RENTAL RESTRICTIONS (Rental Caps) and Financing

It is truly a sign of the times. A great deal of condo boards in buildings across Chicago are arguing whether or not to impose rental restrictions, known as “Rental Caps,” in condo buildings across the city. Such restrictions would limit the amount of rentals in a building. Some believe that a lower percentage of renters mean financing is easier to obtain for both buyers and current owners seeking to refinance; thus helping sustain values of the units in a building.

Recently mortgage lending has eased and the following is now true:

There are now no limits on the amount of rental occupied units in a condo building for Conventional, Owner Occupied mortgages.

If we are discussing investor mortgages (a mortgage taken out by someone who never plans to occupy the property and only rent it) these limits are 49% Rental Occupancy, meaning that 51% must be owner occupied

Non-Conforming Owner Occupied Loans (Typically talking about Jumbo Mortgages here, $417,000 +) the percentage will vary from lender to lender but will typically bounce around 30% give or take. Typically lenders that are more relaxed on rental restrictions will charge a slightly higher interest rate for the sole purpose of supply and demand (there are less lenders with the relaxed restrictions thus they can charge a higher rate and such investors holding this paper demand a higher rate).

The question is, with the above information should buildings institute rental restrictions? I’ve written about this before so there is no need to start mentioning all the fine points again. However, I will say that the laws of economics are clear. You cannot force the market and you cannot change it. If the market has said that X amount of units in a building need to be rented then the passing of rental restrictions  WILL decrease the value of the units in the building if a significant number of units that were previously rented can no longer rent.

How Much Can My Landlord Increase My Rent in Chicago?!

How much can a landlord raise your rent in Chicago? Some people believe there is a “Rent Cap” in Chicago as there may be in other cities that have some sort of rent control. In the city of Chicago, however we have no such rent control. Your landlord can raise your rent as much as he or she would like provided that you do not have an “option to renew” clause in your lease. If you are asking yourself “What is an option to renew?” then you probably don’t have one in your lease as it is NOT STANDARD in the typical Chicago Apartment or Chicago Condominium Lease.

Rent prices in Chicago have increased from 2010 to 2011 roughly 7 to 10% depending on neighborhood and of course depending on what size of unit you have. In some areas One Bedrooms have increased 10% while Two Bedrooms may have only increased 5%. Analysts are predicting a 5 to 6% increase in 2012. Given the state of the market I find this to be a fair and accurate assumption.

While the landlord can raise your rent as much as he or she would like they also must provide you with some notice which will vary depending on the lease you may have signed. Typically the landlord has to give you notice, in writing, of whether or not he/she plans to renew your lease and at what price. This typically must be given 30 to 60 days in advance but may vary depending on your lease.

Auto Renewal Option Many people do not believe that an Auto Renewal Option is legal. This is when the lease states that if you do not contact the landlord in writing to state that YOU WILL NOT BE RENEWING then your lease automatically renews. This is in fact completely LEGAL! It is not standard language in a Chicago Apartment or Condo lease however many individual landlords may add this language.

 

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