Illinois Real Estate Q&A Discussion Forum
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Updated over 7 years ago, 09/02/2017
Illinois Property Taxes
Hi All,
I'm curious how people are continuing to justify buy-and-hold investments in Illinois suburbs with the current state of property taxes. I've got my eye one pretty inexpensive property which is listed at $80K, with rents at $1,200 a month, which is a decent ratio, but the property taxes are $3K a year - a whopping 3.8% of the appraised value. I see similar ratios all over Illinois, where the current property tax as a % of the property value is hovering between 3%-4%. $200K properties paying $6K a year in taxes. That is just crazy vs. the 1%-1.5% I see in many other states I have looked.
The other 2 scary factors are 1) with the pension obligations, I don't see IL property tax doing anything but increasing, all while the state continues to lose residents which diminishes the tax basis 2) Property taxes are a low/no value add expense. As I see it, I would rather that percentage of the expense be going towards improvements or mortgage paydown, not a set of state/city services that are not any better than neighboring states.
Curious how others are continuing to invest. Yes, "list prices" to rent looks good on paper, but the taxes . . . .
how's it going @Marc Allen you are correct the Taxes here in Illinois is absurd. There is no reason why they should be this high and they are suppose to rise again smh. Anyway I'm not sure if you dove into it more deep but there are many properties with 3k-5k of taxes that cash flow very well(depending on the price of the property) you should do a cash on cash return sheet to see exactly what would be your returns. It's not uncommon to find properties with 12% if not higher! There are many investors that still purchase in chicago because they still cash flow well. What factors are you taking into account when Doing due diligence? Whenever I send myna investors a cash on cash return form I make sure to include everything. Also you might want to take a look at Northwest Indiana. The Taxes are much cheaper and the cash on cash return is usually higher than Illinois properties. I also have done deals in Indiana and the investors love the returns they are seeing. You should also look into Milwaukee. I hear the profits are good there as well but I haven't done anything there......yet.
Marc- I am not a long term owner here in Illinois. I am only a relatively green flipper. I do, however, have a long history of living in the Midwest and 30 years of professional experience in finance and investing. IMHO, Illinois is in a death spiral that is largely the result of the one-party progressive system that is well known for its patronage and corruption. Politicians here seem to have a never-ending thirst for revenue, but often enact legislation that drives away the source of revenue. A perfect case in point is the new Cook County beverage tax, or the silly minimum wage law going into effect shortly. Drive a few miles out of the county and shop there, or locate your business there - not a hard concept to understand.
In contrast, Wisconsin has made tremendous strides reducing waste, bloat and taxes, and the results are starting to show. Over the long term, how can housing demand keep rents growing when the population net migration is negative?
@Marc Allen And they will only go up my friend!! Thanks for pointing this out for the BP community.
@Mark Shelstad Do you invest in Wisconsin at all or just IL?
Ham- at some point I will invest in Milwaukee. Right now I have my hands full creating a good team here in metro Chicago.
Originally posted by @Marc Allen:
Hi All,
I'm curious how people are continuing to justify buy-and-hold investments in Illinois suburbs with the current state of property taxes. I've got my eye one pretty inexpensive property which is listed at $80K, with rents at $1,200 a month, which is a decent ratio, but the property taxes are $3K a year - a whopping 3.8% of the appraised value. I see similar ratios all over Illinois, where the current property tax as a % of the property value is hovering between 3%-4%. $200K properties paying $6K a year in taxes. That is just crazy vs. the 1%-1.5% I see in many other states I have looked.
The other 2 scary factors are 1) with the pension obligations, I don't see IL property tax doing anything but increasing, all while the state continues to lose residents which diminishes the tax basis 2) Property taxes are a low/no value add expense. As I see it, I would rather that percentage of the expense be going towards improvements or mortgage paydown, not a set of state/city services that are not any better than neighboring states.
Curious how others are continuing to invest. Yes, "list prices" to rent looks good on paper, but the taxes . . . .
A few thoughts. I agree that IL property taxes are higher, as a whole, than many other states. IL state income taxes are lower than many other states, which IMO is part of the reason the property taxes are so high. IL state income tax is a flat rate of 3.75%...not as low as some states like FL and TX with 0, but much lower than many states. North Carolina's is a flat rate of 5.75%, for example. Utah's is 5%.
