Years ago, I use to run around town trying to find the best deals on distressed homes for sale in Chicago. As a new real estate investor, I followed every lead and took advantage of every opportunity to gain access to more. I still see investors running themselves ragged for bargains today. It seems nothing much has changed since then. Well, except for the way I do business. I no longer chase leads on cheap Chicago houses. My investing style has evolved and, with it, the size of my portfolio.
In a talk I gave to a group of novice investors at the Harold Washington Library Center recently, I summarized the options many newer real estate investors rely on when hunting an attractive investment opportunity–including me, way back when. Then I outlined the one that won me over. If you’ll indulge me, I’ll recap a few details here.
Locating Chicago’s Best Distressed Homes for Sale
Buying distressed homes for sale in Chicago should be easy, in theory. Chicago was hit pretty hard by the housing crash and is home to residents still in financial recovery. But with the increased inventory came an upsurge in investor competition. And, since Chicago’s economy seems to be on the mend, the best real estate investment deals might look like a thing of the past for many.
Except, looks can be deceiving. In fact, the deals are there and many are finding them through local government programs. Below is a brief sketch of the most reputable and heavily relied-on organizations that help local real estate investors buy properties cheap.
- Cook County Land Bank Authority (CCLBA). As long as you have enough working capital and on-hand professionals who can complete projects within tight, fixed time-frames and under strict guidelines, the properties for sale through Cook County Land Bank is not a bad place to find a good deal. The CCLBA gives investors access to affordable properties in 13 of Chicago’s long-suffering neighborhoods. The organization clears titles, simplifies fees, and offers fast closes on distressed or forfeited homes obtained with donations, grants, and transaction revenues. But these properties come with a catch. If you don’t rehab the house under the stringent conditions placed on it, you could lose your entire investment.
- Chicago’s Forfeiture Program. If you can prove investing expertise and financial competence, outline renovation plans and costs, and provide a detailed schedule of compliance, you might win a property through Chicago’s forfeiture program. The state-funded program sues homeowners whose properties are so run-down they are unsafe for occupancy. It then makes these homes available to investors for rehabilitation. However, several conditions have to be met for a property to qualify before the case can even be presented to the court. Then, if the case isn’t contested by the owner or a lien-holder, and you’re issued the deed, be prepared to follow the schedule of compliance to the letter. Not doing so could spell court-ordered F-E-E-S.
- City-Owned Properties. These properties are often sold to investors at below market value when renovations adhere to the city’s objectives for community development. You can buy a city-owned property in Chicago through the Department of Planning and Development (DPD) provided you show enough experience and funds to get your application approved. Unfortunately, approval can take months. If and when you’re given the green light, you may still have to contend with other buyers after the DPD publishes the proposed sale to solicit higher offers. If, after 30 days, no one beats your price, the house is yours. Though just when you think you’ve won, Chicago’s Monitoring and Compliance Division will be there at every step to withhold your trophy, and assess penalties, if your project fails to meet the city’s rehab standards.
- Cook County Sheriff’s Sale. About 10% of foreclosed properties that go to auction are sold at the Sheriff’s Sale, according to the Cook County Sheriff’s Office. The number of sales varies by month and you’ll have to check their website for addresses and auction dates. If you have the time–and cash–you might get a bank-owned property that’s a steal. Note that if you’re the highest bidder, you’ll need to pay a 10% deposit that day and the balance within 24 hours. If that sounds daunting, don’t worry. The chance you’ll win the bid is slim. There’s always a minimum price the plaintiff will accept, there is stiff competition among bidders, and sometimes the bank even bids to buy the property back. And with little-to-no opportunity to inspect the house beforehand, buying one of these homes could be committing a crime against your wallet.
- The Judicial Sales Corporation. The other majority of lender-owned properties that go to auction are sold through the Judicial Sales Corporation (TJSC) in the foreclosure sale room. The TJSC serves over 350 law firms throughout the state by holding daily afternoon auctions on homes the owners could no longer afford. Sounds like a potential jackpot of bargain buys, doesn’t it? Unfortunately, you won’t likely get to perform an inspection prior to bidding and the quality of title is not guaranteed. You also won’t get a refund if you change your mind. You will get to provide a 25% deposit upon winning and pay the balance in full within 24 hours–not exactly a win-win if you ask me. TJSC recommends you also bring an attorney with you. I recommend you skip these proceedings altogether.
Collectively, these programs appear to afford the patient and tireless investor with several opportunities to acquire the best real estate investments in town. However, there is a less risky, and less stressful, way to build a successful investing career in Chicago than by running your patience and time into the ground. By buying properties directly from distressed homeowners before foreclosure, you both stand to benefit–and without any government red tape.
But how do you find distressed homeowners when they’re ready to sell?
The Best Way to Generate Leads on Distressed Homes
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