Chicago - First Investment Property

[Colin Monnier]

I am thinking about investing for my first time in the Chicago market but am having second thoughts because of consistently hearing about the housing bubble. Housing prices have continued to increase along with taxes and high rise development. Looking for any advice in this market and advice for a first time investor. Thank you!

[Perry Farella]

Just to add to the conversation as a Chicago resident. First Rent Control:  Met with a lobbyist for the Illinois Association of Realtors this month. Rent Control has to be voted in by the State Legislature to void the 1997 statute prohibiting it in IL before Chicago could pass it. I'm told no Republicans support Rent Control and no down state Democrats support it. It is not expected to even make it out of Committee let alone get to a Floor vote. It is only a handful of Northside Democrats pushing Rent Control because they think "rents are out of control". Alternatively there are bills on how to provide affordable housing that have a better chance of passing. I realize the new governor ran on supporting rent control but that doesn't mean it is a priority over other pressing problems for him. I'm not worried about Rent Control. The market should dictate rents and it does that well.

In terms of where to invest yes the above mentioned neighborhoods are hot. Had a client buy a brick 2 flat in McKinley Park in December for 230,000 to rehab it into a single family on a rehab budget of 205,000. ARV was project to be 485,000 so not a bad deal. We didn't project rent since its their house to live in.

I do see Englewood becoming more active with rehabbed homes appraising between 100k and 130K + in the last 6 months. These are houses that can be bought for 20k to 30k in some case and then rehabbed for about 80k into new homes basically. I see police officers and young professionals buying and rehabbing in certain areas there.

Have a client buying a true 4 unit brick in West Garfield park now for $86,000 with a major gut rehab planned with a budget of $370,000 to make the units 3 bedrooms and 2 baths with in unit laundry, new HVAC and basically new everything. Waiting to se what ARV comes back as. rents are expected to be at least 1200 a month for those units there. Owner will live in one unit and rent 3 others and should live there nearly free with tenants paying the 30 year term rehab mortgage done as a 203k.

Have an investor who bought 2 small brick houses in Auburn Gresham for 50K and 80K respectively with rehab budgets between 40K and 80k for each. ARV was 20% higher for each.

What all these neighborhoods seem to have in common is there is a local elevated train line for great transportation in walking distance same as some northside neighborhoods mentioned above. I would always buy within 3 blocks of a train station any where in Chicago to get the best rent and ARV.

What happens out in the neighborhoods is not affected by new luxury high rise apartments coming online near the lake or downtown, its a different market. Those rents are very high for even a studio at $2000 a month near the lake. That is why the northside legislators are clamoring for rent control. But rent control would only drive DOWN the supply of rentals because owners will convert them to condos and sell them off to cash out or convert even to coops to sell off. There was a great story in Crain Chicago Business last week defining all the bad effects of rent control and not even advocates for affordable housing were for it. Another bad effect is owners would not have the cash flow to properly maintain the properties so overall housing quality would go down and with it values, hurting everyone, even tenants in rent controlled units who would live in squalor for lack or repairs would be unhappy, think some areas in New York city.

So always run your numbers when looking for a rehab property and you will be fine if realistic about costs, future rents. No one can do much about property  taxes because they were kept artificially low for too many years in the city when compared with nearby suburbs. That era has to end to clean up the city finances and also at the state level in Illinois. An era of Integrity is emerging in finances and politics, watch the news. Daylight is shining into the smoky back rooms and truth is coming out. Yes taxes will go up but Chicago still has a great economy versus any other Midwest city. Young professionals flock here after school which is why rents are so high in hot areas. I remain confident if you can find the right deal and the right numbers there is much here to look forward to.