All Forum Posts by: Sid Franklin

 You are probably right, but can you compete with those that don't have a mortgage if you are an investor?  Those investors that don't have a mortgage will be able to keep their rents lower.

Thanks for the advice.  Do you see sellers willing to come down in price because of the risk of property tax spike?  If so, how large of a spike is a part of the calculation?  The frustrating part is not being able to calculate the true costs of an investment now because no quick or certain action is being taken by any elected officials.  Instead, they just keep kicking the can down the road.  We will soon see whether Rauner can stop this problem - especially in the midst of a real financial crisis at most levels of government.  What neighborhoods do you see as remaining cash flow positive in the event of property tax hikes? Avondale seems like a place that might be a micro-pocket that could withstand a tax spike but it seems like the investors and hipsters are already snapping up properties and raising prices.

Brie - thanks for the info but why doesn't the risk of a property tax spike worry you?

David - thanks for the advice.  Do you have a realtor that you can recommend that specializes in short sales and foreclosures?

I am currently challenging my property tax assessments on my residence so I am very familiar with this essential process for owning property in Illinois.

I hear you, but how do you get a seller to drop his price substantially based on a very likely, but speculative property tax hike?  Not everyone, trust me, yet sees this risk because the politicians keep kicking the can down the road on tax hikes and cuts (and making the problem, ultimately larger) because they don't want property values to decline and thereby stir up the voters.  The problem stems from that fact that Chicago has kept its property taxes artificially low for almost 40 years by skipping pension payments.  The risk is that the city council will now have to "make up" all of the skipped payments on current property owners.  How much that "make up" tax will be is anyone's guess.  This problem is vexing the entire state because business are getting more and more reluctant to move here because they are uncertain what their tax burden will be like 3-5 years from now.

Saul - taxces in Chicago are significantly lower because they have not been paying on their retirement obligations for public employees.  As a result, I think prices are  in a bubble because the true costs of owning real estate in Chicago have been masked for decades.  When the courts get around to ordering them to pay their bills, property taxes are likely to spike and will likely lead to drops in real estate values.

Here's an interesting story to ponder.  yes, it's on newsmax but it's not all wrong.

http://www.newsmax.com/Finance/PatrickWatson/State...

If you google Chicago and pensions and debt you will get a gist of the problem that's been brewing for almost 40 years.

Chicago is a hot market now but the State, County and City all have significant public employee pension and healthcare debt (that cannot be reduced except maybe in a bankruptcy).  Property taxes are already high, but they are likely to go a lot higher over the next 5 years as the various units of government finally start dealing with their debt issues (I work in and out of government so I'm very much in the know on these issues).  To make matters worse, there is also a high likelihood of cuts to schools, parks, public safety and other government services.

Here's my issue.  I would love to invest in real estate now because I have a nice pile of cash that's ready to go but I'm worried about the following.

1.  Borrowing money for a real estate investment now seems too risky because of the high likelihood of property tax spikes;

2.  Buying with cash even seems risky if the rents cannot keep up with the property tax hikes;

3.  The value of real estate is likely to drop (like in Detroit) once the property tax deluge starts in earnest; and

4.  The population growth in Chicago might slow down if taxes are too high and the bad press on the debt is too great.

Am I missing something?  Can I pass on significant property tax hikes to tenants?  Can I do this even if the quality of schools and other government services are cut?  Is Chicago another Detroit or is it too big to fail?

Should I buy or continue to stay cash rich and wait for the tax spikes and a drop in real estate prices?