A friend of mine who rents in Ravenswood, just off Montrose, was telling me that the heat was off in her rental. This being a Chicago winter, I mentioned that the landlord should fix it quickly. She said the landlord informed her that they simply weren’t going to, but offered her a more expensive place to move to, at her expense.
In my friend’s situation, that’s what I would call a “bad landlord.”
I should know: I’ve been investing in rental real estate in Chicago for over 20 years and unfortunately, I’ve met a few terrible landlords. And, it’s no shock to me that many of them have ended up on Chicago’s list of bad landlords.
If you are counting on building passive income as your real estate investment strategy, you most definitely want to stay off that list. In fact, I’ll help you; here are five tips to stay off Chicago’s “bad landlord list.”
Understanding the Chicago Bad Landlord List
In Chicago, for many decades, landlords had an enormous amount of power. At one point, it was extremely difficult for renters to assert claims against them. But, thankfully for everyone—landlords included—that has changed. The city began taking renters’ rights more seriously, creating the Chicago Residential Landlord Tenant Ordinance (RLTO).
In 2015, the City of Chicago went a step further, publishing its list of bad landlords on its website. A landlord could be placed on the list for a number of reasons. Some of the most common ones included:
- Not providing adequate heat
- Failure to provide hot water
- Failure to install working smoke or carbon monoxide detectors
- Failure to follow sanitary guidelines regarding trash and infestation
This isn’t just a matter of public shaming, of course. If a landlord is on this list, they’re unable to receive more business permits or conduct zone changes; TIF funds can be denied; and they likely won’t be able to obtain work permits to make upgrades not related to the violations that landed them on the list, in the first place. In other words, their hands are tied.
It should be clear that this isn’t an arbitrary distinction. To be put on the list, you have to have “been found liable in two or more Administrative Hearing cases within a 24-month period and have three or more serious building code violations.” You won’t find yourself here because of a bad Yelp review left by a tenant who wanted the mailroom painted a different color.
So how do you avoid these violations? Here are some ways that have worked for me.
How Real Estate Investors Can Stay off the Chicago Bad Landlord List
Staying off the “bad landlord list” is more than a matter of just saying “I won’t do the bad landlord thing.” It isn’t always that easy. You might find yourself wanting to cut corners to make ends meet. That’s a tough situation that a lot of people, especially people new to being a landlord, find themselves in. But knowing what you are doing at the beginning can help you avoid having to make that choice.
Remember the most important rule, the one that underpins all these practices: if you aren’t receiving enough money in rent to pay for upkeeps, you’re in trouble. That doesn’t mean overcharging. It means charging a reasonable rate so that you maintain tenants and overhead costs.
Tip #1: Know What It Takes to Be a Landlord in Chicago
When people ask me if being a landlord in Chicago is worth it, I always say it depends on the landlord. Are you willing to learn and follow all the regulations? Are you willing to abide by the RLTO? Most importantly, are you willing and able to maintain the upkeep? If so, then it is worth it. If you know going in that this is going to be work, you’ll likely be able to avoid ending up on the list. The landlords on the list are likely the ones who chose to cut corners.
Tip #2: Know What Kind of Rent You Can Charge
Renting a property isn’t just about finding a home with a motivated seller and then purchasing it to rent out. Not all homes are good for renting. If a home is located near train tracks, cellular towers, or factories (like in Little Village) they might not be ideal for renters.
This also applies to neighborhoods. Some areas will allow for higher rents, some for lower. If you want to charge Gold Coast prices in Canaryville, you’re going to have a lot of vacancies. Knowing what to look for in a rental property can help you evaluate what kind of rent you’ll be able to charge.
Tip #3: Know How to Evaluate the Work a Property Needs
Why would someone think they can charge a high price for a house they bought for a lower-than-expected price? Because they put a ton of work into it. Glammed it up. Put in all the amenities someone would expect from a house in Wicker Park…except that this house is in Hegewisch. All the work that was put into it doesn’t necessarily mean that someone looking to rent in that area wants to pay for those upgrades.
There’s a rule among people buying real estate to earn passive income: only put in work that will allow you to reasonably charge more rent. This can be very basic stuff, like making sure every room has proper heating. You can make fancier upgrades, but if the neighborhood won’t bear it, all that work is for naught.
Tip #4: Have a Plan for Making Repairs
Things happen. Pipes freeze and break. Heaters conk out. People drop something on the back deck and the stairs break. When that happens, you, as the landlord, have to handle the repairs. And in many cases, you have to do them quickly. So you need to be prepared.
That means you either 1) possess the know-how to do the work yourself, as soon as it is needed, or 2) have someone else who can do it and move quickly. There are pros and cons to both, in terms of cost and in terms of your time. But you need to have a plan. You need to be able to respond quickly.
Tip #5: Document Everything
Look, there’s the possibility that even if you’re doing everything in your power to be a good landlord, you’ll have problem tenants. Even if you conduct background checks, there will be tenants who try to game the system. They may break the lease and say you violated their rights. They may damage property and say it’s your fault. They may fall behind on rent and leave you in the lurch.
And even if they aren’t malicious, everyone thinks they are right in a dispute. So it would be in your best interest to document everything. Document complaints, keep receipts about repairs, and keep files of any emails. If you do get hauled before the Administrative Board, you want to make sure you have what it takes to defend your claim.
Bonus Tip: Be Respectful
You know what works best for me? Being respectful toward my tenants, my contractors, and even the city officials with whom I sometimes butt heads. Everyone is trying to make a living and keep a roof over their heads. Tenants get scared about fierce winters; they want to have a sense of security. Listening to them, talking to them, and being open and honest about repairs you will make, the time in which you’ll make them, and what you’ll do to make it right keeps you on their good side and far away from any lists.
Being a landlord in Illinois has its challenges. But if you know what you’re doing, it can be worth it.
The Best Way to Be a Good Landlord in Chicago
A lot of the above advice seems like it can only come with experience. But there’s a way to get the benefits of experience even when you’re just starting out: get training and mentorship. And the best way to get that is to become an independently owned and operated HomeVestors® franchisee.
Franchisees get some of the best training to learn how to get leads, spot good properties, and evaluate the amount of work to be put into any property. They get career-long mentorship from old Chicago vets like me, talking them through the market. And, they are connected to a network of other investors to continually share information and ideas. Not to mention, by joining HomeVestors®’ network of real estate investors, you get a ton of quality leads through their nationally-recognized “We Buy Ugly Houses®” marketing campaign.
With all these tools and connections, you can do more than stay off Chicago’s bad landlord list. You can boost your reputation and build your business. If you want to be a landlord in Chicago, consider requesting information about becoming a franchisee today.
Each franchise office is independently owned and operated.