The Biggest Opportunity I've Seen- Part One Chicago Real Estate
So if you read my last post, The Death of the American Dream- The Only Way Out, you may think that I am just buying 10 gallon jugs of water and canned foods and hunkering down in my bomb shelter to wait out the destruction of the middle class and the coming financial meltdown. Luckily, hidden within the chaos and massive broad scale unsound monetary practices, I have identified THE BIGGEST OPPORTUNITY that I have seen in my 13 year career in the real estate career, we will get to that on a moment but first a short story to explain how I vetted out this opportunity.
14 Days of Pure Hell
There was a noticeable shake of adrenaline pulsing through my temples as I began to feel the effects of the 3 cold brew coffees I had just ingested. I was frantically slamming through the flash card app on my phone, studying for my Florida real estate license to continue expanding my business into new markets as I saw opportunities in Arizona and Washington State drying up and yields on investment property being obliterated, even in the cheapest interest rate environment that we have ever seen.
Taking a quick reprieve from the madness of learning tax stamp rates on real estate in Florida for my exam, a quick google search informed me that with a Florida real estate license, I could forego all the education requirements of getting a license in Illinois and only have to take the state portion of the exam. Naturally I went ahead and scheduled that exam for one week from the day of my Florida exam and crammed for two straight weeks like a madman on a stimulant binge (Something I would not recommend to anyone) and two weeks later, I was in position to expand to both Florida and Illinois. I’d like to thank my wife for not divorcing me during this time period which I could not have blamed her for, so here is to you Nicole!
Stumbling Upon America’s Second City Gold Rush
As I waited for all my paperwork to go through for my expansion into Illinois, I decided to do my patented deep dive into the Chicago real estate market and listened to podcasts, tirelessly researched areas on real estate websites and tried to pick out any market opportunities that might be hiding in the weeds. What I quickly noticed was that the opportunities were MASSIVE, the deals were in plain sight and more digging was needed to figure out just how the hell I could be missing out on opportunities that seemed to be sitting right in front of me in plain sight.
The first thing I noticed was the fact that rental yields, especially in some of the up and coming areas of Chicago were absolutely incredible. The markets I work in Seattle and Phoenix could not hold a candle to Chicago’s neighborhoods in terms of cashflow, and the lagging appreciation in the Chicago market provided opportunities that were simply unavailable in higher priced appreciation driven markets.
This got my fire burning as I have a long term vision for real estate as an investment and while many of my colleagues have struck it rich over the years playing the buy and flip game while neglecting a more long term buy and hold strategy, I know from experience that that is a model that is not sustainable and building a cash flow focused business is the true path to long term financial prosperity and freedom. I knew within about two weeks of pulling all nighters, analyzing and over analyzing every idea I’d come across, that Chicago was going to be the city where I made my fortune and will build my legacy.
Multi-Family Real Estate Investment
When starting a business venture many great entrepreneurs seek to find a need, design a product or service that addresses that need and then move to produce, market and sell their idea to the masses. Some will succeed, most will not, however there are a few proven methods of wealth creation that provide a much higher probability of success. Multi-Family real estate investing is one of those niches that tends to be much more predictable and remains stable throughout market downturns, provided that the investor does not over leverage themselves and properly manages their portfolio through good times and bad. There are two paths that investors can choose to take and a hybrid path in the middle.
The Appreciation Approach- Speculative Investors
In this approach, speculative investors flood into the market buying up assets in areas where they believe prices are likely to go up exponentially and by either improving properties and/or waiting for the market to improve the values. Their exit plan is to buy low and sell high, not worrying about cash flow in the meantime as long as they believe they can pay the bills and keep the lights on until they are able to sell and take profit.
This method can be very lucrative, however it also carries more risk as a market shift can wipe out any potential gain and even drawn down the asset value creating a situation where the investor is losing money every month paying his expenses on an asset that he cannot sell for what he paid for it. Some investors can ride out the storm, however many will succumb to short sell the home at a loss or worse be foreclosed on when they decide to jump ship and let the bank take back the property through foreclosure. In our current market I would not advise this method to investors in most markets, especially those in overinflated markets like NYC, San Francisco and Seattle were prices have very clearly peaked. But in some markets, opportunities still exist, more on that later.
The Cash Flow Method- Buy and Hold Investors.
The second set of investors is where I see a lot of opportunity even with real estate prices in many markets at or near they highs from 10 years ago and not so sunny market forecasts on the horizon. Take a look at where the big players are putting their money and you will see how there has been a massive investment into single family and multi family rental property that is creating a generation of renters instead of buyers as homes are being gobbled up and rented at unprecedented rates. Luckily this pressure that is being put on the middle class is also an opportunity for smaller investors like you and I, who can shun the idea of investing in that $500,000 home and instead buy a few multi family properties that produce thousands of dollars a month in cashflow while paying for themselves. We will cover some of these great opportunities here soon and also explain the new hidden tax cut that is enabling these investors to exit these investments in 10 years time and do so paying 0 tax! In the meantime many of these investors can procure 4-5 of these properties and create an income that can replace their jobs income, providing them the freedom of time and location that so many investors seek in the first place.
The Hybrid Method- Cash Now, Tax-Free Windfall later
The hybrid method is one that allows investors to enjoy the benefits of cashflow on their investments now, with a clear exit strategy setup in the future. This method is best implemented in up and coming or “gentrifying” areas where your values may not be shooting up in a year but 10 years down the line, these neighborhoods that used to be C class neighborhoods, may now be B class neighborhoods. Your cashflow may be lower than the straight cash-flow method, your windfall won’t happen soon, but this method balances the best of both worlds. I would advise my clients to look for great cash flow potential properties that are along transportation routes in the path of progress where the neighborhoods are likely to improve in the next decade.
In tomorrows post, get ready to have your mind blown with a program that has a very limited window to take advantage of, but that could provide you with tax deferral on your current investments and more importantly a tax-free exit strategy that can fund your retirement!