1: Determine the number/size/type of legal units permitted.

2: Determine the type/size of rental that is most needed in area that will produce the maximum amount of income. Remember, it's easier to manage fewer rentals. Fewer headaches, fewer problems. Fewer occupants, less potential for damage.

3: Determine the amount of rent that can be generated with no alterations.

4: Determine the amount of rent that can be generated by adding an additional unit or altering the current units to meet the local demand and legalities.

5: Will any of these alterations in #4 justify the cost or effort.

6: Is this unit located in an Opportunity Zone? Lots of tax credits to successfully off load capital gains if you can find a good one. Talk to your accountant and realtor.

Something to look at. Most areas require basement apartments to have an egress window in the bedroom which opens into an escapable area. Older apartments can be exempt but changes or adding a basement apartment should be researched before you do too much planning.

If the current owner is willing to sweeten the kitty with all that you are wanting my thought is there is something wrong.

In Illinois? PLEASE verify the amount of yearly real estate taxes you will be paying. Both my niece and nephew live in Illinois. My nephew said if he had realized how high the taxes were, he would have stayed in Indiana. The taxes on my niece's mid-range house were over $11,000 last year (per public record).

Great thoughts from you all! Thank you.

We've learned that the new affordable housing initiative in Chicago does not apply to this area of the city, so we won't go forward with creating a separate unit in the basement. We could still add a bedroom and bath to make the first floor unit larger/worth more rent. (Thousands of Chicagoans live in basement apartments, Kevin, and many of the MFU's were built before 1900. Shopping for this property has been *very interesting*.)

If we do any renovating, we'd like to fold the work into the deal, paying extra to the seller to plumb and add electrical in the basement that we could complete later -- goal being to use up more of the 1031 escrow and reduce taxable boot. It's only $20K. I suppose we could buy and rent a parking space in the city. Former neighbors did a lot of that.

HU -- We are lifelong residents of the Chicago suburbs. Yes, taxes are ridiculously high in Illinois, but it's home -- and this property is in an area with good schools, one reason it has a high population of city workers (teachers, fire, police, etc.) who are required to live within the city.

Today a problem has presented about creating a contract ito include extra work -- one that will protect both sides of this deal. We may end up with that parking space in the Loop!

I've just had a thought. Could we set up a credit from our seller in this deal? We gave our buyer a credit when we sold our condo last month. The unit above us had a water leak two days before we were to close, and we had damage. We paid for remediation, but the buyer wanted to do the repairs, so we gave her a credit. (Insurance reimbursed us for both ends.)

I think we need to first find out from the city if we can legally add a BR and bath in this basement. (Can get permits.) And...as homechef59 said, how much additional rent it would add. If the seller is being honest about current rental income, the property yields about 7%.

My advice stands from the prior thread: there is a reason the seller is looking to unload a property they've held for 10 years. You’d have better luck snapping up a single family home in the suburbs and renting that out.

And yes many Chicagoans live in basement apartments (marketed as ”garden units”). My now husband lived in one when we met. The market will not be high for a 1 bed/1 bath basement conversion in a neighborhood of single family homes with good schools.

Lisette -- Thank you. I'd PM you, but I don't see that option. (I'm open to PMs.) The basement as a separate unit is now off the table. I could use your good reasoning to argue for making the 2BR 1 Bath first floor a duplex down, though. Two 'family' units plus attic unit makes more sense.

I need to check if the basement meets code as to height. There's some reason they developed the attic and not the basement.

I believe some investors prefer to take write-offs on a ten-year basis, and we have a very hot market right now. (Was depressed when they bought this.) There's also incentive to take capital gains now, before the predicted hike in 2022. I can see incentive to sell without there being a problem. Do you have a specific concern?

As an investor who just recently "unloaded" four rental properties that we owned for almost 20 years, I do not see any reason for concern that the current owner is wanting to sell his/her property. The market in most areas has never been hotter. My rationale for selling was two-fold, getting older and not wanting to deal with tenants and their problems and the current high values of the properties we sold. To paraphrase Warren Buffet- It's usually good to be a seller when everyone else is buying.

"I do not see any reason for concern that the current owner is wanting to sell his/her property"

In 2006 I sold my legal duplex in St. Paul, Mn for a profit equal to 10 to 15 yrs of profit (no mortgage) from renting it and so glad I did.

