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I'm single, have no kids, done with college and have 0 debt.
I was thinking about buying a luxury loft because renting is just a big waste of money...
Also, no car payment.
I'm young, single, no kids, done with college and have $0 debt. No car either.
I make $64K a year and can basically do anything I want. Own a fantastic one-bedroom new gut rahab, go to Europe a few times a year, go out drinking and eating each weekend.
If you don't have car debt, school debt or credit card debt it's AMAZING how much further you can get on much less income. So yes, you can very easily survive in your situation off $65K-$70K as long as you understand how to handle your money. The downtown condo market is healing itself quite a bit from the past 2 years. People talk about "countless empty buildings all over", but honstly in Chicago that's not really as huge a problem. Yes there is a large glut of condos, but it's come down a lot, and isn't that "insane" compared to many other places. If you can get a foreclosure or a really cheap price - I'd certainly do a little homework. I'm in the real estate business downtown (not realtor or residential, investment real estate), and from sniffing the trends, things here should be back to construction within 3 years or so. Prices might not gain a lot in the next 5 years or so, but many times you can get better quality per price by buying instead of renting with these rates, and at least you'll be knocking a little off with your principle payment for when you go to sell.
Last edited by Chicago60614; 04-07-2011 at 12:18 PM..
I'm young, single, no kids, done with college and have $0 debt. No car either.
I make $64K a year and can basically do anything I want. Own a fantastic one-bedroom new gut rahab, go to Europe a few times a year, go out drinking and eating each weekend.
If you don't have car debt, school debt or credit card debt it's AMAZING how much further you can get on much less income. So yes, you can very easily survive in your situation off $65K-$70K as long as you understand how to handle your money. The downtown condo market is healing itself quite a bit from the past 2 years. People talk about "countless empty buildings all over", but honstly in Chicago that's not really as huge a problem. Yes there is a large glut of condos, but it's come down a lot, and isn't that "insane" compared to many other places. If you can get a foreclosure or a really cheap price - I'd certainly do a little homework. I'm in the real estate business downtown (not realtor or residential, investment real estate), and from sniffing the trends, things here should be back to construction within 3 years or so. