Do Not Want to Sell in the Current Chicago Market? Rent!

Filed Under Home Finance, News, Real Estate |

My listing at 2250 N. Ohio which is listed for sale as well as for rent at $4,750 a month.

I’d like to tip my hat to Jeff Kerr over at the ChiTown Living Blog for pointing out this informative article in the Chicago Tribune about what homeowners need to consider when renting out their homes.

As I’ve mentioned before, this is a conversation I have with my own clients from time to time. Of the 40 properties I have listed for sale at this time, five are also listed for rent.

There are a number of benefits to renting out your home, especially in the current market, but there are also some pitfalls to be considered.

Reasons to rent out your home

As a seller, there are a couple reasons to consider renting your home:

The first reason is equity retention. If your home is not selling in this market, pure and simple, you need to reduce the price until you find buyers. For some sellers, including myself, it can mean successive price reductions. Some of our clients do not need to sell and would rather not reduce their price. Instead, they opt to keep their home until the market recovers. As this may take months or even years, it makes sense to rent their home to offset the cost of ownership (mortgage, real estate taxes, insurance, and, in the case of condos, assessments).

The second reason is cash flow. If your basis is low or you bought well, you may be able to obtain a monthly rent that more than covers your expenses, kicking out a small income stream. Even if your cash flow is not positive, the overall benefit may be positive when you take into consideration the tax benefits that accompany writing off the expenses associated with owning and maintaining the property.

The third reason to rent is a part of an overall investment strategy. A friend of my parents lives off the revenue stream generated from a portfolio of property that she owns and rents out. Obviously, it takes time to build a portfolio, and it is a much different strategy than renting your home because of market conditions. However, with prices coming down and volatility in the financial markets, bricks and mortar can be an appealing option for savvy investors. (Note that mortgage financing for investment property is not as freely available as for a primary residence, so this opportunity is better suited to someone with cash in the bank.)

Why is the rental market so strong?

There are more people out looking for rentals than in recent years for the following reasons:

Firstly, fewer people qualify for purchase financing due to larger down payment requirements and more stringent underwriting standards.

Also, potential buyers are hesitant to sell their stocks or mutual funds now because values are down. Without selling, they don’t have funds for their down payment.

Lastly, some people are unsure about the housing market, their job security, and/or their future plans. Renting allows them the ability to remain flexible.

The Downsides to Renting

However, as the Chicago Tribune article mentions, there are some reasons why you may not want to rent:

Renting may not provide enough income to fully cover the carrying costs for your home, and it may bring with it the extra hassle of managing a tenant. While there are management companies that can assist you, their services are rarely cost effective unless you have a portfolio of properties that you rent out. So, you have to be comfortable with the fact that you may get a late night call that the heat is out or a squirrel has found its way into the basement.

Based on my experience, you should also factor in a budget to repaint and make minor repairs after your tenant has moved out. The security deposit covers damage but not necessarily wear and tear. For that reason, I encourage my clients to only consider the rental option if they are willing to rent for two years or more. The hassles and expense associated with a short term rental are just not worth it.

Also be aware that some condominium associations are restricting the number of units that can be rented in their buildings. If the quota has already been reached, then you may not have the rental option.

Have Questions About Renting out a Property?

Ultimately, even though the Chicago Tribune article makes renting sound like a headache, it has proven a smart strategy for some of my clients. If you would like to better understand the benefits or renting versus selling your home, feel free to email me at jenny@jenniferames.com, call (312) 440-7525, or leave a comment on this post. And if you are looking for a rental, check out these fabulous options.