condo investment market (Chicago: real estate, apartment, foreclosure)
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For a while now I have been bouncing around the idea of getting into the landlord business and Chicago is looking like a future destination for me and I have been studying different neighborhoods and getting a better understanding on a number of different markets there.
The market that I have been looking into lately has been condos and was curious if anyone on here been investing in condos or know of anyone who has been? Also, is there better areas or areas to stay away from that should also be noted?
Been looking at the foreclosure lists as well as regular market lists and it is looking like the prices of condos are returning back to their normal numbers before the bubble, and I basically want to hear your guys' feedback on the topic.
I don't invest in these but I do try and keep up with real estate news. You'd have to think of places that are growing or primed to grow. I think these areas are Near North Side, specifically River North area and north of there through what was once Cabrini Green...then maybe even parts of the south loop, parts of Wicker Park/Bucktown, Logan Square, etc.
I think in the coming years you will see more construction around where Cabrini Green once was. In fact, they have just started construction of a target near there. I know there were plans last summer for condo high rise buildings near it. A lot of construction now seems to be apartment units though, although I believe some of the big buildings are mixed use. With 3000 units under construction "downtown" right now, plus Wolf Point getting headway, and the former Waterview site, more people will be moving downtown (you hope at least). You can still get some condos for a decent price for the location in areas like Gold Coast and River North. If all this construction brings more people and business here, you'd have to think that the real estate prices would rise. With Google relocating 2000-3000 employees from the suburbs to Merchandise Mart by this summer, you'd think that some of this will be reality. Obviously that's not enough people to make full on HUGE growth but it's a start IMO. I think companies are continuing to look at expanding their presence in the downtown areas yet again.
Within the last few days I've also seen a few new plans for a few new South Loop buildings. Right now there's a 100 unit rental place going up in Wicker Park, and some new plans for buildings in Logan Square and Lakeview near the Belmont stop.
It still seems to me though that things are kind of unsteady still. I think things can look up of course and there's some real bargains in this city in areas if you know where to look. If you are really good at predicting growth, it can become good for you, but if not then it could be not so good.
I cannot stress strongly enough how condos are worse than either single family homes ( where you can control so much more of the value because there is no HOA or other restrictions) OR a smaller multi-unit building where you can often turn positive cash flow from renting out 4 out of 6 units and when either owner occupied by so much cash ahead that it makes a condo seem like a money devouring beast by comparison...
There is a crazy tendency for new condo buildings to DEPRESS the selling price of existing nearby units -- people want "new new" not "used to be new". There are similar trends with rent too -- all the shiny new appliances and bathroom toys that a brand new unit come with ALONG WITH all the "shared common elements" having a never been a used sheen to 'em means renters pay lots more than even a place that you put good quality updates into...
It is a losing battle that gets worse as the condo gets more renters too-- the absent landlords never want to spend more on maintenance than the absolute minimum and soon the "free" health club needs to charge additional monthly fee, the in building grocery and dry cleaner go vacant and the whole place gets a pall on it. Rents fall. Tenants slide from young professionals to retires and transferred that get out as quick as their lease expires...
Last edited by chet everett; 01-30-2013 at 10:49 PM..
I don't invest in these but I do try and keep up with real estate news. You'd have to think of places that are growing or primed to grow. I think these areas are Near North Side, specifically River North area and north of there through what was once Cabrini Green...then maybe even parts of the south loop, parts of Wicker Park/Bucktown, Logan Square, etc.
I think in the coming years you will see more construction around where Cabrini Green once was. In fact, they have just started construction of a target near there. I know there were plans last summer for condo high rise buildings near it. A lot of construction now seems to be apartment units though, although I believe some of the big buildings are mixed use. With 3000 units under construction "downtown" right now, plus Wolf Point getting headway, and the former Waterview site, more people will be moving downtown (you hope at least). You can still get some condos for a decent price for the location in areas like Gold Coast and River North. If all this construction brings more people and business here, you'd have to think that the real estate prices would rise. With Google relocating 2000-3000 employees from the suburbs to Merchandise Mart by this summer, you'd think that some of this will be reality. Obviously that's not enough people to make full on HUGE growth but it's a start IMO. I think companies are continuing to look at expanding their presence in the downtown areas yet again.
Within the last few days I've also seen a few new plans for a few new South Loop buildings. Right now there's a 100 unit rental place going up in Wicker Park, and some new plans for buildings in Logan Square and Lakeview near the Belmont stop.
It still seems to me though that things are kind of unsteady still. I think things can look up of course and there's some real bargains in this city in areas if you know where to look. If you are really good at predicting growth, it can become good for you, but if not then it could be not so good.
