Soon after T. J. Rubin got into the apartment leasing business in late 2008, the market had some news for him: He was mostly going to be in the condo leasing business instead.
At that time, Chicago home values were plummeting, and many owners whose circumstances had changed—they’d had babies, job changes, or divorces—found they couldn’t afford to sell at a big loss. Inquiries began to come into Rubin’s firm, Fulton Grace Realty about renting out condos, and Rubin accepted, first a few and then dozens. Now about 60 to 70 percent of his business is renting and managing single condos. The company handles about 310 of them, up from 213 at the beginning of the year.
Condo owners turn to rental, Rubin says, because “100 percent of them say, ‘Do I want to take a $50,000 bath at the [sale], or do I want to lose $200 a month while I wait for prices to recover?’ It’s the lesser of two evils.”
That’s what motivated Andy Madaychik to rent out his three-bedroom Logan Square condo three years ago. The value was down about 18 percent from his 2006 purchase price, but he was getting married and moving to Aurora to start a family.
“I looked at the prospect of selling it,” Madaychik says, “but I was going to lose so much money. If I rented it, I could use that to pay most of the mortgage and hold on. Hopefully prices will go up eventually.” He loses more than a hundred dollars a month in the deal, he says, but “all the rental money is being used to [build up] equity in the condo, so it will be fine.”
Rubin says the condo owners who rent out a property typically are those who either lose or make an acceptable couple of hundred dollars a year. If they stand to lose $500 or more a month, he says, “they’re more likely to sell at a loss instead of losing $6,000 a year.” Some at that or a higher level of loss may also be letting the condos go into foreclosure.
Often, Rubin or someone else in his 20-person firm has to start out by delivering some bad news to the condo owner. As he puts it, “the market doesn’t care what you owe.” Which is to say, you don’t necessarily get to rent the condo at the amount you owe on the mortgage each month. Instead, Fulton Grace provides a rental market analysis that suggests how much the condo will rent for. “We have people making money, and we have people breaking even,” he says, though he wouldn’t say how many are in those categories and how many lose money.
Fulton Grace’s charges are:
*The first month’s rent once a tenant is landed. There’s no charge until the place is rented.
*After that, ongoing management costs seven percent of the monthly rent.
Thus, for a condo that rents for $2,000 a month, Fulton Grace’s services would cost the owners $2,000 at rental and $140 a month.
For someone already losing money, are these services worth it?
“I live out in Aurora,” says Madaychik, who can’t get into the city easily because of family and business obligations. Rubin notes that other condo owners using his firm live even farther away, in distant states and a few other countries. On top of that, he suggests, it’s worth the cost to secure a good, stable tenant—Fulton Grace runs credit and employment checks on applicants—and to have both maintenance and emergency repairs handled. The firm has its own handyman service that can tackle problems any hour of any day, he says.
There’s also the payoff of not having to deal with the stress of being a landlord. “Of our condo owners, about 75 percent are first-time landlords who didn’t want to be landlords,” Rubin says.