First Time Investor - Rental SFH in Chicago suburbs

[Stanislav Perevozchikov]

Hi everyone. A long time lurker, hopefully a soon-to-be first time RE investor. I live in NYC and would like to get into REI. Given the sky-high prices in the area, I'm turning to out-of-state properties. I've looked at some SFH in the Hudson Valley area, near the commuter line in CT (Stamford, Bridgeport) and the prices are still too expensive for me to buy a house with a 25% downpayment. Now, I know someone who's invested in the Chicago area and the CoC returns are pretty good in certain towns (I'm looking at 30 minutes south of Chicago). My budget is around 30-35k max for a downpayment and I want to put down 25% for a better rate. It looks doable to get something in the Chicago burbs in the 120-140k range, so that even after taxes, management fees, future maintenance costs, vacancy, I'm left with 14% annual return. I don't expect the area to grow much or the house to appreciate, but it could be a good cash cow. Do you have any advice for me? Do's and don't's? Thanks!

[John Clark]

"I don't expect the area to grow much or the house to appreciate, but it could be a good cash cow. Do you have any advice for me? Do's and don't's? Thanks!"
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Advice? Dos and don'ts? Here: Stay away from Illinois and find a much more landlord friendly state to invest in.

Illinois is beyond broke (quarter TRILLION in unfunded pension liabilities) and is tenant friendly to the point of being a simpering fool. The South suburbs of Chicago that you would be looking at are all grossly mismanaged, heavily indebted, and Chicago and its metropolitan area (including South suburbs) are basically circling the drain. If you seriously consider Illinois as an out of state investor you need your head examined.

Are there deals in and around Chicago, especially in the South suburbs? Absolutely. For an out of state investor, particularly a rookie? No way.

Try landlord friendly states.

[Jake Fugman]

@Stanislav Perevozchikov My advice to new out of state investors is to start small and safe. Tackling a BRRRR from 1000 miles away can be tough if you dont a lot of experience. Id recommend looking at turn key options even if it means sinking some capital into equity.

Specifically to the area and price range you are looking I would target a 2-4 bedroom SFR in Homewood/Flossmoor (or surrounding) areas that is potentially occupied with a tenant - ideally paying under market rents. This way you arent competing with first time home buyers. Then after you have some experience in managing the property you can perform some rehab (potentially through management company), then raise rents and/or force some appreciation.

[Henry Lazerow]

Congrats on making the move forward. Check out investment condos. You can find class A/B low rise building condos that cashflow with management pretty easily in Chicago some good neighborhoods Albany Park, Edgewater, Rogers Park, west logan square. I have done a few condo investments for clients lately. Can be as little as $100k for a 1br that rents $1000, etc.

Be careful with houses in that price range. Houses in that price range are cheap for a reason. Think high property crime, high tax suburbs, undesirable to good tenants, etc. Rehabbing from out of state can be a mess and I would always recommend either avoiding that or minimizing work to basic cosmetics.

[Howard Handler]

While I very respectfully disagree with @John Clark that Illinois itself is, as of today, anti-landlord -- it may trend that way (if some current state legislators have their way) and Chicago and Cook County currently are not particularly hospitable to landlords. Where I do agree with John is that many of the south suburbs are very poorly mismanaged and have very horrific and irrational real estate regulations -- you will not want to deal with the municipal officials in many of these towns while doing a rehab, particularly as a rookie 1,000 miles away. Plus the taxes in the south suburbs are very high (even for Illinois standards). You may want to look into southeastern Wisconsin (e.g. Kenosha).

[Kenneth Garrett]

@Stanislav Perevozchikov

I have a number of rental properties in Illinois (SFR, 2 and 4 unit buildings) in the north and northwest suburbs (Lake and Mchenry counties). They cash flow nice. You still need to find properties at a discount. SFH rental market rates are between $1300-$1600. I use the BRRRR strategy for the most part. When bought right your CoC is 50% or better. You can make money in almost any rental market, buy correct with good school districts. Buy where people want to live.

[Stanislav Perevozchikov]

Originally posted by @Jake Fugman:

@Stanislav Perevozchikov My advice to new out of state investors is to start small and safe. Tackling a BRRRR from 1000 miles away can be tough if you dont a lot of experience. Id recommend looking at turn key options even if it means sinking some capital into equity.

Specifically to the area and price range you are looking I would target a 2-4 bedroom SFR in Homewood/Flossmoor (or surrounding) areas that is potentially occupied with a tenant - ideally paying under market rents.

That's exactly the area I was considering as well as the turn key properties, where I wouldn't need to do any/much updating. 

