Investiment in rental properties best area west burb? (Chicago, Aurora: for sale, apartments)

[hj630]

I used to rent near I88 and State 59. It has apartment below 80k for sale and rent can be 900/mo. But I do see lots of empty apartment there so I guess its not a popular area. I'm now looking for some investment rental properties around the west suburb, which ideally close to Naperville where I live so I can manage it myself. And my budget is 100k. Appreciate if you can give some input, like the popular area I should be looking at. I hope the area can be popular with renters and not in ghetto area. Hope this is not too much to ask
Thanks

[chet everett]

I have some experience as a landlord, though I generally rented out single family homes. That said, I do know some folks that have done pretty well with mid-sized / smaller multi-family properties, it is vital to find the kind of units that will be attractive to tenants with solid ability to afford what you are offering.

If you focus on safer locations, with good access to transportation, you are probably better off than straying into the more challenging areas. Depending on what you expect to get from your investment there are probably some decent options in all kinds of towns that are close to Naperville but the vacancies you've noticed are the sorts of things that LARGER property management firms driven by REIT investors can tolerate but will KILL a little guy. For this reason it may be smart to try to find a property that has more of niche appeal -- something in the heart of West Chicago might seem undesirable to folks that can't see past the negatives, but it also have good access to the UP-W line and pretty solid demand from folks working at Fermi on a temporary basis (and despite much the cutting edge high energy physics shifting to other labs there are still MANY interesting activities at Fermi that attract short term renters...). A similar arguement could be made for finding a decent spot near downtown Wheaton, where its fairly nice downtown is increasingly attractive to empty nesters, the various commuters that like access to UP-W line or a quieter alternative to Naperville as well the need for temporary accomodations for part time faculty and grad students at Wheaton College. Nearly identical arguement for units near the core of Elmhurst, River Forest and Oak Park. Very similar case can be made for Westmont too.

Of course in any of these situations you really must be careful to understand how the rental markets work for folks that may want a shorter term lease as well as what sorts of people are most likely to be renters in an environment where low interest rates make ownership relatively easy. Take a page from the books of the big property management firms that increasingly are offering renters the option of furnished units that make it very easy to move in, ensure the place has multiple options for high speed internet, good parking, etc...

[ToriaT]

Its very hard to find an apartment building, ie a two or three flat in that price range, unless you are talking totally ghetto. At the height of the housing crash you might be able to find some. If by "apartment" you mean condo, you can certainly find something around that price, even so most modest condos near Naperville will go for at least 100 k if not more unless they are a total dump and have to be rehabbed. Then you have the association fees which eat into your profits. If you have a mortgage, I don't see how you could really make any money and most of the places you are talking about in that area have no real solid investment value in the Fox Valley where they build hundreds of lower budget units in places.

I looked yesterday at Redfin in response to someone else asking a similar question and most two flats were going for at least mid 300 if not 400 or more. Even in Berwyn and Cicero the prices are now mostly higher than 200 k. Occasionally you will find something but it probably is not immediately rentable but will need work.

[hj630]

Sorry, I mean one unit, not a whole building. And the one I used to rent is on 5s070 pebblewood ln, naperville for some reason, it doesn't attract renters even thought its by I88 and 59. And the owner I rented from seem like to want to sell than rent. So it probably an indication that's not an ideal place to buy and rent. I just used redfin, and there seems like lots of options for units under 100k so I guess my question is what part of west burb will be more attractive renters, or what type of features will attract renters. Escpecially long term renters with stable incomes.

[hj630]

This will be my first rental property so I want to hear lots of opinion so that I wont end up with a empty condo with mortgage and hoa due...

[ToriaT]

Places that are convenient to trains and highways for one. Anything near 1 88, I mean a lot of this is common sense. You are asking some square one questions so maybe you need do some more looking through the boards here, there have been many past discussions on various burbs and their attributes. I would also suggest you look at some rental sites like hot pads, etc to see what places look like on the outside and inside and see if what you have in mind compares favorably to that. If a person can get a nice place for rent on hot pads why would they rent something that may not compare favorably?

[BRU67]

Originally Posted by chet everett

I have some experience as a landlord, though I generally rented out single family homes. That said, I do know some folks that have done pretty well with mid-sized / smaller multi-family properties, it is vital to find the kind of units that will be attractive to tenants with solid ability to afford what you are offering.

