Chicago Real Estate Analysis & More

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July 18, 2022

Why Waiting For The Housing Market To Crash Is (Probably) A Bad Idea

 

There is only one question that seems to matter in real estate right now. Well it’s more like different variations of the same question.

 

“When is the housing market going to crash again?”

“Are we in a housing bubble?”

“When will I be able to afford a home?”

“Is a recession coming or are we already in one?”

 

Etc.

 

The only correct answer to any of these questions, of course, is a healthy “I don’t know, neither do you, neither does anybody.”

 

The people running the federal reserve don’t even know what’s going on or what to do about it, so I certainly don’t. The best advice I’ll give in this whole video is that if you come across anyone who claims to have a definitive answer to any of this, on the internet or otherwise, run away as fast as you can!

 

That said, I do have several facts and figures to share with you and some thoughts on them. 

 

I fully expect many of the things I say in this video to not age well. That's how it goes when you try to make things topical and up to date while taking some big swings. This is simply my opinion at this moment in time and I am certainly open to being wrong. I maintain that even if parts of it do end up being "wrong" you will still benefit from the points of view I share and by having some historical context. 

 

Reasons you SHOULD listen to me are that A. I’m a real estate agent, B. Prior to getting into real estate I was a financial adviser with a couple top notch firms you’ve for sure heard of and had my Series 7, 6, 65, and 66 licenses which, not to be overly braggadocios, are not that easy to get. I also studied economics and finance at Indiana University and have been reading the Wall Street Journal pretty much every day since I was about 12 years old. 

 

Reasons you SHOULDN’T listen to me? I’m not currently a financial adviser and all those fancy licenses I just talked about have expired. I have no crystal ball. THIS IS ALL OPINION AND NOT TO BE TAKEN AS FINANCIAL ADVICE. Odds are if your mind is already made up about where things are going because your Uncle Ned who's a tell at the local bank said so, I’m unlikely to change that opinion anyway. 

 

Another reason could be because you think I’m biased. That my career is impacted by how well the market is doing. This may be true to an extent. Sure, if there were a world where everybody felt great and confident about the market that would make my job easier. But that is rarely the case. Every market condition tends to be good for some people and bad for others. There are ALWAYS people buying and selling real estate in any market. A real estate agent’s success depends on finding and providing value to those people, regardless of what’s going on in the market. My goal is not to convince anyone of anything, only to provide the best value I can so you can make your own well-informed, data-driven decisions. 

 

~~~~~

Enough of the preamble. 

 

Here’s why waiting for the market to crash to get into it is dumb, even if it actually happens.

1. A BAD ECONOMY DOES NOT NECESSARILY EQUAL A BAD HOUSING MARKET!

 

I’ll get into specifics in a moment but first, I need to have a heart-to-heart with my fellow Millennials. Younger Gen Xers and older Gen Zers might sneak in here too but really anyone who all we know from our life experience of ‘08 is that “Bad Economy = Lower Housing Prices” or “Recession = Housing Market Crash”

 

This is simply not true. 

 

The recession of 2008 was a complete outlier for a number of reasons, perhaps the biggest of which being that the housing market crash was NOT a result of the recession. 

 

The recession was a result of the housing market crash. 

 

And the housing crash itself was a result of a perfect storm of greed and incompetence the likes of which are not at all what is happening right now. The exact details of what happened are a bit outside the scope of this video, check out the movie The Big Short if you’re interested for more on that. 

 

Bottom line is, the real estate market as a whole tends to do well or at least maintain its value in times of economic uncertainty. It makes sense when you think about it conceptually. When the stock market is falling, people are taking their money out of assets that they regard to be riskier than they would like. From there, the market will seek safer stores of value. This is why commodities like gold and silver have long been favorite hedges against economic instability, and why real estate is as well. 

 

Bottom line: Real estate is historically very stable regardless of what else is going on around it

 

 

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2. THE DATA IS NOT POINTING TO A "MARKET CRASH"! 

(Though it might be pointing to a sharp "correction".. eventually..) 

 

At the time of writing/recording (mid July 2022), 30 year fixed mortgage rates are sitting at about 5.9% on average. They were half of that mere months ago. Inflation is north of 8% and the fed’s rate raises don’t seem to have much of an impact on that yet. 

 

So far investors are betting that the FED will pull back once we reach a recession, which at this point feel inevitable. This seems to me a risky bet and based in large part on confidence that inflation will be under control. If we reach a situation where we are experiencing declining growth AND high inflation, all bets are off regarding stable interest rates as investors lose confidence in shorter term debt instruments and the FED runs out of tricks to pull.

 

(Again, this is all speculation and not financial advice)

 

As you’ve seen I’m careful to avoid acting like I know the future. That said, despite recent events pointing the contrary, I think in the long run interest rates have a lot of room to continue increasing.

 

Not in a straight line, though. If it’s 5.9% today it could be 5.7% tomorrow. Nothing is ever linear. But over time I believe there is a good chance we'll see them be significantly higher before they will be significantly lower. My bet is we may never see sub 3% interest rates again (we should all hope we never see that again, since the only reason we did in the first place was a worldwide pandemic, crushing economy, and a major war in Ukraine). 

These rate hikes are for sure having a major impact on the demand side of the price equation. According to Zillow, new contracts across the country were down an absurd 27% year over year in June of 2022.

 

You might be saying at that point “well that must mean prices will come down if the demand has decreased so dramatically!”

 

This could be true except that the supply has also decreased by 8%, and the supply side is really where the problem has been for the last several years. Rather than fall, prices have actually increased 18% year over year nationally.

 

For there to be real, needle moving changes in the prices of homes we need more supply, and there doesn’t seem to be an obvious reason for that to happen anywhere on the horizon. 

 

Homeowners currently have near record levels of equity in their homes. This is another HUGE difference between what was going on leading up to the ‘08 crash and what’s going on now. 

 

 

In ‘08, there was a combination of homeowners being given stupidly high loan-to-value (LTV) mortgages (100% loans in many cases) with very loose underwriting requirements, as well as a glut of homeowners cashing in on the equity with home equity lines of credit (HELOCs) and using their rapidly appreciating homes as an ATM, often times to double down on getting more real estate and going further into debt.

 

When the house of cards came tumbling down, a large number of people who could no longer make payments were under water on their mortgage and this led to a surge of foreclosures and distressed properties all hitting the market at the same time and the depressed value of those homes helped bring down the rest of the market with them.

 

That is not the case today. Lending standards are incredibly strict. HELOCs and similar products still have their place but are considered much more niche and also have stricter standards than in the 2000s. 

 

In my practice, just speaking anecdotally, it seems that nearly all the listings I show and sellers I talk to are selling because they absolutely have to move, usually for a job relocation or sometimes for something involving their children’s schooling. Sellers see how tough it is to buy in this market and are in no hurry to participate in that themselves. 

 

Buyers can’t buy because sellers also can’t (or don’t want to) buy. 

 

Chicken and the egg. Snake eating itself. Dog chasing its tail. Whatever other circular, animal related metaphor you can think of. 

 

Bottom line: For there to be price decline truly worthy of the word "crash", we need an overwhelming surplus of supply in the market by way of foreclosures and distressed properties. At this point in time, there is no reason to suggest that is going to happen.

 

