I ran the numbers on a two-bedroom at 1140 W Madison about eighteen months ago for an investor client. Purchase price around $415K. Rents in the building were hitting $2,800 to $2,900. On a spreadsheet, the cap rate looked solid enough to move forward.
We didn't buy it. Here's why.
The HOA was $680 a month and had gone up twice in three years. The building had a special assessment on the horizon for facade work. And the tax bill, once reassessed at the sale price, was going to jump by a few hundred bucks a month. None of that shows up in a quick rent-to-price ratio.
I see this pattern a lot with investors who are new to the West Loop. They pull comps on rent, divide by purchase price, and get excited. But Chicago's property tax structure punishes you on the back end if you don't plan for reassessment. Cook County reassesses every three years for the city, and the jump after a sale can be significant. I've seen post-sale tax increases eat 15 to 20 percent of projected cash flow.
Then there's the HOA question. A low HOA in a newer building might look attractive, but sometimes that means the reserves are underfunded. A high HOA might actually signal better management and fewer surprises. You have to read the financials, not just the number on the listing sheet. I'll say this plainly: most investors I talk to skip the reserve study. That's a mistake.
The strategy I've watched work in the West Loop is buying in smaller buildings (think 12 to 30 units) along streets like Monroe or Adams west of Halsted. Less flash than Fulton Market corridor towers, lower HOAs, and tenants who stick around longer because they're not chasing the newest rooftop deck. Turnover costs money. A tenant who renews saves you a month of vacancy and a leasing fee.
One thing I always tell investor clients: run your numbers with the worst-case tax bill, not the current one. If the deal still works with a reassessed tax number and one month of vacancy per year, it's probably a real deal. If it only works under perfect conditions, you're buying a hope, not an investment.
What did that Madison Street unit end up doing? Sold to someone else. Last I checked, the building did get that special assessment six months later.