I forgot about the Google move and good point about new developments in the old Cabrini Green area. The two areas that I have been looking at right now have been the Edgewater area near the college that is up there as well as the Buena Park area simply because the Cap Rate seems to be decent and the costs for units seem to be low enough that I might be able to pay for 2-3 of them with cash and not have to worry about financing. Though at the same time, I could look at spending what I would of spent in these two areas and use that money to finance more expensive properties that might have a higher rental price.
I cannot stress strongly enough how condos are worse than either single family homes ( where you can control so much more of the value because there is no HOA or other restrictions) OR a smaller multi-unit building where you can often turn positive cash flow from renting out 4 out of 6 units and when either owner occupied by so much cash ahead that it makes a condo seem like a money devouring beast by comparison...
There is a crazy tendency for new condo buildings to DEPRESS the selling price of existing nearby units -- people want "new new" not "used to be new". There are similar trends with rent too -- all the shiny new appliances and bathroom toys that a brand new unit come with ALONG WITH all the "shared common elements" having a never been a used sheen to 'em means renters pay lots more than even a place that you put good quality updates into...
It is a losing battle that gets worse as the condo gets more renters too-- the absent landlords never want to spend more on maintenance than the absolute minimum and soon the "free" health club needs to charge additional monthly fee, the in building grocery and dry cleaner go vacant and the whole place gets a pall on it. Rents fall. Tenants slide from young professionals to retires and transferred that get out as quick as their lease expires...
Thanks for the info, as long as the rate of return and the Cap Rate is high enough, many of these issues aren't that much of an issue as they are a profit.
Ideally, I am starting to look at condos in the sense of purchasing a number of them to create a positive cash flow that will allow me to have some equity and landlord history when I go to buy actual multifamily buildings or if I am lucky enough a small commercial residential building that I can actually manage. But, something like that is still too far off and something I would want to do when I am actually planning my move to Chicago. Right now it is much easier for me to only have to deal with units within a building than having to deal with a whole building while living in a different city.
You are far better off buying small two to four flat type buildings. The maintenance fees on condos will eat up your profits and in many cases you will run into problems with condo boards that are inevitabley biased against renters even if they allow them. Also there is no guarantee that there will not be major assessments you face as a condo owner. You plan is not really sound.
Just remember to do your homework on any building before buying to make sure there aren't any restrictions or fees that may impact your rental.
1. Many condo buildings have a limit on the number of units that can be rented out at one time. Sometimes the cap is 25% of the units, my friends'building only 3 out of 20 units, and the rare case of no rentals allowed. I haven't seen those in Chicago, but in some of the western states, co-ops, and age 55 plus findings.
2. Move-in fees: many of the larger elevator buildings have them for both move-in and move-out and for as high as $500 each time (mostly I've seen them in the $200-$400 range). If the building has them, who will pay them, you or tenant?
3. Check if the building has any upcoming special assessments: a charge for new elevators, redoing the lobby, tuckpointing, or a new roof may wipe out your potential income for a few months.
4. Luckily you don't have to worry as much about monthly assessments since you're paying cash and won't have a mortgage. People who have a mortgage and pay assessments (usually someone who lived in the unit and moved on but didn't/couldn't sell) often turn no profit or negative cash flow, as they are paying someone to live there.
Most of these potential issues can be avoided if you research any potential buildings, read condo bylaws, and look at certain types of buildings. You may get around special assessments if you buy newer or recently rehabbed buildings. Move-in fees are not as common in smaller 3 and 4 flat or under 20-25 unit buildings. These issues may also be lessened by buying a block of units in a single building as was mentioned earlier.
Cool, thank you for the points, I was curious how many of the larger buildings functioned. I hadn't heard of move-in fees before. Every city does things differently.
Along with move in/move out fees , there's the Chicago Landlord Tenant Ordinance, which you will probably be subject to Suggest reviewing this thoroughly , and getting familiar with the Chicago Landlord Tenant dynamics in general ..if you review some past posts , you could conclude that it's a real PITA to get rid of a problem tenant . Might be wise to retain a local attorney to review lease documents to use, etc as you get started .. some of it could be DIY eventually, but ..
Along with move in/move out fees , there's the Chicago Landlord Tenant Ordinance, which you will probably be subject to Suggest reviewing this thoroughly , and getting familiar with the Chicago Landlord Tenant dynamics in general ..if you review some past posts , you could conclude that it's a real PITA to get rid of a problem tenant . Might be wise to retain a local attorney to review lease documents to use, etc as you get started .. some of it could be DIY eventually, but ..
Thank you, definitely something I plan on reading over and learning more of when I am getting closer to buy.
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