“Did you know that Chicago sells their properties at discount rates?!”
This tidbit was conveyed to me by another investor in a loud, gushing whisper at a local Chicago real estate investor club meeting. It’s not a rumor: Chicago offers city-owned property at a discount via negotiated sales. There are even some financial incentives available to developers. As an experienced real estate investor and HomeVestors® Development Agent, though, I don’t get too excited about news like this. Of course, they’re offering a deal—it’s just a matter of how many hoops you want to jump through to make that deal happen. And, in my business, time is money.
What’s Involved in Buying a City-Owned Property from Chicago?
The city holds a range of vacant residential properties that they sell to private parties and companies through negotiated sales with the Department of Planning and Development (DPD). To get a hold of one of these investment opportunities in Chicago, an investor must show that they have the funds and experience necessary to redevelop the property. While each property is priced at market value by an independent appraiser, the department may give you a mark-down if you offer up redevelopment plans that are in line with the city’s goals. The redevelopment project must offer some sort of concrete benefit to the community by providing affordable housing, environmental sustainability (hint: city officials really like green roofs—and there’s a program for that too!), or other positive community contributions.
If your redevelopment plan falls in line with the city’s criteria, you may also be eligible for special monetary aid through their tax increment financing plan. Tax increment financing (TIF) is a tool that many municipalities have utilized since the 1950s to promote economic development in blighted or underdeveloped areas. Certain neighborhoods in Chicago are designated TIF districts, and tax revenues that result from increases in assessed property values over a 23-year period, are earmarked to pay back bonds for redevelopment projects. Effectively, a TIF lends money to developers today, banking on the idea that they will pave the way for future increases in property values and taxes. As professional Chicago “house flippers,” we know a thing or two about speculation, right?
You’re probably wondering, “What’s the catch?” Well, the only real downside to acquiring city-owned properties using a city-approved financing plan surrounds the time frame. The city’s requirements can stretch the redevelopment project duration beyond what many real estate investors would consider to be an ideal timeframe. First, you need to complete the application to be considered as a buyer, including details about your site plans and community economic contributions, such as how many jobs your project will create (or retain) and financing abilities. Then, you may apply for the TIF program by filing another lengthy form and paperwork, including market analyses and an environmental impact study. The city may take up to nine months (or even longer) to review your submission.
Your Application is Accepted… But Not So Fast!
If your proposed project is accepted, don’t breathe a sigh of relief just yet, because there are still a few items on the “to do” list. When the DPD says they like your idea, what they really mean is that they are going to publish a notice in the paper about your intended purchase in an effort to solicit competing proposals. You’ll have to wait 30 more days to see if anyone responds. If nobody raises their hand with a better proposal, you can buy your Chicago investment property and proceed with the project. However, there are set project timelines that you need to follow to a “T.” Be prepared for the city’s Monitoring and Compliance Division to be looking over your shoulder the entire time too.
Chicago’s Monitoring and Compliance Division is especially concerned that you meet the following requirements throughout your redevelopment project:
Allocating Hard Costs
Currently, at least 24% of the project’s hard costs must be paid to city-certified, minority-owned businesses and another four percent must be spent at female-owned businesses. The city can provide you with information that will lead you to local companies that fulfill the female-owned and minority-owned requirement. You will also need to attend a face-to-face meeting with Division representatives, as they strive to ensure that you fully understand these obligations. Please check on these required obligations to make sure that no changes have occurred. You will have to submit copies of certified letters to the respective business associations, notifying them of the project scope.
Adhering to the Prevailing Wage
Illinois law requires that all workers on a construction project be paid at least the prevailing wage. In other words, you cannot hire cheap—and potentially unlicensed or otherwise illegal—labor. Nor, should you hire an uninsured contractor. You will also need to keep detailed records of each worker, their hours, and their pay rate for a minimum of three years after the project ends.
Following Residency Requirements
Currently, half of the construction hours, at a minimum, must be performed by a resident of the City of Chicago. Failure to comply with this requirement will result in a financial penalty. This requirement may change from time to time so be sure to check with the city to make sure you will be in compliance.
Then, once it is redeveloped, you will need to meet with city officials to get their approval on how you can go about marketing your investment property to buyers or tenants at specific income thresholds.
Is It Worth It in the End?
Purchasing a property from the City of Chicago can yield some benefits, and may definitely benefit communities, but many real estate investors prefer a “let the leads come to me” approach. People across the Chicago region and beyond trust the HomeVestors® brand so when they need to sell their home fast, they call a local HomeVestors® franchisee. As a HomeVestors® franchisee, I have access to unique, proprietary tools to estimate costs for necessary repairs. This gives me the ability to provide an on-the-spot offer to distressed home sellers. In the time that it would take one to navigate the red tape involved in buying a city-owned property, I can acquire and rehab a property, then sell it at full market value. Either way, the Chicago communities benefit from rising property values so all Chicago residents win.
If you’re ready to get started improving communities and getting involved in real estate investing, I’d love to share my approach with you. Reach out today and let’s chat!
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