If you keep your finger on the pulse of the latest Chicago real estate investing trends as I do, you’ve probably read that investment opportunities increased throughout the city and its suburbs during the last year. For many of us, that comes as no surprise. As we all know, the housing market here is still undervalued. For homebuyers, this means much of the city remains affordable and, thus, attractive. For investors, this means that buying and renovating single-family investment property in Chicago continues to hold potential for seeing good returns far from the threat of an impending price correction.

Yet there are some areas, like River North and Lincoln Park, that actually attract more renters than buyers because, though people want to live there, it’s a better deal to rent than own. This leaves some investors wondering whether they should concentrate their efforts on single-family houses or try to get in on multi-family units. As a long-time real estate investor who’s done it all, I prefer the former over the latter. Both, of course, have their pros and cons.

Pros and Cons of Buying Single-family Investment Property in Chicago

Where you buy investment property in Chicago largely impacts what you buy, and vice versa. In areas where many would-be homeowners are priced out of the market, it seems to make more sense to invest in multi-family. If people want to live there, they’re likely going to rent. Other areas, however, like Logan Square, Lawndale, and even Chicago’s South Side neighborhoods, are better suited for buying, renovating, and selling houses and for a similar reason. When people are priced out of homeownership in one area, they look to buy in a more affordable neighborhood.

Looking beyond location, however, you’ll see that each housing sector is its own beast and that the type of property you buy influences the strength of your portfolio and your exposure to risk. This is an important consideration when strategizing your real estate investment plan and choosing whether or not to diversify your portfolio. Buying a single-family investment property is a strong choice, but let’s examine some of the others as well.

Multi-family

The obvious appeal of purchasing multi-family real estate is that, ideally, it produces a passive source of income in addition to covering the mortgage and operating costs. It’s also a long-term investment strategy that counts on higher returns at some future date, if and when you decide to sell, than what the current market might guarantee. Here in Chicago, it’s a particularly popular investment model since the demand for living in apartments and one to four-unit properties has increased in the last several years. With the rise of local property taxes and the recent overhaul of the Federal tax code, even more people may choose to rent instead of own. Additionally, existing homeowners may be forced to rent if they have to sell a home that’s become too expensive to keep because of property taxes.

However, the supply in this sector has outpaced the demand, especially at the city’s core. As a result, rents have started to stagnate in some areas and even fall in others. Because purchasing and maintaining multi-family property can be costly, a reduction in rent prices can restrict the flow of passive income and reduce the property’s worth when you want to sell. A safer way to diversify your portfolio with a rental investment in Chicago is to buy and hold a single-family residence in the suburbs where rents are still strong and the opportunity to sell later at a profit even stronger.

Luxury

The luxury sector–including both homes and rentals–is also overcrowded throughout the city, especially downtown. Sale prices for luxury homes and condos have recently been steadily dropping as they linger on the market longer and longer without enough interested buyers. The high cost of living in a luxury unit may drive residents to more competitive options within the city and just outside it, creating longer-than-optimal vacancies and reduced cash flow. As development continues and current owners start to offload properties that aren’t performing or are too expensive to maintain, you can expect the added inventory to continue diminishing asking prices, thus potential returns.

Single-family

Buying single-family residential property is one of the best real estate investing options in Chicago, compared to the multi-family and luxury sectors. With an undervalued housing market, a large percentage of homeowners still underwater, and several up-and-coming neighborhoods in Chicago getting coverage in real estate blogs, the chance to buy–and rent or sell–at a good price is favorable. Homeowners in distress due to unforeseen personal expenses, increased tax bills, or with high mortgage and maintenance costs, are typically eager to sell at a discount. This gives you the opportunity to improve their circumstances and the property values in transitioning neighborhoods while attracting new homebuyers and renters alike. It’s a win-win model that serves everyone.

The drawback to purchasing single-family properties can apply to investing in any sector of real estate. If you buy too high, let the cost of renovation outrun your budget, then rent or sell too low, you risk seeing a good return on your investment. This can be avoided, however, if you have access to comprehensive real estate investment analysis and valuation tools, like HomeVestors®’ ValueChek™.

With more pros than cons, buying a single-family investment property is a strategic move for building your portfolio easily and with less risk. Now all you need to know is how to find one that will, hopefully, be the first of many. There’s a strategic move for that too.

The Single Best Way to Diversify and Buy

Finding single-family investment properties to buy is as easy as finding leads on distressed homeowners. And the best leads are those that come to you. HomeVestors®’ widely-known “We Buy Ugly Houses®” national ad campaign has been effective at generating these leads for its independently owned and operated franchisees since 1996. So effective, in fact, that HomeVestors® franchisees have bought over 140,000 distressed homes for sale in Chicago and in cities across the country since 1996.

You can be one of them by contacting the HomeVestors® team about franchise opportunities–the first step to being well on your way to buying that first of investment properties–and many more!

Each franchise office is independently owned and operated.