We purchased our current home (which features a separate Garden Unit downstairs) seven years ago. At the time, we were moving out of our first condo, which we decided to hold onto and rent out. With that big transition, we became rookie landlords of two rental properties at the same time! Today, we’re breaking down all of the pros and cons of our experience as landlords.
While we don’t necessarily love the term ‘landlord’ (is there a better alternative? Please let us know! In the meantime, we’ll use the term here for lack of a better option), we generally enjoy the work of being landlords. We recently wrote about our experience after one season as Airbnb hosts and thought this would also be a good time to break down our experience renting out our two annually-leased properties. As a quick refresher, here’s a brief synopsis of each unit:
Our Chicago Condo
Purchased in 2007 as a fully gutted rehab, our small but mighty condo is less than 700 square feet. However, with its high ceilings, great floor plan and ample storage, it lives much larger than the square footage implies. We made a lot of custom improvements including the semi-built-in media wall above, a fully functional studio space and even an above-the-door storage cube. We lived in the space for 7 years and have rented it out ever since. We’ve had largely great experiences leasing the home out to four sets of renters since then and are happy with our decision to hold onto the unit. It was pretty cute in its day, huh?
Our Chicago Garden Unit
Our Garden Unit is located in the lowest level of our Chicago home. We like to joke that this is the unit that made us ‘accidental landlords’. When we were originally shopping for houses, we had no interest in owning a multi-unit home, but after touring the space, we saw huge potential in all of the homes’ floors. We also saw value in being able to offset our mortgage payments with a legal downstairs unit!
Originally, a co-worker that was looking for an inexpensive city rental to ease her commute moved into the largely unchanged space. A few years later, she and her partner were ready to move on to a larger space, so we took the opportunity to give the unit a much-needed facelift to maximize space and re-work the kitchen floorplan. Since renovating the unit, we’ve leased the unit to three sets of tenants and have also had largely positive experiences!
Now that we’ve broken down our two annually-leased rental spaces, let’s further break down the pros and cons of being in this role.
1| The Financial Gains
Before we talk through the finances of owning rental properties, we’d like to mention that we do everything in our power to be the best landlords our tenants have ever had. We’ve all had a sketchy landlord or two (raise your hand, we see you!), and we want to make sure our tenants have a positive experience renting from us. To keep up our end of the lessor/lessee bargain, we respond quickly to any concerns and pride ourselves in keeping our units in great condition. When tenants move out, we put effort and care into assessing any issues, making repairs and ensuring that we maintain spaces that we would want to live in at rates that we feel are a good value. It’s a ton of work, but it’s kind of like our landlord golden rule, ya know?
For us personally, the financial benefits of owning rental units are two-fold. Over at the condo, we don’t make much of an immediate ‘profit’ on the unit. After paying the mortgage, taxes, insurance and condo association fees, we don’t really see immediate gains on the unit. It’s largely a break-even proposition for us in the short term. How we do benefit, though, is that our mortgage principal is being payed down by the rent that we receive. Not only is our unit worth a fair bit more than what we paid for it 13 years ago, we’ve also paid the mortgage’s principal down significantly, so the property becomes inherently more valuable as an asset. While we don’t make a profit, we are building long-term wealth.
The other way we benefit financially from our rentals is with the offsetting of our actual mortgage. The rental income from the garden unit covers roughly 2/3 of the mortgage on our primary home. We’re not quite living mortgage free, but we’re working toward it! Once the Two Flat project is complete, and we decide what the future of that building looks like, we’ll likely refinance everything at once and try to lower our payments further.
We’d also like to note that we realize owning investment properties is an incredible form of privilege that we openly acknowledge. We’ve hustled hard, made immense sacrifices and prioritized owning property. It’s how we’ve chosen to invest in our future, and it has worked out pretty well for us to this point. The real estate market, though, is constantly fluctuating, and we also realize that there is significant, calculated risk involved.
