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.
