Non-Conforming Garden Unit in Chicago

6 Replies

Hi All! 

My husband and I are looking at doing an off the market deal on a multi-unit (two flat) on the north side of Chicago with a non-conforming garden unit. While we own a single family town home in DC, this will be our first multi-unit. I was hoping to get some insight on a few things from some of the seasoned folks out there. 

1. Considerations for not using an agent: We plan on hiring our own real estate attorney as well as finding our own inspector. Anything else we should consider doing? Any recommendations on either front?

2. Property management: while we plan on managing the property ourselves while we live there (my husband is in the military and we just started a 3 year tour in Chicago), we may look to a property management company to help maintain the property when we move (depending on our tenants and how the numbers shake out). Will a property management company rent out a non-conforming unit? Does anyone have experience with a similar situation?

3. Rent: do those of you renting out your units increase the rent on an annual basis? We are used to the 2% rent control limit in DC and haven't touched the rent for the past few years (same tenants), but wondering how folks handle that. 

Thanks so much!

Bree

There is a big difference between non-conforming and illegal. If the zoning doc says 2 only pay what a 2 unit property is worth. If it says 3 and the basement is non-conforming legal pay 3 unit price. The illegal units are popular in Chicago but I would NOT recommend them for an out of state buyer. You need to be hands on with these and properly vet the tenant so they aren't a headache that get the city called on you. The good managers won't touch the illegal unit if they know it's illegal but if it doesn't look illegal most won't know, it's not like they see the zoning doc it's not public info. 

Most of my clients raise rent 2.5% every year. In some gentrifying areas higher.

@Bree P. I raise my rents 2-3% every year even on good, existing tenants. This normally only works out to a $20-25 raise, but that helps protect you against property taxes and utilities going up (they do every year). 

@Bree P.

Non-conforming only means the rules changed after the building was in the place.  For example, a unit/building located in a zoning district that has now been changed to all single family.  Hence the nonconformity.  Illegal non-conforming means it was never allowed.  It is an illegal unit.  Don’t try to cheat the system.  Let others take that on.  It’s not worth it and you know it’s not right.  This is what gives investors a bad name.

As far as rent, I always re-evaluate the rental market for the following year.  If it’s gone up I go with it.  Whatever I choose, the expense of a tenant leaving far outweighs the 2% increase.  Try to keep the tenant even if it means no increase or a 2% decrease.  A $25 decrease is $300 annually.  It’s so small it’s not worth it.  I know it’s unlikely a tenant would leave for a $25 increase because the hassle of moving, but be aware of its a possibility.

@Bree P. can you clarify if it is just an illegal garden unit?  A lot of sellers do not understand the difference as stated above. 

A good source here in Chicago is @Prashanth Mahakali as he can walk you thru what it takes to make illegal to legal. 

Also let me know if you need a good attorney.  

Thanks for the replies! 

@Mark Ainley , I would love if you could PM some contacts for local real estate attorneys. 

The unit is legal in the sense that it meets all codes (ceiling height is 7'6" in > 25% of each room, exits based on square footage, lighting/windows, etc.), but I don't believe the property itself is zoned for 3 units. We will have the zoning pulled, but based on the public searches available it appears to be an RS-3. I'm not sure if the unit itself existed when the zoning changed, but the building did (was built in the 1910's). 

If it is an illegal unit make sure the cost is not included in the purchase price.  Your comps will be the other 2 flats in the neighborhood.  

If you go ahead and purchase the property, there could be an unexpected win for you. The city is discussing allowing additional dwelling units (ADU) proposals now as a way to help with affordability and density. This would mean allowing basement units in a 2 flat even though it was zoned R3. Your apartment could conceivably be transformed from illegal to legal if the ordinance is enacted. Alderman Osterman, the chair of the housing committee, is in favor of the ordinance.

Good luck!