The area where I live in Logan Square (Chicago) has a huge glut of unrented apartments.
I’ve noticed some are now going on over 6 months still unrented and the rents aren’t coming down. I mean really who’s gonna pay $2,100 a month for a basement flat in an area with gang graffit and drive bys (but that’s another story)
I would think after a long while of not renting a flat, the owners may try to lower the lower the rent to draw people in. But none of them seem to be doing this.
These are the obvious ones, I notice. Like with a three flat, it’ll say “Basement Flat” so you know it’s the same flat.
So I got to thinking are there any tax advantages to letting an apartment just go unrented. Can you take a loss on it or something?
I know there are non-money benfits from not renting or not lowering the rent, you want to keep quality tenents etc, but I was wondering any tax benefits or such
I can’t imagine there being any benefit, but, the reason I’m responding, is $2100 for a basement flat in Logan Square? Are you kidding me? What kind of apartments are renting for $2100 there? Hell, you can get something in the Gold Coast for that price.
You can deduct normal business expenses – in this case, maintenance and upkeep. But you’d be writing them off if the apartments were rented, too. There may be some expenses they can deduct that they couldn’t deduct already, but not enough to make any money at it.
My guess is that the buildings are foreclosed on/bank owned. The bank has some obligations of good-faith dealing in minimizing their losses vis-a-vis the foreclosed mortgage, such as by renting the property. They don’t really want to be a landlord though, so they set the rents at something no rational person would ever pay, but within the reasonable market range for plausible deniability. This way they can say they did as they were obligated, while never actually aquiring any tenants.
Right, but you get to deduct expenses of the property when you are actually getting rental income as well.
My limited experience is being a passive landlord for a property in Georgia. At the federal level I can deduct any property expenses (mortgage interest, HOA, maintenance, management company fees, taxes, etc) from the income I bring in from the property itself. However being a passive landlord if I make a net loss on the property (which I currently do) I can only deduct up to my property related income, meaning the property rental has no net tax impact. I can’t claim an overall loss that would result in a deduction that could apply to my regular salaried employee income.
It probably is different if being a landlord is your primary business, but I would definitely not benefit from leaving it vacant.
Not to my knowledge. But, as said before, no basement flat in Logan Square is going to rent for $2100 for the foreseeable future. That is high-end rent for Chicago. The average three-bedroom in Logan Square is going for $1425. You have to go to the priciest of neighborhoods like Lincoln Park or the Gold Coast before you see two-bedroom apartments averaging at above $2000.
I am beginning to think you have a point. I see a lot of for sale signs as well.
The thing about Logan Square is, it’s very ill defined. A lot of times Humbolt Park is put into it. Sometimes Humbolt is put in with Bucktown or left out completely. This changes median rents to suit realitors.
I was just wondering if there were any advantages to NOT renting it out. And I think this is probably the correct answer. Thanks
If they are bank owned then they are going to stay empty. The banks have the attitude that they are not landlords, they are not in that business. I have seen a few houses that were rented out to good tenants. When the bank foreclosed they evicted the tenants. (dumb in my opion).
I have a 4 plex in Nevada. The rents were in the $775 to $825 range. I had two vacancys and the property manager could not get new tenants. The rent were droped to the $700 range. We got one more tenant, but inorder to keep the other two I had to drop their rents. Two tenants yeilded about $1600 a month now with three it is $2100. But some of my expences have gone up because of maintenance on three units. Add to this my property manager is managing a total of 7 4 plexes in one location so he does not want to lower the rents any more.
Because of the empty units yes I got a larger tax write off. That larger write ment that I payed less taxes, and I also had less spendable cash. I would willing pay much more in taxes if I could get much more in spendable cash.
Are the buildings completely unoccupied? I wondering if there are costs in having occupants that can’t be justified by having a single occupant. For example, suppose the landlord has to pay $2000 a month for liability insurance if there is anyone living in an apartment building. That’s a justifiable cost if he’s renting ten apartments in the building but not if he’s only renting one.
When I walk past them, it looks like there are lights and such in at least one of the flats. But who knows, they could be timers for all I know.
This morning on my way from work which takes five minutes from subway to flat, I counted 18 for sale signs and virtually every building had a “for rent” sign on it.
Remember that rents lock in a price for (usually) a year. If you lower prices to keep a building occupied during a period of low occupancy, you’ve locked in those losses for a whole year… and it means that when the market comes back, you won’t see an improvement in your situation for several months.
Furthermore, you can’t very well slash your prices in half and expect your current tenants to be happy. And you can’t lure someone in with a low rate for a year and then hike it up the next unless you’re prepared for them to leave.
When landlords want to boost low occupancy, they usually use short-terms perks for new tenants: free parking space, free microwave, one month rent-free, lower (or no) security deposit, etc. They absolutely do not want to lower their monthly rate because they’ll be paying for that for months or even years.
This true (in a different way) for banks, too. If they’re trying to sell a building, it’s better to have 50% occupancy and $2100/month rents than 100% occupancy and $1800/month rents. The prospective buyer is not as bothered temporary drops in occupancy compared to the long-term value of the building.
True, but isn’t this is banking on a risky assumption that the market will bounce back enough to make it worthwhile to forego a few months’ worth of rent? You leave that unit unoccupied for more than a month, and I can’t see how you can make up that unless rents suddenly skyrocket several hundred dollars. Besides, as has been said, if it’s a normal basement flat in Logan Square, you’re not going to see $2100 rent for at least another 20-30 years.