The high property taxes are not universal across the board though. Some small municipalities really jack them up, it appears. I have a property in the city of Chicago with a current rate of 1.2%(it was 1.0% prior to the recent increases), which I think is fair for all of the services we receive in the city.
I disagree that services are not any better than neighboring states, as our mass transit, parks, and museums, for example, are incredible and second-to-none in the region.
In regards to losing population, the population decline is very small as a percentage of the entire population. However, if you look at the demographics of the population changes, you'll see that it largely lower and working class people leaving the state while upper-middle and upper class people are moving into the state at almost as quickly of a rate. So while the overall population is at a slight decline, the state's purchasing power is growing.
Originally posted by @Marc Allen:
Curious how others are continuing to invest. Yes, "list prices" to rent looks good on paper, but the taxes . . . .
We know longer purchase SFRs to hold but we have some clients that do. Here are their strategies:
- Purchasing in Chicago property, not the suburbs- Bottom line taxes are lower because of quantity. Your $80K property w/ $1200 month in the suburbs & $3K a year taxes will get the same rent in the right part of the city w/ taxes being far less
- Hedging their bets by purchasing on blocks that are actually dominated by property owners versus renters. The renovations being done aren't rental type renovation. They are the type of renovations where the property could actually be sold for a profit but they hold the property & because of the quality of the renovation they demand more rent. The objective: If they want to sell later they can target a homeowner versus just targeting another investor
- sub $50K- We're not big fans of these properties but if you get a property cheap enough & can still command the rent then the taxes don't concern you as much. The challenge is getting funding for $50K or less but it's available.
Originally posted by @Jeff Burdick:
Originally posted by @Marc Allen:
Hi All,
I'm curious how people are continuing to justify buy-and-hold investments in Illinois suburbs with the current state of property taxes. I've got my eye one pretty inexpensive property which is listed at $80K, with rents at $1,200 a month, which is a decent ratio, but the property taxes are $3K a year - a whopping 3.8% of the appraised value. I see similar ratios all over Illinois, where the current property tax as a % of the property value is hovering between 3%-4%. $200K properties paying $6K a year in taxes. That is just crazy vs. the 1%-1.5% I see in many other states I have looked.
The other 2 scary factors are 1) with the pension obligations, I don't see IL property tax doing anything but increasing, all while the state continues to lose residents which diminishes the tax basis 2) Property taxes are a low/no value add expense. As I see it, I would rather that percentage of the expense be going towards improvements or mortgage paydown, not a set of state/city services that are not any better than neighboring states.
Curious how others are continuing to invest. Yes, "list prices" to rent looks good on paper, but the taxes . . . .
A few thoughts. I agree that IL property taxes are higher, as a whole, than many other states. IL state income taxes are lower than many other states, which IMO is part of the reason the property taxes are so high. IL state income tax is a flat rate of 3.75%...not as low as some states like FL and TX with 0, but much lower than many states. North Carolina's is a flat rate of 5.75%, for example. Utah's is 5%.
The high property taxes are not universal across the board though. Some small municipalities really jack them up, it appears. I have a property in the city of Chicago with a current rate of 1.2%(it was 1.0% prior to the recent increases), which I think is fair for all of the services we receive in the city.
I disagree that services are not any better than neighboring states, as our mass transit, parks, and museums, for example, are incredible and second-to-none in the region.
In regards to losing population, the population decline is very small as a percentage of the entire population. However, if you look at the demographics of the population changes, you'll see that it largely lower and working class people leaving the state while upper-middle and upper class people are moving into the state at almost as quickly of a rate. So while the overall population is at a slight decline, the state's purchasing power is growing.
Hi Jeff - thanks for the thoughtful response. Let me start by saying I'm an Illinois native, and spent 30 years of my life there, and have owned properties in Chicago, selling off my last condo there about a year ago. I've been in Denver about 3 years now, and that is my primary point of comparison. In Denver, you can own a $400K property in the city and the taxes are between $2k-2.2K. Same property in Chicago ran $7K in taxes and in the burbs it would be between $10K-12K. Colorado income tax rate is at 4.63% which is higher than the current IL rate, but lower than the proposed that recently passed the house.
