By Mary Ellen Podmolik | Falling property values in Cook County have put about nearly a third multi-family mortgage buildings in danger of default on their mortgages with owners of two-to-six unit rental buildings are particularly at risk, new data shows.
A study by DePaul University’s Institute for Housing Studies, released Wednesday, also found that $3 billion of multi-family building mortgages already are in foreclosure, affecting more than 32,000 rental units in Cook County.That compares with approximately 38,000 single-family homes in foreclosure in Cook County. Another $12.6 billion ib multi-family mortgages are at risk, the group predicted.
The DePaul study also found that rental revenues are at or below
operating costs for 74,000 apartments in the city.
Since the second
quarter of 2007 when prices peaked, property values on small rental
buildings in Cook County have fallen 46 percent. As a result, there
are 96,000 properties, representing 42 percent of two-to-six-unit
buildings, where the owners owe more on the mortgages than the
buildings are worth.
Two to six unit properties are hurting in large part because Cook County gave big breaks to large apartment owners by only applying taxes on a percentage (as low as 35% for some properties) of the assessed value and stiffed the small apartment owner in the process by applying tax to the entire assessed value (not to mention the heavy burden for single family home and condo owners).
Two or three flats are probably your best housing investment right now if you plan on living in the building. Values are depressed so you can buy a lot of building but make sure it’s in a good neighborhood where paying tenants are easy to come by. Depreciation, repairs, upgrading to energy efficient appliances all have significan tax benefits. Interest rates are still low and as these developers who bought big buildings in hopes of converting them to condos start to default on loans and lose these properties, the demand for well-cared-for, pet-friendly, easy-access-to-transportation apartments will begin to increase again.
So this is why I still haven’t gotten my security deposit back after a November 1st move. Awesome.
I still don’t understand why people just do not pay their morgage. Cash in your IRA or get a job. What is their problem?
Another use for smaller apt buildings is conversion. I bought a 2-flat in Logan Square in Nov 09 for half the price of a condo in one of the hotter neighborhoods. With the price differance I’m concerting it to a single family home. And no more condo boards either – whoo-hoo! When I first started looking a year ago a huge number of 2-flats were popping up on my agent’s searches and many of them were “troubled”.
Thanks to all of all those posting so far for letting the rest of us see how smart you are. As if we cared.
It’s OK. They can just raise the RE Taxes on the rest of us who own. 20% increase? 30%? Whats the diff. We’re happy to keep feeding the beast.
To Franklin: What jobs? Newsflash: we’re in an economic depression only it isn’t being called that. Millions of people have lost their jobs; investments, retirement accounts have been decimated and have still not recovered, real estate values are still going down. Knock knock – is there anybody in there Franklin?
The best thing to do, is to buy the building with the most units you can, and fill it with section 8 people or those who have WIC and LINK cards. That way your rent income is guaranteed by the government.
If they really want to help out multifamily building owners, they’d figure out a way to fix the real problem – evictions.
Cook county has simply made it too enticing for people to stop paying their rent. It takes 6 months to get anybody evicted. Try making payments as a landlord when you’re losing 6 months of rent.
When you figure most places in chicago rent in the 1,500-2,000 range, you’re talking about a 9-12k hit. And people wonder why tenants stiff landlords. For 10k, thats an awfully big incentive to.
Why is it people can go to jail for stealing $100 worth of stuff from a store but they can get away with stiffing a landlord for 10k worth of rent?
In places like Dallas and other cities, the whole process takes a month.
Because they’re not stupid. The big banks who default call it an “exit strategy.”
I agree with Mike. Landlord/tenant laws in Cook County are awful. Completely favor the tenant to a ridiculous degree. Laws in other states are vastly different and still fair (like in Texas). Landlord beware – there are ALOT of deadbeats out there who know the Illinois system and go from property to property and manage to skip out on rent frequently.
The obvious solution here is to raise taxes and double down on the property taxes specifically – Hey that is the way these career crooks, I mean politicians think.
Mike and Ice Man got it right! I own a house and my options are slim. It’s not in a very good neighborhood, so selling is almost impossible. We had it rented, but the renters stiffed us for six months of rent. I’m hesitant to rent again – even to go Sec. 8 because of the tenant landlord ordinance. It’s structured to heavily favor the tenant. They can basically live there as long as they want – free. If they damge the place, the landlord is on the hook for the repairs and hopefully they won’t call a city inspector – that’s another trick they use to live rent-free. Damage the place, refuse to let the landlord and repair people in, then call the city to cite the landlord. If anyone has any suggestions, I’d like to hear them, because foreclosure hurts me and it adds another empty house to the 10 already on the block.
No kidding. It cost me $10,000 in legal fees to evict a tenant who didn’t pay his rent for 7 months (he was a real estate broker. I do NOT recommend renting to real estate agents or brokers; they know how to stiff a landlord, steal appliances, cause extensive damage and avoid collections on a judgment). I will never see a dime from that deadbeat. And don’t get me started on property taxes.
You have to love being battered by the city if you want to like being a small landlord in Chicago.
