All Forum Posts by: John Clark

Originally posted by @Melissa Rios:

Sending you a PM; I charge below market rate on two independent properties, for two completely different reasons.   

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Thanks, but I have a regular (non-paying) account. I don't think I can be PM'd.

(plus a small 7x7 den room that doesn't have a closet so tech not 2nd bedroom)

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City code does not require a closet for a second bedroom, so it may qualify as one depending on other factors. I believe the MLS requires a closet to be counted as a bedroom, but that's not legally binding on you.

Personally, I would simply say it's a one bedroom with a den. just as you are planning. It makes you sound more credible, since only an infant's nursery could really use a space so small.

Given the push for rent control schemes in Illinois -- and no doubt elsewhere -- to limit year-over-year rent increases regardless of a change of tenants, or to "preserve" as rent controlled an apartment where a prior tenant received a controlled rent (for whatever reason), it occurred to me that it might be useful to collect actual situations where you, the landlord, kept/allowed a rent to become/remain below market. I'm open to suggestions, but I'm thinking that collecting information that states:

a. your generic location (Chicago proper (N, S, E, W?), Chicago suburbs (as specific as you can), elsewhere;

b. the reason for you not raising the rent (your friend, honoring parents' wishes, just a really good tenant on a tight budget, saved your life in the war, soft-hearted, fronted you the down payment for the apartment so working it off, vacancies cost more, don't need the money, etc. -- whatever);

c. the dollar amount per month between what you charge and what the market rate would be, and;

d. the percentage amount below market of what you charge compared to market rates.

My feeling is that if we can gather a body of -- ultimately verifiable -- evidence of landlords charging below market rates, we'd be better able to insist on vacancy decontrol or other measures that would prevent some young thug stranger from free-loading on your kindness to a good tenant who'd fallen on hard times, or whatever.

First things first: How much are your "limited funds" and of those funds, how much do you want to commit to down payment and closing costs.

Second: Define "decent area." Chicago does not stop at the South Loop. If you're looking only at the North Side, you are missing out. Southwest side can be good.

Third: Check your bank. What amounts of mortgage, and what kinds of mortgage do you qualify for? There are FHA mortgages, and 243(k) (?) loans (that include funds for repairs), with low down payments.

My suggestion is to get your financial house in order -- know your resources, talk to your lenders as to funding limits and programs they handle, time to process, etc. Know your financial limits, and THEN go to a real estate agent or other source for leads on what's on the market and find places that match your criteria, including your immediate and middle-term lifestyle aspirations. Nobody can give you meaningful advice when your details are limited to "house hack," "limited funds," and "decent area."

Good luck.

I would hope that your friend filed criminal charges against the tenant. Also, he should call his general business insurance carrier and see if it's covered.

1. Talk to the neighbors. Do any of them want a side lot? Accessory Dwelling Units will soon become legal in Chicago. A neighbor might want to make some money from putting an ADU on it, or at least preventing the lot from being developed in a way that person doesn't like.

2. Find out what is selling in the area and for how much. Also, find out who is building in the area. Go to the builder, offer a deal: Build a house on speculation you supply the land, he supplies the house. No, you will not get half of the profits, but you'll get a chunk of them, enough to cover your nut.

3.

"So I know what I am paying for and can determine where I want to spend my money."
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Your statement does not bear scrutiny, @Nicholas Alexander. If you're spending $20k on a floor, let's say, and quality is the same, why do you care whether the contractor got the materials for $8k and labor for $12k, or whether he got the materials for $12k and the labor is $8k?  Sorry, but "where" you spend your money has meaning in terms of "better bathrooms" as opposed to "soundproofing walls" as opposed to "better kitchens." If quality is the same, then the materials/labor cost ratio is irrelevant. You got X level of quality for Y dollars on Z project. The proportions of the Y dollars is irrelevant. You conflate quality concerns with materials costs.

As another poster pointed out: If the rent is $1,000/month would you tell him that your out-of-pocket costs were only $900/month? Would you then further tell him how much was mortgage, and taxes, and whatnot, and how much was return on your investment?

In short, should I ask you how much you pay for Lexis, when another lawyer uses WestLaw? What about you using a live receptionist when the other guy has a 24/7 answering service? What possible difference could it make to me, if both of you have the same bill for me at the end of the month, and your legal quality and results were the same?

"He promised that he could get things done in two weeks, and can start fairly early. . . . A feedback that I got from another local investor is that this guy . . . can be a bit sloppy . . ."

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Slop kills time, so this guy's two weeks is out the window. You are  going to live in the unit being remodeled, and no doubt rent it out in the future, or maybe sell the building.  You get sloppy work and are aggravated while living there, and it reduces your rent/sale value later on, or you blow your "two weeks." Worst case scenario is that you blow your two weeks AND get sloppy work. He also doesn't have much experience with jobs your size. So # 2 is out, period.

Choice is # 1 or # 3. Let's look at # 1: He's got experience with jobs your scale, and gave you a reasonable time time. Your con is: "He seems to be a bit disorganized, and could be a bit wishy washy. I wasn't able to get a good breakdown of the estimates between labor and costs. " As others have pointed out, however, labor/materials costs are irrelevant, you're just looking at total price. So your con boils down to "he seems a bit disorganized."

Now look at # 3: Has the most experience with jobs your size, willing to introduce you to his network, and you might get his flooring option down by some unknown amount. Your major con is: "Feel like they were not as thorough in terms of scope of work when visiting the apartment."

Questions:

A.  Is downgrading # 3's flooring options going to reduce his price to the amount of #1's estimate?

B.  Can # 1 introduce you to his "connections and resources?"

C. Is the difference in introduced "connections and resources" between # 1 and # 3 worth the extra money?

Decide those for yourself.

Then also consider the red flag you have for # 3; he wasn't as "thorough in terms of scope of work" as # 1 was. This leads to the question of blowing budgets for "extras" that you thought were included. As others have noted, you need to have a fairly detailed scope of work in your contract (which isn't line item costs, but details the items), and a budget for contingencies (e.g., installing a new toilet, what if soil stack needs replacing?).

Subject to your decisions, I would go with # 1.

@Steven Lowe is absolutely right.

@Frank Serrano -- My question is: Why are you only looking at the North side? You'll get better/more pickin's on the South side. Follow the Orange line and stay within easy walking/commuting (bus) distance to the Orange line and you'll have better chances of finding something where the numbers work. Ditto the Green and Red lines although they can be spotty.

Be wary of AirBnB or other short term rental situations as a way of making your numbers work in Chicago. The aldermen aren't all in AirBnB's pocket yet (later, to be sure), and you don't want an aldercritter banning STRs in his ward after you've committed to the property.

Work the numbers with three long term rentals, and see how high you can push the rent quickly, 'cuz rent control is coming to Chicago