With a variety of museums, theaters, parks, and professional sports teams, Chicago is arguably the cultural center of the Midwest. From Millennium Park to Magnificent Mile, Chicago has a signature urban feel that is completely different from other major cities.
Although this lakeside metropolis is affectionately called Windy City, real estate agent Michael Scanlon simply calls it “home.” Scanlon has been investing in the Chicagoland area for quite some time, and now he has shared his first financial success with other real estate buyers as a top local agent.
Investing in Chicago can be quite profitable, but it can also be complicated. A knowledgeable local agent is needed to increase the likelihood of investing in subtleties in different neighborhoods. Scanlon shared his thoughts on Windy City real estate in his own words.
Background of real estate
I have been a real estate agent since 2001, but before that I was an investor myself. I have an MBA in my finances, so I’ve invested heavily in real estate as well as a lot of alternative investments.
In the last 12 months, I have personally made 87 transactions as an agent. I’m running a team now, and I hope to have 200+ transactions with them in the next 12 months.
I work with all kinds of clients, but my focus and specialty is investment characteristics, so I look for investors as clients. In addition, I’ve helped make the list a higher volume and a number of family and friends.
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What makes the Chicago real estate market unique?
Chicago is one of the most affordable major cities. In downtown we can get a cap rate of 4% -7%, and many in the suburbs can go for a double cap rate. We have all the amenities of a major city, as well as a higher average income than most areas with this cap rate.
What kind of numbers can investors expect in Chicago?
Rents vary widely depending on the Chicago neighborhood. A high-quality neighborhood can get a 3% -6% cash-on-cash return on a 20% -down investment. However, in some areas these numbers are 20% or more – although fair, those areas bring their own challenges. In many places in the suburbs we can still find the 1% rent-to-price ratio.
How competitive is the market at the moment?
Like other places, Chicago is extremely competitive. Suburban turnkey single-family homes are going up 10% in price or more. Many investment properties are also getting offers to ask the price within a day or two.
On the list, I see seven to 15 offers on the best properties in the first two or three days. We see a lot of competition in the market. However, deals can still be found with the right guidelines.
Which area are you most excited about?
I personally like Bronzeville, Hyde Park and South Shore in Chicago. There are many areas that are on their way to the top, but these areas are still affordable.
A drive around shows that all the institutional money is coming Chic is also coming here to an e-sports arena and a proposed casino Bronze Villa.
To complement the new construction, the area has beautiful old brick and greystone buildings that add a lot of character. This part of town is close to the lake and public transportation, and has golf courses, parks and many other desirable features.
What kind of assets do you think investors should consider?
With leverage, the numbers are staggering in the case of house hacks here in Chicago. Many other areas (Seattle, San Francisco, New York) have heard that houses are hard to hack. Chicago is a fantastic house hacking market.
What kind of rental demand are you currently experiencing in Chicago?
Demand for rent is high in the suburbs. There will always be some demand in downtown, but many people have moved away from high altitudes during COVID-19, so the market has shrunk somewhat.
More in the local market from BiggerPockets
Which real estate strategy has had the most success in Chicago?
House hacking is hot, multi-family homes in growing areas and condos (by room) in the preferred downtown neighborhood. BRRR agreements are successful in some areas that can be seen as less desirable – numbers work and competition is less. Buy and hold strategies can work in several neighborhoods here.
What do residents do for work? What industry changes are expected?
As a major metropolitan area, Chicago is incredibly diverse, and we don’t rely on specific industries. Some areas of Chicago have seen Amazon complementary centers improve their economy, but overall, Chicago is very well-organized in terms of industry.
How is your post-closing referral network?
We have a network of preferred sellers that we can recommend, although each investor should do their own due diligence.
What do you personally like about Chicago?
Chicago has the best food, the most museums and a great summer culture. (As Kanye said, “Summer Chi!”) Any place in town is no more than 30 minutes from forest conservation and about an hour from farmland. Under Chicagoland, we have the best of two different worlds: urban and rural. It’s a great place to live and a great place to invest.