All Forum Posts by: Sid Franklin

 Would you mind posting your numbers?

I generally agree with you but Chicago's debt is much larger than Detroit's and Chicago's political leaders seem to be addressing their debt the same way Detroit did - via catch up taxes.  Detroit's catch up tax hikes tanked real estate prices and the loss of property values tanked Detroit's ability to pay debt and provide basic governmental services.  I think if Chicago can work it's way out of of this debt problem differently than Detroit by not cutting schools, police and other services while imposing "catch up" taxes then the City should be okay.  Until I see a plan that involves keeping Chicago's services intact along with necessary tax hikes that will go almost entirely to pay old debt, I'm not going to say that Chicago never could wind up like Detroit.

The other factor to keep in mind for your tax projections should be property values throughout the entire city.  If less desirable neighborhoods drop further in value because of crime, schools, tax hikes, etc., then other neighborhoods (those you are invested in or might be invested in) will have to make up the difference.  Detroit's pre-bankruptcy property tax spikes to pay pension debt caused some neighborhoods to lose most of their value.  When this happened, the other parts of the city had to pick up the slack and their values were impacted.

Not sure if I should be worried or happy about your example.  North Center is exactly the kind of neighborhood that makes Chicago a better choice for upper middle class families over the suburbs.  It's nice that someone made a short term profit, however, when non-investors are starting to bail, it could be the start of a bad long term trend.  One sale doesn't make a trend but the folks that live in North Center are pretty savvy and trend setters for the City.

Yes, but payment of the City's massive pension and retiree healthcare debt cannot be put off any longer.  Amazing as it sounds your "what ifs" are the most detailed and serious plan put forth to date on how the City might actually pay its debt and compete against the suburban schools and other services without raising taxes.  However, when I invest in real estate, I'm not going to rely on this type of wishful thinking.  Instead, I must analyze known risks and without a plan to address them pro-actively, invest accordingly.  It's exactly why I'm all cash and waiting for the crash.

What if Rahm stays as Mayor? Maybe, (and I hope he does a 3rd term) but he's already promised to continue hiking property taxes and raise other taxes and fees to pay off the debt.  Despite Rahm's claims, we are a long ways away from achieving this goal.

What if Obamas library brings lots of jobs? Please name the type of jobs and quantity that other Presidential libraries have created.

What if Rauner does something different? What?

What if a terrorist blows up Wilmette? C'mon

What if Lucas museum happens? No, he's gone unless he agrees to pay for the entire museum and locate it off the lakefront.

What if Obama turns the screws and says no Obama library without Lucas library? No, Obama has already agreed to build the library off of the lakefront.

What if the plan to move LSD happens and lots of Lincoln Park becomes eminent domain? C'mon (see Lucas above)

What if the river ride becomes a reality(the sky ride over Wacker).  Not likely unless paid with private dollars.

What if McDonalds moves to the West Loop, how will that impact that neighborhood? Yes, this a very positive development.  Chicago needs more relocations just like this.  If Rahm's not Mayor, it should still happen but maybe not if the wrong person is Mayor and the schools and other services issues have not been addressed.  If Rahm doesn't run for office and is replaced by a Mayor not as pro-business, then these types of relocations will dry up fast.

I think the revenue positive "what ifs" will include the following:

1.  Fee increases on utilities, cell phones, public transportation, automobiles and other items

2.  Well to do citizens making large and regular donations to improve their public selective enrollment, magnet or neighborhood schools

3.  Chicago Casinos

4.  Marijuana Legalization

5.  Commuter Tax or LaSalle Street Tax (or both)

6.  State tax on income over $1 million per year or progressive income tax

7.  Cuts to social services will make the city less livable for the poor and push them into the suburbs or out of state 

8.  Growth of businesses and more movement of corporations to the City of Chicago from the suburbs or downstate.  Until Illinois gets its house in order and stops its political bickering, major out of state companies are unlikely to commit to the City of Chicago.

Of course, these are all dubious public policy, at best, and all are great campaign issues so they will be difficult to achieve.  Some items - like neighborhoods self funding public schools - may lead to civil rights lawsuits.  The alternative to doing these items is, of course, higher property taxes.  Keep your safety belts fastened because it's going to be a horribly bumpy ride.  However, when you rack up unprecedented debt and run out of money and gimmicks, this is exactly the kind of problem that a government will face.

The impact of the property tax increases have not been felt yet and likely will not be felt until folks start paying their tax bills.  North side homes and condos will drop in value as taxes spike year after year.  Home owners and tenants will consider and begin moving to other parts of the city and to the suburbs to either lower their cost of living (no kids) or seek better services (kids).  As neighborhoods change, so will the value of investment properties - especially those in outlying areas where gentrification is just beginning.  Their will be both a flight to quality and new gentrification in the City as a result of these "catch up" tax hikes.

