The Monthly Update - FOR LANDLORDS/INVESTORS

Your Monthly Chicagoland Landlord / Investor Update.

LANDLORD &

INVESTOR

Update

FiveStarRealtyServices.com

February 2023

Welcome to our NEW

Landlord / Investor Update.

It's getting more complicated to be a Landlord in Chicagoland.

What with rules and regulations that cover all of Illinois, rules specific to Chicago, others that apply to Cook County, but only outside of Chicago, and specific rules in various municipalities, who can keep up with all of that.

You've asked for help so we're responding with information that we think you'll find helpful.

Please get in touch with your questions that can address in future editions. Of course call us any time at 773-961-7962 and please feel free to share this newsletter with your friends and colleagues.

Here is a link to the Archive of of our Newsletters

Monika Hajkowska SRS, ABR

Managing Broker

773-961-7962

SRS (Seller Representative Specialist)

ABR (Accredited Buyers Representative)

Call us any time if you have questions about anything in this newsletter or if we can help in any other way.

We are a full-service Real Estate Company

We Buy and Sell Real Estate

We Manage Properties

We of course do lots of Rentals

In this Newsletter

New in our Blog - Her's how the housing market did in 2022
Housing Voucher News
Security Deposits
1031 Rules

1. New In Our Blog

Sampling of Results -

Single Family Homes

Albany Park Sales down 15%

Median Price Up 10%.

Avondale Sales Up 8%

Median Price Up 32%

JeffersonPark Sales down 3%

Median Price up 3%

O'Hare Sales UP 53%

Median Price UP 4%

Sampling of Results - Condos

Albany Park Sales Down 23%

Median Price up 8%

Avondale Sales down 25%

Median Price down 11%

Jefferson Park Sales UP 1%

Median Price up 1%

Loop Sales down 13%

Median Price down 4%

O'Hare Sales Down 2%

Median Price UP 5%

Call us at 773-961-7962

for Your Neighborhood Info

Here's how the housing market did in 2022 where you live

In real estate, 2022 will be remembered as the year that started in a boom and ended in a bust, a profile that the year's home sales figures make crystal clear.

In booming January 2022, an unprecedented housing boom fueled by low interest rates and pandemic-era changes in what households wanted was in full swing. That month, the number of homes sold in the Chicago metro area during the month was 47% higher than the average sales in all Januarys since 2008, according to figures released at the time by Illinois Realtors.

The end of 2022 was a bust, after rising interest rates that were intended to help stifle runaway inflation had drained all the fizz out of the housing market. The number of homes sold in December in the metro area was about 11% below the 13-year average for December.

On prices, the picture is similar. In January 2022, the median price of a home sold in the nine-county metropolitan area was up 5.6% from a year before, not a huge jump unless you consider that it was on top of prices that were already up 16% in the previous January.

By December, prices had gone flat. The median price of Chicago-area homes sold in December was $288,000, up just 0.3% from a year earlier, or essentially flat. In the city, prices started the year flat and ended them down 8.1%, the biggest decline since February 2012, when the housing market was still struggling to rise from the ashes of the housing meltdown of 2007-2008.

These are figures that cover a broad market, either the enormous city or the sprawling metro area. But markets are hyperlocal. The Gold Coast housing market doesn’t behave like the market in Chatham, and the distance between Winnetka and Tinley Park isn’t measured only in miles.

To find out how each neighborhood and suburb fared in the roller-coaster real estate market of 2022, Crain’s sorted data on the 77 Chicago community areas and over 200 suburbs. The data was provided by the Chicago Association of Realtors, Midwest Real Estate Data and ShowingTime.

Get the full story

2 Housing Voucher News

Source of Income Now a Protected Class in Illinois

As of Jan. 1. 2023, source of income (SOI) has been added to the list of statewide protected classes under the Illinois Human Rights Act. The new law bans discrimination in housing based on source of income, including housing choice vouchers.

The definition of SOI means “the lawful manner in which an individual supports or his or her dependents,” according to the Illinois Human Rights Act Section 5/1-103(O-5). Presumably, this definition includes legal wages, commissions, alimony, child support, veterans’ benefits, social security and any public assistance including housing choice vouchers, sometimes referred to as Section 8 subsidies.

Property owners who choose not to accept legal source of income could face a Fair Housing violation issued by the Illinois Department of Human Rights (IDHR).

Also, be mindful that regulations can vary by local ordinances. Consult your local legal counsel or Housing Authority for clarifications.

What are best practices for housing providers to prevent discrimination against all protected classes?

Apply consistent screening criteria, such as:
First come, first served for applicants
Review credit score with a reasonable threshold; or alternatively, if the applicant does not have a credit score
Consider rental/housing payment history
Utility payment history
Other bill payment history
Landlord references using legal parameters – i.e., were they habitual lease breakers?
Ability to pay based on consistent criteria
If housing provider uses a ratio income to rent amount, i.e., 3 X rent, only consider applicant’s portion that does not include the amount of a housing choice voucher (See FAQs)
If limiting or denying the housing, document the legal reason for doing so, such as regardless of SOI, applicant cannot afford the unit.
Housing providers should consult their attorney with questions or concerns.