My post is/was focused on a suburb to suburb comparison, so I'm not going to get into the museum and public transit comparison, suffice to say Chicago is a world class city on that front and Denver is doing what it can to get there. That said, in the Chicago burbs, where taxes are significantly higher than the Chicago or anywhere in Colorada, the only thing they did consistantly better was snow plowing. I'll save my $8K and figure that out on my own.
Now to the population loss discussion. I've followed this closely. Yes, while the city of Chicago saw it's first net-population decline in some time, Crain's was quick to point out the it was predominantly in the middle class and lower, and the city saw an increase in higher earners, and further gentrification. That doesn't help a lot of smaller investors who are renting to the middle class, and aren't interested in competing with the high end sky rises that have popped up in the west loop, and are planned for the south loop river front.
That said, by raw count Illinois as a whole lost more people than any other state for the second year in a row and Chicago lost more than in any year since 1990. Yes proportionately, the population loss was small at .29%, but that's 32% higher than it was in 2015 (.22% loss) and more than triple what it was in 2014 (.09% loss) . That's not a great trend line.
To be clear, I love the city of Chicago, and having lived in San Francisco and Denver, still thinks it the best big city in the US. That said, I'm trying to be eyes wide open, and recognize the potential for that market to remain flat or even regress over the next decade while the state figures out how to balance and budget without further taxing a base that can't handle anymore. I'm interested in people thoughts on why they are confident this will turn around? Why they aren't following other investors and taking their money to states like Utah, Colorado, Florida, Arizona, that have seen significant population increases and the rent increases to go with it.
Originally posted by @Marc Allen:
Originally posted by @Jeff Burdick:
Originally posted by @Marc Allen:
Hi All,
I'm curious how people are continuing to justify buy-and-hold investments in Illinois suburbs with the current state of property taxes. I've got my eye one pretty inexpensive property which is listed at $80K, with rents at $1,200 a month, which is a decent ratio, but the property taxes are $3K a year - a whopping 3.8% of the appraised value. I see similar ratios all over Illinois, where the current property tax as a % of the property value is hovering between 3%-4%. $200K properties paying $6K a year in taxes. That is just crazy vs. the 1%-1.5% I see in many other states I have looked.
The other 2 scary factors are 1) with the pension obligations, I don't see IL property tax doing anything but increasing, all while the state continues to lose residents which diminishes the tax basis 2) Property taxes are a low/no value add expense. As I see it, I would rather that percentage of the expense be going towards improvements or mortgage paydown, not a set of state/city services that are not any better than neighboring states.
Curious how others are continuing to invest. Yes, "list prices" to rent looks good on paper, but the taxes . . . .
A few thoughts. I agree that IL property taxes are higher, as a whole, than many other states. IL state income taxes are lower than many other states, which IMO is part of the reason the property taxes are so high. IL state income tax is a flat rate of 3.75%...not as low as some states like FL and TX with 0, but much lower than many states. North Carolina's is a flat rate of 5.75%, for example. Utah's is 5%.
The high property taxes are not universal across the board though. Some small municipalities really jack them up, it appears. I have a property in the city of Chicago with a current rate of 1.2%(it was 1.0% prior to the recent increases), which I think is fair for all of the services we receive in the city.
I disagree that services are not any better than neighboring states, as our mass transit, parks, and museums, for example, are incredible and second-to-none in the region.
In regards to losing population, the population decline is very small as a percentage of the entire population. However, if you look at the demographics of the population changes, you'll see that it largely lower and working class people leaving the state while upper-middle and upper class people are moving into the state at almost as quickly of a rate. So while the overall population is at a slight decline, the state's purchasing power is growing.
Hi Jeff - thanks for the thoughtful response. Let me start by saying I'm an Illinois native, and spent 30 years of my life there, and have owned properties in Chicago, selling off my last condo there about a year ago. I've been in Denver about 3 years now, and that is my primary point of comparison. In Denver, you can own a $400K property in the city and the taxes are between $2k-2.2K. Same property in Chicago ran $7K in taxes and in the burbs it would be between $10K-12K. Colorado income tax rate is at 4.63% which is higher than the current IL rate, but lower than the proposed that recently passed the house.
