Chicago, also known as the “Windy City,” is home to about 9.45 million people, making it the third largest city in the United States. It features a large job market, iconic architecture, rich culture and history, and deep-dish pizzas. It also happens to have one of the most affordable real estate markets amongst large cities in the country, but it’s not all rosy.
In this article, we’ll cover the important information you need to know about Chicago and investing there.
Chicago Population and Labor Market
After kicking off the decade with consistent increases in population, the Chicago MSA, which consists of Chicago-Naperville-Elgin, has flatlined through 2023 at around 9.45 million residents.
In fact, at the moment, the current trajectory is downwards, and if that holds, then it poses serious questions for investors looking to invest in the market. Markets exhibiting population declines are at risk of home price declines and higher vacancy rates. This is something investors should keep in mind as they research Chicago.
As for why residents are leaving, according to many reports, it’s due to high costs and a lack of jobs that fit their skills. It should also be noted that Chicago has gained a reputation for having rampant crime and gang violence, which does not help make it an attractive destination for new residents.
As for the labor market, Chicago is home to the headquarters of many major companies, including giants like McDonald’s, Walgreens, United Airlines, and Kraft-Heinz. As you can see in the chart below, Chicago’s unemployment rate has historically trended slightly above the national rate but is currently level with each other. That’s good news for the economy, but whether it holds is up in the air, especially if the population continues to decline.
Chicago Home Prices and Inventory
For a city of its size, Chicago has a surprisingly low median sales price, currently sitting around $330k. The market has experienced lots of volatility over the past few years but has consistently trended upwards.
Despite that, there hasn’t been a massive boom in Chicago, and that’s likely due to it’s population concerns. I’d expect prices in Chicago to remain planted around the same range for the foreseeable future. That isn’t bad per se, but it’s certainly a market you wouldn’t want to be in with a short time horizon.
As for inventory, the months of supply in Chicago outpaces the national average by a tiny amount. There’s nothing too surprising in the chart below. We’re seeing this type of pattern in just about every major market in the country.
Chicago Rent Prices
Where the data gets weird is in Chicago’s rent prices. Rent prices in the city have increased by over $500 from 2019 to now. Earlier this year, prices were over $700 higher. Normally, when a population is in decline, rent growth is slow at best, but Chicago seems to have bucked that trend despite having relatively affordable homes, at least compared to the national average.
Obviously, there aren’t enough rental properties on the market, which presents an interesting opportunity for real estate investors to cash flow.
Chicago Cash Flow Prospects
Cash flow has been tough to come by in current economic conditions, but Chicago has a rare opportunity for investors. With home prices below the national average and rental prices that are seemingly overpriced, there’s room for cash flow. Of course, with higher interest rates, it will be harder to cash flow, but the point is that you have more wiggle room here.
In the map above, you’ll see the rent-to-price (RTP) ratio of each ZIP code, which is an indication of cash flow viability. Generally, you want to find an RTP ratio close to 1% when looking for cash flow. In Chicago, most of the best cash flow options are in the South Side. Admittedly, these areas are often subject to high crime rates, so take that as you will. The top ZIP codes in Chicago for RTP are:
- 60621 – Englewood (1.44%)
- 60628 – Roseland (0.96%)
- 60649 – South Shore (0.91%)
Just keep in mind that with higher interest rates, you might find it hard to cash flow, even with these conditions.
Dan Nelson, an investor-friendly real estate agent in Chicago, says he likes “buy-and-hold rental properties for this area. A great number of rental properties have been destroyed to build single-family homes or condos, and no one is building anything but high-end rentals right now, making buy-and-hold rentals extremely valuable. As fewer and fewer rentals become available, rent continues to rise.
House hacking is another great strategy that works well in Chicago. You have the opportunity to invest in a single-family home and rent by the room, or live in a 2-4 unit property and rent to others. If you improve the property while living in it, you will generate more rent and value.”
If you’re interested in learning more about investing in Chicago, partner with a local investor-friendly real estate agent like Dan Nelson, who can guide you through which strategies, tactics, and neighborhoods to focus on.
Here’s how to contact Nelson on Agent Finder:
- Search “Chicago, Illinois”
- Enter your investment criteria
- Select Dan Nelson or other agents you want to contact
Dan and his wife have been investing in properties for the last two decades. They own multiple rental properties and an Airbnb. Dan is happy to share the personal knowledge he’s gained from evaluating properties across Chicago and the surrounding area for so many years. Real estate investing changed their lives…he became an agent to help others learn from his own experience.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.