~~~~~

 

 3. UNLESS PAYING IN CASH, LOWER PRICES DO NOT EQUAL MORE AFFORDABLE PAYMENTS OR MORE FUTURE EQUITY

(Especially if rising interest rates prove to be the main culprit behind the lower prices)

 

Let’s just assume for a moment that rising interest rates get to a point where the demand has almost completely petered out, the market has softened, and prices do incur a sharp correction of 5-10% from recent highs (a scenario I do believe is very plausible). 

 

Scenario 1 - The 30 year fixed payment you would have on a $350,000 home (roughly the national average) with a 5.9% interest rate (not including taxes, insurance, or HOA fees) and 20% down would be $1,660.78

Let’s say over the next few months, interest rates go up another couple points to 7.9% (a scenario I believe is just about guaranteed, if not higher.. just my opinion of course) and that this cools the market to that steep 10% drop. 

Scenario 2 - The 30 year fixed payment you would have on a $315,000 home with a 7.9% interest rate (not including taxes, insurance, or HOA fees) and 20% down would be $1,831.55

 

So, congratulations. While you were losing 8% of your buying power to inflation sitting on the sidelines waiting for prices to drop 10%, the prize you get is the ability to now pay 10% more per month for the same property even though you’re “getting a good deal on it.” 

 

And that’s not all. 

 

In Scenario 1 where you bought at the higher price with the lower interest rate, after 5 years the principal on your loan would be $260,228.11 for 34.5% home equity, controlling for changes (up or down) in market value. 

In Scenario 2 with the lower price and the higher interest rate, after 5 years the principal owed is $239,354.59 for 31.6% equity, again assuming no change in market value. 

 

Once more, you’re about 10% better off having gone with the higher price, lower interest rate scenario on both the front end and the back end. 

 

(The big real-world variable there of course being the market value)

 

At this point a good counter-argument would be “yes, but at least I didn’t have to be the one that ate that dip in the home’s value!”

 

True. Good point. Assuming you were looking to sell again within a small amount of time, something that is risky in any market even if you are an expert house flipper. 

 

Let’s refer back to this chart

 

 

Q1 of 2007 was the worst time literally in the history of American real estate to buy a home. The market started crashing after that, plummeting 19% (!!!) from that point in two years (Q1 2009).

 

Fast forward to Q1 of 2013 though, and the Q1 2007 buyer was back up to at least breaking even and then some. 

 

The worst (and, really, only) market crash real estate has ever seen took 6 years to cycle through and recover. 

 

According to the National Association of Realtors, the average homeowner will own their home for 13 years. 

 

So, what are we really talking about here? 

 

As long as you have a long enough time horizon, a healthy long-term outlook, and aren’t living and dying by looking at estimates of what your home is worth all the time, you’ll be fine. 

 

Bottom line: Interest rates matter, run your numbers!

 

~~~~~

 

4. THE "MARRY THE HOME, DATE THE INTEREST RATE" STRATEGY MAY BE RISKIER THAN YOU THINK

 

This is the most speculative and, perhaps, controversial of the points which is why I saved it for last.

There is a common notion, which I believe to be caused by a big dose of recency bias from the number of adults (hello again Millennials!) who only know a world of super low interest rates, that even if interest rates continue to climb and that this is the reason for lower housing prices, that this is okay because one can simply "refinance when rates come back down."

In theory, for most of the past 35ish years, this has been true.

Looking at this graph again, starting from the mid-80s it's rare to find an interval where you weren't able to refinance at a lower rate within 5 years at most. It did happen though. Anyone who financed in 2013 was waiting about 7 years to find that elusive lower rate, and my prediction is anyone who bought in the last year or two with sub-3% rates may be waiting literally forever to find a rate better than that.

 

The elephant in the room is the absolute absurdity that was going on in the late-70s to early-80s. This is an era that on the surface had more in common on a macro scale with what we face today than any era since. Rampant inflation, oil issues, potential for stagflation, etc.

 

While everyone else is wondering if we are heading for the next '08, I'm wondering if it's more likely we're heading for the next '79!

 

If you had financed a home in the mid-70s, you would have been waiting nearly 17 years for an opportunity to refinance at a lower rate!

 

This is not necessarily a prediction or fearmongering. Just something to look out for. As mentioned above, at this point in time there is an argument to be had that interest rates will stabilize and fall again as the FED pulls back once we reach recession status and the labor market begins to show more vulnerability. Hopefully this is the case, because that will mean they are confident that the rate hikes they've introduced so far have been successful with the inflation we face.

 

If not...

 

Bottom line: Basing a strategy around the ability to refinance at a lower rate in this economic climate is not without its fair share of risk

 

~~~~~

 

Disclaimers abound on this topic, of course. I’m only going off of what the data is telling me at this moment and my opinion is subject to change based on new information or changes in the market. I am very open to being wrong about any and all of this. Most of the data I’ve referred to is on a national scale and real estate is obviously a hyper local situation. Things will vary widely from block to block, city to city, region to region, etc. 

 

I just hope this has given you something to think about and provides a little historical context that I believe can be helpful no matter how “unprecedented” this moment in time may seem.

 

If you have any questions about anything pertaining to this, or on buying and selling real estate in the Chicago area, please reach out!

Posted in General Thoughts
March 15, 2022

Is It Better To Buy Or Rent In North Center?

Buy vs Rent in North Center

“Should I continue to rent? Or does it make more sense to buy?” 

This is a question that just about every adult will likely ask at some point in their lives, and one that has been asked for hundreds if not thousands of years. 

There are many, many factors that go into making this decision, both personal and financial. Even if you have the financial means to purchase, it still might not make sense from a lifestyle standpoint. 

Maybe your job status is in flux and you don’t know how much longer you’ll be in the city. Maybe you’re thinking about starting a family soon and not sure how that will change your priorities. Maybe you just like the flexibility that renting affords plus the lack of responsibility for when things inevitably go wrong. Maybe your rent is very low and you want to save money a little bit longer.

There are plenty of responsible, legitimate reasons to continue renting from a lifestyle point of view. 

From a financial point of view, however, owning your own home is almost always going to come up as the clear victor due to the equity you can build over time. 

In this series of articles (and videos), I am going to get into specific details of many of the most popular neighborhoods in the city of Chicago and break down the financial aspects of owning vs renting.

In this particular article I will be exploring the North Center neighborhood! I have analyzed 1, 2, and 3 bed condos and compared them to what it would look like if you rented a similar unit in the area. 

(The following condo financial estimates are compiled using a 30 year fixed rate, 5% down payment, 3.2% interest rate, 1% PMI, estimated property taxes and homeowners insurance, median HOA, median sales price current as of the end of 2021, and average growth rates over the past 5 years. Rent figures based on estimate of rental units comparable to quality of median priced condo)

This exercise is not intended to convey investment advice nor should it be applied to each individual property and personal situation. This is simply to provide a general overview of what these numbers could look like based on average market conditions. Please reach out to Jake Lyons with any questions. 