My post is/was focused on a suburb to suburb comparison, so I'm not going to get into the museum and public transit comparison, suffice to say Chicago is a world class city on that front and Denver is doing what it can to get there. That said, in the Chicago burbs, where taxes are significantly higher than the Chicago or anywhere in Colorada, the only thing they did consistantly better was snow plowing. I'll save my $8K and figure that out on my own.
Now to the population loss discussion. I've followed this closely. Yes, while the city of Chicago saw it's first net-population decline in some time, Crain's was quick to point out the it was predominantly in the middle class and lower, and the city saw an increase in higher earners, and further gentrification. That doesn't help a lot of smaller investors who are renting to the middle class, and aren't interested in competing with the high end sky rises that have popped up in the west loop, and are planned for the south loop river front.
That said, by raw count Illinois as a whole lost more people than any other state for the second year in a row and Chicago lost more than in any year since 1990. Yes proportionately, the population loss was small at .29%, but that's 32% higher than it was in 2015 (.22% loss) and more than triple what it was in 2014 (.09% loss) . That's not a great trend line.
To be clear, I love the city of Chicago, and having lived in San Francisco and Denver, still thinks it the best big city in the US. That said, I'm trying to be eyes wide open, and recognize the potential for that market to remain flat or even regress over the next decade while the state figures out how to balance and budget without further taxing a base that can't handle anymore. I'm interested in people thoughts on why they are confident this will turn around? Why they aren't following other investors and taking their money to states like Utah, Colorado, Florida, Arizona, that have seen significant population increases and the rent increases to go with it.
Great post Marc. I am not an Illinois native. I am one of the many Big Ten University grads who moved to the city because several of my friends were there already and fell in love with the city and don't ever plan to leave.
2K taxes on a 400K property is impressive. One of my properties is currently valued at about 440K and I pay $5400 on taxes for it(was $4500 just a few years ago though).
I think you bring up a lot of valid points. I am not a Chicago suburb investor, so I really can't speak to that...but I have heard many examples of the crazy property taxes out there like your example. I think your points are very valid in regards to that...if I were going to invest in suburbs, it wouldn't be in Chicagoland.
Gentrifying areas is what I target in my investments. I am looking for properties in areas that are gentrifying, seem likely that they will gentrify, or have been gentrifying for quite a while but still have some room to go. I expect the Chicagoland population to remain flat. I think the current trends of working class people moving out and yuppies moving in will continue.
While I am bullish about the areas of the city I am investing in, the points you bring up are reasons why I do plan to geographically diversify my portfolio in the future and start investing out of state. Denver is actually on my short list of cities that I plan to heavily research, I'd be very interested in hearing your experiences there as an investor.
- Real Estate Broker
- 1658 N. Milwaukee Ave Ste B PMP 18969 Chicago, IL 60647
- 5,034
- Votes |
- 5,990
- Posts
I am currently investing in the near west Chicago suburbs, and I can attest to the property taxes being a bit rough! However, there are so many other fantastic reasons to invest in this area. The tenant pool is very strong (we have tenants with top tier credit!), the public transit system is tremendous, and there are good paying jobs.
In addition, there is also opportunity to be had in understanding how the property tax system works where other investors do not. I recently purchased a 9 unit apartment building in Berwyn, which is gentrifying rapidly. When I first looked at the deal, the taxes were almost $30,000 per year! However, I realized that the identical building next door was paying $13,000 per year. Our taxes are now down to $15,000 per year, and we should be able to drive them down a bit more at the board of review. Saving $15,000 annually gives this building a tremendous value boost at a 7 cap!
I also invest out of state as of this year, and it will be interesting to see if I can match the returns I am getting in state. My other investment property had over a 33% COC return last year. I doubt my out of state rentals will achieve that, and they definitely won't appreciate like my properties in Chicago, a primary market.
@Jeff Burdick - Appreciate the discussion. I'm still in Chicago about once a month for work. I'll reach out on DM and wouldn't mind chatting in-person.
