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Buying a rental property in Chicago. Should I wait for Feds rate increase???

chyamor 75 14 June 6, 2016 at 09:02 AM
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Over the past few years I have managed to save about 100k in liquidity. Would have been more had I avoided trying my hand in the stock market but anyways. I've been wanting a 2nd source of income in case I lose my job and it seems like the rent in Chicago keeps going up and up which makes me wonder if buying an apartment to rent out would be a good investment?

I'm looking at 2 bedroom on the Northside (lakeview/uptown area, or even burbs near metra station) between 150-200k. What I'd like input on is 1) If Feds do increase interest rates thus making it harder for obtaining loans would a person in my position who can put 30-50% down be at a big advantage? I'm assuming the buyers market will go from lets say 5000 people looking to buy to now 2000. 2) Will home prices come down and by how much? After all you have less buyers looking so sellers have no choice but to start coming down in asking price. 3) Would a $1k property tax increase after the Nov elections be another major concern which would help my position? Illinois budget issue isn't going to be solved until atleast Nov elections and there's really no way of avoiding tax increase to pay pension issues. I read an article that mentioned housing is already starting to see a small negative impact due to current lack of state budget.

My basic info is mid 30s, no kids, never married. No debt outside of mortgage. Living in Chicago. I did some math and even after I pay new purchase mortgage, property management company, etc I should make about $500 a month. After the mortgage has been paid it goes to $750-1k a month. This is of course assuming a few things such as not being layed off and not having any kids in the next 2-3 years.

Is there something I'm not taking into consideration??

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#2
I think your decisions here are based on a lot of speculation and assumptions. I would not expect home values to change much if rates increase as the rate increase will be slow and I doubt many sellers will take 0.25% into account or even know. I would instead focus on finding a place that is the best you can and make sure this is the type of investment you want. For me I am not sure if it would be worth it given 1 unit if my projected profit was only $500 a month. That doesn't leave much room for repairs, or lawyers should you have to evict someone, etc. Being a landlord and making money is generally not a hands off thing. I would look at other investment options before deciding this was the one.
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Last edited by LiquidRetro June 6, 2016 at 09:44 AM
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#3
1) unless the housing market tanks in your area, I'd think you'd be better off with a lower interest rate vs having a few thousand off the cost. (i don't think there will be a rate hike, GDP growth is projected lower at 2%. i doubt the fed would want to increase rates with slower growth)
2) no one knows.
3) it would cut into your margin.

have you taken into consideration upkeep? or if cook county/IL continues to have problems how that will impact rent in the future. need to consider the neighborhood too and what the outlook is for it.

edit: did you take into account you are taxed on the income?
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Last edited by dayv June 6, 2016 at 09:45 AM
so i spent time making a signature. only to realize that you couldn't put an image in the signature. please enjoy the link to my signature, assuming it works.

http://imgur.com/FtBghZ2
#4
Not sure if you watch the news in Chicago, but the CPS is going to cause property taxes to go even higher in cook county. Buyer Beware...
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#5
Personally.. I went through so many issues with a tenant.. I rather invest in REITS and just get dividends.. (like O, STAG, OHI.. etc..)
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#6
Quote from JayC3270 View Post :
Personally.. I went through so many issues with a tenant.. I rather invest in REITS and just get dividends.. (like O, STAG, OHI.. etc..)
It is good to have this pointed out not everyone is meant to be a landlord it can be time consuming at times that you basically have another part time job (depending how much you want to put into it to save more money or have someone manage it losing some profit. The biggest headache the tenants when getting a bad tenant its a headache dealing with them to evict them especially if they are going to the last straw to stay their as much as possible.
Quote from Superdude99 View Post :
Not sure if you watch the news in Chicago, but the CPS is going to cause property taxes to go even higher in cook county. Buyer Beware...
This is something to consider OP its tough to when this is a big thing to point out property taxes going up makes it less profits in the long run and than being Chicago it really depends where you buy.
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just being slick
#7
does using a property management company help with this ? yes there are costs involved but is it worth the 8-10% if you are still cash flow positive ?
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#8
I don't think you have done ur due diligence on your numbers.
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#9
Quote from underemployed View Post :
does using a property management company help with this ? yes there are costs involved but is it worth the 8-10% if you are still cash flow positive ?
8-10% for management
doesn't include anything other than fielding questions and collecting rent.
Extra cost:
list/showing vacant unit (usually 1 month rent)
maintenance. anything other than a lockout cost $$ (tenant pays lockout)

Hope the positive is more than $200 month
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#10
I would not take Fed action into account at all for this decision.

For what its worth, Fed funds futures suggest just a 54% probability of a 25 basis point increase by the Fed by December 2016.
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#11
Quote from chyamor View Post :
Over the past few years I have managed to save about 100k in liquidity. Would have been more had I avoided trying my hand in the stock market but anyways. I've been wanting a 2nd source of income in case I lose my job and it seems like the rent in Chicago keeps going up and up which makes me wonder if buying an apartment to rent out would be a good investment?

I'm looking at 2 bedroom on the Northside (lakeview/uptown area, or even burbs near metra station) between 150-200k. What I'd like input on is 1) If Feds do increase interest rates thus making it harder for obtaining loans would a person in my position who can put 30-50% down be at a big advantage? I'm assuming the buyers market will go from lets say 5000 people looking to buy to now 2000. 2) Will home prices come down and by how much? After all you have less buyers looking so sellers have no choice but to start coming down in asking price. 3) Would a $1k property tax increase after the Nov elections be another major concern which would help my position? Illinois budget issue isn't going to be solved until atleast Nov elections and there's really no way of avoiding tax increase to pay pension issues. I read an article that mentioned housing is already starting to see a small negative impact due to current lack of state budget.

My basic info is mid 30s, no kids, never married. No debt outside of mortgage. Living in Chicago. I did some math and even after I pay new purchase mortgage, property management company, etc I should make about $500 a month. After the mortgage has been paid it goes to $750-1k a month. This is of course assuming a few things such as not being layed off and not having any kids in the next 2-3 years.

Is there something I'm not taking into consideration??
I would have at least a 8 month emergency fund, start contributing to a roth IRA, long term care insurance, etc.

Now if you could find some forclosures, that need a little updating, that would be your better option IMO to flip quick.

What is your annual income?
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