I couldn't wait to get out of the rental business from just dealing with other peoples problems which became my problems. I had rental property in Texas before this, 3 apartments and 2 business fronts and that was fun. An upstairs drunk started the kitchen on fire (small fire) and one lower tenant had to move because of water damage. The guy I rented to had 8 other people living there but the worst. they housed and slaughtered turkeys in a back bedroom. One business had the Texas department of revenue come and install locks on all the doors because they weren't paying sales taxes. And guess what, it was my sister in law, haha. It took months to get in the place, yep the fun.

It's not easy as a small time rental investor and requires some thick skin to deal with people, I wasn't one of them. Any profits made by rental owners are well earned but I would never jump back in and it takes a special kind of person who wants to. Good luck chisue, and I read there is a push mainly by Chicago to have the state of Illinois repeal the ban on rent control. Just another problem for rental owners, as if there aren't enough.

Kevin -- I'm sure there will be problems. We decided that preserving the money with a 1031 was worth not paying gains on ten times the value of the base. I would have preferred a SFH or two, but our DS will inherit this, and he wants the MFU. He has some experience with buying and flipping. We'll see how he 'landlords'.

I'd been leery of the vacation rental condo, but it turned out to be easier than the SFHs we'd owned -- and we enjoyed knowing we had a nice place to visit! We profited in the hot market on Maui and will take our lumps buying in the hot market here. The condo also taught us that we never want to own 'HOA' again. haha

Mihelene -- May I ask what you did with the proceeds? Did you stay with real estate? Perhaps non-residential?

Chisue, trying to get out of real estate. Like Kevin above we had enough of people I didn't give birth to acting like my children! We thought about a 1031 but didn't do it. We own 3 other properties, our residence, a LTR and a ST vacation rental, which are enough.

chisue, I again want to be the voice of encouragement. I also used to be heavily involved in RE investments but have since sold them, BUT, I never had the problems described above. Yes, it is sometimes a hassle, but the gains are worth it. The beauty of 1031, depreciation, capital gains while holding an appreciating asset that someone else is paying for is a great way to grow your money and obtain income at the same time. We sold simply because we got to an age where we don't want any hassle (we don't have a son as you do) and didn't need it to live nicely. In my view you can't beat RE as an investment, I do live in Southern California and know not every part of the country appreciates like that.

mihelene -- HaHa! Yes, our own chicks are *quite enough* sometimes! Our 'boy' is 50 with a wonderful wife. We havse two grands, teen boy and girl, 10. Our DIL teaches in Chicago, so they must live within city limits. The current offer is on a MFU 10 minutes NW of their home.

C Marlin -- Thanks for the encouragement. My late DM *started* all this. She was a top-performing Realtor in my hometown suburb of Chicago. She bought an old farmhouse on a large lot that became the base of this 1031. The trust can run some years past our DS's demise. (I don't think that proposed legislation can change that retroactively.)

I'll stay out of the details but remember what's at stake.

Consider federal taxes only. The maximum capital gain tax rate is 20%. Think about whether to spend another $100 (by asking the seller to put $100 into the property and then raise the price) or not.

If spending the extra $100 increases the rent you can receive and provides you a return on that increment within a not too long time window, then fine. If it doesn't, you've wasted $100.

If you don't spend the extra $100 and pay tax on it, you have $80 to add to your bank account.

Which way provides more net cash to you with those assumptions? Right, paying tax does. Good luck.

"The taxes on my niece's mid-range house were over $11,000 last year (per public record)."

That would be considered quite a bargain in my (west suburban Chicago) neighborhood.

"You’d have better luck snapping up a single family home in the suburbs and renting that out."

I totally agree on having luck renting out a home in the suburbs; snapping up a home to buy not so easy. Single family homes, townhomes, and even rentals are moving fast - often sold as soon as they hit the market. My former neighbors sold so fast (full price offer after ~36 hours on market; closing and move a few weeks later) that they had to move to extended stay hotel. They are buying a townhome nearby, and they only got it because they visited estate sales (assuming the owners would sell soon) and knocked on doors.

Another friend had to move because her long term landlord decided to take advantage of the hot market and sell the house she lived in. After losing out on several possible rentals, she and her husband ended up paying a full year's rent in advance in order to be first choice of the rental they just moved into.