2| The People
It probably goes without saying that we wouldn’t take on this work if there weren’t financial benefits, but the people we’ve met throughout the process come in a close second! We’ve been lucky enough to have rented our spaces to some pretty fantastic folks. Renters of our condo have become neighborhood acquaintances that we bump into while we’re out and about. Tenants of our garden unit have become friends that we’ve stayed in contact with. Other tenants have chosen to keep a bit more to themselves and that’s totally cool, too! We simply want to ensure that we’re friendly, accessible owners and that our tenants know that they can come to us with any issues. Again with that golden rule, amirite?!
3| The Proximity
We’ve been in Chicago’s Logan Square neighborhood as long as we’ve lived in the city, which will be 14 years this fall (time flies!). We’re so passionate about this neighborhood that we’ve chosen to invest here. In fact, all of our properties even share the same zip code. Our Garden Unit is (obviously) on our property, the condo is 4 blocks away, and our soon-to-be-completed Two Flat (pictured above and which may or may not end up as a leased rental or two) is a 5 minute drive to the other side of the neighborhood. These were all specific choices to ensure that we weren’t wasting time driving all over town to get from one property to another. If rental properties are a consideration for you, keep in mind that location will play a key role in future management of the property when the items below rear their ugly head!
While we enjoy this aspect of our work, it’s certainly not without a few drawbacks. Let’s talk through the challenges and unplanned events that can make owning rental units tricky.
1| The Financial Risks
Like any investment, purchasing properties with significant inherent value involves risk. Real estate is generally thought of as a fairly stable investment, but if 2020 has taught us anything, it’s that stability should not be taken for granted! We’ve been cautious to avoid putting all of our financial eggs in one basket, but have selected real estate as our main investment focus. We just love old houses and this feels like the right place to put our energy and resources, at least for the time being.
2| The Surprises
We’ve learned a lot of lessons with our rental properties, and several of which have been unpleasant. We’ve learned that no matter how much thought and effort we put into a space, things will wear out. We’ve learned that tenants will need to move unexpectedly. And if something goes wrong with one of our rental units, it’s our responsibility to take care of it, no matter the time of day. Granted, most situations don’t call for us to drop what we’re doing and take care of things right away, but some do!
Here’s a very short list of a few surprises we’ve dealt with over the last few years:
- Unexpected Repairs | Modern appliances can be fickle, and repairs can get very expensive very quickly. We’ve had to repair the dryer in the Garden Unit laundry room, the washer in the condo and the refrigerator in the condo since we’ve been renting it. It works out to a major repair every 1.5 years or so, which isn’t all that often, but it’s never fun to hear that you’ll have to spend a few hundred dollars fixing something when you hadn’t planned on it!
- Finding Tenants | In Chicago, the rental market is at its strongest in the spring and summer. Based on tricky timing, we’ve found ourselves with a vacant unit early or late in the calendar year and have had to enlist the help of our favorite realtor to get the units leased. For example, this spring Illinois covid regulations didn’t allow us to show our occupied garden unit to prospective renters. Luckily, our tenants were wonderfully accommodating and helped us out with a couple of real-time virtual tours. But we ended up losing a month of rental income and had to pay a months’ worth of rent as commission to our realtor who helped us get the unit leased.
- Broken Leases | Early on in the renting of the condo, one of our tenants accepted a job out of state. Rather than letting us know and allowing us to work through the transition together, they chose to hire a lawyer and threaten suit unless we allowed them to break the lease based on a minor clerical error. We definitely learned a hard lesson on that one, which brings us to…
3| The Paperwork + Lease Management
In Chicago, tenants have a LOT of rights to protect them against crummy landlords. We’re absolutely in favor of this power balance that skews strongly in the favor the tenant since both Kim and I have dealt with dishonest landlords in the past. It does, however, make for a lot of hoops to jump through when it comes time to sign a lease.
