North of Chicago (Appreciation?) vs. South of Chicago (Cash Flow?)

[Shaam S.]

Greetings,

I have been lurking on and off here for some time now, so much great information , IMO BP completely eliminates the need to purchase expensive books and courses.

I recently moved to the Chicagoland area and would like to invest my on-hand cash (all cash deals) in tangible real estate, already have a good allocation to stocks and bonds. I'm looking to rent out single family starter homes and/or townhomes, 3 bedrooms/1.5+ bathrooms. I am willing to do minor rehab but nothing extensive. BTW I hate the fact that IL has such high property taxes and is very pro-tenant in general but I want to start with something located relatively close to me (not more than an hour or so away).

After doing research and meeting with several brokers, I am faced with a dilemma that perhaps vexes all RE investors. That is, invest for future (anticipated) appreciation in "blue chip" areas or invest for cash flow (8%+ cap rate) in "mediocre" areas. Of course I can eventually travel on both roads but I'm not sure which route I should embark on first.

With regards to the former, I have identified several towns with superb public school systems: Mt. Prospect, Arlington Heights, Palatine and (North) Hoffman Estates-I prefer properties which feed into one of the following high schools: Prospect, Hershey or Fremd. However, as anyone familiar with these areas knows, getting a good deal is tough. I'll also likely have to blow my entire budget on one property and also suffer low cash flow all in the hopes of receiving robust appreciation .

With regards to the later, I have identified Oak Lawn as potentially offering significantly higher cash flow but perhaps not too much by way of appreciation, I could be wrong. I like that its located very close to Chicago and seems safer than places like Cicero. I've located some single family homes priced in the low 100k range but am worried about the intermediate and long term prospects of this area, is it in a slow decline? Has it stabilized?

Any and all advice would be greatly appreciated. Would love to find some wholesalers as well. Thank you.

[Tim Hoffman]

In my opinion always go for cash flow. Appreciation is NEVER guaranteed and betting on it is a like playing a lottery ticket. Sometimes you win and sometimes you lose. Cash flow is also never guaranteed but if you initial figures show positive cash, it is unlikely to take money out of your pocket.

Iif you are deciding between deal 1 that is break even cash flow but is likely to appreciate and deal 2 that is likely to make $200/mo but not appreciate, go with deal 2. What if taxes go up by $50/mo in both circumstances? Deal 1 takes money out of your pocket and deal 2 still puts money in your pocket. What if the market tanks again (remember nobody thought it would happen in '07 / '08 but it did)?

Point is cash is spendable now and appreciation is a what if.

Good luck and if you are ever in Rockford give me a call.