This week the Chicago City Council passed a measure designed to protect tenants who currently rent space in foreclosed buildings. What does this mean to you as a Chicago real estate investor? This measure that will be held in committee until June 5th, 2013 could have far-reaching effects for every real estate investor regardless of the type of property in which he chooses to invest.chicago real estate investing market

Under this new measure, lenders that repossess a building are required to pay tenants $12,000 cash in relocation expenses or offer current tenants the option to renew their lease for another year with the restriction that rents cannot be increased by more than two percent per annum – regardless of current market rates.

This new measure affects all rental properties from the smallest single-family home to the largest multi-unit apartment building.

Given that there were 9,000 foreclosure notices sent out across Illinois in the month of April and over 75 percent of those notices were within the Chicago area, this is causing many lenders and investors in the city concern.

Lenders are obviously concerned because they will be required to either pay a substantial sum to the tenants of repossessed buildings or enter into the property management business – neither of which they want to do.

But how will this new measure affect individual investors?

First, the new measure only applies to the first party to acquire a repossessed property – the lender – but that does not mean that individual investors will escape this new measure unscathed. If banks are paying more to foreclose on a property, it follows that they will charge more to the buyers – the investors – in order to recoup their losses.

When lenders calculate their foreclosure price, they will now be including the cost of all those leases, management expenses and relocation packages into the final figure. This could mean that the days of acquiring a property at a significant discount via a foreclosure sale are numbered, but maybe not.

Banks are not in the business of managing rental properties, and if given the choice, they would rather not. This new measure requiring lenders to allow tenants to stay in a property could encourage banks to seek out qualified investors willing to take on already leased properties. Those investors willing to take on these properties along with the tenants and the ability to move quickly may be able to acquire these properties at a discount.

Of course, that means assuming leases that could be attached to less than ideal tenants, and rehabbing an occupied property is many times more difficult than rehabbing a vacant property.

The truth is, no one knows exactly how this measure will affect the foreclosure market, but we know that it will have an effect.

Many investors are beginning to see the appeal of avoiding the foreclosure process altogether and approaching distressed property owners, but this is a time-consuming process. Not all investors have the time or the know how to find distressed properties prior to foreclosure. This has also led to an increased interest in turnkey investment companies that specialize in acquiring, rehabbing and leasing investment properties.

Regardless, investors should pay close attention to this new development and be prepared to adjust their individual investment strategies to account for these new foreclosure restrictions, but one thing has not changed, those with the knowledge, connections and ability to find and move on properties quickly will still have a distinct advantage over those who cannot.