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Author: Mark Ainely | Partner GC Realty & Development & Co-Host Straight Up Chicago Investor Podcast
This week Tim and I got into some of the heating issues landlords deal with every year, especially in older Chicago buildings. We also answered a good listener question about when a 1031 exchange actually makes sense, and wrapped up with the latest PRO update from City Hall.
Chicago Heating Issues
Heating season always exposes problems that were easy to ignore during the summer.
One of the biggest challenges is boiler buildings.
Boilers can last forever, but controlling temperature throughout an older multifamily building is difficult. One apartment is freezing while the unit above it has the windows open because it is too hot.
A relatively simple upgrade Tim recommends is an outdoor thermostat.
The system reads the outside temperature and prevents the boiler from firing when it is warm enough outside. If Chicago gets one of those random 70-degree fall days, you are not unnecessarily heating the entire building.
Thermostat placement matters too.
Sometimes the solution to an uneven building is not a new boiler. It is moving the thermostat somewhere that gives you a more accurate reading of the building.
The same concept applies to forced-air systems.
We talked about properties where an attic, basement, or back porch was converted into living space after the original HVAC system was designed. Investors sometimes assume adding a couple vents will solve the problem.
It is not that simple.
HVAC systems need to be balanced.
If you add more ductwork upstairs, you may end up stealing airflow from the bedrooms downstairs. In larger homes, the correct solution may even involve multiple furnaces or redesigning the system.
Space heaters can work as a temporary solution, but I do not like relying on them as the permanent answer.
If one room consistently cannot maintain temperature, landlords should figure out why.
Sometimes it is ductwork. Sometimes it is insulation. Sometimes it is thermostat placement. And sometimes the renovation simply was not engineered correctly from the beginning.
That is why these older Chicago properties need more than a handyman guessing at the problem.
When Does A 1031 Exchange Make Sense?
A listener asked us when we decide to use a 1031 exchange.
For me, it starts with the size of the taxable gain.
I have only used 1031 exchanges a handful of times because sometimes the tax savings simply do not justify the extra work.
If you bought a property for $300,000 and sell it for $350,000, the taxable gain may be much smaller than you think after commissions, closing costs, improvements, and other deductions.
In that situation, forcing yourself into another property just to avoid a relatively small tax bill may not make sense.
The 1031 becomes much more valuable when you have owned a property for 10 or 20 years, have significant appreciation, or have taken substantial depreciation.
That depreciation piece is important.
Investors sometimes calculate the gain based only on the difference between the purchase price and sale price, then get surprised by depreciation recapture.
I have made that mistake myself.
Another mistake is buying a bad replacement property because the 1031 clock is running.
If avoiding $40,000 in taxes causes you to overpay by $100,000 for the next property, you did not win.
You simply made a bad investment to avoid paying taxes.
That is why I also like the idea of a reverse 1031 in the right situation. Instead of selling first and rushing to identify your replacement property, you may be able to acquire the next property first and complete the exchange afterward.
It costs more administratively and requires more cash up front, but it can remove some of the pressure to buy whatever happens to be available.
The important point is that a 1031 is a tax strategy, not an investment strategy.
The replacement property still has to be a good deal.
And before doing any exchange, talk with a qualified 1031 intermediary and your tax professional because the timing and structure matter.
Latest Chicago PRO Update
We also checked in on Chicago’s proposed Protecting Renters Ordinance.
At the time of this recording, there was nothing materially new to report.
No final vote had happened, and we were still in the waiting stage.
That does not mean landlords should stop paying attention.
The way Tim described the City Council process, a vote could come fairly quickly once supporters believe they have enough aldermen committed.
Until then, there is a lot happening behind the scenes.
The biggest question is whether PRO and the competing FAIR proposal eventually produce some sort of compromise or whether the issue continues getting delayed.
For landlords, that uncertainty is frustrating, but I still think reacting to rumors is a mistake.
We need the actual final ordinance.
Once we know what passes, then landlords, attorneys, Realtors, and property managers can update leases, notices, registration procedures, and whatever else is required.
Until then, keep following the issue.
This is one of those situations where the details will matter much more than the headline.
Questions We Answer in This Episode
Q: Why are boiler buildings so difficult to manage?
A: Different parts of the building can heat unevenly, leaving one tenant cold while another is opening windows because the apartment is too hot.
Q: Can adding more HVAC vents fix a cold room?
A: Not necessarily. Adding vents can change airflow throughout the entire system, which is why proper HVAC balancing matters.
Q: When does a 1031 exchange make sense?
A: Usually when the taxable gain or depreciation recapture is large enough that deferring the tax creates meaningful value.
Q: Should I buy any property just to complete a 1031?
A: No. Paying taxes can be better than overpaying for a bad replacement property.
Q: What is happening with PRO?
A: At the time of recording, there had been no new vote, so landlords were still waiting for the next City Council move.
Show Notes and Timestamps
- 00:24 Fall maintenance and the end of leasing season
- 01:00 Late-season AC problems and when to postpone repairs
- 02:01 Why boiler buildings create temperature complaints
- 03:00 Outdoor thermostats and controlling boiler costs
- 05:25 Cold rooms, space heaters, and HVAC problems
- 07:01 Why converted attics need proper HVAC engineering
- 10:01 Tree roots, sidewalks, and landlord liability
- 15:26 When a 1031 exchange actually makes sense
- 17:51 Depreciation recapture and common 1031 mistakes
- 22:52 Latest update on Chicago’s PRO proposal
Key Takeaways for Chicago Landlords
- Boiler buildings need proper controls and thermostat placement to reduce heating complaints.
- Converted living spaces should be evaluated as part of the entire HVAC system, not fixed by simply adding another vent.
- A 1031 exchange makes the most sense when the tax being deferred is substantial.
- Never overpay for a replacement property just to avoid a tax bill.
- PRO remained unresolved at the time of the episode, so landlords should continue monitoring the final language before changing procedures.
Guest Information
Mark Ainley
Founder & Partner – GC Realty & Development
Podcast Co-Host – Straight Up Chicago Investor
Tim Harstad
Founder – Chicago Style Management
Because finding good tenants and property management shouldn’t feel like online dating.
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Dear Investor,
If you are an investor in either the city or suburbs of Chicago, I would love to speak with you about how we can help you on your real estate journey. At GC Realty & Development LLC, we help hundreds of Chicagoland real estate owners and brokers each year manage their assets with both full service property management and tenant placement services.
We understand that every investor’s goals are unique, and we love learning about each client’s individual needs. If there is an opportunity to help you buy back your time by managing your rental property or finding quality tenants, please check us out.
Best Investing,
Founder, Partner, Podcast Co-Host, and Investor