 

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For 1 Bedroom condos in the North Center neighborhood of Chicago, the median price point is at $249,900. The median HOA was $300, for an estimated total monthly PITI (principle, interest, taxes, insurance) of $1,938.74. 

A comparable rental unit in North Center would go for an estimated $1,529.00, for a difference of roughly $409.74

We found the growth rate of the condos over the past 5 years to be 1.25%. 

If this were to continue, in 5 years this condo would be worth approximately $265,854.83. 

After 5 years of making mortgage payments, the amount owed on your loan would be approximately $212,945.34.

This results in an equity position of approximately $52,909.49, or 19.90% of the home’s value.  

If you were to look at your monthly PITI payments as an investment and run the numbers as such (adjusting for the initial down payment), this would result in an annual rate of return (ROI) of approximately 6.27%.

To take it a step further.. Let's assume that the cost of rent ($1,529.00) is the baseline cost for living in the type of home you desire. If you were to look at the difference between PITI and rent ($409.74) as an investment that yields you $52,909.49 of equity in 5 years, that would be equal to an annual ROI of 32.9%!

Compare that to the cost of renting where, besides the utility of having a place to live, you gain nothing from an investment point of view. 

 

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For 2 Bedroom condos in the North Center neighborhood of Chicago, the median price point is at $390,000. The median HOA was $285, for an estimated total monthly PITI (principle, interest, taxes, insurance) of $2,842.46. 

A comparable rental unit in North Center would go for an estimated $1,983.00, for a difference of roughly $859.46

We found the growth rate of the condos over the past 5 years to be 2.94%. 

If this were to continue, in 5 years this condo would be worth approximately $450,827.34. 

After 5 years of making mortgage payments, the amount owed on your loan would be approximately $332,327.65.

This results in an equity position of approximately $118,499.69, or 26.28% of the home’s value. 

If you were to look at your monthly PITI payments as an investment and run the numbers as such (adjusting for the initial down payment), this would result in an annual rate of return (ROI) of approximately 10.42%.

To take it a step further.. Let's assume that the cost of rent ($1,983.00) is the baseline cost for living in the type of home you desire. If you were to look at the difference between PITI and rent ($859.46) as an investment that yields you $118,499.69 of equity in 5 years, that would be equal to an annual ROI of 38.40%!

Compare that to the cost of renting where, besides the utility of having a place to live, you gain nothing from an investment point of view. 

 

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For 3 Bedroom condos in the North Center neighborhood of Chicago, the median price point is at $540,000. The median HOA was $253, for an estimated total monthly PITI (principle, interest, taxes, insurance) of $3,794.10. 

A comparable rental unit in North Center would go for an estimated $2,623.00, for a difference of roughly $1,171.10

We found the growth rate of the condos over the past 5 years to be 3.79%. 

If this were to continue, in 5 years this condo would be worth approximately $650,340.66. 

After 5 years of making mortgage payments, the amount owed on your loan would be approximately $460,145.98.

This results in an equity position of approximately $190,194.68, or 29.25% of the home’s value. 

If you were to look at your monthly PITI payments as an investment and run the numbers as such (adjusting for the initial down payment), this would result in an annual rate of return (ROI) of approximately 12.82%.

To take it a step further.. Let's assume that the cost of rent ($2,623.00) is the baseline cost for living in the type of home you desire. If you were to look at the difference between PITI and rent ($1,171.10) as an investment that yields you $190,194.68 of equity in 5 years, that would be equal to an annual ROI of 46.45%!

Compare that to the cost of renting where, besides the utility of having a place to live, you gain nothing from an investment point of view. 

 

March 14, 2022

Is It Better To Buy Or Rent In The West Loop Of Chicago?

Buy vs Rent in Near West Side

“Should I continue to rent? Or does it make more sense to buy?” 

This is a question that just about every adult will likely ask at some point in their lives, and one that has been asked for hundreds if not thousands of years. 

There are many, many factors that go into making this decision, both personal and financial. Even if you have the financial means to purchase, it still might not make sense from a lifestyle standpoint. 

Maybe your job status is in flux and you don’t know how much longer you’ll be in the city. Maybe you’re thinking about starting a family soon and not sure how that will change your priorities. Maybe you just like the flexibility that renting affords plus the lack of responsibility for when things inevitably go wrong. Maybe your rent is very low and you want to save money a little bit longer.

There are plenty of responsible, legitimate reasons to continue renting from a lifestyle point of view. 

From a financial point of view, however, owning your own home is almost always going to come up as the clear victor due to the equity you can build over time. 

In this series of articles (and videos), I am going to get into specific details of many of the most popular neighborhoods in the city of Chicago and break down the financial aspects of owning vs renting.

In this particular article I will be exploring the Near West Side neighborhood! I have analyzed 1, 2, and 3 bed condos and compared them to what it would look like if you rented a similar unit in the area. 

(The following condo financial estimates are compiled using a 30 year fixed rate, 5% down payment, 3.2% interest rate, 1% PMI, estimated property taxes and homeowners insurance, median HOA, median sales price current as of the end of 2021, and average growth rates over the past 5 years. Rent figures based on estimate of rental units comparable to quality of median priced condo)

This exercise is not intended to convey investment advice nor should it be applied to each individual property and personal situation. This is simply to provide a general overview of what these numbers could look like based on average market conditions. Please reach out to Jake Lyons with any questions. 

—--------------------------------------------------------------------------------------------------------------------------

 

For 1 Bedroom condos in the Near West Side neighborhood of Chicago, the median price point is at $285,000. The median HOA was $440, for an estimated total monthly PITI (principle, interest, taxes, insurance) of $2,308.91. 

A comparable rental unit in Near West Side would go for an estimated $2,307.00, for a difference of roughly $1.91

We found the growth rate of the condos over the past 5 years to be 1.05%. 

If this were to continue, in 5 years this condo would be worth approximately $300,319.13. 

After 5 years of making mortgage payments, the amount owed on your loan would be approximately $242,854.82.

This results in an equity position of approximately $57,464.31, or 19.13% of the home’s value.  

If you were to look at your monthly PITI payments as an investment and run the numbers as such (adjusting for the initial down payment), this would result in an annual rate of return (ROI) of approximately 5.66%.

To take it a step further.. Let's assume that the cost of rent ($2,307.00) is the baseline cost for living in the type of home you desire. If you were to look at the difference between PITI and rent ($1.91) as an investment that yields you $57,464.31 of equity in 5 years, that would be equal to an annual ROI of 7541.76%!

Compare that to the cost of renting where, besides the utility of having a place to live, you gain nothing from an investment point of view. 

 

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For 2 Bedroom condos in the Near West Side neighborhood of Chicago, the median price point is at $399,450. The median HOA was $495, for an estimated total monthly PITI (principle, interest, taxes, insurance) of $3,114.43. 

A comparable rental unit in Near West Side would go for an estimated $2,996.00, for a difference of roughly $118.43

We found the growth rate of the condos over the past 5 years to be 1.15%. 

If this were to continue, in 5 years this condo would be worth approximately $422,929.93. 

