Real Estate

Is Buying An Owner Occupied Investment Property Worth It?

A trend has gained a lot of attention and popularity: owner occupied investment property. These are multi unit buildings in which the landlord/owner lives in one of the units while renting the others out.  There are many pros and cons to consider when contemplating buying an owner occupied investment property.

My goal of this article is to help you determine if an owner occupied investment property is right for you.

Financial Benefits Of A Chicago Owner Occupied Investment Property

The most obvious pro for an owner occupied investment property are the financial benefits. Who wouldn’t want to have their mortgage, or a big chunk of it, paid for by their neighbors? And if it’s a larger property with more than a couple units to support it, your neighbors will not only pay for you, but could make you a potentially make a profit!

On top of all of this, you are also stocking up equity in your property every month! So your cost of living is greatly reduced while you’re stashing away cash on a monthly basis.

Putting together a pro-forma for the building and calculating income and expenses with a Real Estate professional could make this task much easier and ensure you’re buying yourself a money maker instead of a bottomless pit.  I’ve seen many buyers overpay on an owner occupied investment property thinking it’s a good thing just because they have income coming in.

Little do they know that they could have leveraged much better cash flow from other properties.  The best thing you can do to make a wise financial decision is to subtract the monthly income from the carrying cost of owning the building so you know what YOUR bottom line is.

Tax Benefits Of  A Chicago Owner Occupied Investment Property

Another often over-looked benefit of buying an owner occupied investment property are the double-sided tax deductions you can claim on this property. These types of properties are treated like hybrids, and let you claim BOTH personal and investment deductions! Just like a typical owner occupied residence, you can claim your unit’s proportion of mortgage interest and real estate taxes on your personal return.

On the flip side, all of the rental units are treated like a regular income generating investment and you can write off all of your typical expenses such as utilities, maintenance, etc. This goes WAY beyond the normal deductions for interest and taxes. Combine the tax advantage of both and you’ll have a pretty nice write off at the end of the year.

Personal Preference Benefits Of A Chicago Owner Occupied Investment Property

In addition to monetary value, purchasing an owner occupied investment property also gives you more control over your surroundings and your neighbors (within reason and within legal capacity).

Ugly paint colors in the hallway? Do you like flowers on your front porch?

Paint them or plant them!

Always wanted that satellite dish but your landlord would never allow you?

Slap that baby on your roof!

Don’t like cigarette smoke?

Allergic to cats?

Remember your old neighbor’s two pound dog that barked at EVERYTHING?

Make your building a smoke-free or pet-free building.

Don’t like noisy neighbors above you? Or have trouble with stairs?

Pick whichever unit to live in, you own the building!

As long as your choices are reasonable and ethical, they are totally yours to make.

Chicago Owner Occupied Investment Property Cons

On this note we dive into the cons of having an owner occupied investment property. Although the list is short, it’s something very serious to consider.

The lesser of the cons is the fact that you are extremely close and convenient for all of your tenants and their needs.

Leaky sink?

Dispute over noisy neighbors in the hallways?

Grass wasn’t cut on time?

You are about two sets of stairs and a knock away. Makes it pretty easy to share thoughts, complaints, and comments (at all hours and on holidays). Being an owner and occupying your investment means you are the front line for all and any issues that may arise. The place you call home will now also be a place that requires your attention and some work if you plan on managing it yourself.

The greater of the cons is that you are also assuming responsibility and liability for the building, the tenants within it, and the leases associated with them. An owner occupied investment property is subject to the Federal Fair Housing Act just like any other property out there. You are now dealing with a variety of personalities that will reside in your building. You have to make sure your tenant selection processes are consistent and ethical, that your leases protect you but are fair and legal, and if a problem or dispute erupts that you can handle it either through insurance or legal avenues. Evictions are no cake walk, but having a Realtor and/or property manager to help buffer this could be a great idea and a time saver.

The important decision lies with weighing out the benefits, understanding the responsibility you are assuming, and figuring out if it works for you.

Remember, you don’t have to go at it alone! Owner occupied investment properties can be handled in a variety of ways with many levels of help. I’d love to assist you with the acquisition of the property, rental process, and even management of the building. It’s a feat to tackle and a job within itself. Managing a 100-plus units myself, I know the drill and can be a great resource!

