In the years immediately following the housing bust, real estate investors swarmed in to scoop up the foreclosures. It seemed like there was a near-endless supply here in Chicago. But back then, there wasn’t a market to actually sell those properties, so everyone held the foreclosures, maintaining them as rental holdings while they waited for the market to recover. Chicago’s investment opportunities are becoming more plentiful, although this shift is occurring at a rate that’s a fair bit slower than what we’re seeing in other areas of the nation. If you choose the right real estate niche, investing can be quite profitable in the current market conditions. This begs the question: what are the most lucrative real estate opportunities in The Windy City and beyond?

Three of the Best Chicago Real Estate Opportunities

This year, Chicago is expected to come in at the very bottom of the list when examining the nation’s top 100 housing markets. It is currently just a little over halfway through the calendar year and this prediction appears to be on point. Properties are sitting on the market for longer than the national average and prices are actually dropping in some areas. For some, that sounds like bad news. But if you’re a real estate investor, this situation spells opportunity. Let’s take a look at three of the most lucrative real estate opportunities that are emerging from the current market conditions.

Luxury housing

To put it bluntly, there’s an upcoming glut of luxury condos in Chicago. From No. 9 Walton on Chicago’s Gold Coast to the sky-high Vista Tower in Lakeshore, we’ve seen an increase in the number of new luxury condo buildings. But with the elite 98-story Trump International Hotel and Tower—which has traditionally been one of the most coveted addresses amongst the city’s elite—showing an astonishing 11% vacancy rate, one thing is very clear. New luxury buildings may not be so marketable anymore.

At the moment, luxury listings are sitting on the market longer than before, while buyers are holding out for their asking price. That is, until they drop the price. According to Karen Peterson of Coldwell Banker, attached residential units between $1 million to $10 million sat on the market for an average of 268 days. That amounts to a 175% inventory increase and a 6% price reduction. Single-family luxury homes have seen a 100% inventory increase and a 12% price drop.

When properties sit on the market for a long time and prices sink—especially at the rate that the luxury housing market is experiencing—there still may be opportunities. With all the companies that either moved or plan to move their headquarters to Chicago this year, housing prices will surely rise again. That means, it’s time to buy if you find a property priced right and you have the capital to deal in this pricey market segment. Most real estate investors prefer to opt for properties in a lower price bracket. In fact, that’s why some choose REITs vs. private real estate investing.

Multi-family housing

Solid employment growth has been the trend in Chicago, with multiple corporate migrations bringing high-paying jobs into the city. Last year saw a hoard of Millennials and in response, there was an uptick in apartment construction to keep pace with their demand for rentals. That said, industry research shows there are another 9,000 units currently under construction in the city and another 4,825 underway in the suburbs, most of which are expected to be complete at some point this year. It remains to be seen whether jobs and population growth can keep up with the rapidly rising availability of multi-family housing.

So, while you might have to wait a bit for the local multi-family housing market to simmer down, historically speaking, these properties have increased in value year-over-year. In addition, even when rented out at a rate that’s below market value, rents from multi-family housing can pay for the mortgage and the operating expenses—all while the property sees a value appreciation over time. This makes it a profitable niche for those who are willing to sit out the market.

Distressed single-family homes

Chicago has the third largest number of “underwater” homes when examined amongst the nation’s major metropolitan areas, according to research by CoreLogic. While there are fewer distressed properties on the market compared to last year, the city is still slow to recover from the housing bust. In fact, in the first quarter of this year, 162,613 homeowners still held a mortgage that exceeded their home’s actual market value. That said, more people are able to afford a mortgage now that the local economy is picking up. This means there is a larger number of market-value buyers who are interested in purchasing rehabbed homes.

In addition, we’ve seen a significant decrease in the amount of competition in the distressed home-buying arena. News reports say that Mack Industries—a Chicago-based buyer of foreclosed homes with a business model of rehabbing and renting their properties—filed for Chapter 11 in March. Although the company continues to operate while reorganizing, they owe liabilities totaling $50 million, while their assets come in with a total value of around $10 million.

The upshot is that if you choose to enter the distressed home niche, there are many deals available and in most instances, you won’t find yourself up against big players who have far more resources and a far larger budget. This real estate investing segment offers the most certainty for ROI because you don’t have to overextend your financial position, as is necessary with the luxury market. You also don’t have to wait for the market tides to turn, as with the multi-family housing market.

Buying into the Distressed Home Market with Confidence

I became a real estate investor after the housing bust and have been doing brisk business ever since. But the current market climate seems to be opening the door to even more opportunities. HomeVestors®’ “We Buy Ugly Houses”® national brand and marketing tools for real estate investors have the power to attract daily calls from distressed homeowners who are looking for a solution to their financial hardship. With the help of the proprietary ValueChek™ software program, I can quickly determine if the property holds the potential to deliver a solid ROI. If so, I can confidently make an offer on the spot. This puts HomeVestors® franchisees ahead of the competition in one of the most promising and lucrative real estate investing niches. To learn more about how you can leverage these tools and resources to boost your business this year, get in touch with HomeVestors® today.

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