All Forum Posts by: John Clark

"My family and I are looking to invest about 3-4 million dollars in rental properties. We are deciding between a couple 3-5 units in the city or several (cheaper) SFR in the suburbs and outskirts."
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Don't be an idiot. Do NOT invest in Illinois rentals. Do northwest Indiana or in a REIT based on landlord-friendly states.

Why? Consider:

Rent laws are TOO friendly to tenants. I'm all in favor of protecting tenants from rapacious landlords, but Chicago and Cook County go off the deep end. The penalties for even minor, inadvertent, breaches, with no harm to the tenant, are draconian.

Rent control is coming. This is especially true now that Madigan has resigned. The pressure to turn Illinois into a bastion of "progressive" liberalism is overwhelming. Rent control is a high priority of the progressives (I'm center-liberal myself, but the wackos are going off the deep end). Keep in mind that they are utterly ignorant of economic principals and have rose-colored glasses when it comes to tenant behavior. You cannot talk sense into them. I am reminded of the old Will Roger's joke: "Some people learn by reading. Some people learn by observation. The rest have to pee on the electric fence for themselves." Trouble is, they're using your money for their lessons -- and the lessons don't involve reading.

Inability to convert/upgrade properties. Google Chicago gentrification ordinances 2021. The attitude will spread to the rest of the state as the poverty pimps take over. 'Nuff said.

Pensions. State and Chicago politicians have been criminally negligent with respect to properly funding pension plans, and have ZERO backbone in standing up to unions. That means taxes WILL go through the roof. Liquid assets can walk away. Illiquid assets can't. Therefore, illiquid assets will bear the brunt of the tax increases. Did I mention that real estate is an illiquid asset? Now combine tax increases and rent control and tell us what you get.

Corruption. By rights, Chicago should have 15 aldermen, not 50 (same per capita as New York City). The result is 50 corrupt hands  -- elected on the basis of race, ethnicity, religion, everything-but-ability -- in your pocket, not 15 competent managers who had to appeal to wide swaths of the population with their capabilities. Don't believe me? Just google Alderman Burke and the Burger King at 41st and Pulaski in Chicago.

I could go on, but you get the idea (I hope).

Let's look at the data, shall we? You said:

"For years I have been driving an old beat up pontiac that now has 250K miles on it. . .  Even though it's 5+ years old . . . . "

So you're putting 40,000 or 50,000 miles a year on that car, right? Are these highway miles? You need a reliable car in any event. What cars are out there that can take that kind of wear and tear, for how much money?

There's then the value of your time. City breakdowns can get you serviced fast, so a breakdown won't cost your time. Highway? You could be waiting hours for a tow and a look-see, then the guy has to get parts.

Now you can convince yourself that you "need" a nice, reliable, car.  Son, go buy that two year old, low mileage Lexus.

You're welcome.

Only the City can install a meter. They rightfully don't want anybody screwing around with the system, installing unapproved/inaccurate meters, etc. Problem was that installing meters was supposedly adding lead to the houses water systems. City was "investigating" but I never heard what the results were.

Unmetered billing is very high. I went from unmetered to metered and save in excess of fifty percent of the unmetered bill.

Good news is that installation is free.

Check with water department as to how you get on the installation list for when they do start installing again. Also, check with your alderman as to installations and when the City will start doing them again.

And don't forget to genuflect in the direction of the plumbers' union, which made sure Chicago REQUIRED using lead service pipes even though New York City banned its use in 1946 (why didn't we do the same back then?) and lead's been a known water poison since the Roman Empire (literally).

I had the inverse problem: One gas burner (of four) wouldn't light and I discovered it when the gas company came in to make sure appliances were working properly after moving the meter. I asked the tenant, who told me that that burner had never really worked (she'd been there four years), but she didn't want to bother me with "small stuff." I scolded her and told her to let me know whenever anything doesn't work properly. She pays rent, she's entitled to a working apartment.

Then I called a repairman -- broken internal stem meant turning the knob was useless. Turned out the stove was so old that you couldn't get parts any more. I bought her a new stove. Home Depot had a sale on one model of Amana gas stoves -- $650 marked down to $450. Cost me $80 for the repairman to come out re the old stove (twice, once with a replacement part that didn't work due to age of stove).

