Home Buying in Edgewater>Question Details

Donald Trump, Both Buyer and Seller in Chicago, IL

Condo unit as a rental investment: What are the some of the expenses I should plan for?

Asked by Donald Trump, Chicago, IL Tue Sep 4, 2007

The income is usually the easiest to figure out. What I want to plan for is the worst. I'm about to go and look at some condos by the lakefront and I want to try to figure out (before I give an offer), the expenses I need to plan for. And is it okay to lower my offer based on some expenses that may of incurred from the seller? And based on expenses that I have to create in order to boost my profits. - I mean the seller wouldn't know why I lower the price anyway. Right.

Help the community by answering this question:


Hi Tim,

Some of the costs to consider are: principal and interest on your loan, PMI if putting less than 20% down, taxes, insurance, condo fee and maintenance fees (as well as future increases for some of these expenses). When I'm working with investors, it doesn’t make sense for them to make a purchase such as this, unless they are getting at least 15% more than what their monthly expenses are. You also run the risk of the condo not being cared for the same way you would care for it if it were owner occupied. Regarding an offer: the seller doesn’t have any concern for what your carrying costs would be if purchasing this as an investment. They only care that they sell it for market value, so they would not take any of this into consideration when reviewing your offer.
Web Reference: http://MelissaBMancini.com
2 votes Thank Flag Link Tue Sep 4, 2007
I only recommend condos to those who can get in early at the pre-construction and flip out before they actually have to close. You expenses are directly tied to the reservation fees with the property. If you have problems coming up with the cash but know you can qualify for the loan, get a deposit bond. That prevents you from having tocome up with the 5%-10% you need to lock up the reservation.

FYI... These are the golden egg of real estate. They don't happen everyday. And beware of the lingo that some salespeople use for avoiding the question "Is this a 1st round offering". I love when people use "phase #1" to describe a 2nd or 3rd round of offerings....
1 vote Thank Flag Link Wed Sep 5, 2007
About pricing......... Regardless of why you offer a price, the amount needs to make sense to the seller. You indicated that you might incur expenses as a result of the seller. Some of that may be subjective. The seller will be guided by an agent about comp prices and recent trends. Regardless of any particular needs specific to you, the agent will advise the seller based upon the market in general. If the needs or expenses you define would be generic to all or most buyers, it is a reasonable factor in pricing.
1 vote Thank Flag Link Wed Sep 5, 2007
Deborah Madey, Real Estate Pro in Red Bank, NJ
Check out the financial condition of the association. If the reserves are high, the balance sheet looks good, and the common areas are in good shape, you are unlikely to face special assessments.

If there is deferred maintenance, you will need to be aware of the possibility of any special assessments to cover unexpected expenses.

The other items, of course: Mortgage, Interest, Insurance, Taxes, Assocation Dues, Rent Loss and Vacancy, Legal and Acctg Fees, Eviction fees if necessary, and don't forget to put a value on your time!
1 vote Thank Flag Link Wed Sep 5, 2007
Deborah Madey, Real Estate Pro in Red Bank, NJ
Condo fees
Maintenance (in your condo)
Time and gas going back and forth managing tenants/collecting rent
Additional $ to your accountant for that extra form for him/her to fill out
Money to repaint, etc when you change tenants
Utilities for when you do not have a tenant
Separate checking account just for the rental
LLC formation costs to put the name of the condo in (in case you get sued)
Aspirin to relieve the stress of all of the above.
Web Reference: http://www.iansellsnola.com
1 vote Thank Flag Link Wed Sep 5, 2007
Dear Tim:

I read some of the answers to your question and I have one last thing to ad. Although not an expense, it is important. Make sure that you are able to rent your unit per the condo docs and I would also try to find out what the percentage of rental units are in the building. Lenders look at that stat and it is also something to keep in mind should you need to sell.
1 vote Thank Flag Link Wed Sep 5, 2007

In addition to all that has been said you may want to check into what the rent control ordinance is and how it applies to the property you are interested in. And is the property currently tenant occupied.
1 vote Thank Flag Link Tue Sep 4, 2007
Pam Winterba…, Real Estate Pro in San Ramon, CA
Hi Tim,

You've already gotten great advice. I just wanted to add that I live near the Edgewater area and have a couple of investment properties there. It is one of the few lakefront areas in Chicago that is still affordable -- a recently discovered gem for most, really. It's changed alot over the last 10 years, and it's becoming more and more popular.