Right Julie! If this keeps up neighborhoods that are suffering will only get worse. The city has driven good, tax-paying people to foreclosure by its willingness to cater to the irresponsible. How many stories make the investor/landlord out to be a greedy slumlord, but champion the deadbeat? Just because you had some money to rehab a house in a neighborhood in need, doesn’t mean you’re a bad guy. It could be a win/win – providing a nice, resonably priced place for a family to live and a little money in an investor’s pocket, while taking another boarded up building off a block. Sadly, the way the law is skewed, boards over windows will be an even more common sight and more foreclosures will be on the books.
Brings up an interesting question ….. is a building owner under any LEGAL obligation to notify residents that his/her building is headed for foreclosure due to a mortgage delinquency ?? If asked directly about it, does he/she have to provide an honest answer ?? Anyone know the story ??
It is Bush’s fault.
Meg, the solution is simple. 1) File the paperwork to get yourself listed as an NPO (non-profit organization). Be sure your friends on part of the “Board”. 2) Solicit additional funds from the government to buy more properties, promising that you will meet the needs of Section 8 recipients. Tarp mooney is still flowing. 3) Have the “board” vote to pay you (and themselves) salaries based on “market value”. According to an article in the Trib earlier this year, one glorified property manager was being paid $685K/year (based on what other “property manager professionals” were earning). Just remember that you have to be listed as an NPO and you must serve the needs of Section 8 recipients. If you’re really smart, you can have you friends & family apply to become Section 8 recipients. Once approved, you simply “rent” to them. Really quite simple and all very legit.
Since you already own rental property, you’re half way there. Good luck.
its about time to charge for carry on luggage, not the other way around charging for checked luggage. by doing so only encourages carry on luggage and thats where the trouble starts with rude people
retired girl | April 7, 2010 1:17 PM | Reply
its about time to charge for carry on luggage, not the other way around charging for checked luggage. by doing so only encourages carry on luggage and thats where the trouble starts with rude people
Thanks for the commentary but you’re posting on the wrong site.
Franklin:
Their problem is that the economics of purchasing investment real estate are based on gainful occupancy of the buildings and the collection of rent. When taxes and other operating costs rise and the economy is good, tenant rents and rising appreciation rates provide more operating revenues and access to capital to make major improvements. When taxes and other operating costs rise and the economy tanks, tenant rents become more sparse but the costs still have to be met or the property deteriorates and eventually, tenants move out and income ceases.
No one purchases property without the intention to “just pay their mortgage”. However, it is easy to understand how the cycle plays itself out, especially when property values decline and credit markets dry up. The workings of financial and real estate markets are not incomprehensible but it’s not as simple as ‘getting a job or cashing in an IRA’. I would guess that most owners of 2-6 unit property already has other sources of income; that’s how they generally get approved for the mortgages in the first place. As for the IRA, mine lost 26% of its value in 2008 and has not fully recovered yet so that may not be a gold mine either.
Depth of understanding is important for all who wish to make informed comments.
You are a Idiot, there are not many jobs out there and a lot of them do not even pay a livable wage. I hope that you lose everything like so many have, then you can talk about how you need help and everyone will turn their back on you.
Obama’s fault. Bush is soooo passe’
yo…11th warder…if the city and cook county didnt tax everyone up the *** for non existent city and county services; and to feed $ thru bullsht bid work to their corrupt buddies…alot of overleveraged peeps might able to actually hang on to their overvalued crap thru this housing recession and now soon to be double dip.
Real estate was always thought of as a sure thing, a can’t miss investment that was guaranteed to go up no matter what. People used to say ” they aren’t making any more of it”. Now we know why . Because they can’t sell what the’ve got. Nothing goes up forever and tree do not grow to the moon. we can get go through this if the government stays out of the market and lets prices fall back to levels that are affordable.
COOK COUNTY judges are in cohoots with the lousy tenants who deceive everyone including themselves with lame excuses.
The great entrepreneurial spirit has failed again. When will
we realize that capitalism cannot survive without socialism.
Every time the business communtiy has a problem, it comes
running to the government for a hand-out, but that’s never
called welfare. Only poor folks are considered welfare recipients. The capitalist business folk are called financially depressed businessmen. If capitalism cannot succeed, then it’s time we bacame a socialist nation and not
let those capitalist welfare recipients bad mouth government
programs anymore, especially since they’re totally dependent
upon them, like the banks, the insurance companies, and the
airlines.
I hear all of these deadbeat tenant stories. Yes, the laws do favor the tenant, but a simple credit check, income verification and landlord references of current and previous landlord info does a lot. I have eliminated more than one deadbeat this way. If more were like this, deadbeats would have a hard time finding a place to live. Also, if somebody goes several months with no rent paid, it’s probably because the landlord did not aggressively pursue legal remedies and most likely, listened to excused for a few months.
I guess as landlords you should have bought a property that is affordable and has a positive cash flow. So I guess it’s the regular joe who has to bail out the knuckleheads who buy 3 flats for $750,000 and it only has $2500/month in rental income. the math does not add up.
i have proof that cook county sheriff tom dart is playing games with the eviction system for personal/political gain !!!!!
we had him found GUILTY of contempt of court in maybrook courthouse.
it’s DISGUSTING when the sheriff of cook county feels he’s above the law.
The reason operating costs are at or above rental income is that the thieving politicians in Cook County have raised the property taxes to a ridiculous level. I run several good buildings, with small mortgages relative to their values, even in this market, and the only expense that has gone up astronomically are the taxes. I wonder if the DePaul study took an honest look at property taxes?
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