After 5 years of making mortgage payments, the amount owed on your loan would be approximately $340,380.21.

This results in an equity position of approximately $82,549.72, or 19.52% of the home’s value. 

If you were to look at your monthly PITI payments as an investment and run the numbers as such (adjusting for the initial down payment), this would result in an annual rate of return (ROI) of approximately 6.05%.

To take it a step further.. Let's assume that the cost of rent ($2,996.00) is the baseline cost for living in the type of home you desire. If you were to look at the difference between PITI and rent ($118.43) as an investment that yields you $82,549.72 of equity in 5 years, that would be equal to an annual ROI of 118.43%!

Compare that to the cost of renting where, besides the utility of having a place to live, you gain nothing from an investment point of view. 

 

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For 3 Bedroom condos in the Near West Side neighborhood of Chicago, the median price point is at $660,000. The median HOA was $375, for an estimated total monthly PITI (principle, interest, taxes, insurance) of $4,703.01. 

A comparable rental unit in Near West Side would go for an estimated $3,951.00, for a difference of roughly $752.01

We found the growth rate of the condos over the past 5 years to be 0.95%. 

If this were to continue, in 5 years this condo would be worth approximately $692,032.94. 

After 5 years of making mortgage payments, the amount owed on your loan would be approximately $562,400.65.

This results in an equity position of approximately $129,632.29, or 18.73% of the home’s value. 

If you were to look at your monthly PITI payments as an investment and run the numbers as such (adjusting for the initial down payment), this would result in an annual rate of return (ROI) of approximately 6.13%.

To take it a step further.. Let's assume that the cost of rent ($3,951.00) is the baseline cost for living in the type of home you desire. If you were to look at the difference between PITI and rent ($752.01) as an investment that yields you $129,632.29 of equity in 5 years, that would be equal to an annual ROI of 42.83%!

Compare that to the cost of renting where, besides the utility of having a place to live, you gain nothing from an investment point of view. 

 

Sept. 15, 2021

Ultimate Guide To Multi-Family Properties In Chicago's Far South Side

By Jake Lyons, The Chicago Home Source / BHHS Chicago

 

If you’re reading this, odds are you are at least somewhat aware that investing in real estate is one the most surefire, tried and true routes to all kinds of financial freedom and wealth building. Whether you are working on your 1st property or your 1,000th, you will get something out of this report. 

 

My team and I have spared no expense or time to gather I believe the most comprehensive set of data for the city of Chicago that covers just about any metric most buy-and-hold multifamily investors will care about, with over 6,000 combined data points breaking each neighborhood down in terms of sales and rent prices, appreciation rates, average cap rates, revenue, cash on cash return, 1% rule, and more.

 

Our goal with this project is for it to be nothing short of the most thorough and helpful guide available for buying and selling 3-4 unit properties in Chicago!

 

In this article we have evaluated 3 and 4 unit properties in each neighborhood on the Far South Side of Chicago (Auburn Gresham, Avalon Park, Burnside, Calumet Heights, Chatham, Chicago Lawn, East Side, Greater Grand Crossing, Hegewisch, Pullman, Riverdale, Roseland, South Chicago, South Deering, South Shore, Washington Heights, West Pullman) and compared them. (We broke the south side down into the two parts, The South Side and The Far South Side, because of how vast and how many neighborhoods the south side truly has.)

 

We have done similar analysis based on the north side, the northwest side, the south side, and the west side. The southwest side did not have enough data to work with for multifamily properties as it is mostly single family homes.

 

As a former Series 7 licensed financial advisor, I am a big believer in real estate’s unrivaled power as an investment vehicle in terms of building equity, creative passive cash flow, reaping tax benefits, and so much more. I am also a bit of a nerd when it comes to the numbers. As my slogan suggests, I believe in being “data-driven and well-informed,” especially with something as potentially high stakes as investing in real estate.

 

There are many paths you can choose, of course. Fix and flip, buy and hold, BRRRR,  single family, 2-4 units, 5+ units, different areas, price points, features, etc. I may get into all of these topics in due time, but this article is geared at those specifically looking for 3-4 unit, buy and hold opportunities and considering doing so on the Far South Side of Chicago.

 

Methodology: The data referenced in this report is taken from various sources (MLS, InfoSparks, NAR, Rent-O-Meter, etc) and is based on the averages of a given metric such as sales price or rent rate in each specific neighborhood. All data is from properties closed or rented from the mid-point of 2021 through the midpoint of 2020, with data going back 5 years for appreciation estimates. 

 

Assumptions used: 8% vacancy rate, 8% management fee, 10% combined savings for maintenance and Cap Ex, property taxes at 1.5% of purchase price, insurance at 0.3% of purchase price, 20% down payment, 4% interest rate. Rehab estimates are not a part of these calculations. Do your due diligence. 

 

How to use this guide: Use it as a measuring stick. An apples-to-apples comparison from a very big picture view. Use it as one tool in your toolbag to help guide decisions on what areas you might want to focus more time on and what realistic goals might look like. 

 

How NOT to use this guide: Do not use this guide as a substitute for doing your own due diligence on individual properties. These figures are based on averages from large sets of numbers and do not accurately represent every property within that neighborhood. There are many factors that could result in a particular investment property being much better or much worse than the average metrics for that neighborhood or side of town. 

 

To get a look at what small multifamily properties are available in Chicago right now, visit https://www.thechicagohomesource.com/investments/

 

For a more in depth analysis on each individual property in Chicago as it becomes available, click here!

_________________________________________________________________

 

Let's get into the numbers! Before we get into the costs of the buildings themselves or any other more complex stats, perhaps it's best to start with the rents that you could expect in each of the different Far South Side Chicago neighborhood. This is important because, depending on what the layout is of bedroom count per unit, the rent the building is receiving will obviously determine the amount of revenue it's bringing in and how good of an investment it is. They all follow a similar, common sense pattern of 2 beds renting for more than 1, 3 more than 2, and so on.

Below is a breakdown of the cost of the buildings themselves, first of 3 flats and then of 4 flats, in the various neighborhoods within the Far South Side. You would expect the cost of a 4 unit to be much higher than a 3 unit since it is adding more potential revenue to the bottom line, however the increase we see is not necessariy in step with those expectations. You'll notice a few neighborhoods do not have any data for 4 unit buildings, this is simply becuase those areas don't have enough multifamily properties to analyze.

Cap rate is one of the most useful and prevalent metrics used by real estate investors. It is found by dividing the net operating income (gross operating income - operating expenses) by the cost of the building. Methods of financing do not change this number. The higher the number, the better your rate of return is in theory. This is not to be confused with "cash on cash return", which focuses on the amount of money you actually put into the deal. Using the assumptions of expenses mentioned above, this is the average expected cap rate per neighborhood for 3 unit properties (blue bars) and 4 unit properties (red bars).

Another metric that is popular in some investing circles, made famous by real estate investing community and website BiggerPockets.com, is called "The 1% Rule" which measures the percent that a building's monthly gross income is to it's purchase price. Though this more of a "guideline" than a rule, it can still be an interesting and useful means of comparison. Here is how the Far South Side neighborhoods on average stack up to eachother on this metric. In general, 4 unit buildings tend to have more bang for the buck, but are also quite a bit more rare to find.

