You might have heard stories about a house-flipping empire and assumed it was the best way to make money in real estate. However, it is not as simple as you may believe. Finding the proper house to flip and optimizing your profits at the same time are difficult.
Moreover, flipping houses in Chicago can be profitable if done correctly and at the right time in the real estate market. The city’s population is rising, with many transplants from other parts of Illinois and the country. Chicago’s unemployment rate is lower than that of the rest of the state.
With beautiful summers and a good location along Lake Michigan, Chicago is ideal for those who enjoy the water and a leisurely but urban lifestyle! If you’re thinking about flipping homes in Chicago, you need to do your research first to ensure a profitable investment. Let’s start!
2022 Illinois Housing Market Forecast
2021 was a breakthrough year for the Chicago housing market. Realtors sold more houses than ever, as prices rose at rates not seen since the early 2000s’ real estate boom. According to the Illinois Association of Realtors, the median house sale price in the metropolitan Chicago area increased by over 12% from the previous year.
Low borrowing rates and individuals wishing to make pandemic-inspired transfers to larger homes fueled that desire, as remote working became the norm for many.
2021 is a continuation of what began in 2020 when a large number of people moved since their current residence did not suit their COVID-era lifestyle. They required a bigger space for work at home, learning at home, and exercise at home. There will always be the typical motivation for people to buy new places, such as lifecycle changes, marriage, divorce, becoming an independent adult, and so on.
One factor driving up property prices is the scarcity of available properties. Due to a lack of inventory in 2021, demand easily outperformed supply. Some would-be purchasers who did not want to compete in a bidding war in 2021 may return to the market in 2022.
Related: What Are the Best Ways to Make Money in Real Estate as a Beginner?
Flipping Houses in Chicago: Real Estate Market Analysis
Before you begin investing, you should educate yourself as much as possible about the Illinois housing market. The typical house valuation in the state is $181,100, according to Zillow data, but the median listing and sale prices are $239,900 and $200,200, accordingly. The Illinois property market is tilting against the seller, making it a dream come true for house flippers.
Most house flippers find that home value appreciation rates make it a secure investment if they play their cards well. According to Mashvisor data, houses are on the market for an average of 74 days, which should be considered by both potential buyers and sellers. House flippers want to move quickly, but it may take longer than expected to sell the home in Illinois.
The traditional monthly rental is $2,325, which is more than the national median of $1,485. As a result, Chicago real estate market is excellent for house flippers interested in renting out their houses. Nonetheless, there is no one-size-fits-all rule to follow because the Chicago housing market differs by county and even by community.
The median listing price in Fulton River District, Chicago, for example, is $1,019,379, but only $365,433 in West Loop Gate. Consider teaming up with an expert local real estate agent to learn about the finest housing flipping markets in Chicago and increase your profitability.
Find the best real estate agent for you through Mashvisor’s Real Estate Agents Directory!
How to Determine Chicago Property’s Value
While you may be tempted to buy the first cheap property you come across, you must look at various criteria before making a decision. Aside from price, consider the location and condition of the property. Because your investment home will require some delicate care, ensure that you can recover your investment and profit when you sell the house.
Before purchasing any property, compare it to comparable residences on the market and in the community. If you’re not sure how to do it, hire a real estate professional to conduct a comparative market analysis for the home.
If you want to get the most precise results, try our Real Estate Heatmap tool and Investment Property Calculator!
You should also think about the necessary repairs and how long it will take you to fix the house. These expenses may cause the home to be overpriced. Consider investing in residences with qualities such as a large backyard, a wide kitchen, a fantastic location, and others in high demand among Chicago purchasers.
If you’re a first-time house flipper or are new to the Illinois market, you should seek advice from a local real estate professional when searching for and evaluating potential flipping opportunities.
How to Turn a Profit When Flipping Chicago Property
Making a profit when flipping houses boils down to analyzing the figures and establishing your own limitations to safeguard your ROI. Every investment requires you to learn to balance the level of risk and profit.
Successful house flippers utilize the 70% rule to determine how much they can manage to pay for a house. As per this rule, investors should not spend more than 70% of the property’s After Repair Value (ARV) minus the cost of repairs. If you stick to this rule, you’ll prevent overpaying for a home and end up with a decent ROI.
Assume you want to fix and flip a house in Chicago and sell it for the median price of $298,900. The house requires approximately $50,000 in repairs. Using the 70% rule, multiply $298,900 by 70% to get a total of $209,230, less the $50,000 in renovations. The most you should spend on the property is $159,230.
Even if you are able to secure the property for the said amount, you need to examine the market circumstances, the time it will take to fix your home, and other things that may impact your profit.
Related: Average Return on Investment: Everything You Need to Know
Using Cash vs. Getting a Loan
Paying cash is the greatest way to avoid making a loss when flipping property. You might, however, explore financing your flip with a HELOC, HEL, or mortgage. Examine your real estate investment strategy and finances before pressing the trigger and applying for funding.
Before submitting, keep in mind that you must meet your lender’s minimal standards, such as requiring a down payment, a decent credit history, and consistent earnings. Keep in mind that you’ll be paying principal and interest payments while you fix up the house if you get a loan. After you complete the repairs, you may find yourself advertising your property at an inconvenient time of year and pricing it below your estimated price owing to market swings.
