Happy anniversary to us! After four years and 300 episodes later, the Straight up Chicago Investing is still going strong. 

To celebrate our 300th episode, we took to social media to ask our community what questions they wanted us to answer. And you delivered! We received dozens. Unfortunately, we couldn’t answer them all in one episode, but we’ll make sure we do answer them somehow.

So without further ado, let’s get started!

1. How do you maximize rent in a hot market? 

At the time of our 300th episode, the rental market is very hot. Finding tenants should be easy. The market will tell you if you’ve shot too high by a lack of interest. Here’s a few ways to help.

Use the Chicago Fair Housing Ordinance to Your Advantage

Be proactive. Get ahead early in the game by doing a lot of planning and preparing. Actually the new Chicago Fair Housing Ordinance helps you here. The new ordinance requires that landlords give tenants 60-days notice before renewals (120 days if the tenants have been there for three years or longer). 

You can benefit from this ordinance because if you give tenants 120 days’ notice and they decide to move out, you’ll have 90 days to list the rental and find new tenants. That’s plenty of time to test the waters and whether you can get the higher rate.

Adopt a First In, First Out Process

If you have two (or more) equally qualified applicants for a vacant rental, select the one who’s willing to move in the earliest. Because every day you have a tenant in a rental unit, you’re making income. 

On the flip side, every day of delay where your Chicago rental unit sits vacant, you lose money. Think about it this way: if you charge $2k monthly for a rental, every 7 days is worth $500.

Bonus: Should you ever get called for a fair-housing violation, you can say your process is to accept the qualified applicant who is able to move in the soonest. 

Play the Long Game and Be “Relationshipable”

There’s a big difference between selling a house and renting it. When you put a house up for sale on the market, everyone hires brokers to get the best terms. And then 30 days later nobody talks to each other again. It’s all very transactional.

But when you rent out a house, it’s not a one-and-done experience. It’s all about building a solid relationship and deciding if pricing pushing is going to help you create solid relationships with tenants. 

If you try to bid up the rent, you still have to get someone to sign the lease, then walk them through the rental days later. You or your property management company will need to coordinate maintenance and repairs, and eventually, you’ll both need to decide whether to renew the lease. 

2. What’s your most expensive real estate mistake and your biggest win?

Mark’s Pricey Mistake: Things Aren’t Always What They Seem

My most expensive real estate mistake came a while ago when I was being too confident while purchasing properties from sheriff’s sales. 

Since you can’t tour the houses before bidding, I’d drive by the property to get an understanding of what shape it looked like on the outside. Then I’d determine the rent rate for the area and how much gutting it would cost per square foot based on what I could see during the drive-by.

It was one of these sheriff sales houses that bit me hard. I drove by the house on a one-way street. I didn’t bother to stop, look in the windows, or even take a look in my rearview mirror. I won the bid the next day and then walked the property. 

That’s when I saw the entire left side of the house roof was exposed. This turned into much more than a gut rehab. I created a bigger problem when I tried to fix my mistake by making more mistakes. Rather than turn around and sell it at a small loss, we put a lot of effort into it, made it a great property, and still sold it at a larger loss.

The real loss was the opportunity cost though. Most rehabs take us 4-6 weeks. That one took 2 ½ months. All that time and energy put into one property that could’ve been spent on two or three other property rehabs instead. 

Tom’s BRRRR Method Mistake: Cutting Scope on a DuPlex

While rehabbing a duplex, one of the aged boilers needed replacing. Rather than replacing both HVAC systems at the same time, we cut the scope and just replaced the boiler. That same winter, the pipes burst because they couldn’t handle the new boiler system. We had to rip out walls and ended up replacing the other boiler too.

Not only did I spend more money in the long run, but I also had to displace tenants (twice) and deal with all the additional headaches of not just dealing with potential issues proactively. And at the end of the day, I still had to pay for the gas. 

That’s only happened a few times, but it’s always been when I’ve deviated from my usual plans and for some reason always after a really great deal. It’s like you get too confident that you get cocky. Now, after a huge win, we’ve learned to take a deep breath.