Real estate investing is of course about more than just monthly cash flow. It is also about building equity in an asset based on that asset's appreciation over time. Therefore, the growth rate of a given area is a very important figure to consider. Below you'll see the growth rates of small multifamily properties annualized over the past 5 years (blue lines) and the growth rate of just the past 12 months as of the collection of this data (red lines), all broken down by Far South Side neighborhood.

 

 

Summary: Similar to its siblings to the north, aka "The South Side", the neighborhoods that do actually have multiunit buildings to choose from usually offer a good amount of appreciation and higher cap rates than can be found in other areas of the city. 

Posted in Guides
Sept. 15, 2021

Ultimate Guide To Multi-Family Properties In Chicago's South Side

By Jake Lyons, The Chicago Home Source / BHHS Chicago

 

If you’re reading this, odds are you are at least somewhat aware that investing in real estate is one the most surefire, tried and true routes to all kinds of financial freedom and wealth building. Whether you are working on your 1st property or your 1,000th, you will get something out of this report. 

 

My team and I have spared no expense or time to gather I believe the most comprehensive set of data for the city of Chicago that covers just about any metric most buy-and-hold multifamily investors will care about, with over 6,000 combined data points breaking each neighborhood down in terms of sales and rent prices, appreciation rates, average cap rates, revenue, cash on cash return, 1% rule, and more.

 

Our goal with this project is for it to be nothing short of the most thorough and helpful guide available for buying and selling 3-4 unit properties in Chicago!

 

In this article we have evaluated 3 and 4 unit properties in each neighborhood on the South Side of Chicago (Archer Heights, Armour Square, Bridgeport, Brighton Park, Douglas, Englewood, Fuller Park, Grand Boulevard, Hyde Park, Kenwood, Near South Side, New City, Oakland, South Lawndale, Washington Park, West Englewood, Woodlawn) and compared them. We separated the South Side from the Far South Side which will be in a different article. Why? Because the South Side is HUGE! and covering them all in one article wouldn't be helpful or even a fair comparison.

 

We have done similar analysis based on the north side, the northwest side, the west side, and the far south side. The southwest side did not have enough data to work with for multifamily properties as it is mostly single family homes.

 

As a former Series 7 licensed financial advisor, I am a big believer in real estate’s unrivaled power as an investment vehicle in terms of building equity, creative passive cash flow, reaping tax benefits, and so much more. I am also a bit of a nerd when it comes to the numbers. As my slogan suggests, I believe in being “data-driven and well-informed,” especially with something as potentially high stakes as investing in real estate.

 

There are many paths you can choose, of course. Fix and flip, buy and hold, BRRRR, single family, 2-4 units, 5+ units, different areas, price points, features, etc. I may get into all of these topics in due time, but this article is geared at those specifically looking for 3-4 unit, buy and hold opportunities and considering doing so on the south side of Chicago.

 

Methodology: The data referenced in this report is taken from various sources (MLS, InfoSparks, NAR, Rent-O-Meter, etc) and is based on the averages of a given metric such as sales price or rent rate in each specific neighborhood. All data is from properties closed or rented from the mid-point of 2021 through the midpoint of 2020, with data going back 5 years for appreciation estimates. 

 

Assumptions used: 8% vacancy rate, 8% management fee, 10% combined savings for maintenance and Cap Ex, property taxes at 1.5% of purchase price, insurance at 0.3% of purchase price, 20% down payment, 4% interest rate. Rehab estimates are not a part of these calculations. Do your due diligence. 

 

How to use this guide: Use it as a measuring stick. An apples-to-apples comparison from a very big picture view. Use it as one tool in your toolbag to help guide decisions on what areas you might want to focus more time on and what realistic goals might look like. 

 

How NOT to use this guide: Do not use this guide as a substitute for doing your own due diligence on individual properties. These figures are based on averages from large sets of numbers and do not accurately represent every property within that neighborhood. There are many factors that could result in a particular investment property being much better or much worse than the average metrics for that neighborhood or side of town. 

 

To get a look at what small multifamily properties are available in Chicago right now, visit https://www.thechicagohomesource.com/investments/

 

For a more in depth analysis on each individual property in Chicago as it becomes available, click here!

_________________________________________________________________

 

Let's get into the numbers! Before we get into the costs of the buildings themselves or any other more complex stats, perhaps it's best to start with the rents that you could expect in each of the different south side Chicago neighborhood. This is important because, depending on what the layout is of bedroom count per unit, the rent the building is receiving will obviously determine the amount of revenue it's bringing in and how good of an investment it is. They all follow a similar, common sense pattern of 2 beds renting for more than 1, 3 more than 2, and so on.

Below is a breakdown of the cost of the buildings themselves, first of 3 flats and then of 4 flats, in the various neighborhoods within the South Side. You would expect the cost of a 4 unit to be much higher than a 3 unit since it is adding more potential revenue to the bottom line, however the increase we see is not necessariy in step with those expectations. You'll notice a few neighborhoods do not have any data, this is simply becuase those areas don't have enough multifamily properties to analyze.

Cap rate is one of the most useful and prevalent metrics used by real estate investors. It is found by dividing the net operating income (gross operating income - operating expenses) by the cost of the building. Methods of financing do not change this number. The higher the number, the better your rate of return is in theory. This is not to be confused with "cash on cash return", which focuses on the amount of money you actually put into the deal. Using the assumptions of expenses mentioned above, this is the average expected cap rate per neighborhood for 3 unit properties (blue bars) and 4 unit properties (red bars).

Another metric that is popular in some investing circles, made famous by real estate investing community and website BiggerPockets.com, is called "The 1% Rule" which measures the percent that a building's monthly gross income is to it's purchase price. Though this more of a "guideline" than a rule, it can still be an interesting and useful means of comparison. Here is how the south side neighborhoods on average stack up to eachother on this metric. In general, 4 unit buildings tend to have more bang for the buck, but are also quite a bit more rare to find.

Real estate investing is of course about more than just monthly cash flow. It is also about building equity in an asset based on that asset's appreciation over time. Therefore, the growth rate of a given area is a very important figure to consider. Below you'll see the growth rates of small multifamily properties annualized over the past 5 years (blue lines) and the growth rate of just the past 12 months as of the collection of this data (red lines), all broken down by South Side neighborhood.

 

 

 

Summary: As you can see, a lot of the neighborhoods that make up the South Side are mostly single family homes and investing in multifamily buildings, at least those 2-4 unit buildings that count as residential multifamily, isn't really an option. For those that do have them, growth rates and cap rates are typically relatively high. 

Posted in Guides
Sept. 15, 2021

Ultimate Guide To Multi-Family Properties In Chicago's West Side

By Jake Lyons, The Chicago Home Source / BHHS Chicago

 

If you’re reading this, odds are you are at least somewhat aware that investing in real estate is one the most surefire, tried and true routes to all kinds of financial freedom and wealth building. Whether you are working on your 1st property or your 1,000th, you will get something out of this report. 