We use Lease Runner to manage our properties, and it’s been great at prompting us to ensure that tenants are given all of the necessary paperwork at the time of signing. This helps us avoid a repeat of the broken leases situation above. Through Lease Runner, we’re also able to run background and credit checks and accept ongoing ACH payments automatically for a very small fee. It’s a game changer, and we highly recommend it to any property owner! (Note: We’re not being compensated by Leaserunner in any way. We’re simply big fans!)
Another useful tool for landlords and tenants alike is Domu. It’s a Chicago-based rental search engine, in which tenants can find listings based on neighborhood, budget and more. On the other hand, it’s an incredible resource for landlords, because Domu pulls together documents that need to be included with each and every lease! We talk more about in this post (from 7 years ago!). Even if you’re not Chicago based, it’s worth checking out to see if there are similar resources available for your city.
We hope this sheds a little bit of light on the pros and cons of investing in real estate for income properties. We’re not experts, but we’ve been doing this for 7 years and have learned quite a few lessons! If you’re considering investing in property or are a seasoned landlord, we’d also love to hear the ins and outs of your experiences in the comments!
PS: You can see a full garden unit tour here, a condo tour here and our thoughts on our garden unit renovation choices here.
On the topic of mortgages, I encourage everyone to look at refinancing right now since rates are super low! We have a rental, and with a recent re-fi, we’re going to save $355/month! Our primary mortgage is even better – we’re saving $540/month. And with our primary, we were on-track to pay it off in 15 (now 14 years) – with that same 14 year payoff date and the new rate, we’re going to save $90k over the 14 years. That is smart investing.
Absolutely! We’re in the midst of refinancing right now for all the reasons you’ve said.
Can you recommend a mortgage company? We want to refinance but got a bit burned by our current company.
definitely ask your realtor for recommendations, but we work with Summit Funding.
Hi Kim and Scott! We are local in Chicago as well. Love Logan Square and the opportunities to buy a multi-unit BUT wondering what you are thinking regarding schools. It seems like there are lower ratings than other (more expensive) areas in the city.
Hi Alina, I think it’s important to know what you really NEED in a school, rather than looking at a rating alone. (A school with a higher rating due to specialized offerings might sound nice, but is it what your child needs?) The friends on our block have children that are a few years older than Lucy, and they’ve been a great support as we navigate things like childcare, schools, and everything in-between. We have no concerns about schools in our area, but we’re also grateful to have a support system of parents who’ve been through the process and can help guide us in the direction that makes the most sense for our family.
This is a great point, Kim! The podcast Nice White Parents touches on the issue of evaluating schools based on ratings alone (looking at specifically Brooklyn school district).
Thank you for posting this! Public education is so important, and many of the scores used to rate schools can be very misleading- especially when you consider that scores ultimately reflect socioeconomic status of the students taking a standardized test. I was part of a group of parents who made a commitment to return to Boston Public Schools in the early 2000s. I myself am a BPS graduated, and I had reservations about sending my kids to the schools, but having a community of parents help to navigate the process, and then making wonderful friends- both for my kids and myself, made the process all worth it. Was our experience perfect, no, but I don’t know anyone who moved to the suburbs, or opted for private schools who can say they had a perfect experience either. Both of my kids are now in college- one went K-12 in BPS, the other took a more windy route and didn’t actually graduate but got her GED instead. What I can tell you from our experience is my kids got a good enough education, but more importantly (to me) is they fully embraced all that our city had to offer them at each stage of their schooling. It was a dream to have my child interning at the contemporary art museum, and navigating the city on her own to get there and back. Both kids are politically active, and invested in community. They also have a very diverse friend group, which was super important to us in generally, but also because they themselves are biracial. I hope that your babe has the same experiences, and your neighbors continue to help you navigate the Chicago Public School system! Investing and committing to public education is an investment in our kids future peer group, and future community workers- like cops and fire fighters, elected officials. (getting off my soap box now!)
Maura, your comment got me teary-eyed. You said it best, and we are aligned with everything you’ve said.