Assume you pay $159,230 for a Chicago home to flip and plan to spend $50,000 on renovations. If you sell it for $298,900, you’ll make a nice $89,670 profit, right? However, after you start working on the property, your contractor finds that it requires structural work, a new roof, and bathroom and kitchen repairs totaling an additional $60,000 in costs. Up to this point, you’ve spent $269,230 preparing the house for sale.
You market the home for $298,900 during the slow season and sell it for $290,000 after discussing with the purchaser. You make a total profit of $20,770. After deducting the $14,800 in closing expenses and about $5,375 in mortgage interest, your possible house flipping profit is only $595.
Before flipping houses in Chicago, consider the investment’s costs and benefits. You may expect to spend a specific amount on renovations, but unanticipated repairs might eat into your profits. You should also keep in mind that financing costs can reduce your net income.
Flipping Houses in Chicago: Potential Risks
What are some of the dangers? Some are instant, while others may be long-term. The epidemic is on everyone’s mind right now.
In some aspects, the virus offers prospects for flipping houses in Chicago. As unemployment in some professions continues high, a large number of foreclosed homes may soon hit the market. However, while the development is positive for investor supply, it does not imply that the market will open up on the sale end.
However, while we don’t yet know how it will affect people buying houses, Chicago has long been a renter’s city; it can mean people will continue to rent for the next year or more. Early data supported the fact; contract closings in Chicago fell down 38% in the first few weeks of broad social distancing.
However, prices in the city have remained relatively stable. It can be due to the functioning economy; it’s also likely that a decline in availability accompanied the decline in demand.
All the aforementioned conditions imply that you should try to sell your house to landlords. Alternatively, you may extend your flipping houses in Chicago strategy and keep it as an investment property for yourself. Another possibility is to do some virtual wholesaling and let another investor handle the repair.
However, if you want to flip rehabbed homes in Chicago, you may see things differently. When fewer residences are on the market, there is less competition to sell yours. There’s no reason to suppose that there won’t be potential homeowners ready and waiting if you undertake a fantastic renovation on a troubled house in a decent community.
Finding a cheap house when flipping houses in Chicago does not guarantee that you will be able to sell it for a significant profit. This is particularly true in Chicago. Not only is each neighborhood unique, but there may be substantial fluctuations in popularity on a block-by-block level. Bucktown’s trendiest neighborhood is suddenly less desired than Avondale. Even if you are in the right places, you may be out of luck.
And, of course, this has nothing to do with residences in neighborhoods that are traditionally bad for flipping houses. There are many amazing offers in Chicago, but if you purchase a home in a poor neighborhood, you won’t make much of a profit, if any at all.
Related: How To Get Access to the MLS Database Without a License
The 3 Best Chicago Neighborhoods to Invest In
Making wise investments is required to become a successful house flipper. The first stage is to identify the state’s hot markets. Whether you’re a novice or an experienced house flipper, you need to know the finest spots when flipping houses in Chicago. Mashvisor provides the data below:
1. East Ukrainian Village, Cook County
- Listings for Sale: 33
- Median Property Price: $532,519
- Days on Market: 35
- Traditional Rental Listings: 175
- Traditional Rental Income: $2,151
- Traditional Cash on Cash Return: 1.43%
- Price to Rent Ratio: 21%
- Airbnb Listings: 311
- Airbnb Rental Income: $2,876
- Airbnb Cash on Cash Return: 1.94%
- Airbnb Daily Rate: $180
- Airbnb Occupancy Rate: 63%
2. Greektown, Cook County
- Listings for Sale: 55
- Median Property Price: $922,334
- Days on Market: 76
- Traditional Rental Listings: 276
- Traditional Rental Income: $2,719
- Traditional Cash on Cash Return: 0.74%
- Price to Rent Ratio: 28%
- Airbnb Listings: 292
- Airbnb Rental Income: $3,960
- Airbnb Cash on Cash Return: 1.11%
- Airbnb Daily Rate: $199
- Airbnb Occupancy Rate: 62%
3. Near North, Cook County
- Listings for Sale: 165
- Median Property Price: $787,308
- Days on Market: 100
- Traditional Rental Listings: 961
- Traditional Rental Income: $3,469
- Traditional Cash on Cash Return: 0.72%
- Price to Rent Ratio: 23%
- Airbnb Listings: 316
- Airbnb Rental Income: $4,503
- Airbnb Cash on Cash Return: 1.11%
- Airbnb Daily Rate: $243
- Airbnb Occupancy Rate: 61%
Creating a house flipping business will require crunching figures and locating the finest places to acquire property. Both novice and experienced house flippers who want to enter the Chicago market should consider dealing with a seasoned realtor.
When flipping houses in Chicago, you must remember that Chicago is constantly evolving, and new demands cause it to change even more. You can benefit from competent training and solid guidance. In order to expand your professional real estate investment firm, you may always use a true professional to discuss with, listen to, and exchange ideas with.
As always, Mashvisor is here to help you! There is no need to enter the real estate investment market carelessly. Mashivor wants to make sure you have all of the information you need when deciding on flipping houses in Chicago and that you make the proper selection for your financial progress. Start today by clicking here.
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