Mark’s Big Win: No Skills Required

This happened not long after we’d bought a package of buildings and were rehabbing them. At that point, we’d have a handful of houses sitting waiting for us to come do work on them. 

That’s when we got a call that one of these houses - a big four-flat building - had burned to the ground. In the package cost, we’d paid around $22k for it. Replacement cost from insurance? $325k. 

Tom’s Big Win: When Everything Goes Right

We’d bought a house with a lot of violations. We could’ve cleaned up the violations and flipped it very quickly for a profit, but we decided to do a little bit more. Somehow, everything we did went quickly and easily and we got way more out of it than we put into it. That was lucky.

We remember that because it doesn’t happen like that, pretty much ever. When big flips go well, they go well. Other times you start on a rehab and see you have a lot more work work than you originally thought. You just have to be process-oriented, and focus on what you can control.

3. How do you prepare to pivot if your strategy isn’t working?   

The first question you should ask yourself is what’s not working? What’s your goal? Your best bet is to figure out what’s working and try to do more of that and make things work. 

For example, if your business model is buy and hold, what is making you think you need to buy and flip (or vice versa)? Or if you’ve been buying small single family homes in Southside Chicago, why do you want to start buying large unit buildings in North Chicago?

Take some time to do some self-reflection to think about why you want to change your business model and any other circumstances that may be standing in your way. What’s keeping you from doing what you love to do? 

One more thing: if you do decide to make a shift, we recommend making a full shift. Burn the ships. Don’t try to dabble in two or three things. 

4. After successfully BRRRRing >50 single family homes, how do I get into the multi-unit game? 

We respectfully ask: you’ve successfully bought, renovated, rented, refinanced, and repeated (BRRRR)ed 50 single family homes, why do you think you have to do something different? Understandably, it’s human nature to feel like we’ve mastered one thing, now we’re bored and ready to move on to something else. But success in one arena doesn’t guarantee you’ll do well in another. 

Successfully BRRRRing a single family home is a wildly different skill set than operating a 40-unit courtyard building. You can make money both ways, but there isn’t a linear progression. If you’ve had success with SFHs, we recommend sticking with your comfort level.

5. If Future You in 20 years sent you a note today, what would it say?

Future Tom: “Does this really matter?” 

When I’m stressed or feeling high-strung, I ask myself, is this even going to matter in 6 months? Eventually, I realize it’s something I probably won’t even remember in a week or a few days. 

Future Mark: “Do Fewer Things that Suck”

We have choice over what we do and we have more control than we think or what people in our circle tell us. So, I’d tell myself to do less of the things I hate doing. 

6. How much would you discount a frame house vs brick? 

While many people prefer brick houses, there’s not a math equation. Everything is holistic. Nothing is very cut and dry. I wouldn’t necessarily discount a frame house, but there are considerations, especially within the City of Chicago to factor in.

For example, does the frame house have a good foundation? How many stories does it have? Chances are you have a pitched roof on a frame house, which means less maintenance than with a flat roof. Some of these factors could mean you’re in good shape.

Other factors are a drawback. For example, if you’re in Chicago and you're 15 feet from the nearest home, you can’t use vinyl siding anymore. So, your $12k siding cost goes to $35k now because you’re doing fiber cement. When you get to the suburbs, if you get a brick house, it’s a bonus. 

7. Do you truly believe there's an opportunity to buy and hold investment property in Chicago? 

Um, Yes. Full stop. 

We see some people use this question as an excuse for not buying investment property. Either they’re not sure about the economy in Chicago, not sure how long they’ll be living in the area, not sure about long-term or short-term investing… and that’s why they’re not investing YET.

But you should still buy property here in Chicagoland. People are still coming here because of the opportunity. 

8. Is it wise to have 100% CHA tenants in my properties? 

Legally, you cannot discriminate. It doesn’t matter if they are Chicago Housing Authority (CHA) or market tenants, you cannot discriminate. 