Maura, I absolutely agree. I teach just north of Boston in an area where I get what I call ‘the look’ when I tell people where I work. My district has invested in new schools, technology and training for teachers. At my school we have a fabulous group of educators that are dedicated to working with our kids and families to help with any problems that we can. I think my students are all the better for having a diverse class.
Gorgeous properties and excellent advice on schools, Kim! I couldn’t have said it better myself (and my day job is helping families find the best school fit)! I try my best to tell families to take “school ratings” with a grain of salt. Not only because the ratings tell such a small, skewed picture of a school (and correlate heavily with wealth), but because ratings are “organic”, meaning that they change as a neighborhood changes and as a community evolves. Logan Square is case in point- schools such as Brentano are evolving quickly as new families move in and support the local school. Oftentimes families who look at ratings with a 2 year old at home don’t realize that ratings actually don’t reflect the whole school’s population but are based on test scores from 3rd-8th grade. Schools that are changing typically do so from the younger years on up so when that 2 year old goes to Kindergarten in 3 more years, the middle school kids have moved on and the ratings have also changed from 3 years prior. I tell families not to focus on kids in grades that will have graduated by the time your child starts, but to focus on your child’s cohort instead. And then beyond ratings are exactly what you said that there is so much more to education than test scores and each school has a different vibe and feel (which can change over time, as stated above). Also note that Chicago is an Open Enrollment school system, where students can attend any school if they apply one year prior and are offered a spot based on either a lottery or test scores (check out go.cps.edu). Lastly, the education of growing up in a dynamic urban environment that Chicago provides is invaluable in helping to make kids aware of the depth and breadth of experiences in this world. Yes, you can still feel like you are in a bubble in Chicago, too, but unless you have your eyes and ears closed, you naturally learn more empathy about the range of realities out there just from day to day interactions.
Grace, I can’t thank you enough for this thoughtful response!
Alina, we are in the Dallas area and specifically picked a suburb with one of the best school districts in the state. What we didn’t really think through is that your child then has to compete with those top students. Not a big deal in elementary or middle school BUT when you are in high school the stress and competition is cut throat. Our oldest is an excellent student, 99% percentile standardized testing, high 1500’s on the SAT, 34 on the ACT, 20+ dual college credits and 15 APs, A’s in every single class and still BARELY in the top 6% of students at the local high school. We honestly wished we had moved into just a good or OK school district…she would probably be valedictorian.
Kudos to you guys for putting in the work, making the sacrifices, and taking the risk that brought you to this point financially in your life. Your homes are beautiful including your rental units, I would love to stay in any of them. In following your blog, it is clear that you have both worked very hard to get where you are! You deserve the fruits of your labor.
Thank you for the kind words, Lak!
Great post! We bought a new house two blocks away from our previous one last August (also in a historic neighborhood). I bought the previous house on my own and lived in it for 8 years before I met and married my husband. I was in the house nearly 11 years total and couldn’t give it up! I bought it for a really good price, so instead of selling, we also decided to rent it. We’ve been really lucky to have wonderful tenants for nearly a year, and we’re hoping they will choose to sign for another year.
In fact, my husband and I were talking last night of making a few improvements in hopes of keeping them happy. I know it isn’t always smooth sailing, but so far, it’s been great.
As you mention, it’s a long game, and we’ve also made sure to save 10% of the original purchase price to help us tackle any unexpected repairs. While it’s never fun to have to spend money unexpectedly, it feels easier to let go of it, knowing it was put away for the rent house.
We bought a single-family house just 4 houses up from our own home. Erie is VERY transitional block-to-block. While our house is on a stable, owner-occupied blocked, the house we purchased is on a high-rental block. It had been empty for years and basically left to sit. We picked it up and after working on it for a year, finally have it rented! We follow the same golden rule as you – and while we’d love to do more work on the house, we got it up to our standards while keeping the investment cost low enough for the rent of the area. We’re also in the process of closing on a 4-plex a block away (we’re investing in the same zipcode here, too!), so will be really leaning into the title of “landlord!”
