Have you ever found yourself wandering down a Chicago street when you notice a large red “For Rent” sign and think: “Hey, I could do that”?
Chicago is one of the nation’s most bustling rental markets. And while large, multi-unit apartment complexes are common, much of the area’s rental stock also comes from smaller buildings. According to recent research from the Institute for Housing Studies at DePaul University, for instance, 2-4 unit buildings comprise about 27 percent of the total housing stock in Chicago.
Here in Chicago, it’s easy to see the appeal of purchasing or renovating a building for the purposes of renting it out. Many people view becoming a landlord as a sound and manageable first step on the path to greater and more lucrative real estate investment opportunities. Many associate being a landlord with earning a robust, passive income, while also benefiting from the appreciation of a property and the availability of certain tax advantages.
On the other hand, it’s important to remember the many challenges that can along with being a landlord as well. Investing in a rental property and maintaining it over time can be an expensive proposition. At the same time, you may face the possibility of having trouble with future tenants, performing extensive property maintenance and repairs, and sinking time into your new responsibilities, as well.
Whether you’re considering renting out a room; leasing out a carriage house or one floor of a two-flat; or even moving on and renting out your single-family home for income, it’s important to remember all that goes into being a Chicago landlord – legally, financially, and personally. Here are five things to consider as you weigh whether or not becoming a landlord is the right move for you:
1.) Can You Manage the Financial Side of Things?
There are many different costs and fees associated with renting out a space; some are evident and obvious, and others are less easy to plan for. At various points, owning a rental property and serving as a landlord may mean dealing with costs including:
- Purchasing the investment property
- Covering holding costs (in the time between tenants)
- Repair and maintenance fees
- Management company fees, if using
- Rental company fees, if using
- Performing background checks and credit searches
- Property taxes and assessments
It may prove important to work with a knowledgeable and experienced local professional, who can help you understand the fees associated with owning a rental property in Chicago, allowing you to get a sense of whether you’re financially ready for this significant undertaking.
2.) Are You Ready to Do Your Research?
The journey towards becoming a successful and financially secure landlord is not always cut and dry. For beginners, it’s important to note that there are many moving parts. There’s going to be a lot to learn, and, as U.S. News & World Report points out, the learning curve can be steep, since “being a landlord isn’t as simple as renting out your condo to someone.”
For example, it’s essential for landlords to understand the state, local, and federal laws that may play a role in the rental process, for themselves and for their future tenants. In Chicago, for instance, this may mean thoroughly reading and understanding the Residential Landlord and Tenant Ordinance (RLTO); getting a handle on state laws on security deposits, rent rules, and disclosures; and having a working knowledge of federal laws on fair housing and anti-discrimination policies. Working with an experienced local real estate attorney can help you get a handle on the rules and laws you need to know, and provide guidance if you run into any issues or confusion down the line.
In addition to understanding the laws governing your responsibilities and limitations as a landIord, it’s also important to understand your local real estate market. Is investing in property in your area a good idea? Do you understand the finer points of the rental market? For instance, are rental rates in your area sufficient enough for you to meet your financial goals? Is there a lot of competition, or consumer demand?
3.) Are You Prepared to Expect the Unexpected?
Ask any experienced landlord, and they’re bound to have countless stories to tell you about the burdens they’ve faced along the way. From a distance, those stories can be funny and entertaining – but they can be a lot less enjoyable in the moment, when they’re happening to you.
When you take over a rental property, it’s important to consider all that you may be in for, including the unexpected ups and downs that can impact your finances, your investment, and your lifestyle.
For instance? As a landlord in Chicago, it is your responsibility to make sure a space is habitable. That’s going to mean performing routine, ongoing maintenance throughout the year, as well as potentially answering frantic messages or dealing with unforeseen issues, often at inopportune times. You could get a call in the middle of the night that the heat isn’t working; that the bathtub is overflowing; that floorboards are collapsing. Dealing with these issues may be your responsibility, if you’re managing repairs on your own. Handling these issues as they arise could be an imposition on your time, and run up costs that you’ll have to cover.
Beyond making repairs and handling maintenance, there are any number of situations that could arise over time. For instance, you might find yourself in a dispute with a tenant. Are you in a position to deal with these complications as they come up? Or to perform an extensive search before renting out the unit, in order to mitigate the potential for a bad situation down the line? Similarly, can you handle vacancies, or periods where the unit goes unoccupied?
4.) Do You Know Your Capabilities And Your Limits?
At every stage – from investing in a property, to navigating the rental market, to dealing with tenants, to managing repairs and upkeep – it’s important to realistically consider what can you handle on your own.
As a landlord, it’s key to think like a business owner. After all, being a landlord is a business, so it’s important to treat it as such. Do you have the time, energy, and capability to deal with issues as they come up? If you don’t have the bandwidth to be hands-on about finding tenants, managing your finances, or handling ongoing maintenance, can you afford to hire people who do? Just as importantly, will you be able to make difficult decisions along the way? And can you reason with your head, rather than your heart? As the Chicago Tribune once put it:
“Landlords with soft hearts are easy prey for unscrupulous tenants. These landlords give their tenants countless breaks when they can’t come up with their rental payments on time. Soon, the tenants take these breaks for granted, and rent money that’s supposed to come in on the first of the month rarely arrives before the 15th. They also resist filing eviction notices against bad tenants, often buying their renters’ hard-luck stories. Other soft-hearted landlords may rent their available rooms to friends, even though they know that these friends have money problems or erratic employment histories.”
5.) Will You Be Able to Build the Right Team?
As a landlord, it may prove critical to surround yourself with local experts who can help make the process easier, at every step of the way. Depending on your circumstances, this may mean:
- Retaining a building superintendent or maintenance staff to handle repairs and upkeep
- Hiring a professional rental agency or real estate broker to handle marketing and finding new tenants
- Consulting with a real estate attorney to offer guidance on all of the legal matters that can come up, from navigating tenant disputes, to beginning the eviction process on sound footing, to understanding security deposits, fair market rents, retaliation, and other relevant rental laws
Want to Explore Your Next Steps?
Weighing the pros and cons of becoming a Chicago landlord, and not sure where to go next? Want an experienced legal professional’s insight on real estate investing in Chicagoland? Want to discuss an issue, or learn more about a specific scenario in more depth?
Whatever your Chicagoland real estate needs, don’t hesitate to get in touch with the attorneys and staff of the Gunderson Law Firm to keep the conversation going. Our team possesses unmatched professional expertise and insight, reinforced by years of experience and long-term connections throughout Chicago’s real estate, finance, title, and insurance industries. Our full range of real estate legal services includes:
- Residential Real Estate
- Commercial Real Estate
- Purchases and Sales
- 1031 Tax-Free Exchanges
- Mortgage Conveyancing & Advice
- Real Estate Litigation
- Title Insurance
- Title Examinations & Disputes
- Asset Protection / Trusts
- Estate Planning / Wills
- Reverse Mortgages
- Property Development
- Condominium Law
Have any questions? Don’t hesitate to get in touch whenever you’re ready to talk shop.