Owning real estate is a long-term investment in itself, but listing your Chicago condo for rent to cover mortgage costs or generate passive income is a short-term financial opportunity pursued by many. One quick scan through the thousands of private condos for rent in Chicago proves just how many homeowners today embrace the role of the landlord as a side gig or full-time business.
While becoming a landlord to one or several units is hardly an innovative real estate investment practice, not everyone is cut out for the job. Before listing your Chicago condo for rent, take a few minutes to learn what it takes to circumvent mishaps and ensure success.
Check your by-laws
The rise in popularity of Airbnb has led to some major issues in condominium complexes across Chicago. While homeowners see Airbnb as an easy way to make extra money off a spare room or entire residence, many multi-unit residential buildings strictly prohibit short-term leases. Some HOA boards may require a lease duration minimum of six months or more to dissuade vacation rental listings.
It’s also wise to check if your building is at its rental cap, which is the number of units on the property that can be leased out at any given time. Take note of whether pets are allowed, including possible breed or size restrictions. Some associations also require owner occupancy for a minimum of two years before the unit can be leased. If the by-laws allow you to move forward with listing your Chicago condo for rent, make sure to notify your condo board members of your intentions. Aside from being courteous, there are usually move-in and move-out deposits required to cover any damages to the elevator or common spaces.
Analyze your financials
Many homeowners need equity in their current home to cover the cost of their next down payment. Others foresee better opportunity selling, whether that be due to an oversaturated rental market or high homebuyer demand. However, if you already purchased another home and want to continue building equity in your first condo, consider becoming a landlord. You won’t necessarily make thousands in passive income every month, especially if you don’t own the home free and clear (yet). Depending on your equity in the home, you might only generate enough rental income to cover the cost of your mortgage, Homeowners Association (HOA) dues and property taxes. Even so, landlords with mortgages see the benefit in putting that cash into an asset that will normally grow more valuable with time.
Know your strengths (and your limitations)
Unless you’ve been renting out homes for years, the due diligence involved with being a landlord is somewhat daunting. If you’re not good with pricing or marketing the home to attract qualified tenants, it’s best to hire a Realtor who has extensive experience with listing rental properties in Chicago and screening tenants. Unfortunately, agents who put forth the bare minimum for rental listings, using grainy cell phone photos on the MLS and risking months of vacancy and lost rent, are not uncommon. In addition to listing on the MLS, look for a respectable real estate agent willing to hire a professional photographer, advertise across every major rental search engine and one who offers social media marketing skills. Real estate agents who have a long list of past rental clients are an added bonus – they may have already had a relationship with the potential tenant(s). You might choose to use the same real estate agent who helped you purchase the home in the first place, but there’s no harm in asking the right questions to set expectations and gauge their level of expertise in the rental market specifically.
Similarly, if you simply don’t have the time or patience to handle maintenance requests or potential problems, consider hiring a property manager. Hiring out will diminish your monthly revenue, so many landlords who still live nearby will take on the responsibility themselves to cut costs. Keep in mind, some wear-and-tear in rentals is inevitable and you will probably face necessary repairs more frequently than you did when you were the resident. Factoring in any possible incidentals is a must when budgeting for your rental property.
Assess the rental value
Your rental agent can help you price the property right based on the current market, but what if that rate does little to cover even your fundamental expenses? For instance, the median one-bedroom rent in Lincoln Park is currently $1,510 per month. If your one-bedroom condo is par for the course in terms of size and style, and your mortgage is upwards of $1,600 with taxes and HOA dues considered, you’ll end up paying an additional $90 out of pocket every month, not including possible commissions, property management fees or ongoing repair costs. As of February 2018, the current median price for a one-bedroom rental in Chicago is $1,550 per month, down 14.4 percent year-over-year. Two bedrooms are $2,070 per month, down 13.8 percent since last year (Zumper).
Read up on the laws
The city of Chicago takes renter’s rights seriously – as should you if you plan to become a landlord. According to the Residential and Landlord Tenant (RLT) Ordinance, every landlord must give at least 48 hours’ notice before entering the unit. That means no surprise check-ins and any necessary visits must be notified in writing (recommended) or over the phone unless there’s a serious emergency such as a burst pipe. If an emergency occurs, the landlord must still provide notice they entered the property up to two days following the incident.
If you charge a security deposit, you must provide a receipt with all parties’ names, date signed and description of the unit. This should be signed by your tenant. If the tenant(s) cause damages requiring you to withhold a portion or all of the security deposit after their lease ends, you must provide an itemized statement of repairs within 30 days of the date the tenant(s) vacated the unit. Further, you must return the security deposit and any required interest minus unpaid rent and expenses for damages within 45 days from the lease termination and move out date. Landlords who own 25 or more rental units in one location are required to place their tenants’ security deposits or prepaid rent in an interest-bearing account (at a current rate of 0.01 percent), assuming the money is held for more than six months. That’s why many professionally-managed apartment buildings in Chicago charge a non-refundable “administrative fee” instead of a refundable security deposit. Keeping track of occupants’ accrued security deposit interest, albeit nominal, can be a major headache for big-time landlords.
Need help renting out your Chicago condo? Z Chicago offers marketing tools and pricing expertise to minimize vacancy and attract qualified tenants. Contact our office today to schedule a free in-person or phone consultation.
