Do you want to be a Chicago landlord? Don’t worry. I know many real estate investors get nervous about Chicago rentals because it is considered a tenant-friendly city but know that if you play by the city rules there are plenty of profits to go around.
Investing in real estate is one of the most rewarding investments you can make in your lifetime. You earn passive income as well as count on appreciation over time. Unfortunately, if mismanaged it can become your biggest nightmare.
Today, I will discuss the things you need to know before becoming a landlord in Chicago. I will guide you through the CITY OF CHICAGO RESIDENTIAL LANDLORD AND TENANT ORDINANCE.
Most of the rules here are unique to our city, and as of the end of 2021, they apply to most of the rental owners.
Exceptions to these rules are owner-occupied buildings with six or fewer units, non-residential rental properties, and owner-occupied co-ops and condominiums.
Let’s start with your responsibilities as a landlord:
You need to communicate in writing to tenants who is the person designated to manage your unit and give them contact information.
You have 1 week to notify the tenant that foreclosure action has been taken by a creditor.
- Always notify tenants of the following any of the following:
- Code citations issued by the City in the previous 12 months;
- Pending Housing Court or administrative hearing actions;
- Water, electrical, or gas service shut-offs to the building during entire occupancy.
As a landlord, you need to get yourself familiar with Municipal Code and make sure you are in compliance.
You cannot renew the lease sooner than 90 days before the expiration of the current lease and in the event, you will not be renewing their lease or will be raising the rental rate you need to communicate that to them 30-120 days before the expiration of the date. The exact date varies on how long the lease was. For example, if the lease was only 6 months long you have to notify them 30 days in advance. If their lease was over 3 years then you need to give them at least 120 days.
Always provide tenants with the informational brochure on bed bug prevention and treatment prepared by the department of health under section 7-28-860.
And lastly, make sure your lease also does not have any illegal provisions
Speaking of leases
Use a written lease that has everything spelled out. In this written rental agreement, specify the financial institution where the security deposit will be deposited.
The deposit should be made no later than 14 days after the receipt. I will talk more about the security deposits next.
If a tenant moves before the end of the rental agreement, the landlord must make a good faith effort to find a new tenant at a fair rent. If the landlord is unsuccessful in re-renting the unit, the tenant remains liable for the rent under the rental agreement, as well as the landlord’s cost of advertising.
If the tenant fails to comply with the Code or the rental agreement, the landlord, after giving 10 days’ written notice to the tenant, may terminate the rental agreement. He or she may enter the rented unit and have the necessary work done. In this case, the tenant shall be responsible for all repair costs.
Pro Tip: To make sure that you have a good working lease, consult with a real estate attorney before settling with your tenant.
When it comes to security deposits:
The landlord must give a tenant a receipt that includes the owner’s name, the date it was received, and a description of the dwelling unit. This applies in cash, check, and electronic funds transfers and should be signed by the person accepting the security deposit.
You may accept the payment of the first month’s rent and the security deposit as one payment but remember to transfer the security deposit portion to the interest-bearing account within 5 days of the deposit.
You must put all security deposits in a federally insured interest-bearing account in a financial institution located in Illinois. You cannot mix the security deposits with your other assets.
Before you can deduct expenses for damages from the security deposit, you must provide your tenant with an itemized statement of the damages within a month to the day when the tenant leaves.
Within 45 days from the day of the tenant’s leaving, the landlord must return all security deposits and required interest if any, minus unpaid rent and expenses for damages.
If the rental property gets sold or passed to another owner, the new landlord is liable to the tenant for any security deposit or prepaid rent paid to the original landlord. The successor landlord must notify the tenant, in writing, within 14 days from the transfer of property ownership that the deposit or prepaid rent was transferred to the successor landlord. The original landlord remains liable for the deposit or prepaid rent until the original landlord transfers the deposit or prepaid rent to the successor landlord and provides proper notice of such transfer to the tenant.
Let’s talk about rent payments:
If the tenant fails to pay rent on time, the landlord may charge a late fee of $10.00 per month on rents under $500 plus 5 percent per month on that part of the rent that exceeds $500.00.
If the landlord accepts the rent due knowing that there is a default in payment, the tenant may stay. This applies also to tenants who pay the full amount of back rent and landlord court filing fees before a judge issues an order of possession.
If the tenant fails to pay rent, the landlord, after giving five days’ written notice to the tenant, may terminate the rental agreement.
Finding the right tenant
The key to the success of your rental business is getting the right tenants.
You need to choose your tenants wisely.
Here are the things you should do to avoid bad tenants:
- Credit checks
- Ask References from previous landlords
- Verifying their employment
- Checking their background
If you are running a credit and background check, you cannot do it at the same time. The new ordinance of Cook county requires us to check the credit first and only if it is approved you can run a background check. If you choose to deny someone based on their background check it the records need to be relevant to real estate. Arson is a reasonable offense that can be of concern but a DUI - no.
Here is what you must know about repairs and disasters.
You are responsible for your properties. You need to properly maintain the unit/s, and provide essential services such as heating, running water, electricity, gas, and plumbing. Failure to do so will cause you to lose money on repairs, and lawsuits.
Here are the things you need to do during emergencies and repair work:
- Notify all your affected tenants, at least within two days after entry.
- Reduce rents to tenants affected by damage from fires and other disasters.
- Return all security deposit and required interest minus unpaid rent and expenses for damages, within a week if the tenant terminates the rental agreement.
As I’ve mentioned earlier, in Chicago, you need to treat your tenants fairly. That does not mean you are overly trusting and friendly. Instead, you need to offer them a safe and secure place to live for a reasonable price.
Here are some NO No’s
You can’t LOCKOUT your tenant/s - No changing locks, removing doors, cutting off essential utility, and no locking them out. If you commit this illegal act, you will suffer fines of up to $500 every day and face lawsuits.
You can’t retaliate against your tenant’s complaints through threats and intimidation - If they feel like their rights have been violated, tenants can complain to government agencies, police, media, and tenant unions. In the process, you should not aggravate the situation with threats and intimidation. You can’t terminate the rental agreement, increase rent, decrease the services offered, or evict the tenant from your property because of that.
Conclusion
Having said all these things please do not get discouraged! Get yourself familiar with the local ordinances and join local meetings for landlords. If you are considering a property manager, book a FREE consultation with me here.
