The Illinois real estate market is quite strong right now; research is pointing to it as a strong contender for the top market in the Midwest. It's a major international airline hub thanks to O'Hare International Airport, in addition to a huge tourist hub for people all over the world looking to splash some cash and have fun.
Economically, Illinois has been ranked #2 in Corporate Investment, surpassing a $1 trillion GDP. The state's economy is starting to flourish, leading to more industry development. In September 2023, Illinois launched a new fund to improve the state's infrastructure and real estate development.
More businesses mean more jobs, and jobs mean more residents. You can be assured great rental income if you carefully choose where to buy your investment property throughout the state - and a DSCR loan can help you get there.
Residential properties and commercial properties will both continue to be in demand, with DSCR loans in Illinois offering investors the perfect opportunity to capitalize on that demand.
This state is following standard market trends, peaking in summer and potentially declining into fall and winter. However, the median home sale price is incredibly affordable, but available home inventory is low. There is currently no threat of a crash, but market time is high for sale listings.
Zillow reports that home values average $252,399, a rise of 3.2% from last year. Their Market Overview goes on to report:
Self-employed investors have an edge when purchasing rental properties, as they can apply for a DSCR loan instead of going through the application process for bank statement loans.
DSCR loans are a great way to get your foot in the door and begin generating rental income, as they offer favorable terms for investment properties and excellent long-term growth.
Redfin analysis reports that Macomb, IL, has the fastest-growing sales prices at 52.2%, closely followed by Fox Lake at 50.7%. The remaining eight are a fair bit behind:
The supply of homes for sale is currently dropping, with Redfin reporting 44,682 as of September 2023, a 25.7% drop. However, demand is growing, with 46.5% of homes purchased over the list price.
With a stable but growing market, it's important for investors to keep a close eye on the market and work with their private lenders to pick out the best markets to invest in.
Debt-service coverage ratio (DSCR) is the metric lenders use to provide an alternative lending solution that real estate investors often prefer to traditional loans. Since investors often have complicated tax returns, DSCR lenders rely on a property's cash flow potential rather than personal income verification.
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Unlike traditional mortgages, DSCR loans rely on the DSCR ratio, which looks at the net operating income of the property rather than personal income. The property's income is divided by the mortgage payment to develop a ratio: a number higher than 1 means that the rental property generates income, while one lower means that it is a net loss. This allows DSCR lenders to understand the property's earning potential and requires little information from borrowers: no tax returns or bank statements here. |
Thanks to the unique qualifications for a DSCR loan, it's much easier for self-employed borrowers to qualify, ensuring that anyone can begin generating rental income without any personal income verification.
DSCR loans in Illinois often have longer repayment plans, leading to lower monthly mortgage payments, and a higher Loan-to-Value ratio means a lower down payment.
Many investors in Illinois use DSCR loans to finance multiple properties, using the leftover rental income to reinvest and build up stronger cash reserves. While DSCR loans may have slightly higher interest rates, 1-2%, borrowers often find the loan terms preferable. A great credit score can also help you access lower interest rates, making this an even better opportunity to develop rental income.
Because DSCR lenders aren't bound by the same underwriting rules as traditional loans, processing times can be as little as a few weeks, allowing investors ample time to close the deal on their new investment property.
Many investors find that a DSCR loan is easier to qualify for than a traditional loan since it judges the property's net operating income against potential debt obligations; in fact, the DSCR loan is the most preferred loan type for investment property, thanks to its lack of personal income information and reliance on the DSCR ratio.
Illinois currently has a median rent of $1,781, though rental income can really be anywhere from $190-$100,000.
However, a DSCR lender will be looking at more than rental income; they will consider the net operating income alongside the following factors:
These factors determine more than if you qualify; they also determine your monthly loan payments, your interest rate, the amount you can borrow, and any prepayment penalties.
Illinois does have fairly rigorous restrictions for landlords, with laws and regulations giving tenants more leverage.
If you decide to rent in Illinois, it's important to understand tenant rights to protect yourself and your investment property. You must also familiarize yourself with Illinois' landlord's rights and responsibilities or consider hiring a property management firm to ensure everything is handled.
