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 2018 and this 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 2019
As one of the country’s largest metropolitan areas, the Chicago property real estate market is complex and diverse. The fluctuations we saw in 2018 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 Holding On
The multi-family market is starting 2019 strong, but with thousands of units still in the pipeline, it may see supply overtake demand before the year is over. Rents are on the upswing, after falling sharply in mid-2018. That rise was strongest in Class A and weakest (0.8%) in Class C. Absorption exceeded completions in 2018 for the first time since 2015. But deliveries have been high in recent years, and more apartments are expected to be delivered in 2019 than in 2018, while job growth is slowing. The previously hot suburban market is already seeing a slowdown, even as it is expected to add 3,000 new units in 2019, and there are 1,300 more units in the pipeline after that. While this isn’t quite a recipe for disaster yet, I’d be nervous about investing in Chicago multi-family property this year.
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, Millennials will follow in droves.
Millennials already make up a large portion of both Chicago renters and buyers. New demographic research shows that the West Loop has the highest concentration of Millennials in the country, and several other inner neighborhoods rank in the top 20. They will continue to be your target market as they are cresting 30 and starting to settle down. We should also see Chicago’s suburban house market continue to strengthen and demand as these Millennials become first-time buyers. 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 or sell.
Taxes on the rise
It’s equally important to be aware of trends that have yet to happen. Home sales on the traditional market are expected to slow down nationwide as interest rates continue to rise in 2019, but Chicago can buckle down for the double whammy of sales slowing four times more than the U.S. average and prices dropping by 2%, according to Illinois Policy. The culprit? Illinois homeowners have the highest tax burden on the country, and the second highest property taxes. Distressed property sales hit a post-Recession low in August 2018, at under 5%, 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.
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 2019. 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.
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