I agree that jobs are important but your model does not take into account political change and other factors impacting both job creation and the value of the City of Chicago's real estate that are very likely scenarios given the size of Chicago's debt and the City's inability to pay it without 'catch up" taxes being levied on current residents.  What happens to Chicago's job creation if Rahm Emanuel is no longer Mayor and he's replaced by a candidate close with the CTU?  What happens if CPS limps along and class sizes spike to over 40 kids in a classroom throughout the entire City?  What happens when school age parents on the north side figure out that their property taxes are just as expensive (or more expensive) than an exclusive suburb like Wilmette, Highland Park or Hinsdale (suburban realtors are just salivating over this fact)?  What happens when the CTU strikes at the beginning of the 2016 school year and single parents and dual income families scramble to maintain their jobs for a month or two?  What happens when the cocktail party chit chat turns from you can make Chicago's public schools work back to the old refrain that CPS just doesn't work for the middle and upper middle classes?  What happens when the City can't afford to maintain parks and graffiti starts to appear all over the City (again)?  What happens when crime continues to rise and starts to creep into gentrified neighborhoods?  What happens - as you have suggested - when property taxes can be raised no more and the City starts to impose other job killing taxes and fees to pay down its pension and retiree health care debts? The answer is, jobs disappear from the City and move to the suburbs.  Your model completely ignores quality of life issues for the middle class and upper middle class.  They will likely drive the debate if schools, parks and public safety are ignored and, in all likelihood, cut as a way to stem the tide of ever increasing "catch up" property taxes and other taxes necessary to pay down Chicago's immense debt.  Chicago cannot continue to create and keep jobs if their skilled workers don't want to live and raise a family in the City.  As a result, more of the "Chicago metro" region's job growth will occur in the suburbs if Chicago does not address these very real quality of life issues over the next 1-3 years.  Currently, there is no plan to address these concerns.  This quality of lfe plan is paramount because I believe that many Chicagoans will pay more in property taxes than the suburbs so long as schools, parks and public safety are similar to the suburbs.  Unfortunately, this scenario seems highly unlikely given how little money Chicago currently has to pay for improvements to City services.

Are you saying that you're okay with higher taxes every year so long as you over budget for them in the prior year?  Raising rents in anticipation of tax hikes will have a negative impact on your bottom line over time because your target tenants don't really care what gentrifying neighborhood they live in and, if rents get too high, they will move on to the new one.  

Good for you.  I'm not a flipper.  I have done well in life so I really don't need to invest in real estate other than to diversify my investment portfolio.  I also like having cash flow positive properties that can provide a stream of income into my retirement.  I'm a very conservative investor and I'm just not ready to buy and hold until the Chicago prices reflect the reality of its debt situation.  I'm all cash and waiting for the crash.  Chicago's debt will make it much more vulnerable to macro problems in the economy so any national dip will impact Chicago harder than in other parts of the US that have less governmental debt and more growth.  Also, Chicago's judicial foreclosure laws don't clean out the system as quick as in Florida or Nevada, for instance, so there will be plenty of time to scoop up deals once the "catch up" taxes tank heavily leveraged small investors.  The big corporate boys will likely be able to ride out the mess if rents don't tank too much.  Remember, there's a lot of land in Chicago so neighborhoods are constantly changing up and down.

1.  Why aren't you buying and holding in Chicago now?

2.  Why do you think my posts (and the numerous news articles posted here) are just rants?

Given what we know now (it has been pretty well hidden over the last 20 years) about the massive, gigantic, almost incomprehensible size of the City of Chicago's debt, Cook County's debt and the State's debt - mostly because of pension and retiree healthcare underfunding - and the State Supreme Court's recent decisions requiring that that massive debt be paid in full, all governmental entities will be levying massive, gigantic "catch up" taxes.  In the City, those will mostly be in the form of increased property tax levies.  The property tax spikes can be reduced by cutting services such as schools, community colleges, public universities, police, parks, public transportation, etc. and other amenities that make Chicago a wonderful place to live.  Those property tax spikes and cuts to education, etc. can be avoided (or reduced) simply by moving (either to another cheaper part of the City, the suburbs or even out of state).  This tax/service cut avoidance strategy by Chicago residents is a known risk.  This known risk is not being factored into property values in many neighborhoods in Chicago.  As a result, Chicago investors should be very wary of investing in an area where rents will not be able to keep up with the coming "catch up" property tax levy increases or where parents will move to the suburbs to avoid school cuts, large class sizes, CTU labor strife, cuts to park programs, a shaky higher education system, and, God forbid, increased crime issues in their neighborhoods.  This is what happens when a government runs up a large debt and runs out of money and gimmicks to pay for it or to hide it from public view.  There's no doubt that these "catch up" property taxes and cuts will have a downward impact on a rental property's value in the long term as Chicago becomes a less attractive place to live because of a higher cost of living. 

I'm sorry to rain on the parade here but the non-policy based optimism in this thread smacks a bit of the pre-bubble irrational exuberance of 2006. The risk from "catch up" taxes - given the size of the debt - is real and it's now just starting to get addressed financially.  I wish there was a comprehensive plan to grow the City to avoid large tax spikes, cuts to schools and other services. Unfortunately, there is no plan at the moment other than higher taxes.

I do think that there's money to be made in Chicago.  Certain neighborhoods, where parents have the resources to use private schools as an option and where crime rates will remain low (so as not to hurt tourism), will remain strong.  Other neighborhoods with lower property values than recently gentrified neighborhoods (that have yet to improve their schools and higher crime) will also benefit from new gentrification.  However, it will take some considerable out of the box thinking and a strong willingness to take on the additional risk of the flight scenario playing out in the neighborhood or a general slowing of population and job growth in the city as a result of an unfriendly business climate resulting from both tax spikes and uncertainty over the current governmental gridlock..

 Can you show your numbers?

I agree that you should contest your assessed value.  That is a good move.  Contesting assessed value, however, does not stop your taxes from going up via increased levies.  Annual increased levies happened last year and will happen again in 2017 and 2018.  You cannot contest this type of tax property tax increase.  

 I live on the north side in Lincoln Park now.