[Stanislav Perevozchikov]

Originally posted by @John Clark:

Advice? Dos and don'ts? Here: Stay away from Illinois and find a much more landlord friendly state to invest in.
 If you seriously consider Illinois as an out of state investor you need your head examined.
Try landlord friendly states.

Landlord-friendliness is definitely something to consider when choosing your market.... and didn't know Chicago was that bad? I know it's not NYC or Bay Area, it's not a tech hub or the next big thing like Austin, but it appears to be approachable for the budget I have set. Worth exploring this option, IMO.

[Stanislav Perevozchikov]

Originally posted by @Henry Lazerow:

Be careful with houses in that price range. Houses in that price range are cheap for a reason. Think high property crime, high tax suburbs, undesirable to good tenants, etc. Rehabbing from out of state can be a mess and I would always recommend either avoiding that or minimizing work to basic cosmetics.

 Thanks, definitely looking for more turnkey properties at this point.

[John Clark]

Chicago itself is very tenant friendly. There are serious moves to lift the ban on rent control in Illinois. When that happens both Chicago and its surrounding environs will pass rent control laws in a heartbeat.

As for taxes, not only are property taxes high in Illinois to begin with, but they will only increase as all levels of government pay the piper for ignoring pension obligations for decades.

[Sam Abazari]

Hi @Stanislav Perevozchikov! Since you're looking into OOS properties, would you consider Massachusetts, since it's still of acceptable travel distance from NYC? Am asking since we've seen people with success with properties in the 130k-150k price range in certain cities in MA, and have also generated decent monthly income along with capital appreciation with properties in this market. Let me know if you'd consider MA, and maybe we can connect if you'd be interested in learning more about it! 

[John Warren]

@Stanislav Perevozchikov you can definitely invest successfully as an out of state investor. I have several out of state clients who have done very, very well. I would recommend that you focus more on your property management team and let that drive the area you choose to invest in. Try connecting with @Mark Ainley. His company covers the south and also the western suburbs. You could also have a conversation with @Jason Marcordes. 

Out of state investing is inherently more risky for the investor, so you want to mitigate this risk by getting the right PM from the get go. After that you will be successful finding deals. Chicago is a primary market, and the 3rd largest market in the US. You have so many options as far as areas to invest here. 

[Jason Marcordes]

Thanks @John Warren!

Hey @Stanislav Perevozchikov. The majority of our clients are out of state so it can definitely be done. The two most important parts are the location and your team (broker, PM, contractors, etc). Shoot me a PM and we can discuss further.  

[Stanislav Perevozchikov]

Thank you, all! I'm considering a number of markets right now and will get in touch if I decide on IL!

[Robert S.]

@Stanislav Perevozchikov

If your going to do chicago area wait a bit just go on Zillow and take a look at northwest Indiana and southern Wisconsin compared to Illinois and see how many houses are for sale in your range you will find an significant difference. Everyone is selling In Illinois right now as soon as the market crashes there which is going to be soon then will be the time to buy. Taxes for owner occupied are outrageous and for investment are even more outrageous. From what I see right now is that people trying to sell there are just now slowly finding out they are screwed with Pritzker as governor and light foot as mayor they combined have ruined the state and city way worse then it already was. We sold our house there at the top of the bubble luckily and moved to Indiana and got 50k appreciation in under 3 years. Right now I would not recommend chicago area at all I’m no professional but as a life time resident of Illinois I can tell you right now is not a good time to be buying property there new taxes are coming out very soon on property, gas , cigarettes and many other things that are going to be having people run even faster the they already are.

[Stanislav Perevozchikov]

@Robert S. thanks for your input! This is definitely something I've heard others say and it's concerning. Indiana is one of the states I'm considering atm. 

[Robert S.]

were actually closing today on our first rental property in Indiana not too far from my house and next I will be looking for a multi family in Wisconsin probably found some areas there that I see have potential and the prices on 4 and 5 flats are super reasonable and the job and population numbers are on the rise. 

@Stanislav Perevozchikov

[Henry Lazerow]

Robert you clearly do not know what you are talking about. IL taxes are no different for investor then for owner occupant. Its Indiana where the tax rate goes up when investor. City of Chicago taxes are about on par with and often lower then Indiana investor rate taxes. Yes the suburbs are high taxes but the rents are a lot higher with better tenants then Indiana so it levels out. Our properties are appreciating like crazy right now definitely no “bubble” popped. I just got my property re-appraised $185k higher. Have had multiple clients pull six figures out of 2-4 units recently. Even with Covid our market hasn't flinched. 

[Robert S.]

@Henry Lazerow

If you think chicago taxes are comparable to Indiana you must be smoking crack.

Im sure there are opportunities like there are anywhere I personally would stay away from Chicago and surrounding suburbs.

