Rehabbing for Rental: Are You Landlord Material? by Wanda Urbanska
Tired of watching her mutual-fund portfolio shrink, this past May, Victoria Granacki made a bold move. With her husband’s blessing, she took out an equity line of credit on their paid-for home in Chicago’s Wrigleyville section to purchase and rehab a small, “three-flat” apartment building in nearby Old Irving Park. The motivation: securing a steady income stream over which she has control.
“I want to sit back and collect rent,” says the 64-year-old historic preservation consultant who plans to retire next year. With this move, Granacki falls back on the wisdom of her Polish-Catholic forbears: put your money into tangible assets, such as real estate, she remembers them saying.
Granacki is not alone. Nationally individuals and investors have noticed that while housing prices remain in the doldrums, rents continue trending upward. As a result, more and more people are diversifying their investments and snapping up bargain-basement or foreclosed properties to convert to rental.
In Granacki’s case, the property she purchased carries special significance – it’s her childhood home. Her parents, together with an aunt and uncle, bought property in 1953; Granacki’s family lived in the first floor flat; her aunt, uncle and cousins in the second, and the third floor was a rental until her grandparents moved in a couple of years later. “I ascribe my whole personality – my sociability – to being able to go visit anyone anytime,” says the author of Chicago’s Polish Downtown (Arcadia Press: 2004).
Though structurally sound, the neglected 1905 building had been a prime candidate for a teardown before the housing bubble burst. “My cousins lived there for over a decade, and they couldn’t decide if they would convert it to a single-family home, keep it as rental or sell it for a teardown,” she says.
In a sense, the market made the decision for them. Both teardowns and single-family conversions have slowed, if not come to an outright halt, since the downturn. “Everyone is renting now because of the recession,” Granacki observes. “The timing’s perfect.”
Though the price was reasonable, the property – consisting of two 1,200 square foot, three-bedroom, one-bath units on the first and second floors and a 900-square-foot, two bedroom, one-bath unit on the third – will require a total rehab, including new plumbing, wiring and storm and screen windows.
Showing a visitor the property during a recent 100-degree heat wave, Granacki starts outside, pointing to a patch in which the decrepit asphalt shingle siding had been removed, revealing the original wood siding. This, she plans to expose, scrape and paint. Three levels of rear porches – add-ons to the property – will have to be removed, and the front porch rebuilt. To make it rentable, significant cosmetic upgrades will have to be made inside, along with the requisite sanding and painting. Granacki ticks off the list of changes: the dated pink bathroom fixtures have to go (“men won’t live here,” she says). Here, a closet will be expanded; there a walk-in shower installed. She weighs the costs and benefits of adding stackable washer-dryers to the units, and converting the pantries on the first two floors into half baths.
This project is especially gratifying for Granacki, who has prepared the nominations for an array of buildings for the National Register of Historic Places. In fact, once she’s completed the renovation and has tenants in place, she plans to work with the neighbors to apply for an historic district designation. This will make other owners eligible for tax breaks.
“It was important to me professionally to save an historic building in this neighborhood,” she says. “The fact that I have a sentimental attachment to the place, to me, is icing on the cake.”
If you’re considering purchasing a property for rental – or converting one you already own – consider the following:
- Before you buy, do an analysis of local market conditions to determine demand for rental and assess the going rates for units of this size.
- Unless you’re a handyman (or woman), hire professionals to steam clean carpet and do the painting. And you’ll need to have a list of reliable, responsive repairmen on hand.
- Put effort into landscaping, including planting low-maintenance shrubbery and perennials (though do wait until fall to plant).
- Tenants will be responsible for their personal contents but you, as landlord, must carry property insurance and assume responsibility for the overall premises, including potential hazards, such as mold, mildew and structural issues.
- Are you up to the job of landlord? If you’re introverted or conflict-avoidant, you may want to contract with a licensed property management company to handle your property. A manager’s duties include identifying and screening prospective tenants, collecting rent, and managing repairs and evictions. For this, you’ll have to part with at least 10 percent of the rent.
Rehabbing Houses: Top 10 Tips
Online article by Jonathan Mednick.
Buy It, Rent It, Profit! Make Money as a Landlord in any Real Estate Market
by Bryan M. Chavis, (2009).
First-Time Landlord: Your Guide to Renting out a Single Family Home
by Janet Portman & Marcia Stewart, (2009).