/ New York worth the taxes?

Question

Hi all,

I'm in contract with an 8-unit I'm selling in Sacramento, CA and looking to exchange for more doors in the Mid-West. I'm analyzing properties in Illinois and New York but the tax rates are so steep (over $100k annually). The cash flow on these properties fits my criteria but I'd like to know any investors in those states if it's worth the high tax rates and if there are new laws that could make those rates higher.

Thanks!

Henry

Mark Allen Kenny · Answer

Account Closed I live in NYC and am originally from Chicago.  Although I love these cities, in my opinion neither is a good place to own rental properties.  Chicago has a lot of problems (landlord laws, high crime, decreasing population, etc) and NYC is just overpriced (cap rates are low).  I agree that taxes are too high in both markets as well.  But if you're looking for other markets in the Midwest or East Coast, there are a lot of other great markets.  Philly, Memphis, Nashville, etc.  Lot's of great landlord friendly markets with reasonable taxes.  I own a portfolio in Philly of multi-family buildings and the taxes in Philly are very low.

Alex Linden · Answer

Account Closed

I am from the DeKalb area, approximately an hour west of Calumet where you are looking into. I am of the firm belief that you can make reasonable money on multi-family in any area so long as you buy right and aren't in a super rough area of a city/town.

The Laws in Illinois can definitely be strict towards Landlords, but so long as you have a solid PM who doesn't defer your property's maintenance and is willing to shoot straight with you when problems arise as well as does things by the book, you won't have serious problems in that regard. I currently manage about 180 units in the DeKalb area and while the eviction process can be trying (if ever needed), having superb tenant screening processes and systems removes many of those issues. It's very rare for us to have a situation get that far due to our vetting process and I think that's the best way to do it as it avoids getting involved with the strict tenant-friendly policies of the state. I don't know much about Cook County, but I have heard horror stories of how anti-landlord that particular county is.

As to the taxes, well yes they are quite brutal and generally you'll average between 2-3 months per year in rental income to pay the tax man. However, if you can find a solid deal that still cash-flows after that, then you are in the clear. It's all in the numbers in that case!

Happy to reach out to a couple PMs I know that may do business further east than I do. I'm not 100% sure if they go into the city itself though.

Good luck sir!

-Alex Linden

The Essential Realtor

Nick Rutkowski · Answer

@Henry Lee

In my opinion, NY is not a viable option for multifamilies at this time. No one can male heads or tails of the new regulations and if you’re out of state, it only makes it harder for you. No clue about Illinois. However, if one was to invest in a pizza shop, NY is the best option. That deep dish pizza isn’t the true pizza. Thin crust all the way.

Brian Ploszay · Answer

I own two small rentals in Calumet Park.  (Be careful not to confuse this with Calumet City.)  The taxes are indeed very high in that municipality.

I wouldn't paint all Illinois Property as overtaxed.  The assessor for this city is a County Authority, called Cook County.  Calumet Park is a lower income neighborhood and it has a limited tax base, so they take it out on the real estate.  The City is well managed, for now.

I am not rushing to buy any more properties there.  I bought my two properties during the great real estate crash.  I realized my profit margin was much thinner than in the City of Chicago solely because of the taxes.

We have a newly elected Assessor who is changing everything, probably favoring properties like Calumet Park.  And jacking taxes in more affluent areas.  I can't emphasize how this is effecting the mindset of investors in this area.  Investment sales of investment properties is off 40% as people are waiting to see what happens.  I'd also review the finances of the Calumet Park municipality.

Vincent Incopero · Answer

Account Closed - https://www.connect.media/experts-eye-2020-trends-in-chicago-multifamily/?utm_campaign=Connect%20CRE%20News%3A%20Chicago&utm_source=hs_email&utm_medium=email&utm_content=80813855&_hsenc=p2ANqtz-9UIPZ5Ol6uQAS_Fru1vnypNr_NvbBuXqOoaHhOY5GbuKzsdu_9OoTSAJbCy7qtUZEavcitDYpuY7V_q9EjtWlP-5Hhng&_hsmi=80813855

Mark Allen Kenny · Answer

Account Closed I like Memphis as well.  I'm actually considering buying a portfolio of SFHs there.  From what I understand, it's very common for people to rent homes there (as opposed to apartments).  I've looked at multi-family properties in Memphis as well.  But the neighborhoods I want to be in are more for SFH rentals.  Those are in the nice, stable neighborhoods with low crime.  Again, I'm not SUPER familiar with the market but I've been keeping an eye on it and for me, a portfolio of SFH might make the most sense.

Account Closed · Answer

Thanks Tracy! The PM you had sounds lackluster at best. Thanks for the tips regarding knowing the local government reps and keeping a close eye on the PM. I'm looking at Calumet Park so I'll take a look at what the PMs charge there and local ordinances. Hopefully, your property keeps doing better in the years to come!

Account Closed · Answer

Thanks Wesley W, I'll read up on that. It seems like I would be back in the twilight zone in NY after leaving it in CA.

Tracy Cervellone · Answer

We own 20 doors in SW Illinois. Taxes are highish but manageable. It’s the local tenant laws that are tricky. We had 4 units shut down by a city because of bats. Our PM passed the buck too long unknown to us and the tenant complained to the local board. Murdered profits for 1/2 of 2019 for that property. Bottom line: DUE DILIGENCE. Know your local tax, tenant and government reps. You can make money in MF anywhere if it’s the right deal and you’ve done a really deep dive into the property, paperwork and legal issues. And watch your PM Like a hawk. Good luck out there!

Wesley W. · Answer

At least in NYS the taxes are now the least of investors' worries.  Many laws were changed this past summer to make all of NY more tenant friendly.  Read up on "Tenant Protection Act of 2019" and bake all those risks into your numbers.  They are now a new cost of doing business in the Empire State.

Is multifamily investing in Illinois/ New York worth the taxes?

Most Popular Reply