8 Tips for Buying Rental Properties in Chicago

When it comes to buying a rental property, there are a lot of factors to consider. Most importantly, you have to figure out if it is really something you can see yourself doing. We have listed eight tips to consider and think about when looking to buy your first investment property in Chicago.

1. Location

Location is key in real estate! Like any city, Chicago has some more and less desirable parts. Determine your target market to help find the right location. Usually, the best areas to invest in have easy access to downtown Chicago, but still have the suburb feel. You can check out these neighborhoods:

• Rogers Park
• Edgewater
• Pilsen

Before buying a rental property in Chicago, make sure you know the area and surrounding area also. Here are some things to look at when considering a certain neighborhood:

• Macroeconomics – covers the growth rate, job rate, and unemployment rate
• Property tax rates – are they increasing or decreasing?
• Local school availability and rating
• Crime rates 
• Local development activity
• Distance of amenities- like parks, supermarkets, transport hubs, and restaurants
• Comparable rents and purchase prices in that location

2. Laws

Understanding the legal obligations and responsibilities is important when buying an investment property in Chicago. Such laws include Illinois landlord-tenant laws, eviction process rules, security deposit laws, and many more. The last thing you want to do as a new landlord is to get in legal trouble and get sued. Make sure to learn the specific laws in Chicago. Get to know the Residential Landlord Tenant Ordinance and talk with a real estate attorney before buying a property. 

3. Plan Finances Ahead Of Time

Before making any action, you need to have a well-developed plan set in place. This starts with planning your finances before purchasing an investment property. You can plan to pay off any debt you have, and save for the down payment of your rental property. You need to be organized and managed in your own finances before investing. You can then create a detailed budget and action plan. You need to account the costs of a broker, lender, and property manager.

Other costs you need to calculate are things like taxes, insurances, condo charges, maintenance, and utilities. You need to add these expenses into your budget. When you don’t have a tenant, you will need to cover these costs. You should also plan on spending at least half of your gross rental income on operating and maintenance costs. Here is a full list of some of the costs associated with your investment:

• Property taxes
• Property insurance
• Standard repairs (a list of repairs almost always magically appears after closing on a property)
• Capital expenditures (eg. new roof, new furnace, etc)
• Financial losses from vacancy
• Turnover costs (eg. carpet cleaning, painting, cleaning, etc)
• Leasing fees
• Landscaping/snow removal
• Utilities
• Legal fees/evictions
• Property management charges

Avoid starting with a property that needs a full renovation. It may sound fun, but it is a lot wiser to start with a modest property, something that only needs cosmetic work. Wait to do a reno project when you have more experience.

4. Determine Rental Property Type

There are so many options when it comes to choosing a property type to invest in. We recommend new real estate investors to start with a single-family rental home. You only have to deal with one tenant. Repairs are more manageable, and there is less wear and tear. 

We suggest that you buy what you are familiar with. Use your life experience to your advantage. If you are fresh out of college, try looking for investment properties near the campus. If you are retired military, look at properties near a base. 

When you decide what property you are looking for, you can start shopping with a real estate agent. Make sure to get pre-approved for a mortgage loan first. This way, you know what you can afford. You can learn more by reaching out to us here.

5. Determine Returns

Now that you know your costs, you have to determine your returns! You want to make sure your return on investment is positive, and worthwhile. When determining your ROI, you need to access a realistic rental rate. The gross rental income should equal at least 1% of the total price of the property. Chicago has varying prices from neighborhood to neighborhood. Do your research to find the best return. Make sure the rental income payment will cover your monthly mortgage cost.

6. Find Good Management

You can choose to manage your rental property yourself, or you can hire a property manager. You can use a Property Management Company to help find a qualified professional manager for your investment property. 

7. Figure out risks

Choose a rental property that aligns with your financial goals. You should consider the population growth, timing of your purchase, and location. Make sure to buy in a buyer’s market, and sell in a seller’s market. People will always need a place to live, but you will have greater returns when researching ahead of time.

Make sure that buying an investment property is something you really want to do, because you will need to put a lot of effort and time into an investment property to succeed. Real estate investing involves greater risks than investing in the stock market, but it also has more opportunity. 

8. Get A Written Lease Agreement

Before starting to rent out your property, make sure you have a proper lease. This will protect your rights, and will protect you in a lawsuit. When you deal with tenants, you are likely to have misunderstandings. This will eliminate them, and make sure you are both on the same page. You can also screen your tenants to help avoid future issues.

Chicago is a great place to purchase an investment property. It has a large population with lots of demand for rental housing. Hopefully this will help you get started in your first rental property investment! Send us an email with any questions you may have: Team@ParkPlaceRealtyLLC.com.