When Jane Probst transferred to Los Angeles from Chicago at the end of last year seeking a better climate, she decided to hedge her bets. She rented an apartment in Los Angeles and kept her one-bedroom condominium on Wells Street on the Near North Side.
“Since I wasn’t sure that I would like L.A., I rented my condo,” says Probst, who has rented her home through the end of 1999.
Probst, who is Midwest manager for the teen publication React, has found that playing landlord has some decided benefits: after paying her mortgage, real estate taxes and assessments she still makes a profit.
Dominic Albanese has also found it beneficial to keep his Lake View condominium, too, since relocating to New York City last summer. “I’m making money and by designating it rental property, I can claim tax writeoffs for depreciation, which I’d be unable to do if I were living there,” he said.
Many homeowners buy condos, town homes and even houses specifically as investments they can rent out to gain appreciation and make a monthly profit.
But others sometimes find themselves in the role of landlords quite by chance and for other reasons. Some rent to cover their expenses when they take a sabbatical from their jobs or spend the winter in a warmer climate.
Jennifer Barr, who works for a public relations newswire and moved from Miami to Dallas, decided to hang onto her house after moving in with her boyfriend because she felt she had not yet amortized the closing costs or maximized the potential equity. “I know the value’s gone up $3,500; the area is booming,” she said.
And Darlene Little, a real estate agent with Rubloff Residential Properties in Chicago, ended up renting her Near North condo for still another reason years ago. After buying, she got married. “We moved into a larger space,” she said. She has decided to sell because prices have escalated and her “dream” tenant is relocating to New York City.
Yet in spite of the innumerable reasons people want to rent, the inventory of condos, townhouses and single-family dwellings has generally stayed tight in the city and suburbs. Few are available on a short-term lease of less than six months or come furnished.
Furthermore, getting in isn’t always as simple as coming forward with the monthly check. Many condo associations require prospective tenants to go through an interview process as if they were buying, said Andrea Tucker of Sudler & Co. Even fewer cooperative apartment buildings allow shareholders to lease.
On top of the sparsity, the best rentals can be quite expensive, with prices determined by supply and demand, location, square footage, number of bedrooms, amenities such as parking in the building and the prospective renter’s urgency to find a place.
“An athlete or actor needing a short-term furnished unit right away may have to pay more,” says Jerri Dry of Coldwell Banker’s Hancock Building office.
Probst rented her one-bedroom condominium with two parking spots for $1,200 a month. Barbara Stewart, a leasing specialist at Rubloff, cited several current listings as of early December in Chicago: a one-bedroom condo unit at 400 E. Ohio St. for $2,200; a two-bedroom penthouse condo unit at Ritchie Court for $3,800; and a four-bedroom house on North Burling Street for $5,800.
In the suburbs, the situation and prices are similar. Sam Tepper of Coldwell Banker’s Highland Park office says that the nine homes on the market in that community range from $650 to $3,900.
One thing is certain. Whether the experience of being a landlord becomes positive or negative hinges largely on whether a landlord takes certain precautionary steps. But the good news is that many get lucky, as Barr did. She became friends with her tenants.
“They had a baby and invited us to a barbecue and to swim–at our house.”
Following are essentials to consider before you vacate and turn over the keys to your castle:
– Credit report. Whether you find your tenant through word-of-mouth, an ad, a real estate office placing a listing in a multiple listing service-type directory or a rental service that typically charges the equivalent of one month’s rent, don’t take references for granted. Run a credit check, for which you’ll have to have the signed approval of your prospective tenant.
Among the specifics you’ll want are the applicant’s employment history for at least the last two years, where they lived for the last two years, two or three references and a credit history.
Prices for a report vary, in part because of the amount of information provided. American Report Services in Wheaton provides a basic report for $25 and a fuller one with verifications on employment for $35. The Thomas Reports in Chicago charges between $25 and $85, depending on the depth of information. For other credit agencies, check “Credit Reporting” in the Yellow Pages.
If anything unusual surfaces, dig further. “If someone hasn’t paid their rent on time, find out why,” said Probst.
– Reference check. Trust your gut instincts, but then check those instincts thoroughly, says Albanese. Ilene Collins, director of operations for the Apartment People, an apartment locating service in Chicago, says her company always asks former landlords if they would rent again to a prospective tenant. “But also give someone the benefit of the doubt,” she adds. “Someone’s credit rating may look shaky but if you look further you may find they had medical problems and high expenses at the time, but subsequently were good about paying.”
– Interview. Try to meet the prospective tenant face-to-face or if you can’t be there in person, have someone you trust meet and check them out, as Probst asked the Apartment People to do.
Real estate agent Charlene Williamson of Sudler & Co. goes a step farther and tries to interview prospective tenants for clients in the tenant’s home. “I like to see how they live, which gives me insight into how they take care of their own place,” she said.
– Signed contract. A handshake is not sufficient. Get a copy of a lease from an attorney, bar association, real estate office or through a software package and be sure that it includes the length of the lease, rent and amount of the security deposit (typically one to two months’ rent). Larger deposits are usually required if tenants bring a pet or if owners leave furnishings.
You can also write into your lease additional caveats such as allowing no pets or only declawed cats, prohibiting redecorating except to hang art and prohibiting smoking.
Probst did not want any tenant to bring a water bed or fish tank because she recently had installed hardwood floors.
Real estate attorney Peter Shamburek in Naperville, who has become a landlord, added into his contract that tenants could not make holes in walls, hang wallpaper or make other improvements unless they had his written approval.
Don’t count, however, on excluding children because they’re among the five protected classes you can’t discriminate against, said Susan Fares of Baird & Warner’s south suburban office in Olympia Fields. How many people can legally live in your home is based on its square footage, as specified by your city or town. Such rules can be hard to enforce, Tucker notes.
Also be sure you put into the contract what maintenance you will cover versus what you expect your tenant to pay. Who, for example, will pay heating, electricity, water, alarm and cable TV bills?
“Usually the owner is responsible for maintaining appliances in working order and keeping the roof from leaking,” said Shamburek.
Any lawn or outdoor work, such as leaf raking and snow removal, are typically negotiable but should be decided in advance, he adds.
The owner’s right to gain access to her home is not usually included in most standard leases, and it sometimes can prove difficult, even if you have permission.
“Some renters have made places impossible to show, but to take someone to court takes time, money and effort,” said Dry of Coldwell Banker. The contract should also state grounds for eviction, such as nonpayment of rent. But again, getting someone out costs money, Shamburek said.
Finally, if you have any quirky requests, such as no eating crackers in your bedroom, go ahead and write it into the contract, but don’t count on it being obeyed.
– Homeowner’s insurance. Read through your insurance policy and ask your agent if you need additional coverage to protect your home because a stranger will be living there.
– Photography. Collins of the Apartment People suggests photographing or videotaping your home, to document its condition, and cataloging any furnishings you leave behind in case of damage.
– Tenants’ rights. To level the playing field, tenants should ask their prospective landlords certain questions, including how to handle emergencies if they can’t reach them. “If something breaks down in the middle of the night, they should have names of repair people and know if they have the permission to get it fixed and how much they’re entitled to spend,” says Sara Superfine of Beliard, Gordon & Partners. “Tenants should also feel secure that assessments and taxes are being paid.”
