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Chicago-Specific Investment Real Estate Mistakes to Avoid 

Chicago-Specific Investment Real Estate Mistakes to Avoid 

  • Matt Shrake
  • 11/29/23

With nearly 30 years in the business, Matt Shrake has seen quite a number of his clients, friends, and associates make the logical step up from residential real estate ownership to investing in commercial real estate. 

But if you’re considering investing in real estate in Chicago, there are a number of important mistakes to avoid: 

  1.     Failing to Understand Neighborhood Trends
  2.     Not Mitigating Chicago's Property Taxes
  3.     Not Understanding Chicago’s Zoning Laws
  4.     Overestimating Rental Income
  5.     Neglecting Property Maintenance
  6.     Not Seizing Opportunity      

The good news is that if you navigate these issues, there’s a wealth of opportunity in the Chicago investment real estate market. 

1. Failing to Understand Neighborhood Trends 

Chicago's real estate market is a fascinating mix of historical charm and modern developments.

From iconic skyscrapers to charming brownstones, the city offers a wide range of architectural styles that cater to different tastes and preferences. And this is the case whether you’re interested in retail, office, multi-family, or industrial properties. But investment property is all about income and looks can be deceiving. That’s why you need to look deeper to avoid the first mistake in Chicago investment real estate: failing to understand the changing fortunes of a neighborhood. 

Each neighborhood in Chicago has its own unique charm and appeal. For example, Lincoln Park is known for its beautiful parks and vibrant nightlife, while Lakeview offers a mix of trendy shops and cozy residential streets. Neighborhood differences mean a property that may work in one location may struggle somewhere else nearby. And what looks like a great investment now may not be in a few years. As a recent example, Children’s Hospital moving from its decades-long Lincoln Park location to its current downtown location changed two neighborhoods in major ways. The negotiations in each of those locations took years to hammer out, and nearby property values increased and decreased accordingly. Big value, demand, and density shifts constantly occur across the city, and investors need to navigate the changes with an investor’s mind. But don’t forget: these same changes that create risk, also create huge opportunities. By understanding the nuances of each neighborhood, investors can identify areas with high growth potential and capitalize on emerging trends. 

Ultimately it comes down to: Are rents and expenses for your investment property type on the way up or down?

2. Not Mitigating Chicago's Property Taxes 

Chicago is known for its relatively high property taxes. As an investor, it's important to understand the tax implications of owning and operating real estate in the city. Property taxes in Chicago are calculated based on the assessed value of the property and can vary significantly depending on the location and type of property. 

One strategy to minimize tax liabilities is to take advantage of any tax exemptions or incentives that may be available. Consulting with an experienced real estate professional and real estate tax appeal professional can provide valuable guidance on available strategies to maximize returns while minimizing tax obligations. 

Another consideration when dealing with property taxes in Chicago is the reassessment process. Property reassessments occur every three years, which means that the assessed value and subsequent tax liability can change significantly. Staying informed about the reassessment schedule and understanding how it may impact your investment properties is crucial for effective tax planning and net investment returns. 

3. Not Understanding Chicago's Zoning Laws 

Chicago has a complex system of zoning laws that vary from one neighborhood to another. Familiarize yourself with the zoning regulations in your areas of interest to avoid any potential issues down the line. 

One important aspect of Chicago's zoning laws is the distinction between residential, commercial, and mixed-use zones. Each zone has specific regulations regarding the type of buildings allowed, the height and density restrictions, and the permitted uses. It's essential to understand these regulations to ensure that your real estate investment aligns with the intended use and complies with the zoning requirements. 

In addition to the general zoning regulations, some neighborhoods in Chicago have specific historic preservation ordinances. These ordinances aim to protect the architectural and historical character of certain areas by imposing additional restrictions on property modifications and demolitions. If you're considering investing in a historic district, it's crucial to familiarize yourself with these ordinances and understand the potential limitations they may impose on your investment plans. 

Hiring an experienced real estate attorney can be instrumental in navigating these intricate zoning laws. They can help you interpret the regulations, obtain the necessary permits, and ensure compliance with all zoning requirements. Additionally, working with a knowledgeable real estate agent who specializes in the specific neighborhood you're interested in can provide valuable insights into the local zoning landscape and help you make informed investment decisions. 

4. Overestimating Rental Income 

One mistake often made by novice investors is overestimating the potential rental income of a property. It's crucial to conduct thorough market research and analyze comparable rental properties to determine realistic rental rates. Overestimating rental income can result in financial strain and a longer-than-expected return on investment. 

When estimating rental income, it's important to consider factors such as location, property condition, and amenities. A property located in a desirable neighborhood with high demand for rentals may command higher rental rates. On the other hand, a property in a less desirable area or in need of extensive repairs may have lower rental potential. 

Additionally, investors should consider the current rental market trends and vacancy rates. A saturated rental market with high vacancy rates may make it difficult to attract tenants and achieve the desired rental income. 

5. Neglecting Property Maintenance 

Another mistake that investors sometimes make is neglecting property maintenance. In Chicago, seasonal changes can take a big toll on properties, and regular maintenance is essential to ensure the longevity and attractiveness of the investment. Ignoring maintenance can lead to costly repairs and potential tenant dissatisfaction. 

Property maintenance includes tasks such as regular inspections, addressing repairs promptly, and keeping up with landscaping and exterior maintenance. Neglecting these responsibilities can result in deteriorating property conditions, which may ultimately affect tenant retention and property value. 

Investors should create a maintenance plan and budget to ensure that the property is well-maintained throughout the year. This includes scheduling routine inspections, hiring reliable contractors for repairs, and allocating funds for unexpected maintenance needs. 

Furthermore, investors should also consider implementing preventive maintenance measures to minimize potential issues. This can include regular HVAC servicing, roof inspections, and pest control treatments. 

6. Not Seizing Opportunity 

One of the unique aspects of Chicago's real estate market is its significant number of multi-unit properties. While single-family homes are plentiful, multi-unit properties present an excellent investment opportunity due to the demand for rental units in the city. Investing in multi-unit properties allows investors to tap into the growing rental market in Chicago. With a diverse population and a thriving job market, the demand for rental units remains strong, providing a steady stream of income for savvy investors. 

Chicago is home to a diverse range of industries, including finance, technology, healthcare, and manufacturing. The city's robust economy attracts professionals from various sectors, creating a strong demand for housing. Job growth in key industries can lead to increased rental demand and higher property values, making it an attractive market for real estate investors. 

As the city continues to attract newcomers, the demand for housing remains high. Understanding these demographic shifts can help investors identify areas with long-term growth potential and make strategic investment decisions.

By keeping a pulse on the local economy and market trends, investors can position themselves for success in the dynamic Chicago real estate market. 

Avoid Mistakes and Seize Opportunities with Matt Shrake 

Whether you work with Matt or someone else, building a reliable advisory team for your investment real estate is crucial for success in Chicago's market. Surround yourself with professionals who have extensive knowledge of the local market, including real estate agents, property managers, contractors, and attorneys. 

A strong team can provide valuable advice, insights, and support throughout the investment process. If Matt can’t help you himself, he certainly knows someone who can. 

Reach Matt Shrake at 773.294.2667 or [email protected]

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