Becoming a Section 8 Landlord

With the major changes throughout the landscape of Real Estate, many new landlords have been bred into existence as the rents continue to skyrocket throughout Chicago. Learning how to become a section 8 landlord is one options you may want to consider.  My goal of this article is to help you decide if this is the route for you or not.

One of the first things you will encounter in learning how to become a section 8 landlord is there are many “rules” you need to follow that are often misunderstood. Learning the ins and out of the regulations and functions of the housing authority is critical  to becoming a Section 8 landlord, and is where you should start.  Most people are either going to be turned on or off by this process right off the bat.

It’s extremely important to note that as of August 2014, those utilizing the benefits of the Housing Authorities in Illinois are now protected under the Fair Housing and Equal Housing Opportunity Acts, and it is illegal to discriminate against anyone based off of the source of their income. When potential tenants call and ask “Do you accept Section 8?” or “Are housing vouchers allowed?”, they are likely unaware of this new reform in Illinois. Many participants within the Housing Authority programs are new to it or uninformed about how their voucher works, so it is important for Landlords become familiar with each of the housing authorities of which they will work with.

The Two Players In The Chicago Area

Locally, there are two Housing Authorities you could possibly deal with: The Chicago Housing Authority (CHA) which covers housing within the city limits, and the Housing Authority of Cook County (HACC) which covers the remainder of housing in Cook County. Participants must “port out” if they wish to move from one program to another.

Both programs work with participants by reviewing income and expense levels, and then determining how much assistance they qualify for. A tenant can be responsible for up to 60% of their rental expenses,depending on utility costs and a few other factors. There is a common and false conception that 100% of the rent is guaranteed. 

One things to note as you learn how to become a section 8 landlord is that it’s illegal for you to accept any rental money outside of the Housing Authority Program (HAP) contract! Don’t play around with this trying to squeeze extra income because it’s just not worth it. Get caught and any properties associated with you will no longer qualify for their program. 

After the participant’s ratios are calculated, they are then issued their voucher and may start looking for a rental property. CHA’s voucher values are determined by bedroom count, and the HACC’s voucher values are determined by zip code. After you learn how to become a section 8 landlord, I strongly advise knowing what the potential rental income is for the area you are looking to invest and then working the numbers backward.

DO NOT BUY THE PROPERTY FIRST WITHOUT KNOWING WHAT YOUR POTENTIAL RENTAL INCOME IS GOING TO BE

These values change annually according to inflation and other changes within the rental market. In order to become a Section 8 landlord (or maintain the status) your rental amounts must match these values.

Taking In A Section 8 Tenant Application

Once a Housing Authority participant has found a place to their liking, they are subject to regular screening and application processes. Credit checks, background checks, or other methods utilized by Landlords are still applicable. While this is underway, the Landlord must in turn fill out the application and information packet from the Housing Authority to verify property ownership and set up the required inspection.

Prior to be granted approval there will be a mandatory inspection of the property conducted. All properties must meet minimum CHA/HACC requirements to be suitable for tenants and qualify in order to receive program funds. These inspections are free, simple, and performed by an employee of the respective Housing Authority. Once all necessary agreements, documentation, and inspections are completed the participant may sign the lease and make arrangements for the move in procedures or security deposit.

Getting Your Money

The CHA and the HACC make payments via KeyCard systems or direct deposit on the 1st of every month. Landlords must opt out of the KeyCard system if they wish to have their funds deposited directly. They may also withhold or withdraw funds if a Landlord has breached the Housing Authority Program (HAP) contract. If this should occur, the tenant must still continue to make their portion of the payments until the issue is resolved. Should a tenant decide to end their tenancy and move out, regular provisions and procedures must be adhered to as in a typical lease.

What To Do Next

Speaking with Real Estate professionals and property managers well versed in CHA/HACC procedures and regulations can be a great idea and can unlock a wealth of information on how to become a Section 8 landlord.  If you are a Landlord and have any questions about housing subsidies or other programs, please do not hesitate to reach out! Navigating new Real Estate landscapes can be easier and more profitable when you know the inner workings, and have someone to help just in case.