Property Managemnt

Tenant turnover procedures and responsibilities can take up a lot of time, but another reason you may feel like you’re running around all over the place can be chalked up to doing tasks that are unnecessary. In order to ensure you’re making the most of your time, you need to be aware of what’s truly required of you as a landlord or property owner when one tenant moves out. Finding out what your responsibilities are between tenant occupancies can not only save you a lot of time, but it can save you some money, too.

Set Realistic Expectations

While in a perfect world all of your tenants would patch holes in walls, scrub the floors until they sparkle, and do everything else necessary to bring the apartment back to life, that will almost never be the case. Tenants can generally be expected to clean the apartment before they move out, but they’ll be busy focusing on getting their moving plans and their new apartment in order, not making sure that their old place is in perfect condition and prepped for new tenants. Keep in mind that the responsibility for making the apartment ready for your next tenant will largely fall on you and your property management company. A professional deep cleaning is highly recommended for all newly vacated apartments after any necessary repairs and cosmetic touch ups/upgrades are completed.

Transfer Utility Accounts

Ensure all applicable utility accounts for the property in question are switched to the new tenants for the date of move-in to avoid paying for their bills. Unless stated in the lease agreement that certain or all bills are included in rent, it is advised to ask for evidence of account numbers set up in the incoming tenants names for the address of the property. Utilities such as gas, electricity, and water are the most common bills to be aware of, as utilities can often be forgotten about amongst the bigger

Repairs, Renovations and Replacements

Think about what you would expect an apartment to look like when you moved into it for the first time—that can be a starting guideline to knowing what you need to do for your tenants. For instance, if the paint and walls are dirty, scuffed, or scratched, you need to repaint them so that the apartment looks its best. Carpets may need to be replaced, broken appliances/features will need repairing, and non-working items will need replacing. Your new tenants are paying to live in a comfortable, habitable space, so it’s up to you to make sure their new home is livable and inviting. This upkeep will also help to attract high quality and happy tenants who will be more likely to look after the property and pay a higher rental rate.

Security and Safety

Beyond aesthetic work like repainting, your new tenant should be made aware of their responsibilities for maintaining their own safety and that of the property. For example, reporting any maintenance issues in a timely manner is imperative to addressing issues in a timely manner.

You’ll also need to rekey the locks for the apartment if previous sets of keys are not returned. This is a security measure that will prevent former tenants from having access to the unit, and thus, it keeps your new tenants optimally safe. Be sure to get the keys back from the old tenant, as well. Even with rekeying individual units, many buildings have master keys for the main entryway doors that may not be rekeyed every time someone moves. If a tenant doesn’t return keys, you may want to charge a fee to cover costs (and, when this is noted in the lease, it can incentivize them to return the keys!). If the tenant still doesn’t return keys, you’ll have to rekey everything their set had access to and take the costs from their security deposit.

A walk through inspection before you schedule any maintenance, so that you can make note of any repairs or other damages you’ll need to take out of the departing tenant’s security deposit (if there is one). Take photos of the unit and any damages and write down detailed descriptions of what was left for you to take care of. Having a detailed list of what you’ll be retaining a portion of the deposit for can help you down the road, particularly if the tenant fights you on the withholding of any or all of the deposit.

Make sure that everything is still in proper working order before a new tenant comes in. Check that the shower, toilet, and sink in the bathroom all function as they should, that the refrigerator and freezer are still working, and that electrical appliances, smoke alarms, carbon monoxide detectors, security alarms, and lights in the unit are still safe—there should not be any loose wires or broken bulbs when a new tenant moves in. You may not be required by law to provide new tenants with working light bulbs, but that small cost can be a good start to the tenant-landlord relationship, and should be considered. Filters should also be replaced or at least checked at the end of every tenancy.

How Property Management Companies Can Help You

If you’ve never worked with a property management company for your properties, you may be surprised at how much they can help with tenancy turnovers, as well as other aspects of being a landlord. They’ll be able to contract out the necessary work, market the property for new tenants, oversee and manage any work occurring at the property, and communicate with departing tenants to get everything squared away for you. You can hand off all of those pesky jobs to someone else and really reap the benefits of owning investment properties through true passive income.

Here at Lofty, we believe that owning investment properties shouldn’t be a headache. We take care of everything our owners need, from screening tenants to doing the physical work between occupancies. Stop wasting time checking whether lights are working and sweeping baseboards and start enjoying being a landlord and property owner!

In the state of Illinois, and the City of Chicago, when a written lease for a specified term expires, the default rule is that the tenant is required to move out and may be evicted as a holdover tenant if he or she fails to do so.

If the tenant continues to pay rent to the landlord and the landlord continues to accept it, the terms of the written lease remain in effect until the tenant moves out.  However, the lease does not automatically renew for the same duration as the original lease without the landlord and tenant executing a document in writing agreeing to this.  Instead, the lease becomes a month to month lease, regardless of what the original term of the lease was.

