There is currently a great opportunity to purchase high yield investment properties on Chicago's south side.
I am very familiar with the south side of Chicago. As a licensed broker, I have access to many profitable investment properties, including: three flats, four flats, multi-family (5+ units), mixed-use, and commercial properties.
Investors love the south side of Chicago, because they can usually find great properties that generate great net income. There is a high rental demand on the South side of Chicago. As property values have been decreasing, rental demand has been increasing. This market dynamic is creating an ideal situation for real estate investors. While the media is still painting a bleak picture for the real estate market, savvy investors are buying properties left and right. Prices in some areas have dropped 40% from their 2006 peak.
Due to the prolonged real estate downturn, there will probably be a steady flow of foreclosures and bank owned properties hitting the market for the next several years.
I can help you with purchasing and rehabbing your next investment property. I can assist you every step of the way. I can also help you quickly find tenants for your rental property.
Speaking of finding tenants, I am very familiar with the Section 8 program. For example, the Section 8 program may pay up to $1,300 for a 3 bedroom rental (depending on the market rent for the area). So, if you have a 4 unit building, that has 3 bedrooms in each unit, you could generate up to 5,200 per month in gross rental revenue! That's over $62,400 annually! Even if annual expenses run at 40% of revenue, you are still netting $37,400.
There are 4 unit properties out there going for $250K. In the above example, an investor could easily earn a 15% return on their investment. Talk about high cap rates!
If you have the resources to pay in cash, then you will have a distinct advantage over buyers that need financing. The current market is best suited for cash buyers that can close quickly!
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Let's take a look at some real numbers. This analysis is based on the 12 month period ending Jan 1, 2015.
There were 318 closed transactions in the city of Chicago for multi-family properties with 5 or more units. The median selling price was $360,000. Properties ranged from abandoned buildings that needed total gut rehabs to fully rented apartment buildings in high demand areas.
The highest priced transaction came in at a little over 7 million dollars! It was a 24 unit building on the north side of Chicago. .
Here are the numbers for a property that was closer to the median selling price for apartment buildings.
A 9 unit property was sold in the South Shore neighborhood for $390,000. The gross rental income was $86,400. The net income was $58,501. The cap rate was a hefty 15%. A picture of this property is shown above.
From these three examples, you can see that cap rates can vary quite a bit from neighborhood to neighborhood. Generally speaking, if you are in a neighborhood that has good appreciation, the cap rate will be lower.
If you are in an area that has flat appreciation, the cap rate will be higher. Areas that offer residents great amenities and great schools tend to appreciate faster than areas that do not. Risk and Returns go hand in hand.
High Risk = High Return.... Low Risk = Low Return... If you come across a deal where the return is not proportional to the perceived risk, then don't even consider it.
The sweet spot is when you find a property in an area that is poised for growth but it is not quite there yet. Then you can get in while the cap rates are still high. Or you can find a property that needs work in an area that already has great appreciation. Since it needs work, the price will be lower, and you will have the opportunity to reposition it.
Well, I guess that is enough rambling for now :) Hopefully, someone out there found this information useful. If you are thinking about buying or selling an investment property in Chicago, please send me a note.
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This cool video shows you how to quickly analyze an investment property:
Chicago has one of the world's largest and most diversified economies, with more than four million employees and generating an annual gross regional product (GRP) of over $500 billion.
It is an efficient economic powerhouse that is home to more than 400 major corporate headquarters, including 29 Fortune 500 headquarters. Among the most diverse economies in the nation, Chicago is a key player in every sector from risk management innovation to manufacturing to information technology to health services.
The income per capita is $25,219, which includes all adults and children. The median household income is $45,393.
The unemployment rate in Chicago, IL, is 6.70%, with job growth of 0.7%. Future job growth over the next ten years is predicted to be 28.94%.
The central downtown area has experienced a resurgence in recent years with construction of major new condominium and Class A office buildings. These include the 92-story Trump Tower Chicago, Lakeshore East development, and the 300 North Lasalle office building. Since the recession, other projects, like the planned 150-story 2000 foot Chicago Spire by architect Santiago Calatrava, are now in limbo. Many city neighborhoods are gentrifying at a rapid pace as well, including Logan Square, Pilsen, Uptown, Near Southside, and Rogers Park.
The massive expansion of O'Hare International Airport and reconstruction of the Dan Ryan Expressway are also underway and will shape development patterns for years to come.
Changes in house prices for the Chicago metropolitan area are publicly tracked on a regular basis using the Case–Shiller index; the statistic is published by Standard & Poor's and is also a component of S&P's 10-city composite index of the value of the residential real estate market. Home prices in Chicago advanced about 2% in January 2015 over Jan of 2014.
Cap Rate, short for capitalization rate, is defined as [Net Income] divided by [purchase price]. You may see the term “Cap Rate” quite a bit when you start looking for investment properties. It gives you a way to compare different investment opportunities. But it is just a “rule of thumb” metric that will help filter out bad investments. One thing that has a huge impact on the “Cap Rate” is the amount of expenses.
If the owner is understating the expenses, it can skew the Cap Rate and make it look higher. On the other hand, if the owner had a huge one time expense last year (replaced the boiler), it can make the Cap Rate look lower. When you are doing your analysis, if you estimate expenses at about 40%, I think you will be OK.
In Bronzeville, most of the good investment properties will have a Cap Rate of about 8%. Some will be higher, some will be lower. But the average Cap Rate in Bronzeville is about 8%. In other neighborhods where purchase prices are higher, the cap rates will be lower. Hyde Park is a great example. Cap rates in Hyde Park are about 4% to 6%.
I analyzed about 1,000 closed transactions of “2 to 4″ unit properties in Chicago. These properties were sold during the 6 month period ending Nov 15th 2015.
This analysis should give you a good idea of current cap rates in various Chicago neighborhoods.
If you have any questions about investment properties in Chicago, please Send me a note!
MARK KILLION Real Estate Broker Kale Realty 2447 N. Ashland Chicago, IL 60614