In and around Chicago, village restrictions play a larger role in the investor’s life cycle when it comes to owning real estate. Below are just a few items you should be aware of as a landlord:

• Point Of Sale Inspection - A Point Of Sale Inspection (POS) is an inspection the village requires before a seller of a property finalizes a sale on that property. Per a village ordinance, the village will inspect the property to be sure the property complies with the local codes. There is typically a fee to have the inspection completed. Many times this inspection must be done in order for the village to release the transfer stamps that may be required by the closing title company.  In order to satisfy the inspection requirements, the seller must address any items resulting in the failure of the inspection.  

Another common practice is that the village will allow the buyer to inherit the POS inspection repairs as long as the buyer signs an affidavit saying they will complete the work in a set amount of time (typically 6 months or less). They often require a surety bond at the buyer’s expense.  This POS is not a requirement within the Chicago city limits, but is common in the surrounding suburbs.  

Lately, we have seen many investors who are unaware of the POS requirement, become responsible for the inspection post-closing.  Unfortunately, in villages that do not require transfer stamps, the seller may disregard the requirement thus leaving the cost of the inspection and any subsequent required repairs to the buyer.  

As a buyer, make sure you understand how the city/village operates and what your liability is as a result of the process.  

• Annual Rental License Inspections - Many suburbs, not the city of Chicago, have rental license programs you must abide by if you are renting a property in that village.  It is nearly impossible these days to slide under the radar and the consequences for getting caught are not worth the risk.

Part of the rental license program for many of these villages includes a mandatory property inspection. Most times, the inspection must be completed annually. There are some villages that inspect every two years and others may waive the requirement for one year if you pass the inspection the first time, however, annual inspections are common practice.  

• Fines From Activities At Your Property - More and more these days we see the building/community development department on the street handing out warnings and fines for activities that violate village ordinances.  These fine- provoking issues can range from tire marks in the lawn, grass growing too high, trees needing to be trimmed, and fence damage.  I truly believe that the goal of the village is to keep rental properties from becoming eye sores, however, this is an activity that will affect many landlords from time to time.

• Repairs That Require Permits - When it comes time to address repairs stemming from the rental license inspection, these repairs may need to be completed by contractors and permits may be required.  These permit-related activities often bring additional inspections by the building department which provides an opportunity for greater scrutiny of the property by that village.  It is important to follow local ordinances but also additionally important to understand the level of difficulty one village may present over another before you buy a property or convert your property into a rental.  

• Existing Property Violations - Often a property already has building code or violation issues.  You, as the owner, or the seller you are buying from, may not even realize there is an issue.  When purchasing an investment property you, as the new owner, will inherit any property violations.  The truth is that many times a seller may not even realize their property has issues, as they may not have received the notice due to mailing address issues. Many times the seller bought the property with the issues and were never forced to be compliant at any point during their ownership.

In order to avoid these issues, be sure to research the local municipality website, call the city directly, or obtain a property report under the Freedom of Information Act (FOIA). When purchasing an investment property you, as the new owner, will inherit any property violations which can cost you a large amount of money you have no contingency plan for. I have personally witnessed some extreme cases where buyers have spent more than $50,000 to correct these violations. Performing your own due diligence, or having a qualified Property Manager in place, will help you avoid these stressful financial issues and mental hardships. 

You may also like to take a look at some of these other great resources.

7 Out Of State Real Estate Investor Pitfalls

Why An Out Of State Investor Should Hire An Attorney

Chicago Housing Authority(CHA) For Section 8 Tenants

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