 

My team and I have spared no expense or time to gather I believe the most comprehensive set of data for the city of Chicago that covers just about any metric most buy-and-hold multifamily investors will care about, with over 6,000 combined data points breaking each neighborhood down in terms of sales and rent prices, appreciation rates, average cap rates, revenue, cash on cash return, 1% rule, and more.

 

Our goal with this project is for it to be nothing short of the most thorough and helpful guide available for buying and selling 3-4 unit properties in Chicago!

 

In this article we have evaluated 3 and 4 unit properties in each neighborhood on the West Side of Chicago (Austin, East Garfield Park, Humboldt Park, Lower West Side, Near North Side, North Lawndale, West Garfield Park, West Town) and compared them.

 

We have done similar analysis based on the north side, the northwest side, the south side, and the far south side. The southwest side did not have enough data to work with for multifamily properties as it is mostly single family homes.

 

As a former Series 7 licensed financial advisor, I am a big believer in real estate’s unrivaled power as an investment vehicle in terms of building equity, creative passive cash flow, reaping tax benefits, and so much more. I am also a bit of a nerd when it comes to the numbers. As my slogan suggests, I believe in being “data-driven and well-informed,” especially with something as potentially high stakes as investing in real estate.

 

There are many paths you can choose, of course. Fix and flip, buy and hold, BRRRR,  single family, 2-4 units, 5+ units, different areas, price points, features, etc. I may get into all of these topics in due time, but this article is geared at those specifically looking for 3-4 unit, buy and hold opportunities and considering doing so on the west side of Chicago.

 

Methodology: The data referenced in this report is taken from various sources (MLS, InfoSparks, NAR, Rent-O-Meter, etc) and is based on the averages of a given metric such as sales price or rent rate in each specific neighborhood. All data is from properties closed or rented from the mid-point of 2021 through the midpoint of 2020, with data going back 5 years for appreciation estimates. 

 

Assumptions used: 8% vacancy rate, 8% management fee, 10% combined savings for maintenance and Cap Ex, property taxes at 1.5% of purchase price, insurance at 0.3% of purchase price, 20% down payment, 4% interest rate. Rehab estimates are not a part of these calculations. Do your due diligence. 

 

How to use this guide: Use it as a measuring stick. An apples-to-apples comparison from a very big picture view. Use it as one tool in your toolbag to help guide decisions on what areas you might want to focus more time on and what realistic goals might look like. 

 

How NOT to use this guide: Do not use this guide as a substitute for doing your own due diligence on individual properties. These figures are based on averages from large sets of numbers and do not accurately represent every property within that neighborhood. There are many factors that could result in a particular investment property being much better or much worse than the average metrics for that neighborhood or side of town. 

 

To get a look at what small multifamily properties are available in Chicago right now, visit https://www.thechicagohomesource.com/investments/

 

For a more in depth analysis on each individual property in Chicago as it becomes available, click here!

_________________________________________________________________

 

Let's get into the numbers! Before we get into the costs of the buildings themselves or any other more complex stats, perhaps it's best to start with the rents that you could expect in each of the different west side Chicago neighborhood. This is important because, depending on what the layout is of bedroom count per unit, the rent the building is receiving will obviously determine the amount of revenue it's bringing in and how good of an investment it is. They all follow a similar, common sense pattern of 2 beds renting for more than 1, 3 more than 2, and so on.

Below is a breakdown of the cost of the buildings themselves, first of 3 flats and then of 4 flats, in the various neighborhoods within the West Side. You would expect the cost of a 4 unit to be much higher than a 3 unit since it is adding more potential revenue to the bottom line, however the increase we see is not necessariy in step with those expectations. You'll notice a few neighborhoods do not have any data for 4 unit buildings, this is simply becuase those areas don't have enough multifamily properties to analyze.

Cap rate is one of the most useful and prevalent metrics used by real estate investors. It is found by dividing the net operating income (gross operating income - operating expenses) by the cost of the building. Methods of financing do not change this number. The higher the number, the better your rate of return is in theory. This is not to be confused with "cash on cash return", which focuses on the amount of money you actually put into the deal. Using the assumptions of expenses mentioned above, this is the average expected cap rate per neighborhood for 3 unit properties (blue bars) and 4 unit properties (red bars).

Another metric that is popular in some investing circles, made famous by real estate investing community and website BiggerPockets.com, is called "The 1% Rule" which measures the percent that a building's monthly gross income is to it's purchase price. Though this more of a "guideline" than a rule, it can still be an interesting and useful means of comparison. Here is how the west side neighborhoods on average stack up to eachother on this metric. In general, 4 unit buildings tend to have more bang for the buck, but are also quite a bit more rare to find.

Real estate investing is of course about more than just monthly cash flow. It is also about building equity in an asset based on that asset's appreciation over time. Therefore, the growth rate of a given area is a very important figure to consider. Below you'll see the growth rates of small multifamily properties annualized over the past 5 years (blue lines) and the growth rate of just the past 12 months as of the collection of this data (red lines), all broken down by West Side neighborhood.

 

All of these neighgborhoods have seen substantial growth over the past several years, with some of them looking downright silly in how much they've grown and are continuing to grow. Of course, none of this any kind of guarantee that this will continue or have the same effect on individual properties, but the development being seen is still a reason for optimism as these west side neighborhoods continue to develop.

 

 

Summary: The West Side, starting from essentially the West Loop and extending out to Austin, is an area that has seen booming growth and showing no signs of stopping. The closer to the West Loop, in general the higher the property values and rents will be, sacrificing some profitability for more stability and less maintenance. The further west, again in general, the property values will be lower but the potential profits to be made will likely increase with a savvy, discerning eye. 

Posted in Guides
Sept. 15, 2021

Ultimate Guide To Multi-Family Properties In Chicago's Northwest Side

By Jake Lyons, The Chicago Home Source / BHHS Chicago

 

If you’re reading this, odds are you are at least somewhat aware that investing in real estate is one the most surefire, tried and true routes to all kinds of financial freedom and wealth building. Whether you are working on your 1st property or your 1,000th, you will get something out of this report. 

 

My team and I have spared no expense or time to gather I believe the most comprehensive set of data for the city of Chicago that covers just about any metric most buy-and-hold multifamily investors will care about, with over 6,000 combined data points breaking each neighborhood down in terms of sales and rent prices, appreciation rates, average cap rates, revenue, cash on cash return, 1% rule, and more.

 

Our goal with this project is for it to be nothing short of the most thorough and helpful guide available for buying and selling 3-4 unit properties in Chicago!

 

In this article we have evaluated 3 and 4 unit properties in each neighborhood on the Northwest Side of Chicago (Albany Park, Avondale, Belmont Craigin, Dunning, Edison Park, Forest Glen, Hermosa, Irving Park, Jefferson Park, Logan Square, Montclare, North Park, O'Hare, Portage Park) and compared them.

 

We have done similar analysis based on the north side, the west side, the south side, and the far south side. The southwest side did not have enough data to work with for multifamily properties as it is mostly single family homes.

 

As a former Series 7 licensed financial advisor, I am a big believer in real estate’s unrivaled power as an investment vehicle in terms of building equity, creative passive cash flow, reaping tax benefits, and so much more. I am also a bit of a nerd when it comes to the numbers. As my slogan suggests, I believe in being “data-driven and well-informed,” especially with something as potentially high stakes as investing in real estate.

 

There are many paths you can choose, of course. Fix and flip, buy and hold, BRRRR,  single family, 2-4 units, 5+ units, different areas, price points, features, etc. I may get into all of these topics in due time, but this article is geared at those specifically looking for 3-4 unit, buy and hold opportunities and considering doing so on the northwest side of Chicago.

 

Methodology: The data referenced in this report is taken from various sources (MLS, InfoSparks, NAR, Rent-O-Meter, etc) and is based on the averages of a given metric such as sales price or rent rate in each specific neighborhood. All data is from properties closed or rented from the mid-point of 2021 through the midpoint of 2020, with data going back 5 years for appreciation estimates. 

 

Assumptions used: 8% vacancy rate, 8% management fee, 10% combined savings for maintenance and Cap Ex, property taxes at 1.5% of purchase price, insurance at 0.3% of purchase price, 20% down payment, 4% interest rate. Rehab estimates are not a part of these calculations. Do your due diligence. 

 

How to use this guide: Use it as a measuring stick. An apples-to-apples comparison from a very big picture view. Use it as one tool in your toolbag to help guide decisions on what areas you might want to focus more time on and what realistic goals might look like. 

 

How NOT to use this guide: Do not use this guide as a substitute for doing your own due diligence on individual properties. These figures are based on averages from large sets of numbers and do not accurately represent every property within that neighborhood. There are many factors that could result in a particular investment property being much better or much worse than the average metrics for that neighborhood or side of town. 

 

To get a look at what small multifamily properties are available in Chicago right now, visit https://www.thechicagohomesource.com/investments/

 

For a more in depth analysis on each individual property in Chicago as it becomes available, click here!

 

_________________________________________________________________

 

Let's get into the numbers! Before we get into the costs of the buildings themselves or any other more complex stats, perhaps it's best to start with the rents that you could expect in each of the different northwest side Chicago neighborhood. This is important because, depending on what the layout is of bedroom count per unit, the rent the building is receiving will obviously determine the amount of revenue it's bringing in and how good of an investment it is. They all follow a similar, common sense pattern of 2 beds renting for more than 1, 3 more than 2, and so on.

Below is a breakdown of the cost of the buildings themselves, first of 3 flats and then of 4 flats, in the various neighborhoods within the North Side. You would expect the cost of a 4 unit to be much higher than a 3 unit since it is adding more potential revenue to the bottom line, however the increase we see is not necessariy in step with those expectations. You'll notice a few neighborhoods do not have any data, this is simply becuase those areas don't have enough multifamily properties to analyze.

Cap rate is one of the most useful and prevalent metrics used by real estate investors. It is found by dividing the net operating income (gross operating income - operating expenses) by the cost of the building. Methods of financing do not change this number. The higher the number, the better your rate of return is in theory. This is not to be confused with "cash on cash return", which focuses on the amount of money you actually put into the deal. Using the assumptions of expenses mentioned above, this is the average expected cap rate per neighborhood for 3 unit properties (blue bars) and 4 unit properties (red bars).

Another metric that is popular in some investing circles, made famous by real estate investing community and website BiggerPockets.com, is called "The 1% Rule" which measures the percent that a building's monthly gross income is to it's purchase price. Though this more of a "guideline" than a rule, it can still be an interesting and useful means of comparison. Here is how the northwest side neighborhoods on average stack up to eachother on this metric. In general, 4 unit buildings tend to have more bang for the buck, but are also quite a bit more rare to find.

Real estate investing is of course about more than just monthly cash flow. It is also about building equity in an asset based on that asset's appreciation over time. Therefore, the growth rate of a given area is a very important figure to consider. Below you'll see the growth rates of small multifamily properties annualized over the past 5 years (blue lines) and the growth rate of just the past 12 months as of the collection of this data (red lines), all broken down by north side neighborhood.

 

A few of these neighborhoods have enjoyed substantial growth just in the past year which well outpaces their 5 year annualized growth rates as the market has been hot recently. In my opinion I would expect long term results to be more in line with the blue bars than the red.

 

Summary: The Northwest Side has a lot going for it. Proximity to highways, public transit, O'Hare International (one of the busiest airports in the world), proud and diverse neighborhoods, culture, and more. It can also be a great place to invest rather you're looking for stability, cash flow, or appreciation. 

Posted in Guides
Sept. 15, 2021

Ultimate Guide To Multi-Family Properties In Chicago's North Side

By Jake Lyons, TheChicagoHomeSource.com / BHHS Chicago

 

If you’re reading this, odds are you are at least somewhat aware that investing in real estate is one the most surefire, tried and true routes to all kinds of financial freedom and wealth building. Whether you are working on your 1st property or your 1,000th, you will get something out of this report. 

 

My team and I have spared no expense or time to gather I believe the most comprehensive set of data for the city of Chicago that covers just about any metric most buy-and-hold multifamily investors will care about, with over 6,000 combined data points breaking each neighborhood down in terms of sales and rent prices, appreciation rates, average cap rates, revenue, cash on cash return, 1% rule, and more.

 

Our goal with this project is for it to be nothing short of the most thorough and helpful guide available for buying and selling 3-4 unit properties in Chicago!

 

In this article we have evaluated 3 and 4 unit properties in each neighborhood on the north side of Chicago (Near North Side, Lincoln Park, Lake View, Uptown, Edgewater, Rogers Park, North Center, Lincoln Square, West Ridge) and compared them.

 

We have done similar analysis based on the northwest side, the west side, the south side, and the far south side. The southwest side did not have enough data to work with for multifamily properties as it is mostly single family homes.

 

As a former Series 7 licensed financial advisor, I am a big believer in real estate’s unrivaled power as an investment vehicle in terms of building equity, creative passive cash flow, reaping tax benefits, and so much more. I am also a bit of a nerd when it comes to the numbers. As my slogan suggests, I believe in being “data-driven and well-informed,” especially with something as potentially high stakes as investing in real estate.

 

There are many paths you can choose, of course. Fix and flip, buy and hold, BRRRR,  single family, 2-4 units, 5+ units, different areas, price points, features, etc. I may get into all of these topics in due time, but this article is geared at those specifically looking for 3-4 unit, buy and hold opportunities and considering doing so on the north side of Chicago.

 

Methodology: The data referenced in this report is taken from various sources (MLS, InfoSparks, NAR, Rent-O-Meter, etc) and is based on the averages of a given metric such as sales price or rent rate in each specific neighborhood. All data is from properties closed or rented from the mid-point of 2021 through the midpoint of 2020, with data going back 5 years for appreciation estimates. 

 

Assumptions used: 8% vacancy rate, 8% management fee, 10% combined savings for maintenance and Cap Ex, property taxes at 1.5% of purchase price, insurance at 0.3% of purchase price, 20% down payment, 4% interest rate. Rehab estimates are not a part of these calculations. Do your due diligence. 