We have previously detailed how tenant retention is the ideal scenario for Chicago property owners as this reduces/prevents vacancies and rent-less months. For this and other reasons, Lofty recommends only offering tenants annual, or 12+ monthly leases instead of month-to-month leases.

Cons of Month-to-Month Leases

With every pro comes a con, and month-to-month tenancy leases are no different. Although there are many benefits of offering month-to-month leases to your tenants, there are risks as well, including:

Lack of Stability

Although landlords may appreciate a month-to-month lease’s flexibility in some scenarios, it can also be a negative. Quality, long-term tenants often pay rent on time, take care of the rental, and pose less of a flight risk, whereas month-to-month leases can end at any time and therefore lack stability. This lack of certainty can make it hard to plan ahead to prevent future vacancies, which can be costly and time-consuming. It creates short-notice to accommodate maintenance or upgrades during a turnover, not to mention for marketing purposes.

Short notice for move outs

If you rent on a month-to-month basis, all your tenant is legally required to do to terminate this lease is provide you with proper notice. The length of their notice is typically 30 days if a tenant has resided at the property for less than 2 years, but check your state/local tenancy laws to confirm this. However, that doesn’t mean that the tenancy ends exactly 30 calendar days from the date the notice is delivered. Instead, it ends on the last day of the month, as long as it’s at least 30 days away. For example, if a landlord gives notice on August 1st, then the tenancy would be up August 31st. For example, if a landlord delivered notice on August 15th, the tenancy wouldn’t be up until September 30th. This is a strict requirement as Illinois courts have found that 29 days’ notice isn’t sufficient.

Short notice to find new tenants

Once you receive notice, you may find yourself scrambling to look for another tenant to prevent a vacancy. If you rush the process without proper tenant screening, your new tenant may not be the best fit for you and your property, and what’s worse than a vacancy is an eviction.

Risk of unexpected vacancy

Vacancies are the number one way landlords lose money, so if you can’t find a new tenant after your current one has moved out, remember that there are risks to leaving your rental vacant, on top of losing rental income.

It is highly recommended to consult a professional and experienced Real Estate Attorney if pursuing an eviction, or looking for legal advice on a specific situation due to continuously evolving Tenancy laws in Illinois, Chicago, and on a federal level.

In real-estate investing, it is common practice for owners to create a Limited Liability Company (LLC) and buy property under this LLC company. This is because many owners prefer to purchase real estate—or transfer the title(s) of real estate from an individual to the LLC—so that the LLC becomes the legal owner of record and not the individual. You can create an LLC by yourself, with a partner, or with a group. If you own an LLC, you are a “member” of the LLC. LLC entities are regulated on a state level, so the process of creating an LLC will differ by state.

There are several advantages of creating an LLC and purchasing real-estate through such a business entity.

1.    Professional Privacy

As a business owner, you might find the privacy of the LLC structure appealing when you buy a home with an LLC. Buying a house under an LLC ensures that the LLC’s name, not the owners’ names, appears on public documents and disclosures. In other words, LLCs allow you to replace your name with a corporate name, thereby concealing your identity and other information under the professional liaison of a company.

2.    Limited Liability

Limited liability means that you, as the owner, will not become personally liable for the company’s debts or liabilities. Therefore, if you have a fear of lawsuits as a business owner or real estate investor, the LLC structure may look very appealing to you. However, limitations exist within the limited liability structure.

For example, living in a home owned by an LLC can “pierce the corporate veil.” This legal term means that the owners, shareholders, or members of a corporation or LLC can become personally liable for corporate damages, as if the LLC structure never existed.

3.    Tax Benefits

The LLC structure can offer significant tax benefits, particularly because it eliminates double taxation. Double taxation refers to profits taxed at the business level first and then a second time at the personal level. Instead, LLCs enjoy a pass-through tax structure, which means that the LLC pays taxes on profits, but the owner of the LLC does not. However, LLC owners must pay taxes on their allocated share of profits.

4.    Easier To Invest With Partners

The LLC structure makes it easier to invest with partners – even other investors who don’t know the LLC’s principal owner. Two people can launch an LLC as partners, a second member can simply join a single-member LLC and create a multiple-member LLC. Members can also sell LLC shares by having an existing member sell their shares to a new member. Members must distribute 100% of the shares of an LLC.

Keep in mind however that every silver living has a cloud, and there are some disadvantages to creating an LLC for investment purposes.

While LLCs are a great way to hold real estate, they unfortunately also have costs that go along with them. There is an associated cost to set up the LLC, and a responsibility to pay an annual fee of up to $500 to the state in which the LLC is organized. You may also have to file a separate tax return for the LLC. But the biggest issue you might have with an LLC is that lenders will consider your real estate ownership as an investment property. Once you fall into the investment-property bucket, the lending rules change and get more expensive.

With an LLC, the financial lender will send you to the commercial lending side of the bank. Generally, the interest rates and costs to finance your purchase are lower on the residential side than on the commercial side. Additionally, you may be able to borrow more against the property on the residential side than on the commercial side of a lender, where the down-payment requirement could be 35 percent or more.