If you focus on safer locations, with good access to transportation, you are probably better off than straying into the more challenging areas. Depending on what you expect to get from your investment there are probably some decent options in all kinds of towns that are close to Naperville but the vacancies you've noticed are the sorts of things that LARGER property management firms driven by REIT investors can tolerate but will KILL a little guy. For this reason it may be smart to try to find a property that has more of niche appeal -- something in the heart of West Chicago might seem undesirable to folks that can't see past the negatives, but it also have good access to the UP-W line and pretty solid demand from folks working at Fermi on a temporary basis (and despite much the cutting edge high energy physics shifting to other labs there are still MANY interesting activities at Fermi that attract short term renters...). A similar arguement could be made for finding a decent spot near downtown Wheaton, where its fairly nice downtown is increasingly attractive to empty nesters, the various commuters that like access to UP-W line or a quieter alternative to Naperville as well the need for temporary accomodations for part time faculty and grad students at Wheaton College. Nearly identical arguement for units near the core of Elmhurst, River Forest and Oak Park. Very similar case can be made for Westmont too.

Of course in any of these situations you really must be careful to understand how the rental markets work for folks that may want a shorter term lease as well as what sorts of people are most likely to be renters in an environment where low interest rates make ownership relatively easy. Take a page from the books of the big property management firms that increasingly are offering renters the option of furnished units that make it very easy to move in, ensure the place has multiple options for high speed internet, good parking, etc...

Good points Chet. A lot of small investors get pie eyed and only look at the "big money" areas. You're already disadvantaged when you do that because there are few affordable rental buildings because properties tend to be better maintained in desirable areas, and a lot of the "white flight" suburbs discovered the joys of restrictive zoning. You think the people who founded places like Wheaton and Naperville wanted to have a lot of apartments around after watching what happened in their old City neighborhoods? LOL! Right.

And not only that, these areas draw the big fish. You do not want to be in the pool with the big fish. When an affordable building does come up, the big fish will easily beat the small guy down by paying more than the ask, waving the full selling price in cash in the seller's face, agreeing to forego the pre-purchase inspection contingency and close next Tuesday, or all of the above. The little dude's modest little contract for 90% of the asking price and pre-purchase structure and termite inspection contingency will find its way to the nearest trash bin in short order.

The big fish also wants to hit the granny. So if it's a down 'n out building in a hot area, he will gladly pay more than a building is currently worth, take it as-is, sink a lot of money into it, and then cover the negative cash flow for a few years. Or alternatively, if the area is nice enough, he'll just turn it into an SFH, or rip it down and build an SFH.

The prudent small investor needs one where there's a high demand for rentals, "turn key" rental buildings which have been maintained, and purchase prices low enough to put him in the black right away. Your Wheaton idea sounds good on paper but good luck in real life. West Chicago could be like that though, and maybe Aurora. Closer in, places like Berwyn and Cicero are almost completely off the rental investor radar and have a lot of 2 and 3 unit rental buildings. None of these places are sexy, but to get a good deal (defining good deal as positive cash flow and a good renter pool) you're probably going to have to look in places that the big money is ignoring.

And if you're going to furnish units as you suggest, I'd also look at Airbnb. I'm experimenting with this a little now and finding it pretty easy to get people in, at least into my Tri-Taylor building. Not sure if you'd have similar success in a place like WeGo or Aurora, but if it was near a commuter train line, perhaps.

[ToriaT]

You can't afford to buy some of the buildings in the better suburbs and make the numbers work. Prices are just way too high. And to get an apartment building that has a larger number of units, you have to pay a lot of money. I've seen buildings even in Berwyn for 800 k.

There are some savvy small time investors in places like Berwyn. My next door neighbor that I only met once told me he owns quite a few buildings, maybe he said six or so in Berwyn and he rents them out. He was looking to buy my building when it was for sale but he said it was too expensive for him. I don't know about Cicero, there are probably people doing the same thing there.

The OP said he was talking about a condo at a very low price point. Very hard to find a good condo for that, it could be possible but it might need a lot of work. If your mortgage is 800 and your HOA fee is 400 (not uncommon in these older places) how do you make any thing to keep up the maintenance and pay the taxes on the unit? The numbers just don't work well.

[hj630]

I found some potential condos in downers grove near the metra. Both are 20 mins walk from metra.


A: 2bed, monthly payment 150$ lower, including HOA, mortgage etc. No ammenities
B: 1bed, community include pool, tennis court, near trail.


I'm wondering if anyone have opinion in the renting market in that area and helpful suggestion on which one I should look into more.
Thanks,

[chet everett]

One the "driving forces" shaping the rental market in Downers Grove is the explosive growth at Midwestern University. If the places you are considering have things like good access to their campuses (split between the main site on 31st east of Highland and the clinical site west of Finley Rd) and designated / covered parking that might be more important to med / pharm type students who generally will not need to head into the Loop...