If you are not from the Chicagoland area, you may not understand the uniqueness of the South Side of Chicago. Many investors look at and find Chicago investment property on the southside because of the much lower cost of entry, but then realize that it is harder to find good Chicago property management services in those areas. Many of the well known property managers in Chicago work in areas like Lincoln park or the West and South Loop, where residents often have credit scores in the high 600' or even 700 hundreds and have jobs making $80k to a few hundred thousand a year and screening tenants for residential properties is easy. These companies that focus on the north side lack the local market expertise to successfully rent out single family homes or multi-family buildings in the South Side of Chicago.
So why do real estate investors find the South Side of Chicago so intriguing?
1. The cost of buying investment properties in the South Side of Chicago is much lower than in most areas of the country: you can still find a single-family home for under $200k when the average home price in America is currently in the $400k range.
2. Because of the risk of bad tenants not paying rent in the South Side Chicago area, the rent prices are often inflated compared to other places with similar rental home prices. If things go right, you can have much more cash flow than in different areas of Chicago and the rest of the country.
3. Despite the low price to buy and high price to rent, many investors who do not hire good property managers on the South Side of Chicago own property for a very short amount of time before selling. This means there is a lot of turnover and a lot of homes available even when inventory is as tight as it is now.
So why do investors fail, and how can you succeed investing in the South Side of Chicago?
1. The buildings in these areas were often built in the early 1920s and have a lot of history: think about how Al Capone lived in the neighborhood, the Chicago fire, and other events you have read about. These homes have lived through this, which means maintenance requests and deferred maintenance costs can be much higher than expected by someone who does not understand the area. Your maintenance staff must understand how to work with older fixtures, older wiring and plumbing - things that are no longer made and sold at a Home Depot. If your management team doesn't understand these nuances, a 2-hour fix can take 5 or 6 hours, thus upping the cost and reducing maintenance availability.
2. Vendors are harder to find in the area. If you are not connected in the area that you buy in, you may think that it's as easy as googling a plumber and they will come to help you're tenant unclog a toilet; However, because of the high crime rates in this area, a lot of the well known service companies do not service this real estate market. This means having a property management company like Chicago Style Management, who has a vetted and experienced maintenance team willing to go to these areas and treat the tenants in the most respectful caring manner, means you can find and keep long-term residents in your rental.
3. Higher turnover costs. Oftentimes, the old units combined with the need to make your property one of the best available properties to attract high-quality tenants means that the turnover price may be higher than expected. Good tenants in these areas know they are hard to find and thus expect the highest level of service and comfortable living. This means painting after most tenants leave and before you show to new tenants, installing better quality counter tops, and ensuring all fixtures and appliances work to their full ability. A good tenant looks for peace of mind when resigning their lease (meaning no roaches from other units), and when something breaks, they expect it to be fixed as soon as reasonably possible. Tenant satisfaction is of even higher importance when you have a good tenant on the south side.
So what do good real estate investors do to be successful at investing on the South Side of Chicago?
1. Hire a management team with local market expertise. That means a team who knows the difference between a Hyde Park tenant and a Woodlawn tenant and can do an expert market analysis to find the best rent price.
2. Only rent to qualified tenants. Even if that means having a vacancy for a few months, it is a lot better than having a nonpaying tenant for 8 months while you try to evict them and then have to deal with repairing the damage they caused.
3. Understand the tenants in the area. You may not get rent on the 1st of every month and may have to work with your tenants to get them back on track. You also want to do your research on different subsidy programs, not just Section 8, as there are some programs that are great for landlords and others that are a bad idea.
4. Have a reserve for your property. This can cover your mortgage while a tenant is late or repair the roof when it starts to leak. If you are not ready to spend money to make money, investing on the South Side becomes a very risky proposition.
5. Know the tenant laws, because your tenants do and they will pounce on the opportunity to make a few grand when you slip up.
6. Reach out to us at Chicago Style Management for a free consultation before you buy the property. Our years of experience can help us show you the pitfalls a property may have and why you can buy it at such an affordable price.
To wrap this up, if you are looking at investing in the South Side of Chicago, give us a call. Our local market expertise, extensive screening of tenants to find qualified applicants, and real life experience dealing with the South Side of Chicago's rental market (both on the tenant side and building maintenance side) makes us a great company to work with. You can tap into our property manager relationships with the best vendors, and subsidies to find the most qualified tenants.
Give us a call at 224-601-5415 today to talk to one of our reps on how we can help maximize your profits and minimize your work and stress of owning a rental property.