@John Warren - Thanks for sharing - that sound like a quick and easy way to bump your NOI ! If you don't mind me asking, did you use a professional firm to contest your assessment, and if so, what did that run you?
- Real Estate Broker
- 1658 N. Milwaukee Ave Ste B PMP 18969 Chicago, IL 60647
- 5,034
- Votes |
- 5,990
- Posts
HI @Marc Allen
We are going to use a professional firm at the board of reviews. This particular firm charges %20 of the 1st year's savings (Cook county assesses tri-annually). I think this is a pretty good deal honestly!
@John Warren , I agree that's a fair price for a BoR. Even with the uncertainty surrounding Illinois' financial future and coupled with the recently announced Cook County suburban tax rise, I think it's still a great investment area. There is a decent tenant pool either market or govt. subsidized in the 'burbs. I think I see the war zone Cook County areas declining, but there are many areas on the rise. In the suburbs of CC there are service industry jobs, healthcare jobs, tons of warehouse and related jobs moving in. I'm not having any trouble getting $1,200 + in any area for a SFH. I have some as high as $2700.
The only reason I invest in Illinois suburbs is because at the right purchase price the cash flow can be phenomenal.
For example, I recently closed on a property that I paid 40k for with 5k in rehab. The rent is 1400 a month. After all expenses i cash flow approximately 1,000.00 a month. You have to aggressively and annually fight your taxes at the local township adjuster.
There are SFR with taxes as high as 8k for a very basic home maybe 1400 sq ft nothing special at all. For example, Homewood, park forest, new Lenox, Crete, and some of the surrounding suburbs are outrageous.
I have been personally considering selling my Illinois SFR and investing 20 minutes across the border in NWI, but again for what I purchased them for it is a steal.
I can guarantee 700 a month cash flow a month in certain areas per one SFR that cost 50k or less.
Interesting discussion about the taxes and migration. Marc, you mentioned a home price of $80k, $1200 in rent and $3k in taxes. You can go to Northwest Indiana and pay $80k and get $1200 a month in rent and easily pay under $1500 in taxes. There's properties out here in good neighborhoods, where the taxes are under $1000 and you can still get $1200 or more for rent. I'm baffled why people are very hesitant in crossing over the border. I grew up in Homewood Illinois. When I got married, I moved to Indiana and it was the best move I ever made. More and more investors are asking me for Indiana properties. You might want to look into it. Best of luck to you.
Originally posted by @Scott Steffek:
Interesting discussion about the taxes and migration. Marc, you mentioned a home price of $80k, $1200 in rent and $3k in taxes. You can go to Northwest Indiana and pay $80k and get $1200 a month in rent and easily pay under $1500 in taxes. There's properties out here in good neighborhoods, where the taxes are under $1000 and you can still get $1200 or more for rent. I'm baffled why people are very hesitant in crossing over the border. I grew up in Homewood Illinois. When I got married, I moved to Indiana and it was the best move I ever made. More and more investors are asking me for Indiana properties. You might want to look into it. Best of luck to you.
No, Scott is full of BS
Scott- stop telling everyone where all the good deals are. I can barely find enough for me now because everyone plus their mom and dog is investing in NWI because of our cheap taxes and landlord friendly laws.
Adrien,
LMFAO. You never cease to amaze me.
Hello! I read through this thread and it had some very good information! What I did not see mentioned (unless I missed it) is that the suburbs in IL that have high property taxes also have the very best schools. In Elmhurst (class A western suburb of Chicago), a very significant part of our tax bill goes to funding our blue ribbon elementary school and other phenomenal public schools. Those schools are a huge reason we chose to live in Elmhurst and a big consideration for renters in the community (at least that is what I am hoping when we begin renting our first SFR in 2018!!!). I feel confident we will be cashflow positive on this initial home and we plan to buy in Elmhurst again and repeat.
In places like IN and CO where it sounds like there are lower property taxes are there also excellent schools? Thanks!
The basic question is whether he should continue to hold properties given their high property tax and whether the overall fiscal situation in the state will harm values. I say don't focus on just one cost and keep en eye on the overall demand. The market will tell you whether people want to live here or not. And right now, they want to live here.
