Posted by: union03g | January 8, 2010

The Problem With Lincoln Park Investment Properties

Below is a listing for a wood frame 2 flat that needs some TLC at Wrightwood and Mildred. The issue that I find with investment properties in LP is that its extremely hard to find cap rates above 8%. The quick measure of this cap rate is defined by annual income divided by sale price (using estimates for both). I find that LP will always command 7% or below, usually coming in close to 6%. Returns get worse when you net out expenses like insurance, repairs, vacancy, cleaning, higher interest for a jumbo loan, a new back deck within 3 years, taxes.

I would expect to find much better deals (and a looser market) along the blue line (ex wicker/bucktown) and in Uptown where the neighborhoods aren’t so mature (and buyers tend to be under more duress). These emerging neighborhoods can provide investments with up to 14% cap rates if you look hard enough and they are better positioned for appreciation.

I doubt LP will appreciate over 5% a year, even in good years. So now you own a property in LP and your cap rate isn’t that great, your hoping the property floats itself and appreciation is steady but small – but hey, you’ll rent it with no problem, sell it with no problem and its got way more downside protection in bad years. This need for ROI is the exact issue that drives investors to collar neighborhoods when real estate is trusted as a healthy investment.

Don’t get me wrong, I would love to own an investment property in Lincoln Park but there’s no reason for the seller to cut me a deal – thus there is no good entrance.

Good hunting!


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