All Forum Posts by: John Clark

Originally posted by @Joe Splitrock:  Most every tax break I get in my rental property business is what I would classify as an ordinary business expenses. I would argue rental properties don't really get special treatment.

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True enough, but my comment was directed to the original poster's comment that he was "underwhelmed" by the tax breaks he was getting by owning an investment rental property, and went to the idea of "why should you get any break that any other investor wouldn't get in any other investment (non-investment rental property) ? What make the O.P. think that rental property investing was/is/should be favored in our tax system?

"I am doing my taxes myself via turbo tax and I must say I am underwhelmed with the tax breaks I am getting for owning a rental."
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I have a philosophical question: Why should any particular investment receive a tax break that others don't get? We give tax breaks to encourage home ownership, but that's a status we want to encourage, not an investment. What is socially more productive about investing in rental apartments as opposed to, say, cattle futures?

I can see differentiating between long term capital gains versus short term capital gains, but that's due to discouraging speculation in general, not that any particular investment is more useful socially than others.

And yes, landlords get plenty of tax breaks -- most of them are mom and pop operations, and our congresscritters loves them moms and pops. (and mom and pop ain't doin' cattle futures). That's politics, though, nothing to do with some innate superiority in investing in real estate.

"I’ve been looking at almost all the listings and a good deal is super hard to find in Chicago especially not wanting to live in high crime-rated areas."

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"Good deal" -- whatever that term means -- is always hard to find wherever and whenever, for the simple reason that a "good deal" for the buyer means that the seller is leaving money on the table and vice versa.

In an efficient market there are no "good deals," only transactions where the return on  investment compensates (just) for risk.

"many cities & municipalities have bans against what is called in the landlord world as 'winter evictions' for many years. Chicago & Washington DC are a few of many such cities."

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This is not entirely accurate in Chicago. The sheriff will not evict in Chicago when the temperature that day is expected to be below X degrees (I forget the exact number). Also, the sheriff will not evict around Christmas/New Years. It's not a law, it's a sheriff policy not to evict.

Shop for an architect first and ask him for recommendations. Also, the City's inspectors, once they know of your plans, might be able to tell you who they've seen "pull off doing correctly" the work you'll want to do. Nothing worse than a general contractor who's in over his head.

You don't need a real estate agent experienced with VA, you need a LENDER experienced with VA. Real estate agents are irrelevant.

VA tends to be protective of its borrowers and therefore keeps stringent inspection guidelines. That said, VA does do multi-family houses if you live in one of the apartments. As John Warren has noted, run your numbers pretending that the unit you're living in is rented out, to give you an idea of what things will be like later. You WILL have to live in the building, however, and as he said, a four-flat doing more than giving you reduced/free rent. As a novice, you really don't want to go beyond a 4 flat just yet. The good thing is, if you keep your VA loan good and re-finance out of VA, then often you can (or could, back in the day) use VA again for your second property (still have to live in it though).

First things first, then. Who is your lender?

"eliminating weight bearing walls. . ."

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Replacing them with . . .   help us out here.

You might be doing things so extensive you need a permit, and the town will want to see architect's plans, at a minimum a structural engineer's evaluation. If you plan on putting up a steel I-beam from wall to wall you might get away with no plans.

Wage garnishments usually require a judgment against the debtor first. Depending on whether your repayment plan includes an acknowledgement that he owes you $X, you may have to start all over again in court. If he acknowledges the amount of the debt in the plan, then your court case is much simpler. 

That said, is the debt owed to you personally, or to a company you own? In some states, companies always need lawyers in court. Dunno about Texas. If the debt is owed to you personally, you can always represent yourself (you may have a fool for a client, but that's a different issue) and your court case could be cheaper.

Once you get the judgment, you can do a citation to discover assets to his bank, a wage garnishment to his employer, or whatever else Texas law allows.

Too bad you didn't have the seller deliver the house empty. Empty can be rehabbed faster, as the contractors can make more noise, buy in bulk, use one side as a staging area for the other, tackle problems from both sides, etc.


So, unfortunately, yes, tell the tenants that you are giving them notice as you are doing a gut rehab and then follow through. Your back up contingency, if they fight eviction, is rehab the one side while getting them out. You then rehab the other side.

And the next house you buy? Buy empty.

My gut reaction is to sell. Chicago is no place for an accidental landlord doing single family home rental long distance, particularly where you didn't pick the neighborhood. Here are some considerations:

1. Chicago property taxes are going to soar as the City's economically illiterate government has pension realities forced upon them.

2. Chicago's government is corrupt.

3. Chicago's aldermen (city legislators) are both corrupt (see above) and have no backbone. Thus they pander to the unions (see pension realities above) and to residents who are just as, if not more, economically illiterate, than the aldermen are. Consequently, you have a strong possibility of rent control. Rent control plus high property taxes will crush you.

4. Cook County (Chicago is in Cook County) has already reduced your ability to screen tenants with a law saying you cannot discriminate against people with criminal records (some exceptions to that, yes).

So selling is the way to go in my book. Now the question becomes whether to sell as is or rehab and then sell. What do the appraisers say the value of the property would be as is and if rehabbed? What do general contractors say would be the cost to rehab? Is the increased value sufficient for the rehab expenses plus your carrying costs (taxes, insurance, etc.)?

When Chicago reduces its bloated, corrupt, government (starting with reducing the number of aldermen to 15, the same per capita as in New York City) and gets reasonably competent people up and down the ranks, sure, invest in Chicago and keep houses you inherit. Shrimp will learn to whistle first.