Wow, congrats, Hannah! That is so exciting!
I just can’t believe it has been 7 years already in this house. I’ve been following since the condo and I’m so shocked rn that I had to comment, first time ever! Greetings from Croatia :)
Wow, hello! Croatia is on our list of places to experience!
Thanks for this! I’m super interested in real estate (in fact, my original 2020 goal was to invest in a property by the end of the year…could still happen but y’know, pandemic and all) do you have any educational resources that you love? Do you factor in your renovation costs when you’re calculating profit? Do you have a threshold for when you want to sell the condo? It’s such a good sellers market right now.
Shauna, we think about selling EVERYTHING every day, ha! 2020 has been a year of growth and pivoting, and when every day feels like a challenge, it definitely has us questioning things. I mentioned that the future of the Two Flat is uncertain, and the same is true for the condo. This has been a wild ride that we never planned, so we’re trying to take it day by day!
Really enjoyed reading this quick review. Wondering if you could shed some finiancial light on how you’ve purchased multiple units when it seems like you both are not independently wealthy. Trying to better educate myself on types of loans with the possibility of purchasing another house ourselves especially if that house needs a big remodel.
Great question! We speak to the finances for the Two Flat in this Q+A, but essentially, we worked with a bank to get a construction loan. My best tip for you would be to work with a loan officer that can guide you towards the right loan for YOU. We didn’t know where to start either, but with his help, we were able to secure the loan that fit this remodel. And for the condo, our Chicago home and Tree House – you have to remember that we slowly updated those spaces over the span of YEARS. So we save, spend, create. Save again, spend again, create again.
I love this post! Thank you for sharing the in’s and out’s…it is so helpful for people thinking about this type of investment.
I love that everything is in one neighborhood! My husband and I kept our home in Australia when we moved to Canada because we intend to move back one day so we are dealing with international rentals! We’ve been super lucky that our first tenants stayed 5 years and helped us find tenant 2and 3 and these last ones are really good. When tenant 2 moved out that was really stressful because he took over a month to move his stuff out so we couldn’t rent it during that time plus we needed to do repairs. All via email… oh well overall it’s working well and we would also keep our house here if we did move back. The joys of cross-cultural marriage!
Oh, wow, I can’t imagine the stress involved with that! Do you use a property management company, or do you handle it ALL from afar?
All! Property management in Australia is expensive. A monthly fee plus 8% from memory of every rent payment plus labour charge for any work done plus the actual cost of having the work done plus plus plus. Because we knew the first couple we took a chance and it was the right one. The second renter was stressful and the third is awesome and they hope to stay at least 5 years so fingers crossed!
Hi Scott-really great post! My husband and I have been landlords for 7 year also, and we just sold our rental unit this month! You did a great job outlining the good/bad/ugly/nice about landlording. You are so correct about building long term wealth, nothing beats the balance of index funds and real estate.
Thanks, Jill! It’s been quite a ride so far!
I love hearing your experience with being a landlord. I don’t know what else to call it, a landlady? Sometimes I just call myself the property manager. I love having rentals, I actually think it’s the best job in the world giving people great places to live, working on their units, responding to their problems, and creating a safe environment for them. And it’s nice to make some money doing what I love. I would say the biggest hurdle is the law. A landlord needs to be savvy in their specific landlord tenant law. I hear Chicago is very tenant friendly. There are hundreds of specific rules you need to follow as a landlord. How much money can you take as a deposit? There’s a state rule about that. How long before you return there deposit? Again, another state rule about that. I think everyone should have a rental, but also find their local landlord advocacy group and join.
Amazing timing on this post! One of my tenants just vacated and I am looking to refresh my paperwork. Lease Runner looks like a great option. I was about to sign up and there’s a field for referral code. Would you mind sharing yours?
Thank you so much for posting such valuable information! It gives us a good idea of where to start. Do you mind sharing how much the renovation cost for the garden apartment?