Chicago offers many residential real estate investment opportunities. As with any sound financial and tax strategy, it is important to consult your financial and tax advisors so that you understand how different investment strategies will affect your plans and goals. Here are some benefits to adding real estate investments to your wealth plan:
Real estate investment can create a stabilizing hedge against inflationary forces. As interest rates and housing values rise, so does the monthly cost of new purchases, which encourages people to rent for longer periods of time. Based on past inflationary periods, the cost of real estate rose and even out-performed the stock market. Adding this asset class is a wonderful way to add diversity to a portfolio.
While stocks and bonds ride the ups-and-downs of the stock market and the 24-hour news cycle, real estate markets are historically slower moving and do not experience the dramatic and daily swing. This is especially true in the Midwest where the market has historically seen steady appreciation overall with less dramatic corrections than in coastal or emerging markets. Given the more deliberate pace of change in real estate markets and the historical steadiness of Midwestern markets, real estate investment in Chicago offers balance against a volatile stock portfolio.
Real estate investing offers possible tax benefits in a variety of ways including pass through deductions. By diminishing your taxable income, your real estate investment can support lowering taxable income. Make sure to check with your tax advisor for how investment properties will impact your tax goals and strategy.
Traditional real estate investments require 20 to 25% down payments and can look vastly different based on your overall financial goals. When you are looking to get into investing in real estate there are two big questions you need to ask yourself: are you looking to build wealth through appreciation or through cash flow? While some investments will achieve both in time, the best practice is to focus on one.
Based on your goals, Shannon can help tailor an investment strategy that will meet your needs.
Chicago is home to many iconic 2-4 flat buildings that can be purchased using less down payment than a traditional investment if the buyer is willing to live in the property as their primary residence. Owners can choose to live in a property and have the additional tenant income help support and pay for a portion of the building expenses. This also helps qualify a buyer for a higher purchase price as some of the rental income could be counted towards their debt-to-income ratio. An investor can either stay there and enjoy as the building is paid off with the help of the tenants. If an owner occupant wants to move, they can use a strategy of refinancing and purchasing a new 2-4 unit building creating a real estate portfolio over time.
Purchasing a multi-unit residential building is a tried-and-true method of real estate investment. When running the numbers, as the number of overall units goes up, so does the potential for profits. The demand for rental housing continues to stay strong in many markets including Chicago. In addition to inflation and higher interest rates creating higher monthly costs for newer buyers, the workforce has been increasingly mobile in the last few years and people want to keep their housing agile to take advantage of job transfers and better opportunities for advancement in other regions. These factors keep the rental market strong and in recent years have increased the cost of residential rentals. In urban areas like Chicago, there are also empty nesters or people who want a small place in the city to avoid expensive hotel stays and so they can enjoy the social and cultural attractions throughout the year. After doing your homework of a neighborhood’s average rent and demand for residential rentals, multi-unit building can be a terrific way to diversify the investment portfolio.
Chicago is home to an abundance of colleges and universities throughout the city. In addition to the cost of tuition, living expenses to rent for four plus years can get expensive with no return. In recent years, some parents have chosen to purchase a single unit condo or other property near the institution where their son or daughter will be attending and have them pay the rent towards the mortgage instead of paying rent to someone else. These could be a studio or single bedroom while some people choose to have multiple bedrooms and take on roommates for additional mortgage support.
People looking to purchase an investment property but would like to start small and be a little less hands-on will sometimes choose to invest in a single unit as part of a condominium building. In these scenarios, the common areas of the building are not the sole responsibility of any one owner, and the association will take on upkeep. While the buy-in is smaller, there are association fees and sometimes special assessments that should be factored into the budget.
Some condominium buildings make interesting candidates for corporate investors to offer a lump sum for the purchase of an entire building at one time. The corporate investor would then take the building and create only leased unit. These condo buildings can be evaluated based on a variety of factors that include rental ratio, an association’s financials and possible upcoming special assessments, and area market rental costs. Associations will sometimes put an entire building on the market; making investors aware they are open to offers. Other times, corporate investors identify favorable conditions for an offer and approach an association unsolicited. Depending on the municipal laws, associations require 75% to 85% affirmative voting of the percentage of ownership for an acquisition to move forward. To gain such a high percentage of ownership prices for individual units tend to be above market at the time of the offer. These offers are complex and multilayered, and having an adviser who understands the process and has a marketing strategy for both the institutional buyer and the association is crucial.
1031 exchange is a tax deferment strategy allowing an investor to swap 1 real estate investment property for another and put off paying capital gains taxes on the sale of the original property. Following a specific process and timelines, the capital gains previously earned by the original investment property can be applied directly and in full to the value of one or more new investment properties. Even with profits, taxes are only paid on the final sale where no like-kind property is being purchased. Currently, there are no limits to the number of times a 1031 exchange can be used. With many moving parts and structured timelines, the best practice is to have an experienced team of advisors to guide you through the process.
1850 N Clark Street Unit 501, Chicago, IL 60614
1 BD | 800 Sq.Ft.
33 W Delaware Place Unit 7A, Chicago 60610
2 BD | 1,000 Sq.Ft.
211 E Ohio Street Unit 1004, Chicago 60611
1 BD |
518 W Wrightwood Avenue Unit 1W, Chicago, IL 60614
2 BD | 1 BA | 1,150 Sq.Ft.
5334 N Austin Avenue, Chicago, IL 60630
5 BD | 4 BA
545 W Belden Avenue Unit: 1F, Chicago, IL 60614
2 BD | 2 BA | 1,600 Sq.Ft.
450 E Waterside Drive Unit: 705, Chicago, IL 60601
1 BD | 1 BA | 904 Sq.Ft.
1111 BURLINGTON Avenue Unit: 213, Lisle, IL 60532
2 BD | 2 BA | 1,083 Sq.Ft.
1075 W Roosevelt Road Unit: 207, Chicago, IL 60608
1 BD | 1 BA | 900 Sq.Ft.
1944 N Seminary Avenue Unit: 1, Chicago, IL 60614
2 BD | 1 BA
545 W Belden Avenue Unit: 2R, Chicago, IL 60614
1 BD | 1 BA
1850 N CLARK Street Unit 2202, Chicago, IL 60614
1 BD | 1 BA
33 W Delaware Place Unit 8 K, Chicago, IL 60610
1 BD | 1 BA | 850 Sq.Ft.
3660 N Lake Shore Drive Unit 2003, Chicago, IL 60613
1 BD | 1 BA | 775 Sq.Ft.
200 N Dearborn Street Unit 1808, Chicago, IL 60601
3436 N AVERS Avenue, Chicago, IL 60618
7 BD | 4 BA
211 E Ohio Street Unit 2613, Chicago, IL 60611
1 BD | 1 BA
440 N Wabash Avenue Unit 4208, Chicago, IL 60611
1 BD | 1 BA | 850 Sq.Ft.
440 N Wabash Avenue Unit P-512, Chicago, IL 60611
Shannon is your key to unlocking Chicago real estate. Whether you’re looking to buy, sell, or invest in real estate, she will use her expertise, negotiation skills, and professional network to ensure that you accomplish your goals. If you want a trusted partner and advocate throughout your home buying and selling process, contact Shannon today!