In many cases, our properties are outside what the housing authority checks will cover and people do not apply. Of course you cannot discriminate against income if they do apply. 

We do have some properties on the Southside and have found having one CHA to one market tenant in a duplex is a better level of stability. CHA tenants will stay longer, but it takes longer to move them in and later it takes longer to move them out. 

If your rental units support it, having a good mix of both CHA and market tenants gives you optimal flexibility and stability. 

9. What neighborhood has the most opportunity long-term to invest?

Short answer: the neighborhood that you know best. 

Seriously though, we’ve had many different guests on the show who use their crystal balls to tell us where they see as the best place to invest. 

But ultimately, if you know a neighborhood well, you’ll be able to know the right deals and find opportunities in that particular area. Sometimes you have to look harder and create your own marketing to find properties, but it is possible. 

 10. When is it appropriate to use the new express permit program?

If you move a wall or make any kind of structural change, you need full plans and permits. Formally known as the Easy Permit, the Express Permit Program is designed to streamline the permitting process in the city. 

Getting those plans together takes time (usually about a month) and can cost upwards of $10k. After that, city processing takes more time and their fees can cost another $2k-$3k. And that’s assuming, you aren’t required to do more work than your submitted plans.
It is possible to do most of the work upfront before closing to minimize downtime; however, you do that at-risk because you pay out of pocket for the services and the deal could fall through. As we mentioned earlier, the sooner you can get a rental on the market and tenants in place, the faster it’s making you money. Time is very important and worth the risk, in our opinion. Anything you can do to streamline that process is worth it. So, in our opinion, if you’re doing any type of renovations to a building, it’s always appropriate to use the express permit program.

11. Why are more people getting into rental arbitrage? 

Quick definition: rental arbitrage is when an investor finds a rental that permits subleasing, and then they sublease it for a small monthly profit either to another long-term renter or as a short-term lease for a greater profit.

While it sounds great on the surface, and there are people doing it, the issue is you still don’t own anything and don’t receive the long-term benefits of real estate. Remember, the cash flow is only the dividend. 

Common pitfalls include short cash flow that doesn’t make all the effort for a small return worthwhile in addition to communication issues with the owner, the neighbors, and sub-lessors. Our advice, save up the extra funds and put a down payment on a rental you actually own.

12. Is the cost of build-to-rent homes worth it?

We’ve had a few guests on the show who work with builders and are doing this successfully in Chicagoland. But it’s very thin margins. The numbers have to work out perfectly and you have to know what you’re doing. The people we know who are doing this are doing it at a larger scale so the volume makes it worthwhile.

If you can find zoning in Chicago where you can create a six-unit building, because you need some density, and are willing to do the bare minimum to the units, you can make it worthwhile. 

In the suburbs (and elsewhere in the country), builders are creating communities that are more investor friendly, but you have headaches with property entitlements and cities that don’t exactly welcome these larger projects. This creates risk and delay, which is why the bigger projects are slower to get started. This also means a delay in any ROI for you as the owner. 

13. How do you manage security deposits? 

Any time you’re an entrepreneur and a real estate investor, you want to eliminate risk. Because of the stipulations in the Residential Tenant and Landlord Ordinat (RTLO) and some interesting attorneys out there looking for every small loophole to file a complaint, the risk-reward is just not there. 

Even if we buy a property with tenants in it and the seller gives us their security deposit, we give it directly to the tenants (with interest). Sidenote: this gets you off on a good foot with the tenants by handing over $1k + interest and explaining why.

At the end of the day, if a good tenant moves out and you have to patch a few holes in the wall, is it worth the aggravation of all that over $200 in repairs? Long story short, have a strong screening process and don’t worry about the security deposit.

Stay tuned for more of your questions answered! And check out other episodes of the Straight Up Chicago Investor on your favorite podcast catcher. Want to start/expand your own Chicagoland real estate investment adventures? Reach out to us at 630-587-7400 or complete our online form to learn more.