3 Security Deposits

Guide to Security Deposit Laws in Chicago Apartments

The most common pitfalls for apartment landlords under the Chicago Residential Landlord and Tenant Ordinance (CRLTO) stem from the collection and administration of security deposits. Most Chicago residential rentals are subject to the CRLTO's rules. The most common exception is owner-occupied buildings containing six or fewer residential units. Two Illinois laws also regulate security deposits: the Security Deposit Interest Act, 765 ILCS 715/0.01, and the Illinois Security Deposit Return Act, 765 ILCS 710/.01. The obligations imposed under the CRLTO are more stringent than those under Illinois law.

How Does the Security Deposit Work?

A Chicago landlord that collects a security deposit must:

Provide a signed and dated receipt for security deposit funds at the time the funds are received
Hold the funds in a federally insured, interest-bearing account at a financial institution
Segregate the funds into a separate account within five days of receipt
Pay annual interest according to rates set by the City of Chicago
Refund the security deposit in a timely manner (minus qualified deductions)

If deductions are made, provide a statement of damages, evidence of tenant’s damage, estimated cost of repair, or actual cost of repair, within 30 days of the termination of the lease.

Let’s examine these requirements in a bit more detail.

Do I Need to Give a Security Deposit Receipt?

Suppose the CRLTO regulates your apartment, and most Chicago residential rentals are. In that case, you must provide your tenant with a security deposit receipt (or rental deposit receipt) that includes certain types of information mandated by the CRLTO. A free security deposit receipt form is available on the Domu Security Deposit form page. Domu is providing the example security deposit receipt form as a courtesy. Still, it remains your responsibility to confirm that the information required by the CRLTO is included in each form.

What Does a Security Deposit Cover & What Are Qualified Deductions?

Landlords may make deductions from the security deposit as compensation for:

unpaid rent which was not validly withheld by the tenant in accordance with federal, state, or local law, OR
the reasonable cost of repairing any damage caused by the tenant (or any person under the tenant’s control), reasonable wear and tear excluded.

If the landlord makes deductions for repairs, they must deliver an itemized statement of the damage caused by the tenant and the estimated or actual costs of the repairs within 30 days of lease termination.

What Is the Annual Interest Rate for Security Deposits?

The City of Chicago’s City Comptroller sets the minimum Chicago security deposit interest rate for residential rentals regulated by the CRLTO. The City Comptroller set the minimum security deposit interest rate at 0.01% for leases signed in 2022. You can read more about the current year’s interest rate and previous years’ rates here.

Are Security Deposits Returned?

Assuming tenants don’t break the apartment lease or do any damage to the rental beyond ordinary wear and tear, local regulations require the return of the security deposit in a timely fashion. Failure to comply with these rules can be costly.

What Are the Pros & Cons of A Move-In Fee vs. Security Deposit

For tenants, a security deposit is preferable to a move-in fee. The deposit remains the tenant’s property even while it is in the landlords’ hands. Assuming the tenant doesn’t do any significant damage to the premises or withhold the rent improperly, the tenant will get that deposit returned. On the other hand, a move-in fee is money that the tenant will never see again – as soon as the tenant pays the move-in fee, it becomes the landlord's property.

Though security deposits incentivize tenants to take care of the property, landlords generally prefer move-in fees because they aren’t regulated by the CRLTO or Illinois law. There are no administrative hassles associated with collecting them. But landlords should be careful to label the fee as “nonrefundable” on the lease, or tenants might later claim that they believed it to be a refundable security deposit.

A few years ago, when a tenant claimed that she was entitled to a refund of a move-in fee, the Illinois Appellate Court explained that the rules pertaining to security deposits could apply to move-in fees in certain circumstances – meaning that the landlord would be compelled to return the misnamed “fee,” if the “fee” was operating like a security deposit. To avoid this outcome, set the move-in fee to less than half the monthly rent and describe the fee as a non-refundable charge.

According to listings on Domu, a small minority of landlords charge both a move-in fee and security deposit, less than half of Chicago’s landlords majority charge a move-in fee-only, and more than half of Chicago landlords list on Domu charge move-in fees.

4. 1031 Exchanges

1031 Exchanges - Trends for 2023

The recurring question is, after a robust 2022 for Commercial Real Estate and 1031 Exchange transactions, what’s in store for 2023?

Prices of properties will continue to decrease.
Properties are on the market longer due to high interest rates
More investors will be using Adjustable Rate Mortgages (ARMs). These interest rates are typically lower than a traditional 30-year fixed, but adjust to market rate when the ARM matures in 5, 7 or 10 years. As one banker recently commented, “Customers will realize that they are dating the rate, but marrying the property.” Meaning that they can be serious about buying the piece of real estate that they want but don’t have to stay with the interest rate long-term. Once rates decline owners will refinance to a fixed rate mortgage product.
As interest rates continue to rise and property values begin to decline, more “all-cash” investors will utilize 1031 Exchanges.
As the market has softened, more investors will patiently wait to sell, or convert all or part of their primary residence to qualifying investment property as they expect prices to rebound.
Market uncertainty may not affect 1031 Exchange transactional activity for commercial, industrial and multifamily apartments. These sectors will outpace office, and single family rental activity.

Continued increase of qualifying vacation home rental property purchases in warmer climates or other vacation or remote-working locations with high short-term rental income..

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The general information that Five Star Realty Services LLC provides about landlord-tenant law is not intended as legal advice. Five Star Realty Services endeavors to provide accurate information, but the law is subject to change, and Five Star Realty Services is not a law firm or provider of legal services and makes no warranty regarding this information’s accuracy, completeness, reliability or usefulness. This information is for informational purposes only. Questions about your particular leasing situation should be directed to a lawyer.