Flipping houses in Chicago is becoming trickier, but headwinds don’t necessarily negate the potential returns. Locating properties discounted enough to allow wiggle room for closing costs and renovations, and of course, a high return on investment at resale can be difficult. On average, the gross flipping return in the U.S. is 47.7 percent, not including the costs eaten up by upgrades and fees. Experts estimate these incidentals cost between 20 and 33 percent of the property’s post-repair value.

In the Chicago MSA, flipped homes represent just 4.1 percent of all homes for sale (Q3 2017), according to ATTOM Data Solutions. Over three-quarters of flipped homes are purchased with all-cash, helping investors get an even deeper discount and avoid any interest or mortgage origination fees. And, the average gross ROI when flipping houses in Chicago is 76.7 percent – far above the national norm. Between 2016 and 2017, the frequency of flipping houses in Chicago rose just 1 percent. Darren Blomquist, senior vice president of communications at ATTOM, says flipping can create problems for a real estate market when it reaches 7 or 8 percent of all home sales.

The return on investment is high and Chicago is far from an overheated real estate market due to flips, but that doesn’t mean you should jump in with two feet without some due diligence first. Use these three tips as a jumping off point to see if flipping houses in Chicago align with your investment goals.

Don’t limit your prospects

Prior to 2008, foreclosure properties weren’t as prevalent, often seen in a seriously dilapidated condition or abandoned altogether. As such, the banks priced these properties to sell, typically attracting investors who would renovate them back to a livable state and profit from their work. But since the recession and the rise of foreclosure occurrences across Chicago (and nationwide), it’s not uncommon to find foreclosed homes that are also well-maintained and/or upgraded. Don’t expect to see $50,000 or more slashed off the asking price on a perfectly good home just because the previous owner encountered financial trouble. Further, expand your search to include all seller types: traditional, REO and short sales. An older home owned free-and-clear that’s also in need of updating might be cheaper than its renovated counterpart that happens to be bank-owned. In fact, only 38.8 percent of U.S. homes flipped in Q3 2017 were purchased in some stage of foreclosure or as bank-owned properties, down from 43.9 percent one year ago. Further, just because a property is off the market doesn’t mean it’s off the table. If there’s a particular building you want to invest in but no available listings that match your search, your real estate agent should reach out directly to current owners to see if they are interested in selling. Ideally, an off-market deal helps the current owner save on marketing costs and you evade homebuyer competition that can drive up the price.

Gauge resale value

Your real estate agent should run the comps to decide not only a strong purchase price to include in your offer but an estimated market value when all is said and done. In the top five most profitable flipping markets, including Pittsburgh, Baton Rouge, Philadelphia, Baltimore, and Cleveland, the average discount investors purchase their flipped properties for is 43.9 percent. Note that the average premium above market value flippers sell for in those markets is 10.2 percent. And, the average profit or value added to homes in those markets is $162,000.

Investors looking to flip a median-priced condo in the West Loop, for instance, might set their target purchase price at $220,193 to ensure maximum returns, based on the most recent real estate stats. Keep in mind, that’s simply a starting point to gauge if flipping is financially feasible. Your purchase price, discount, and ROI will fluctuate depending on the season, home type, condition, square footage, and neighborhood.

Set a timeline

Flipping houses in Chicago takes an average of 193 days compared to the national average of 181 days. But, the total time from closing-to-closing could wind up significantly longer if you fail to get your ducks in a row ahead of time. Seasoned investors who see success flipping houses in Chicago typically have a team of inspectors and contractors ready to go. As a first-time flipper, you’ll need to do some research before you settle on the right professionals who can help execute the renovations, hopefully at a reduced price if you agree to a long-term relationship. Ask your Chicago real estate agent for recommendations – he or she might have the right industry contacts to help remodeling and material costs in check without sacrificing quality or outcome.

In addition, when using a conventional investor loan, which typically requires at least 25 percent down upfront, make sure to account for the minimum closing period at purchase. Cash buyers who waive their contingencies can close and get started on renovations much sooner. Don’t forget about your future buyer’s close timeline, either. Over one-quarter of flipped homes sold in the top five flipping markets go to all-cash buyers (often other investors), who can close the deal in sometimes just a few days. On the other hand, 22.1 percent sold for FHA buyers. The average closing time for a buyer using a mortgage is 45 days.

Flipping houses in Chicago is not as easy as it looks on television. Because most of the downtown Chicago area is considered a seller’s market, finding a deal can be tough. Still, many Chicago investors see opportunity in modernizing older condos and homes in emerging submarkets to appeal to today’s homebuyer. You might be surprised at how many are willing to pay a hefty premium for modern interior design, smart home technology, and a convenient location.