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Old 11-20-2011, 09:16 PM
 
53 posts, read 90,551 times
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Our circumstances are such that we would like to purchase a house in the $750,000 range, live in it for a couple of years, then rent it out, with the intent to sell in 10 - 15 years. Between Hinsdale and the North Shore (Winnetka/Wilmette/Lake Forest), which has a stronger rental market? Which has more upside potential? I realize $750,000 is somewhat entry level in both markets. From what I can tell, it seems if a house is priced well, it sells pretty quickly in Hinsdale. The North Shore is obviously a larger area and has more options. Who knows when, or if, the market will recover to 2006 levels, but which area has the best "deals"?
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Old 11-21-2011, 04:08 PM
 
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I don't really think there are better "deals" in one of these areas as a whole over another, although prices are down from recent peaks. It really comes down to the individual property, especially since many of the houses are older and/or somewhat unique. It is hard to really understand the differences, and pricing, of many of these properties without knowing the area very well and walking through a number of houses. In general, both area are attractive and are priced accordingly.

I also don't fully understand the rationale for wanting to live in it for a few years and then rent it out. For one thing, these rental markets can be thin since anyone who can afford to rent this type of house can likely afford to buy something very similar but slightly less expensive nearby. Also, given that many of these properties are older, a significant portion of your rental income could end up going for maintenance, updates, and repairs. From what I can tell, you would almost certainly have negative cash flow on the rental. From a purely investment standpoint, you may be better off buying 2 or 3 less expensive investment properties, rather than putting everything in to one expensive basket.
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Old 11-21-2011, 06:14 PM
 
53 posts, read 90,551 times
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Our situation is a little different in that my company plans to send me to the west coast in 2 to 3 years and they pay for corporate housing. Since the corporate housing is nicer than what we could afford otherwise, we will opt for the corporate housing. We sold our primary residence back in 2006 and have been renting since. I figured interest rates are low and home prices have dipped, so it might be a good time to buy and if we bought a place here in Chicago then it would be available to us when we move back or if we stay out west we can sell it at a good opportunity (whatever that is). We need a place to live ourselves so I would personally prefer a little nicer place than a less expensive one and if we rent it out we are building equity (with a little help) for the future. You do raise a valid point in that we run the risk of major repairs or tenants that destroy the house or whatever and we won’t be in the area, therefore, we will have to hire a property manager, therefore, our net income is probably reduced significantly, but the other alternative is to not buy anything and keep renting. I’m not comfortable buying a house and then trying to sell it in 2 to 3 years because I don’t think the market will have gone up and we will lose money once factoring in commissions and closing costs. I also thought about buying a vacation home, but kind of strange when you don’t have a first home!
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Old 11-21-2011, 09:39 PM
 
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The rental market is pretty weird in the higher end suburbs. You do get a handful of people with "wacky" economic theories looking to "out smart" the market (which is pretty much impossible), a fair number of divorce situations (and their funky money problems..), some folks that do sort stumble into rentals because of hard turns in their life, a smattering of folks building / renovating their own place in the neighborhood, and a TINY number of relocation situations. Every real estate in a desirable suburb will be able to find some houses available to rent, but not every house gets tenants. There is no shortage of house and you DO NOT have pricing power. You have to accept what the LOWEST COST landlord can survive on...

There are several problems with attempting to rent an expensive home in either Hinsdale or the North Shore. Firstly there ARE a fair number of INEXPENSIVE rental homes in those areas. Inexpensive homes can be rented profitably. The major "variable" in renting out homes profitably in the Chicago region is property taxes. If can literally cost as little as $3500 a year for a modest rental property and FOUR TIMES as much for a pricey $750K home. Monthly rental prices are such that you can probably easy get $2000 or more for the low end home but trying to get even $5000 for the high end property is taking an ENORMOUS risk.

While I am sure there parts of the country where there are renters that would not blink at $5000/mo the reality is that such folks are EXTRAORDINARILY rare in the greater Chicago region. Even VERY well compensated individuals in this market would greatly prefer to be a home owner at that price level.

EVEN assuming that you would have no problems finding renters (which I believe is not realistic based on about 25 years of owning / renting / selling rental homes in the region...) the timeline you have in mind is, to put in mildly, naive. The amount of wear and tear that even THE MOST CONSCIENTIOUS renters put on a family sized home in even one year pretty much DEMANDS that you have a HUGE budget for maintenance of things like carpets, paint, and window coverings. It might shock an inexperienced landlord that it is not uncommon to basically spend 10% of the rent EVERY YEAR on just those categories when you get a family that has several kids / pets (and believe me that is THE ONLY kind of renter you will get in those areas at those price points...).

If you have been renting inside Chicago itself you may also be unaware that landlords are often expected to provide for things like landscape services, snow removal, emergency lockout, repairs and neighbor disputes. While some of these can be "contracted out" that leaves precious little to cover "long term costs" like money for a new roof, driveway sealcoating, kitchen /bath renovation and the like...