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There is far more in the Prairie State than Chicago, but the Windy City is a central hub of activity and financial growth. Currently, the city offers high rental yields with an average rent of $1800. It also has well-developed infrastructure and public transportation, making the city appealing to those with various accessibility needs.
The Chicago market is incredibly stable, with median annual prices increasing over time.
Naperville, IL, was making a strong show in the real estate market for January 2023, with home values well above the median— around $442,000 median list price and $373,300 median sale. That was a 1.7% growth rate from January 2022.
Naperville boasts the best public library system in the nation, alongside gorgeous parks. They are constantly rated as a top community in the US, ranked as the "Best City to Raise a Family" by Niche for three years in a row.
Aurora has a steady renter's market, with 33% of households occupied by renters. Median rent is $1,642, which is more affordable than Chicago while remaining close to the Windy City.
Aurora is just 40 miles out of Chicago, perfect for renters who want access to the hustle and bustle but a peaceful retreat at home. Aurora is a great place for anyone who loves the outdoors, offering experiences like hiking, biking, and boating.
Ottawa is a great city to start on a budget. The median price starts at $155,000, with sold prices up to $183,800. It's just 80 miles out of Chicago and a central location between several cities and tourist attractions— including four separate state parks.
Rockford is a central location with great opportunities for investors on a budget. Median home price is low, but single-family homes appreciate quickly. This promising area provides you with the ability to slowly grow your cash flow over time through steady rental income, which is great for a long-term investment property.
Joilet is the fourth largest city in Illinois. It is home to the original Dairy Queen and often hosts filming crews for added adventure, having been the location for over 100 movies and TV shows.
These are just a taste of the many investment opportunities waiting in Illinois. Are you ready to start earning rental income in the Prairie State?
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Illinois' tourism is recovering well post-pandemic, with the hotel industry breaking pre-pandemic records. Millions of people visit Illinois annually to enjoy a wide array of museums, national parks, historical locations, sporting events, and more. 2022 saw 111 million visitors and $44 billion in revenue, an increase of 14 million travelers and $12 billion in revenue from 2021. |
If you are entering the real estate game, you have a lot of things to learn. One of the best pieces of advice for new investors is to shop around for the right lender and work with an experienced real estate agent.
An agent local to the area you want to invest in will have amazing insight into the market. They can help ensure potential properties are up to standard or help you estimate how much work a home will need to be a successful flip.
A local agent can also be your representative when looking for tenants, saving you much time and effort. You can trust that their agency's contracts are solid and protect your interests as well as the tenants.
Your agent will also be familiar with local contractors and handymen. If something goes wrong on your property, they may have a referral handy so you don't have to spend extra time shopping around.
As your real estate portfolio grows, an agent can also get you in touch with a reputable property management company.
If you aren't local to Illinois, or if you have too many properties to handle alone, property management is a solid investment expense that will enable you to take on more properties and increase your cash flow.
The more you learn about the Illinois region you want to invest in with a DSCR loan, the better time you will have finding tenants for residential properties. You will have a firm idea of the area's amenities for families, young professionals, and happy solos.
Tenants may turn to you for suggestions of things to do when they are new to the area, and it gives you conversation topics while building your local network— Bonus points if you keep an eye on both the major sports teams and the lesser-known, like XFL's Chicago Enforcers.
Your potential tenants may also have questions about the area. School quality, crime rates, and pet friendliness are common questions for potential renters, and you want to provide accurate answers so they find the best area for them to live in.
Additionally, there's a lot to enjoy about Illinois. Everyone deserves some respite to walk the gorgeous trails or check out some fun museums, investors included. Illinois is about more than work and finance; take some time to enjoy yourself.
Check out some of Visio Lending's recently closed DSCR loans in Illinois.
Chicago, IL
Chigago, IL
Jolliet, IL
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Visio Lending is the nation's premier lender for buy and hold investors offering, long-term loans for SFR rental properties, including vacation rentals.