For many, the New Year is a time of reflection. But it is also a time of planning. While most of us won’t stick to our resolution to go to the gym twice a week or to cut down on those sugary snacks, it’s still good to use this time to set business goals for the year ahead. The trouble is, we are somewhat at the mercy of the real estate market when it comes to putting plans into action. The Chicago property market experienced a choppy 2017 and next year may be no different. So before you can set goals to grow your investment businesses, you need to decide whether you should invest in Chicago real estate at all.
Factors That Influence Whether You Should Invest in Chicago Real Estate in 2018
As one of the country’s largest metropolitan areas, the Chicago property real estate market is complex and diverse. The fluctuations we saw in 2017 alone show you how tough it can be. While the 30,000-foot view of the market that you find in some newspapers may be fine for your ‘average Joe’ home buyer, it’s not enough for serious real estate investors. You need to drill deeper into local trends if you want to know what the market holds for the year ahead.
Here’s what we are seeing now:
Multi-family Market Slowdown
All signs point to the multi-family market turning stale in 2018. Thousands of apartments are still under construction, with 12,000 in total expected to hit the market between the end of 2017 and the end of 2019, according to Appraisal Research Counselors. Worse still, we already see signs of saturation. Median rent for Chicago apartments fell for the first time in September of 2017. The only niche that might remain unaffected by the flood of new apartments is smaller buildings in the suburbs. New construction there has remained spread out so saturation is minimal while vacancy rates are low and rents are predicted to rise. I’d personally avoid the multi-family market unless you can find a great deal outside of the city limits.
The Millennial Attraction
If you’ve already got a couple of Chicagoland properties in your rental portfolio, I’ll bet my ‘76 Corvette that at least one is being rented out by a Millennial. That’s because the city is a hotspot for this younger generation. Chicago is continuously ranked as the top metro for corporate investment and, as more businesses move to the area (including, possibly, Amazon), Millennials will follow in droves.
Millennials already make up a large portion of both Chicago renters and buyers—and they will continue to be your target market. As those Millennials are cresting 30 and starting to settle down, we should also see Chicago’s suburban market continue to strengthen and demand from first time buyers increase. Last year, alone, 43% of Cook County mortgages were taken out by under 35s. This may give investors who have been used to investing in the Chicago Loop and the surrounding areas pause for thought. While the suburbs don’t have the high rents that come with the city center, the prospect of significantly increasing demand—and therefore a rise in prices—is tempting. Opportunity should abound in the suburbs where you can find cheaper, distressed properties to buy, renovate and rent.
Taxes on the rise
It’s equally important to be aware of trends that have yet to happen. That’s why I’m already thinking of the impact of Illinois Senate Bill 9 and Cook County tax hikes. As a result of this bill, many residents will be hit with higher property taxes. These legislative measures are going to put a serious strain on homeowners in an area that is already ranked third for the percentage of homes in negative equity.
Distressed properties only made up 7.5% of all single-family transactions in August 2017, but this could grow significantly in the year ahead. If they do, expect to find the best investment opportunities in older, more established neighborhoods as a result of the impact of increased Chicago property taxes. While this is terrible news for homeowners, investors will find that these neighborhoods are the perfect place to invest in a new property.
Help Finding Investment Homes in the Coming Year
In answer to the original question, I see very clear potential in the distressed property and single-family suburban markets in Chicago in 2018. In particular, I’d keep an eye on buying, renovating and selling to first-time Millennial home buyers. The strategy will be being able to spot a diamond in the rough—a great value distressed property. Luckily, because I’m an independently owned and operated HomeVestors® franchisee, this couldn’t be easier. I have tools, like the proprietary ValueCheck® software, to value suitable properties for optimal returns.
If you are looking for exceptional resources to back your Chicago investments this year, reach out to HomeVestors® today.
Each franchise office is independently owned and operated.