Chicago Rentals VS. NW Indiana Rentals
Lender · Phoenix, AZ · Member since 2008 · 351 posts · 40 votes
I am looking for anyone who owns property in these areas or has knowledge of the situation. I have always been told to stick in NW Indiana strictly because of eviction laws. But lately I have been able to find property in south Chicago at great prices.
The only argument I know of right now for NW Indiana are the eviction laws. I would guess taxes would be cheaper as well.
When looking at south Chicago I have found 6 flats that are all 3 bed 2 bath and you could be all in for about 225,000-235,000 depending on repairs. With each unit at $1,000 plus you would be cashflowing real nice. With that being said I have heard eviction laws in Cook county are bad enough to make you wish you never invested. I have though about section 8 tenants which would be great for payments but I don't want to evict a tenant and not get rid of them until a year later.
Let me know if someone can help me weigh the positives and negatives!
Section 8 rent portions can change a few times throughout the year. There's a formula that considers the resident's income, number or dependants in the home and a few other factors (which I do not know, I suspect utilities are in there) and crank out a formula to determine if or how much of the rent split the resident is responsible for paying. When their income spikes either way, rent will adjust, not dollar for dollar, but enough for them to feel hosed.
I had a unit where the split was S8 $670, Tenant $80 and had it change to S8 $190, Tenant $560. That's a tough one for a tenant to swallow. Some tenants will have their portion change 3 times a year and others will never have theirs changed over many years. Changes are typically triggered by job and income changes.
As to it never being guaranteed, it really never is. People DO get thrown off the program for the dumbest of reasons. When they do, the rent stops and it's the LLs responsibility to get them to move, which can be a daunting task. Fortunately, I have only been through this once and it was a person with 100% paid rent that couldn't stay out of trouble. A little cash for keys and some sympathy made for a simple and fast transition.
Tenants do have a huge incentive to not get too far out of line and many don't. However, like anything else, there's some that can't seem to avoid a freight train moving at 1 mile per hour.
Another benefit is that caseworkers and support staff at the local level can assist in resolving many of the problems that do occur. This can make resolving some issues a lot easier than if they weren't there.
I'd do a ton of diligence researching crook county's eviction processes. One year is awful.
As to the point of collecting section 8's rent and not the tenants in the instance of an eviction for non payment, I suspect you would be resetting the clock every time you took payment from section 8.
If it really takes a year and the tenant is not paying, I would continue to take section 8's money and not renew the lease. By doing this, the tenant would likely move into another rental and vacate yours, thus minimizing the loss. You can also leverage the situation by telling the resident you'll have to report them to section 8 for nonpayment if they don't move. Nonpayment in some areas will (should be in all) get you thrown out of the program completely. You've also got a chance to get it around tax time when they get their refund.
Let me know if this needs any more clarification.
--Ed
Depending on the neighborhood in Chicago the section 8 tenants might make more sense depending on your overall cash flow. You could have more units to spread the risk. It might take a year to evict one but the rent is guaranteed.
With section 8, a portion of the rent is guaranteed. It may be 5%, it may be 100%. It may start at 100% and then adjust to 10%. It is never 100% guaranteed. The teant portion could be 900 of the 1000 in rent. It's not as easy as "guaranteed."
Ed, you seem to have experience with section 8. I knew it was not always 100% Garunteed but I did not know the amount could fluctuate. Has this happened to you and if so how often does it fluctuate? I thought I read it on here before but I could be wrong, don't section 8 tenants have somewhat of an incentive to cooperate because they could lose their funding if they don't? I could be totally wrong with that and know for the most part they are just like any other tennant.
Like you said David, I like having 6 units as opposed to one or two that way I have "less risk". The properties in Chicago are closer as well although not by too much. If you start the process of eviction on a section 8 you still get the rent until the actual eviction takes place?
Thanks for the help guys!
Section 8 rent portions can change a few times throughout the year. There's a formula that considers the resident's income, number or dependants in the home and a few other factors (which I do not know, I suspect utilities are in there) and crank out a formula to determine if or how much of the rent split the resident is responsible for paying. When their income spikes either way, rent will adjust, not dollar for dollar, but enough for them to feel hosed.
I had a unit where the split was S8 $670, Tenant $80 and had it change to S8 $190, Tenant $560. That's a tough one for a tenant to swallow. Some tenants will have their portion change 3 times a year and others will never have theirs changed over many years. Changes are typically triggered by job and income changes.
As to it never being guaranteed, it really never is. People DO get thrown off the program for the dumbest of reasons. When they do, the rent stops and it's the LLs responsibility to get them to move, which can be a daunting task. Fortunately, I have only been through this once and it was a person with 100% paid rent that couldn't stay out of trouble. A little cash for keys and some sympathy made for a simple and fast transition.
Tenants do have a huge incentive to not get too far out of line and many don't. However, like anything else, there's some that can't seem to avoid a freight train moving at 1 mile per hour.
Another benefit is that caseworkers and support staff at the local level can assist in resolving many of the problems that do occur. This can make resolving some issues a lot easier than if they weren't there.
I'd do a ton of diligence researching crook county's eviction processes. One year is awful.
As to the point of collecting section 8's rent and not the tenants in the instance of an eviction for non payment, I suspect you would be resetting the clock every time you took payment from section 8.
If it really takes a year and the tenant is not paying, I would continue to take section 8's money and not renew the lease. By doing this, the tenant would likely move into another rental and vacate yours, thus minimizing the loss. You can also leverage the situation by telling the resident you'll have to report them to section 8 for nonpayment if they don't move. Nonpayment in some areas will (should be in all) get you thrown out of the program completely. You've also got a chance to get it around tax time when they get their refund.
Let me know if this needs any more clarification.
--Ed
One key with section 8 (cook county housing authority) is that they don't offer market rates. They're a good $200 to 300 below market. So while it makes it convenient for collecting rent, I'd rather get the extra $200 to $300.
Also, you have to deal with their inspections which aren't too bad but they are something to account for.
One other thing you need to make sure you take into account for cook county is the property taxes on these houses. You'll be shocked when you see what you're paying for taxes on those units. And good luck trying to get them reduced.
I bought several houses in southern cook county because, at the time, the taxes were actually pretty good. Little did I know there was some rule put in place a few years back that was basically a built in deduction for cook county that was set to come back up. Boy did I take a hit there.
Lastly, the evictions are very ridiculous. Luckily, I haven't had a one in my cook county properties. But I did have a non-paying tenant. When I went to an attorney, they said it would be $1,000 for their services and would take about 5 months!
I took the 1,000 and offered it to the tenant to move out and they were out in 2 weeks.
I haven't and wouldn't touch a cook county property again. That eviction process is outrageous. I know its going to happen eventually but, wow, is that a bite in the bottom.
If you are going to consider cook county, try Lansing. Its right near the border of Indiana. Houses are cheap. The rents are pretty good, They have a very tough renter/landlord program with the police/village. And the neighborhood is fairly decent.
Thats still cook county though but the numbers are great and the area is decent.
But watch out for the taxes in Cook County.
A house I have in richton park is assessed by the county at 135k and my taxes are over 5k. And good luck finding any local banks that want to do portfolio loans for cook county.
Wow thanks for all the help guys! It definitely sounds as though there are more positive experiences with NW Indiana than Chicago. I kind of knew this coming in but the price points are tempting and I think there was a bit of "hometown" factor, granted the North side of Chicago and the South side are nothing alike.
One thing I liked more about Chicago as well is the prevalence of 6 flat type properties. I feel like anything over a duplex isn't seen out in NW Indiana as much.
Thanks again!