All Forum Posts by: Nilusha Jayasinghe

Oh okay, definitely makes sense. I was wondering if that should be the approach. Thank you for clarifying. 

That's very helpful, thanks so much! I decided that I'm going to go with neighborhood-specific vacancy rates, 5% for capex (or 10% if building is on older end), and 5% for maintenance when I'm analyzing deals. And I'll make sure I have 6 months of PITI as my reserves prior to making a purchase so that I can pull from it for vacancy, maintenance, and capex when needed. Hopefully that'll be a good approach as someone just starting out.

Hi all,

New to real estate investing, looking to invest in a small MFH in Chicago in the next few months. I'm trying to get my numbers together and have a question about reserves. 

I've seen the recommendation for X amount of months (let's say 6 months as an example, so PITI x 6) of reserves for emergencies. However, I've also seen investors account for capex/maintenance/vacancy in their deal analysis using percentages of gross monthly rents and considering factors like the age of the home. So my Q is: is capex/maintenance/vacancy part of these emergency 6 month reserves, or should it go into a separate pot that builds up over time? From what I've read, I feel like it's the former; I would just use those percentages for deal analysis but when the capex/maintenance/vacancy expense actually comes up, I'd just pull from my 6 month reserves.

Would love to find out if I'm thinking about this correctly. Thank in advance for helping me get this clarified! 

Thank you so much for all of your replies everyone, this info helped me to speak more clearly to the City when I called them today. Here is what I found out:

1. No issues at all renting out part of an R2-zoned house according to the Zoning Dept as well as the Code Enforcement Dept.

2. The Zoning Dept sees no issue with a basement rental in R1, as long as there is no permanent divide between the basement and floor above. Apparently this dept is only concerned with the exterior of the house, not what goes on inside for the most part. They said that if an external entry to the basement already existed in an R1 house I'm looking to buy, that shouldn't be a problem.

3. The Code Enforcement Dept is more strict. Their main concern for R1 housing is that a single family home is only meant for one family. If it looks like 2 separate families are living there, then they can flag us and take us to court if we don't correct the situation. They have hard rules in place saying the following are not allowed: a permanent divide between floors, a second stove (apparently a hot plate is fine), and more than 4 unrelated people living in the house (so if a family of 4 lived upstairs, an unrelated renter in the basement would break code). However, even if my long-term rental in the basement follows all these rules, supposedly I can still get flagged if a neighbor/the tenant/whoever lodges a complaint and then I cannot demonstrate that the tenant is simply my roommate who is allowed access to the rest of the house. So, having a basement tenant who in reality uses their own entrance and doesn't come into the rest of the house seems risky in the event that I do end up having to face the Code Dept. The Code Dept told me my best bet is to just look in R2 housing to avoid any trouble.

So looks like I have to think about my risk tolerance and see what I'm willing to do. Just wanted to let y'all know about what I found out in case this info helps anyone else. Let me know any other thoughts you have and thanks again.

Hi all,

I am new to REI and want to begin by renting the basement of a SFH. However, we spoke to Aurora's code enforcement team and they make it seem impossible and scared the bajeezus out of me. I understand that a stove is against code, but they also say a hot plate is against code as is any sort of kitchenette, and that the only way to legally have an income-producing basement in a SFH is to make it a short-term rental like Airbnb which we do not want to do. They say that in Aurora, there is no such thing as rezoning to convert the SFH into a MFH either.

I do not want to run any operations against code/illegally so what they told me was a bummer. But, looking online, I see numerous SFH basement rentals. So are all these landlords doing this illegally/against code? I also feel confused about what exactly is illegal/against code here: is it only that I can't have a stove/hot plate in the basement? Or are long-term rentals in the basement of a SFH not allowed, period?

I plan on asking the City to refer me to the actual code/rules. I wanted to post here in the interim to get any ideas/thoughts you all have on my questions above since this is my first time trying to get into REI and you all know much more than me. Thank you in advance!