The way I see your situation is rather different than what you may be thinking. You currently have some swell job. The firm MAY send you to the west coast in 36 months or so. They may also significantly alter the terms of your employment. You therefore truly have simply a greater than ideal amount of "career uncertainty". Therefore you are good candidate to remain a renter for the time being. If more certitude comes to your career that may shift your decision away from renting and toward ownership. Until that shift happens it actually may make more sense for you to pay a lovely vacation home in SW Michigan or Lake Geneva. Those markets always have a signficant number of nice homes on the market for investors, and the rental market is such that a few WEEKS of nice vacation oriented renters might pay six months of more of your mortgage. That said even the best vacation homes carry some significant risks. Most real estate analysts believe demographic trends do not favor appreciation for vacation homes. Should government spending issues force even more taxes to be levied on home owners the long term values of real estate will suffer. Vacation rentals are much harder to screen than long term tenants... Of course if you think you might be "in and out" of the area the beauty of a vacation rental is when you want to use you just don't rent it out, yes, you may lose some income but it is VERY much easier than trying to boot out "normal" tenants from "your house" when you are "in town".

Finally I really think you need to get out and examine the HUGE range of houses that are available not just in Hinsdale, Wilmette , Winnetka or Lake Forest but also Chicago AS WELL AS the many other towns in the whole region that are desirable. When you are a landlord you really are "competing" with every other town. You need to understand that potential tenants in someplace like Elmhurst or Villa Park or Countryside or Brookfield or dozens of other towns are really NOT likely to spend all that much less than folks looking for a modest little rental in a high end town BUT a landlord cost structure is VERY VERY VERY different in those other areas. In short, as a landlord I could make MUCH more money with a cheap house in a midrange town than I could ever hope to do with a house at $750k...
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Old 11-22-2011, 08:30 AM
 
53 posts, read 90,551 times
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I know it sounds a little inconceivable given the current job market, but my work arrangement is locked down and very contractulized, the only very slight variable is timing which I would put more at 24 months. The other variable is that I have a fair chunck of money available to me but ONLY for the purchase of a house in which we must live in. Again, it sounds totally inconceivable but those are our circumstances. I agree the rental market in the higher end markets might be problematic and that it would mostly be short term renters (in between houses, rellocation, etc.) with a lot of turnover, but we have kids in elementary school and these are the areas we personally like. In order to benefit from the funds available to us we either have to purchase, live there for a couple of years and the rent it out or live in it and sell it. I figured trying to sell a house in a couple of years would put us at a loss once commissions are factored in and who knows the market may be even worse in a couple of years and we are stuck with a house we can't sell. I was thinking a vacation home and that would actually be my preference but I don't know if that's possible since we would have to live in the home, so really it's one of the first two options. Really I don't want the responsibility of being a landlord, but I'm having trouble figuring out what to do with the house until we can at least break even on a sale. We really would need to buy a foreclosure and then hope we could sell it in a couple years to at least break even or try to rent it. I'm not sure which is riskier.
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Old 11-22-2011, 10:56 AM
 
Location: Hinsdale, IL
110 posts, read 219,647 times
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Is there any way that you can purchase on the West Coast and apply the amount that your company would otherwise provide for corporate housing toward the purchase price/mortgage?
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Old 11-22-2011, 12:36 PM
 
53 posts, read 90,551 times
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Unfortunately there is no way to apply what my company would otherwise provide since it is company owned housing. It gets even a little more tricky (if you can believe it) because I probably only have maybe 5 months to utilize the funds, after that it can be done, it just gets more difficult. The other idea I thought of was buying the house we are currently renting (which is significantly less expensive, but out in the sticks) and having my Mom live in it until we decide to eventually sell. I'm not crazy about the house and I wouldn't buy it otherwise, but I know my Mom would take care of it. I am, however, worried about reselling because it's definitely not as liquid a market since it is about an hour outside Chicago. What to do, what to do!!
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Old 11-22-2011, 01:44 PM
 
28,383 posts, read 67,919,335 times
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Are you SURE you have to use the money to buy a house??? There are really NO TAX implications that force such a transaction. MANY people get that wrong...

I know folks don't like to give away too many personal details on the interwebs but I don't really understand why, if you are currently renting out in the sticks your situation would "force" you to buy something and then in 24 months or so you'd be leaving that behind for the company owned housing on the west coast and then in another few years be heading back.

Why not put your money in the bank until you can really "settle in"? Is the money from some crazed old uncle that has a trust that stipulates it has to used for a house in one of three suburbs? Sounds like the setup for a bad movie...
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Old 11-22-2011, 02:32 PM
 
53 posts, read 90,551 times
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I do contract work and my current assignment is remote so I can work from anywhere and we decided to move near my Mom (out in the sticks) so she could help with our 3 kids because we both travel a lot. Once I am done with my current assignment I will be permanently assigned to the west coast. I really don't know when we will be back or even if. You are somewhat on target - I have a crazed relative that has set aside funds for the sole purpose of purchasing a house but it is stipulated that it has to be a house for our family to live in and not an "investment." And we don't have to purchase in any particular area of Chicago, these were the areas I had targeted as areas as I would personally want to live. This crazy relative is also partial to the Chicago area - don't ask!! It gets complicated in 5 months or so because of my spouses job situation changes a little and it might be harder to get a loan. It is kind of like a bad movie.

Last edited by krispro6; 11-22-2011 at 02:55 PM..
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Old 11-22-2011, 03:06 PM
 
10,287 posts, read 12,400,880 times
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I would skip buying anything and just rent.
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