A rental property is a good investment if bought properly. Managing it yourself might not be easy, which is why we advise that you use a Chicago property management company, such as Lofty Real Estate.

Firstly, let’s explain what Leverage in Real Estate is. Leverage in real estate simply means how much money you borrow to finance an investment property compared to the property’s worth. The higher your leverage, the higher your potential ROI. Leveraged real estate investing works best when rents and property values are rising.

As rents and the value of the real estate investment increase, their monthly mortgage for rental property remains constant, creating larger and larger profits. Today’s rents and property values are appreciating at an extraordinary rate to say the least – the ideal environment for real estate investors who know how to leverage real estate investments with borrowed money.

1. Leverage Existing Property to Buy More

Using your rental property as leverage to get another property is the easier way of leveraging property because the rental income paid by tenants can be used to pay up the mortgage on the rental property and gain some equity.

A second mortgage would also involve higher interest loans than the first, so you have to be absolutely sure your primary property has enough equity to cover the expenses associated with taking a second mortgage.

2. Leverage Your Primary Residence to Buy Another

Another way of leveraging property to buy property can be by using the equity on a primary residence to get another mortgage. It can be another house or even a rental property. This route will mean that your primary residence will be collateral to the lender if you default on the second mortgage payments.

How to Get A Second Mortgage?

1. Know How Much Equity You Have

Knowing how much equity you have will help you make a quick decision on whether or not to go for a second mortgage and leverage your property to buy property. The more equity you have, the more your chances of success when it comes to your application for a second mortgage.

2. Have a Good Credit Score

This may seem obvious, but it is also another key part of the process. An excellent credit score will also drastically improve your chances of being approved. If you’re interested in leveraging your primary Chicago property to buy another property, then you have to possess a credit score to match.

3. Pick out Your Preferred Second Mortgage Option

There are two options for you here, either you go for a HELOC or a home equity loan. Each option has its own risks and benefits, so be sure to pick one that suits you. If you’re leveraging Chicago property to buy another property, going for a HELOC might be best. On the other hand, if you’re leveraging property to buy a Chicago rental property, then going for a home equity loan where you’ll get a lump sum might prove to be the better option.

4. Shop Around

Once you’ve carried out these three steps, then it’s time for you to explore the options you have with lenders and their rates. Research the terms of each second mortgage with due diligence. Many financial lenders provide free quotes online or by phone after you’ve provided a few details, such as your credit score range, loan amount, term and the type of mortgage you’re interested in. Comparison websites may also offer insights to institutions that are not as well known to the general public. To get a solid rate offer you must get preapproved for a mortgage with each lender. When you apply for a mortgage, a lender verifies your income, finances, employment and credit to determine how much you can borrow and what interest rate you qualify for.

With home prices continuing to rise, it’s better to minimize your costs when possible on the borrowing side — and shopping around for a mortgage is the best way to do that!

Tax Benefits

When you leverage your real estate investment purchase, you get to depreciate the total cost of the property, not just the cash you put into it! This means you receive a significant tax deduction each year which can be a big incentive for a lot of prospective investors. You can write off any interest paid on the loan, which during the first several years is the majority of your loan payment. This provides another substantial tax deduction each year.

Real estate has some great tax benefits, and leverage allows you to take advantage of the interest deduction and depreciation on an amount much greater than what you’ve invested.

Leveraging property to buy property is a smart way of acquiring more property, especially if you have the required equity. With our guide, you have all you need to know about leveraging property to buy property. Reach out to a member of our team to discuss your options or to learn more about leveraging existing property to expand your investment portfolio!

Chicago rental properties can bring their owners substantial investment income at the same time they are quietly building equity. It sounds clever—and it is clever, as many legendary titans of industry have pointed out.

Nineteenth-century millionaire-philanthropist Andrew Carnegie’s “Ninety percent of all millionaires become so through owning real estate” is typical.

More recently is this quote from wealth-creation expert Robert Kyosaki, author of the mega-bestseller, Rich Dad, Poor Dad:

If you don’t like real estate, all you have to do is make hamburgers, build a business around that hamburger, and franchise it.”

Kyosaki’s sly observation lets us draw our own conclusions about the relative likelihood of becoming a one-in-a-billion entrepreneurial superstar like McDonald’s Ray Kroc…versus choosing a canny real estate investment!

That’s not to say that the road to riches is a simple one-step process—especially when the chosen strategy includes actively managing a rental property.  For Chicago rentals properties to maximize cash flow in addition to their underlying equity growth, the original purchase needs to be made in a market-wise manner—then followed with managerial skill.

Lofty Real Estate property managers and brokers are here to help clients identify and acquire the Chicago property that fits their investment objectives—and right now, Chicago has a number you will probably find worth investigating.

Despite the latest pandemic-related precautionary measures, it’s still possible to explore the current offerings while maintaining maximum safety.