This is a hot button issue here...I personally have outrageous taxes in the city. In my investing and home ownership experience, the largest issue is assessment value which means whether or not the property tax is a killer is a property by property basis, not a whole suburb thing. There are cities or counties where the general tax is very high, but it has been that way over time and the market finds its level. Property tax is but one expense of many in home ownership plus there are many intangibles too which make an area desirable. Don't focus on one cost. Keep an eye on the overall cash flow of the property and the overall desirability of the area. If the property cash flows well with high taxes great. No problem.
Always be appealling your assessment value. Assessments get redone to crazy values and that is what will kill your property value of you don't keep on the appeals. That is what will make your house bad vs the others in the area.
The population change is tiny and can be misleading. Yes, some people are leaving. But In the city, for years we have had a huge boom of knocking down 2, 3, 4 and 5 flat buildings for large single family homes. My personal home was built in 2005. Prior to that it was a 4 flat with a coachhouse. 13 bedrooms total with renters. I would guess generally 12 or 13 people living there. Now 3 live here. 10 fewer city residents. There are thousands and thousands of these homes built in the last 20 years. And the tax base is larger. My home for 3 pays more in property tax than the building for 12. All I am saying is there are reasons for population decline that are not obvious or signs of decline.
Depending on whom you speak to, people have been predicting the collapse of Illinois and Chicago and many other places for many, many years. It is easy to look at certain statistics and find a reason why things are going to be bad or great. But it is an impossible thing to try to predict. You just have to look at the performance of the market in an unbiased way. Sure, there are reasons why you could imagine people will flee, but are they? Sure you can look at the population decline and find a reason the city is going to hell, but is it actually? What do the RE statistics show? The fact is they still show growth. Despite many reasons people might not want to live here, the place is booming with construction and with business. Come back and visit for a day. See if you feel like the place is in decline or if it is vibrant. I recall growing up in Detroit suburbs and going back after several years and feeling the decline. The lack of vibrance of a place. You can tell by being there.
I personally see this every day. I live in a rich area. I have seen my taxes go up and up and up. I have seen crime in my area go up in seriousness if not frequency (a local debate). My neighbors say they are so scared they each now chip in 1500 a year for private security to patrol our neighborhood. My kids go to Chicago Public schools which are in a fiscal crisis and billions in debt. School budgets get cut every year, sometimes mid year causing chaos. But I am a lone voice who says I want to leave. My wife wants to stay, my kid wants to stay, my neighbors stay, the kids at his school stay. Basically everyone bitches and then chooses to stay and pay. It is not always rationally explained. There must be some other intangibles that make this place desirable despite the numbers.
@Jeff Burdick which areas are you referring to that are gentrifying?
@Eric M. We said man.
Any insights on Dolton or South Holland?
@Eugene Rogachevsky how's it going, there are a few areas in Chicago being gentrify. It's sad but as the saying goes it's just business....Englewood(although the crime is still high) is one that comes to mind. The houses are big over there but heavily outdated and there's a chipotle and Whole Foods there. Usually Whole Foods is a good indicator something good is coming to a neighborhood,The Whole Foods close pretty early lol....anyway also Chatham and south Chicago is also on the upswing. It's near the lake and the ARVs are around 200k and sometimes can be bought around 70k. Some people say roseland and west Pullman but I find that hard to believe. People say it's because it's a Walmart in roseland.....I drive through roseland a lot and it still looks the same as it did when I went I was in high school a few years ago. There is the better part of roseland which is close toward 95th street but that's because Washington heights is across the way which is near Beverly and evergreen which are two good areas of chicago(especially Beverly) also consider Gresham. That area is on the uprise as well.
I think most investors in NWI are forgetting the lake county taxes are double under investor properties. So a 1500 owner occupied house is now 3k for a rental house. It's not as great as investors think , esp anymore since everyone wants to invest in nwi driving up the prices which doesn't make them cash flow at all. I've been grinding hard with the last few properties of mine and did the rehab work myself to make very good cash flow but now looking to invest back in Illinois Bc they're becoming ghost towns and the prices are better now in the burbs than in nwi in terms of cash flow. Cook county blows for evictions but will county you can have tenants evicted within a month and for under $500.