 

How to use this guide: Use it as a measuring stick. An apples to apples comparison from a very big picture view. Use it as one tool in your toolbag to help guide decisions on what areas you might want to focus more time on and what realistic goals might look like. 

 

How NOT to use this guide: Do not use this guide as a substitute for doing your own due diligence on individual properties. These figures are based on averages from large sets of numbers and do not accurately represent every property within that neighborhood. There are many factors that could result in a particular investment property being much better or much worse than the average metrics for that neighborhood or side of town. 

 

To get a look at what small multifamily properties are available in Chicago right now, visit https://www.thechicagohomesource.com/investments/

 

For a more in depth analysis on each individual property in Chicago as it becomes available, click here!

 

_________________________________________________________________

 

Let's get into the numbers! Before we get into the costs of the buildings themselves or any other more complex stats, perhaps it's best to start with the rents that you could expect in each of the different north side Chicago neighborhood. This is important because, depending on what the layout is of bedroom count per unit, the rent the building is receiving will obviously determine the amount of revenue it's bringing in and how good of an investment it is. They all follow a similar, common sense pattern of 2 beds renting for more than 1, 3 more than 2, and so on. Safe to say that 4 bed rent for the Near North Side is a bit of statistical outlier, but, there are quite a few of those apartments seeing that rent though they are likely in bigger high rises.

 

Below is a breakdown of the cost of the buildings themselves, first of 3 flats and then of 4 flats, in the various neighborhoods within the North Side. You would expect the cost of a 4 unit to be much higher than a 3 unit since it is adding more potential revenue to the bottom line, however the increase we see is not necessariy in step with those expectations.

 

Cap rate is one of the most useful and prevalent metrics used by real estate investors. It is found by dividing the net operating income (gross operating income - operating expenses) by the cost of the building. Methods of financing do not change this number. This is not to be confused with "cash on cash return", which focuses on the amount of money you actually put into the deal. Using the assumptions of expenses mentioned above, this is the average expected cap rate per neighborhood for 3 unit properties (blue bars) and 4 unit properties (red bars).

 

Another metric that is popular in some investing circles, made famous by real estate investing community and website BiggerPockets.com, is called "The 1% Rule" which measures the percent that a building's monthly gross income is to it's purchase price. Though this more of a "guideline" than a rule, it can still be an interesting and useful means of comparison. Here is how the north side neighborhoods on average stack up to eachother on this metric. In general, 4 unit buildings tend to have more bang for the buck, but are also quite a bit more rare to find.

Real estate investing is of course about more than just monthly cash flow. It is also about building equity in an asset based on that asset's appreciation over time. Therefore, the growth rate of a given area is a very important figure to consider. Below you'll see the growth rates of small multifamily properties annualized over the past 5 years (blue lines) and the growth rate of just the past 12 months as of the collection of this data (red lines), all broken down by north side neighborhood.

 

Growth rates on the north side in general tend to be relatively low, but steady. Unless you can find a rare fixer upper opportunity, usually investing in the north side is not a big appreciation play. Lincoln Park did have a surprisingly big movement in the past year, but I personally would expect that to regress back to the mean.

 

 

Summary: The north side has the highest barrier for entry on average in terms of price, but that also comes with the highest average rents in the city as well. Appreciation and cap rates are also comparably low, but areas tend to be more developed, taken care of, and less deferred maintenance for more stable assets. 

 

 

 

Posted in Guides
Sept. 15, 2021

Ultimate Guide To Multi-Family Properties In Chicago

By Jake Lyons, TheChicagoHomeSource.com / BHHS Chicago

 

 

If you’re reading this, odds are you are at least somewhat aware that investing in real estate is one the most surefire, tried and true routes to all kinds of financial freedom and wealth building. Whether you are working on your 1st property or your 1,000th, you will get something out of this report. 

 

As a former Series 7 licensed financial advisor, I am a big believer in real estate’s unrivaled power as an investment vehicle in terms of building equity, creative passive cash flow, reaping tax benefits, and so much more. I am also a bit of a nerd when it comes to the numbers. As my slogan suggests, I believe in being “data-driven and well-informed,” especially with something as potentially high stakes as investing in real estate.

 

There are many paths you can choose, of course. Fix and flip, buy and hold, BRRRR,  single family, 2-4 units, 5+ units, different areas, price points, features, etc. I may get into all of these topics in due time, but this article is geared at those specifically looking for 2-4 unit, buy and hold opportunities and considering doing so on the north side of Chicago (other parts of the city are coming soon!)

 

My goal with this project is for it to be nothing short of the most thorough and helpful guide available for buying and selling 3-4 unit properties in Chicago! In this article I break down each section of the city (north, northwest, west, southwest, south, far south) and how they all compare to eachother from an investor’s perspective. 

 

From there, each of those sections of the city is similarly broken down by neighborhood. 

 

My team and I have spared no expense or time to gather I believe the most comprehensive set of data that covers just about any metric most buy-and-hold multifamily investors will care about, with over 6,000 combined data points breaking each neighborhood down in terms of sales and rent prices, appreciation rates, average cap rates, revenue, cash on cash return, 1% rule, and more. 

 

Methodology: The data referenced in this report is taken from various sources (MLS, InfoSparks, NAR, Rent-O-Meter, etc) and is based on the averages of a given metric such as sales price or rent rate in each specific neighborhood. All data is from properties closed or rented from the mid-point of 2021 through the midpoint of 2020, with data going back 5 years for appreciation estimates. 

 

Assumptions used: 8% vacancy rate, 8% management fee, 10% combined savings for maintenance and Cap Ex, property taxes at 1.5% of purchase price, insurance at 0.3% of purchase price, 20% down payment, 4% interest rate. Rehab estimates are not a part of these calculations. Do your due diligence. 

 

How to use this guide: Use it as a measuring stick. An apples to apples comparison from a very big picture view. Use it as one tool in your toolbag to help guide decisions on what areas you might want to focus more time on and what realistic goals might look like. 

 

How NOT to use this guide: Do not use this guide as a substitute for doing your own due diligence on individual properties. These figures are based on averages from large sets of numbers and do not accurately represent every property within that neighborhood. There are many factors that could result in a particular investment property being much better or much worse than the average metrics for that neighborhood or side of town. 

 

To get a look at what small multifamily properties are available in Chicago right now, visit https://www.thechicagohomesource.com/investments/

 

For a more in depth analysis on each individual property in Chicago as it becomes available, click here!

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Aug. 18, 2021

To Sell, Rent, Or Re-fi? Guide To Monetizing/Exiting Your Property

Let’s assume that, for whatever your personal reason may be, you have come to a realization that you have a property (house, condo, multi-unit, etc) and you need to do something with it. Whether you’re looking to move, you want extra income or a cash infusion, you can no longer afford payments, you inherited something you don’t want or can’t care for, you are looking to upsize or downsize, or a mix of things, this is where you are. 

 

Okay, now what? What are your options? Who do you talk to? 

 

I’m going to attempt to provide, if not the exact answer, then at least a guide to lead you to it. 

 

To arrive at the right answer, we must begin with the right questions. 

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