As for your question, the tenant is entitled to repair and deduct, but must use the cheapest method. Most of the time that means repair, not replace. There are times, however, when replacement is the cheapest option. And yes, you can wind up paying more for replacement if the repair try fails 9like mine did).

Start pricing stoves, and get a real appliance repairman out there to actually repair/replace parts. Preferably while tenants are there, and even you, if possible.

And no, you can't have my tenant.

Why are you notifying 311 instead of going to police station with footage and filing complaint? Also, notify your alderman. He can pressure the owner.

Some of the more wild and woolly aldermen in Chicago want (have passed?) to limit converting two-flats into single-family homes. While this is not your situation, it might limit your options after you dissolve a homeowners association and decide to get out of the rental business.

What, exactly, would having a pocket homeowners association prevent you from doing? As others have noted, they are fairly easy to dissolve, but expensive to create later.

Your problem, as you stated, is your bank, not you. Get a new bank, or perhaps get your current bank to make two loans to you. The terms for the rental unit might be different, but that should be do-able. Think of it as two units, two loans, not one owner, one loan.

BTW -- HELOCs can disappear if values crash. You might even get a call to pay back some HELOC withdrawals ahead of schedule. Mortgages are forever. It's your call.

"I'm a bit torn because these prices are unsustainable, but I don't know what the next move should be."

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Ask yourself three questions:

1. By how much are these prices unsustainable?

2. For how long will these prices remain at these unsustainable levels?

3. What is my return on investment criteria?

One should never try to time the market, but there is such a thing as selling, pocketing your profits, investing in something liquid, and then reinvesting in real estate in your area once prices decline. Cash flow is great, but if you lose a big chunk of the value of your current property in the process, it can take a long time to make up that loss.

Run your numbers, including the costs of selling and then buying real estate. Look at your alternative investments and estimate their performance. Estimate your potential losses/foregone opportunities. Then make your decision to ride it out, sell, do a cash out refinance (if you are going to hold for a long time being underwater in the near future for a while won't matter to you), or whatever.

"I offered $18,500. Listing agent came back and said they won’t entertain anything that’s not in the 20s."
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Then the agent is following the seller's instructions. The rule is NOT that an agent has to submit all offers. It is a common misconception. The rule is that an agent must submit all offers THAT CONFORM TO THE SELLER'S INSTRUCTIONS.

Now, a smart agent would certainly notify the seller that he has received a non-conforming offer ("Boss, your instruction was no bids below $100k. I just got an offer for $99,999. Do you want me to pass it on to you?"), but he won't be violating any ethics rules or codes of conduct if he doesn't. Stupid yes, but not in violation (if stupid was a crime we'd all be felons).

Let us know your ultimate offer and whether you got the property. Good luck.

"I may not find a single asset that gives me more than $1500/mo but I could potentially buy 3 that adds up to more than that, with the lowest DP possible to maximize the split."
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I have not read the entire thread and I do not care to. Your answer is staring you in the mirror every morning. Three properties to buy and manage is at least 3X the time you are spending now monitoring your single property. Depending on your screening criteria, that's three times the risk of finding a lemon tenant. It also means that you are spreading your risk out over 3X an "area" so your loss from a bad tenant is only 1/3 of what it is now (a bad tenant in your one property would be catastrophic). Find out what your risk tolerance (and climate change risk, being in Florida) is, and go from there. When I say "your" risk tolerance I mean -- specifically -- your wife's risk tolerance.

Women and cooks -- always keep them happy -- cuz if they ain't happy, ain't nobody happy. If she's willing to accept the risk and the fatter bank account, then look at what is out there to replace the pile you have before you sell. In fact, you may want to get a couple of appraisals use your new place to leverage buying 2 more (I am sure someone has suggested this, like I said, I didn't read the chain), then sell the current place (with tenant? Empty? run the numbers both ways) and buy the third place.

Hate to say it son, but the old saying is right: The hand that rocks the cradle rules the world. NOTHING can replace a happy marriage.