[Robert S.]

There is a reason for this 

Single family condo and townhouse 

Multi family units 

I’m not claiming to be a professional what’s so ever but if you think that Chicago is not going to **** cause of taxes, crooked politics and a whole other mess of things I don’t know what to tell you. Small business is crippled there after covid the foreclosure rate there is going to sky rocket in my opinion wait in Chicago I will happily buy there in about a year when it bottoms right now people are just stating to figure out they are not being able to move their inventory now is not a good time to invest in Chicago that’s why I ran from there as fast as possible 

@Henry Lazerow

@Stanislav Perevozchikov

[Robert S.]

Also markets anywhere are not flinching due to banks not foreclosing and letting people slide with mortgage payments wait they so far telling people you will have to pay all months missed in one payment this is just the beginning we will not feel the real affects of covid until the after math and Chicago will be affected hard. Rent prices in the suburbs in Chicago are not that far off from prices for rent near me in Indiana unless you wanna talk about like some fancy suburbs and no the tenants in NWI are not lower class or worse then the ones in Chicago these communities here  are strong with good people 

[John Warren]

@Robert S. I am pretty sure that the large amount of properties for sale in Chicago is mostly due to the spring market and the new guidelines that allow us to show properties, conduct open houses, etc. Cook County has 5.1 million people in it, and Chicago sprawls well beyond just Cook into counties like Lake, McHenry, DuPage, etc. This is the third largest market in the USA, and there are many, many sub markets. I personally am in the process of selling a property in Indiana so I can re-invest the funds locally in Berwyn. I found Indiana to be business friendly, but the economy and renter pool were just so much less robust. NW Indiana is ok, but most of the bleed population wise is from the far southern suburbs. No one is abandoning Naperville, Evanston or Lincoln Park to move to Hammond or Gary... 

[Robert S.]

@John Warren

Listen I’m really not trying to argue with you guys I’m sure you guys are plenty experienced in what you do but he’s not looking to invest in the areas you mentioned as well and I would not invest in Hammond or Gary either. You can’t deny that people are fleeing Illinois there are legit statistics to back that up not to mention all the Illinois plates by my house including mine.

Everyone is entitled to state their opinion and what they believe he can read everyone’s do his own research and make his own decision I’m simply providing the info I have and hopefully it helps him I’m not here to tell anyone they don’t know what they are talking about like the other gentleman did to me.

[Tom Shallcross]

There's a lot of valid points from both sides on this thread. Two things I want to add: 

1. Yes, at a macro-level Chicago is net migration negative and some surrounding areas are benefiting and will continue to benefit. However, Chicago has over 200 neighborhoods and 100 + suburbs - some of which are experiencing great positive economic and population swings and others that are swaying the wrong direction parlayed with a lot of future unknowns.  It's just too big of an MSA to make blanket statements. Taxes are grossly underpaid in some areas and just stupid high in others. If you're looking at Chicago you can't just take averages because you will most likely get burned or miss the boat.  We got everything here which is both good and bad. 

2. This is also very dependent on your strategy, something @John Casmon helped me realize. If you're syndicating a large MF in Chicago, it's tough as you have to predict taxes out in 5 years and a further change towards tenant in the RTLO can destroy your plan. If you're holding a little SFH in a burb and the burb is in dire need of another tax hike and the property barely cashflows and you can't swallow the tax increase, yea that's obviously not a good situation.

 However, Chicago's Northside is probably one of the greatest markets to own 2-4 units in A-B neighborhoods.  Personally, I also flip and it has great market to make large spreads and large actual dollar amounts because of the high-end ARVs. I couldn't do that in NWI nor the the IL southern burbs for that matter .  There are a dozen more examples each way, not a right or wrong answer, just that the strategy you have has to be taken into consideration when making these evaluations.

[Robert S.]

@Tom Shallcross

Your correct those areas for those properties for sure can be good this gentleman is talking about the 125-140k range these are way above. I’m not trying to be a pro at all here I’m fresh myself to this and I have a lot to learn and I’m at the price points he’s at currently so I’m looking at that. The other guy saying he appreciated 185k on a property that alone is more then what the guy wants to spend. Like I said there are deals everywhere I’m just voicing my opinion on where I think chicago stands. You can’t give the guy advice on properties 500k plus when he’s asking for something completely different. You can buy a run down building in a nice part of Chicago and remodel it and come out great but your looking at a whole different price point.

I just don’t think Chicago is a good place for a new investor to start especially with the bang for the buck taxes and also the uncertainty of the market considering all the political and tax stuff going on at the moment.

[Erika Carter]

South side of Chicago is a gold mine for investors! Highest ROI!