Bad Neighborhoods Versus Good for Investment Properties

Bad Neighborhoods Versus Good for Investment Properties

In real estate location is everything, so when it comes to buying an investment property do you buy in only good neighborhoods or will you buy bad neighborhoods too.  Both have their advantages and when it comes to the city of Chicago there are plenty of both.  You can analyze the deal, look at things like cap rate and a bunch of other calculations but at the end of the day how do you balance the risks and rewards.  Let’s analyze bad neighborhoods versus good for investment properties.

The Perks of a Good Neighborhood

Owning property in the Edgewater or the Humboldt Park neighborhoods of Chicago comes with its own perks, it is easy to rent to good long term tenants.  The neighborhood has everything your tenant could want and in general you don’t have to worry about damage to your property.  Your tenants can easily pass a credit check and they will stay for the duration of their lease with no fuss.  Generally when tenants leave they either move to a new city or buy their own homes.

The drawbacks to this neighborhood are that the price to buy is much higher, the prices can be near double of other neighborhoods but rents are not.  Finding property can be difficult and there is increased demand in desirable areas meaning more competition when a property does come up.  Cash flow can be a problem as purchase price and market rent don’t make for a great cap rate.

High Risk Areas

Many property owners are skeptical about buying in low income areas they see it as more trouble than it is worth, but that doesn’t have to be the case.  To start with the prices are low and usually there is a pretty decent amount of inventory.  That being said you don’t have to buy into the absolute worst neighborhood in Chicago there are some low income neighborhoods that don’t necessarily have the same crime rate as others.  Turnover can be higher and you may have to deal with tenants damaging your apartment more often.  You will also have to deal with evictions and not being paid the rent on time.  That is enough to scare many investors off.  Here is a look at buying property in a low income area.

Buying investment property here does have its perks however.  As we mentioned price and inventory are usually good and you can probably snag some good foreclosures.  In business cash flow is king and in low income neighborhoods you can generate great cash flow.  If after expenses your monthly costs on a single family rental is $450 and the market rent is $900 that is a handsome profit off of just one unit.  If the thought of maintaining the property seems like too much hassle then use a property management company to look after it for you and simply collect your money.

Investing in the Chicago Real Estate Market

Investing in the Chicago Real Estate Market

More millionaires have built their fortune in real estate than in any other line of business.  Investing in real estate makes sense, people will always need a place to live and to work and as the saying goes they aren’t making any more land.  When it comes to real estate investing then location is everything and one of the better markets to sink your hard earned dollars is in Chicago.  Investing in the Chicago real estate market is a great idea, there is prime real estate and the city has a growing economy, you can drastically increase the value of your investment in only a few short years.

Where to Buy

Before you start scanning the MLS listings for an investment property you need to take some time and think about what you are looking for.  Before you start looking you need to have answers to the following questions:

  • Location: Location is everything in real estate so you need to look at various neighborhoods throughout the city and decide where you can get the most bang for your buck
  • Market: This ties in closely with location but how is the local market doing, it can vary drastically.  Is the city thriving and doing well, is that particular neighborhood on the rise or on the decline.  Look closely at market conditions.
  • Money: Most investors don’t pay cash for their properties they are financed, however the rules are different for investment properties and you’re going to need a bigger down payment.  You will need to analyze how much capital you will need to get into the market.
  • Type: Are you looking for multifamily rental property or some distressed properties where you can make some money doing a quick flip?  The answer leads into our next point.
  • Management: Are you going to look after the property yourself or hire a management company to look after it.

Find an Agent

If you’re not a local real estate agent yourself who understands the Chicago market then you need to find one.  A good agent is absolutely invaluable when it comes to finding properties and connecting you with other investors or service providers in the real estate industry.  They can also help you at the negotiating table if negotiating isn’t a big part of your skillset.

Investing in real estate can be a lot of work, you need to do some thorough research before you make an offer on a property.  At the same time you need to act quickly or you can risk losing the deal.  It’s all worth it when you start seeing positive changes in your bank account.