With that said, assuming you are considering Edgewater (I see it is the area of Chicago you selected in your question), consider that the assessments in high rises are extremely high ($300-$1000, depending on building and floor), and that, unless you are paying cash, based on that and your increased property taxes as as a non-occupant will make it very unlikely that you will cover all of your operating costs with the rents the area demands. The assessments along the Edgewater area high rises tend to be higher, too, simpy because many of the high rises are old, so their maintenance is a little more costly.

With that in mind, you might plan for additional out-of-pocket to go towards your carrying costs.

However, if you are looking for a longer-term investment rather than monthly cash flow, Edgewater has shown some nice appreciation over the last decade.
1 vote Thank Flag Link Tue Sep 4, 2007
Patti Pereyra, Real Estate Pro in Chicago, IL
Hi Tim:

Costs other than the ones mentioned by Patrick and Melissa are utilities (water, gas, electricity, cable, who pays for what), vacancy rate and carrying cost when the property is vacant (even if you have renters back to back, you probably have a few days for cleaning/repairing from time to time); the expenses for advertising and finding the renter(s); cleaning fee (which should be part of rental move out agreement, but you might as well budget for that), property management fee; will you be renting to long term tenants or short term (such as seasonal? then that would cost more). The wear and tear could be higher than owner occupied (or not, but we are talking about worst case scenario); hopefully not, but lawyer fee? Oh, you also might want to purchase refrigerator, washer and dryer if they don't come with the condo.

I have heard about corporate rentals, which might be a good thing to check into also, especially with a nice, lake front property in Chicago. - when I was young, starting out as IT consultant, my first assignment was in Chicago, and I loved the apartment my company had on Lake Shore Drive.

Don't forget the write offs from owning an investment property and the possible increase in your tax bracket.

And I agree, sellers don't really care what you use the condo for. They want to sell for what they can get; so make an offer according to that. However, if the condo complex has a lot of investment properties ; the rental market for the particular range of condos might affect the market value of the condos.

This is it for now.

1 vote Thank Flag Link Tue Sep 4, 2007
Sylvia Barry,…, Real Estate Pro in Novato, CA
Well for one being a native Chicagoan, I believe that you are making a wise investment.
Even though that market is slow.
I hope you get to look out on to Oak street Beach.

Besides special assessments. There will always be the small stuff.
Garbage disposal, running toilet, add in the union plumber.
I would not allow Smokers or Pets.

I think one of the important things to include is direct withdraw of the rent from the tenants account. This is the most efficient. It will save you time and money.

Out here in AZ tenants have rights, however if they don't pay you can throw them out pretty quick. 30/60 days
Now back in Chicago it is a different story, that process can take you 6 months.

Have a plan if they don't pay.
1 vote Thank Flag Link Tue Sep 4, 2007
Mr.P, Other/Just Looking in Arizona
If you are thinking of an investment in a condo building and want to rent the unit out, I strongly suggest that you consult with the building management and check out the condo rules and regulations. A number of condominium associations in Chicago are now starting a policy where there is a set limit to the number of rentals in the building.

In addition, a number of condominium associations are trying to discourage rentals by owners so they are charging very high move-in and out charges that can be anywhere from $500.00 to $750.00. Know your costs before buying into the building. Good due diligence is the name of the game. Also, it is advisable to check out the minutes of the association for the last 6 to 12 months to see what is going on in the building and to anticipate any new rule changes that will affect rental apartments by a condo owner.
Web Reference: http://sheldonchicago.com
0 votes Thank Flag Link Sat Nov 3, 2007
I am reviving this thread for Megh, who was looking for it.
0 votes Thank Flag Link Sat Oct 20, 2007
Jim Walker, Real Estate Pro in Carmichael, CA
Rehabbing after tenants leave and eviction/attorney fees I think are the two biggest expenses. Don't buy a rental if you are counting on the rent to cover expenses. If they do, that is great and your goal is to make a profit. Just make sure you can pay the mortgage and all the expenses if you don't have anyone paying rent. Have you ever seen the movie Pacific Heights?
Good Luck,
Web Reference: http://www.oak-park-il.com
0 votes Thank Flag Link Wed Sep 5, 2007
Ruthless, Other/Just Looking in 60558
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