As a longtime real estate investor here in Chicago, I get asked two questions more than any others. The first: What is the most challenging part of being in Chicago and flipping rehabs? The second is whether I’ve seen certain reality TV shows about flipping houses here in the Windy City.
And, honestly? The most challenging part is not getting angry when asked about that show.
See, I love this city and I love investing in real estate. And, I do want other people to get into it. But, it isn’t as easy as those shows depict nor is it as dramatic. It’s hard work—a lot of research, number-crunching, and late nights. Rehab problems don’t get magically resolved by finding the perfect piece of cherry wood.
Whether you are interested in making real estate investing a side gig or a full-time career, I’d recommend you stay away from the TV. When it comes to flipping rehabbed houses in Chicago, we turn off the tube and roll up our sleeves.
Here’s what you need to know to make it happen.
Why Flipping Rehabbed Houses in Chicago is a Great Idea
One of the best parts about Chicago is that it is truly a city of neighborhoods. The Loop is great and all, but north, south, east, and west, the city stretches into a huge variety of neighborhoods. And, if you were to ask 10 Chicagoans to name up-and-coming neighborhoods, you’d get 10 different answers.
That’s because this city is always on the move. Areas start to percolate, get hot, get white-hot, and then settle into a stable market with families buying houses and settling down. This happened with Logan Square and it’s what is happening to Humboldt Park. South Shore might be next.
The thing about Chicago real estate is that we have one of the most balanced economies in the country. You have a lot of blue-collar jobs that are slowly moving away from the more central neighborhoods. This creates space for a lot of younger homeowners who want to move in, but are looking for something a little more renovated than the traditional Chicago pre-war two-flat or bungalow. They might love the style, but demand some more in the way of amenities.
With so much diversity of neighborhoods, there are plenty of investment opportunities here. There are always going to be distressed properties in some neighborhoods, giving you an opportunity to help the community grow. And, there will always be neighborhoods where people want to buy. It’s a winning position all the way around.
But, with opportunities comes risk.
Potential Risks of Chicago House Flipping
What are some of these risks? Well, some are immediate, and some are potentially long-term. The one on everyone’s minds right now is the pandemic.
⇨ Risk #1: No one knows the true impact of Covid-19 yet.
In some ways, the virus is presenting potential opportunities for investing in houses to flip in Chicago. A lot of distressed houses might be coming on the market soon as unemployment in some sectors remains high. But, while that is good for investor supply, it doesn’t mean the market will be opening up on the sale side.
But, while we don’t know yet how this will impact whether people buy houses, Chicago has always been a renter’s city; this might mean people rent for another year or two. Some early data backed that up; contract closings were down 38% in Chicago in the first weeks of widespread social distancing.
Prices in the city have kept surprisingly steady, though. That’s possibly due to the balanced economy; some people are struggling and some people’s economic situation has barely changed. It’s also possible that the decrease in demand was met by a decrease in availability.
Put all together, this could mean that you will want to aim to sell your property to landlords. Or, you might stretch your fix-and-flip business plan and keep it as an investment property yourself. Another option is to do some virtual wholesaling and leave the rehab to another investor.
But, if your goal is to flip rehabbed houses in Chicago, you might see it differently. Fewer houses on the market mean less competition for selling yours. If you do a nice rehab on a distressed house in a good neighborhood, there’s no reason to believe that there won’t be potential homeowners waiting in the wings.
Keep in mind, though, that you need to pick the investment house carefully. That brings us to the second risk.
⇨ Risk #2: Not every house is a gold mine.
This is something I always have to stress to people who get most of their house-flipping information from reality TV. Finding a house for cheap does not mean you are going to be able to sell it for a huge profit.
This is especially true in Chicago. Not only is every neighborhood very different, but there could be huge shifts in desirability on a block-by-block basis. A hip part of Bucktown is suddenly much-less-desirable than Avondale. Even if you are near the right areas, you could be out of luck.
And of course, this says nothing about houses in areas that generally are terrible for flipping homes. You can see a lot of great deals in Chicago, but if you buy a home in a bad neighborhood, you aren’t going to turn much of a profit, if at all.
The biggest thing to look out for, regardless of neighborhood, during these pandemic-induced market shifts is what I call “white elephants.” These are houses that look pretty decent at first glance. The neighborhood seems fine and the house is in fair condition—but you don’t notice the giant power lines running behind it or know that a freeway is planned adjacent.
No amount of rehab money is going to spare you the downshift in potential ROI when you buy a white elephant. Any construction is going to be expensive, anyway, but don’t buy a money pit that you can’t sell.
⇨ Risk #3: High construction costs.
New York. San Francisco. Honolulu. Those are the only three cities in the country where the average price per square foot of residential contracting work is more expensive than in Chicago. So, if you are going to be doing a lot of work, you are going to be paying a lot.
That cuts into your profit and your time. It means that you might have to decide to buy a house with little need for an upgrade and not be able to sell it for much more. Or, buy a house with a lot of needs and sell it for a higher price but have your profit eaten away.
Of course, you could buy a house that needs only a little upgrade but will rocket in price due to an improving market. But you can’t learn that on TV.
How to Flip Rehab Houses in Chicago With More Certainty
When did my Chicago business really hit its stride? When I became an independently owned and operated HomeVestors® franchisee. Not only did I get qualified leads in neighborhoods I could vet with a proprietary valuation tool, but I also got training and mentorship from real working and seasoned professionals.
That was important then. It should be important to you now. Chicago is always changing, and new pressures mean it is changing even more. You could use expert training and great advice. You could always use a real pro to talk to, listen to, and share ideas with in order to grow your professional real estate investing business.
To me, that’s way better than just consulting your Netflix queue. It’s a way to get real advice. To me, that’s the best way to do things in a city full of challenges, and promises, like Chicago.
If you want solid mentorship on fixing and flipping rehabs here in Chicago, request information about becoming a franchisee today. It’s a channel you won’t want to change.
Each franchise office is independently owned and operated.