Investors: Market offers great opportunities
During the real estate boom that dominated the early years of this decade, millions of Americans fell in love with real estate as an investment, and why not? Properties were appreciating at an almost unprecedented pace, borrowing was easy and interest rates were low.
As values shot upwards, flipping residential real estate for profit was seen as a fast route to riches.
"The average American probably thinks that given the slower pace at which real estate is appreciating and selling, investment in residential real estate has come to a halt," said Jim Merrion, regional director of RE/MAX Northern Illinois. "While investment activity has declined, there is still a vibrant investment market out there. It's an excellent time to invest, with interest rates at attractive levels and a great selection of properties for sale."
Because real estate markets can be quite different in communities that are only a few miles apart, investor behavior can vary widely.
"We are seeing strong demand for multiunit buildings (usually four units or more) that can be converted into condominiums and for two-flats that can be converted into single-family homes," Miller said. "In our area, investors tend to be quite experienced. They know how important it is to find the right property, one that will sell quickly once it is converted."
A few years ago, any property in the right neighborhood could attract investors, Miller explained, but now there is greater selectivity. For instance, a two-flat on a 25-foot lot or one that is only two or three doors from a busy main street might be viewed as too risky today to convert into a single-family residence.
On the southwest side of Chicago, the situation is considerably different, Alejandra Benitez of RE/MAX Partners in Berwyn said.
"Small groups of investors pool their money to acquire two-flats, especially in neighborhoods along I-55 and near Midway Airport," she said.
"These investors plan to rent out the homes for a few years until prices start to appreciate more rapidly, then rehab the properties and sell. They are confident in the safety of their investment and its long-term potential.
"In some cases they are buying foreclosures at low prices, and they like that," she said.
The interest in properties going through foreclosure extends to the south suburbs, according to Mike Dzik of RE/MAX Professionals in Bolingbrook.
"The investors seeking these properties usually are experienced. Most are buying single-family homes or townhouses to fix up and resell relatively quickly," Dzik said. "Typically, they buy not just one home but several."
He urges investors to keep in mind that sales of comparable properties that closed even two months earlier may not be a reliable guide to what price a similar home can command today.
"Investors need patience now to make sure they find the right property," Dzik said. "You want something with an attractive location and in solid structural condition. You also want to buy in an area where there are only a limited number of other homes for sale. If you have 5 percent of the homes in a subdivision on the market at the same time, it puts all the sellers at a major disadvantage."
If experienced investors are the dominant factor in some communities, in others the less experienced investor is still finding a toehold.
"I'm seeing a lot of interest from young couples who want to buy now, live in the property for a couple of years and then move to a larger home while retaining the first property as an income generating rental unit," Laura Giunti of RE/MAX Associates West in Bartlett said.
Typically, these investors want to purchase a townhouse or a small single-family home. Such properties usually won't require a lot of work to maintain over the years and should be fairly easy to rent, according to Giunti.
"I try to give new investors advice on how to approach the transition from resident to landlord, and the thing I really stress is the importance of finding the right tenant," Giunti said. "Ideally, you want a tenant who will stay for at least two years, and preferably longer, and it is great to find a tenant who has skills and willingness to repair things when problems arise. I also tell them not to worry too much about credit scores. Often, renters with weak credit are so grateful for getting a nice home that they make outstanding tenants."
n Is the location likely to prove attractive to renters, with good transportation access?
n What kind of fix-up might be required and what will it cost?
n Does the property generate a positive cash flow when expenses are subtracted from rental income?
n Does the investor have sufficient cash reserves to deal with a situation where the property is not generating rent for three to six months?
Experienced real estate agents often help new investors understand how to be successful landlords, but even local government is lending a hand, reports Dominguez.
"The long-term value of a real estate investment is going to be strongly impacted by what is happening in the local community. Are the local schools good? Is there adequate access to stores and services? Is the local economy generating jobs? Are the homes in the neighborhood being well maintained? Those are the kinds of questions to ask before you invest, not afterwards," Weber said.
"Invest near where you live because that makes it easier to deal with repairs, handle the maintenance and rent the property. Also it makes it easier for you to be a responsive landlord, and that helps you retain your tenants, which often is the key to a successful real estate investment."
RE/MAX offices are leaders in northern Illinois real estate sales and have been No. 1 in residential sales in the Chicago metropolitan area since 1989. In 2006, RE/MAX northern Illinois affiliates closed more than $15 billion in sales.
The RE/MAX network in northern Illinois, currently marking its 30th anniversary, consists of 4,200 associates and 169 individually owned and operated offices providing residential, relocation and commercial real estate services throughout the northern third of Illinois. Visit www.illinois property.com for more information.
From real estate press releases