Is An Investment Property Right for You?

Written by Scott and Kim Vargo of Yellow Brick Home

Investment properties can be a wonderful source of supplemental short-term income while building long-term wealth, but they’re not without their challenges! My wife Kim and I currently own 3 leased rental units in Chicago. We also own a vacation home in Southwest Michigan that serves as a short-term rental when we’re not there ourselves. 

I purchased my first property right out of college at the ripe old age of 23, an affordable fixer upper in a suburb of Cincinnati. Since then, Kim and I have been investing in real estate together for the last 15 years. Through investment experience, we’ve dealt with pretty much every positive and negative situation imaginable! Through it all, we’ve enjoyed the benefits, but it’s important to outline a few of the considerations that should be considered prior to purchasing an investment property of your own. Consider this a letter to our younger selves, or things we wish we knew then. 

^{Scott and Kim Vargo of Yellow Brick Home}

Benefits

Earn Income to Offset an Existing Mortgage

For us, owning our first multi-unit property was a no brainer! Our primary Chicago home feels like a single-family home with two full floors, but we just happen to have a fully private apartment in the basement. The rental income from this unit covers our mortgage almost completely! In many cases, a small investment property can be financed similarly to a single-family home or condo if the owner resides in one of the units, keeping monthly costs to a minimum. Keep in mind that financing options can vary drastically, so be sure to consult with a qualified mortgage and real estate professional prior to making any decisions.

Beyond our primary home, our other two rental units are housed within a ‘two-flat’ building, which describes one home divided into two separate apartments. This building was purchased purely as an investment property and fully renovated over the course of an 18 month period. The rent from the larger of the two units more than covers the mortgage for the whole property, so the smaller unit’s rent is pure profit. 

Between these 3 units, our mortgages are covered, and we profit enough to offset most of our recurring living expenses. While this sounds dreamy (and it is!), it’s taken many sacrifices and a lot of work - but worth the effort!

Build Long-Term Wealth in Home Equity

In addition to the short-term benefits of rental income, the appraised value of our properties is more than double than what is owed on the collective mortgages. Bear in mind this is in a hot Chicago market, so consider property values in your area before diving in. The mortgages are also being paid off by our earned rent, which means that with every rent payment, we’re one step closer to owning the properties outright. 

Create and Renovate Unique Units That People Want

Renovated vintage units with modern amenities can be hard to find in Chicago, so we do our best to create them! For us, there is an inherent value in designing rental units that we’d love to live in ourselves. We do our best to retain the original character of our properties while also adding all of the expected modern conveniences. Kitchens with dishwashers are mandatory. In-unit laundry is another must-have. 

When searching for investment properties, we do our best to find units in the sweet spot where they’re not quite nice enough to be rented as-is but aren’t in poor enough condition to necessitate a tear down or full gut rehab. We honor the bones and character of the homes and create unique spaces that we could move into ourselves if we ever desired a change, and it’s this mindset that keeps our units filled. 

Considerations

It’s a Business 

We take our rental unit ownership seriously and treat it as a business because, simply put, it is a business. We pride ourselves in being attentive property managers that are available to our tenants. We respond quickly to maintenance requests ourselves and rely on a trusted team of pros to handle any issues beyond our own capabilities. Our tenants seem to love where they live and often stay with us for multiple lease cycles, which is one of our metrics of success.

Owning a small business is not without its risks though. Vacant units mean lost income. Repairs to appliances and mechanical systems can be costly. Emergency calls can pop up at any time. As with any business, nothing is guaranteed and the risks are real, so be sure to calculate them accordingly.  

Finding (and Retaining!) Quality Tenants

We’ve been lucky enough to have had overwhelmingly positive experiences with our tenants, but it took some effort to get our systems in place. We use an all-in-one online portal that allows us to screen for credit scores, run background checks and even reach out to previous landlords. This has helped immensely! This same portal also serves as our payment processing platform. Our tenants can even schedule auto-pay, which we strongly recommend. We also strongly believe that great units attract great tenants, so we make every effort to keep our units in tip top shape. We touch up or repaint completely between tenants, repair things promptly and overall provide what we believe is a great rental experience for all parties. 

Maintenance and Upkeep Are Mandatory

Even the most up-to-date property still requires maintenance. Lawns and landscaping need upkeep in the warmer months. Leaves need to be removed in the fall. Snow and ice need to be removed and managed in colder months. With the exception of our Michigan home, we’ve strategically purchased properties exclusively in our own zip code. This makes planned and unplanned maintenance easier and allows us to remain as hands-on as necessary during move-in and move-out periods. When considering an investment property, proximity and an understanding of your own willingness to handle tasks or spend the money to outsource them should be considered. 

For Us, the Benefits Outweigh the Considerations

Owning our investment properties has been an adventure that we’d take on again in a heartbeat. Through all of the challenges, the financial impact on our family has been life-changing in the best way!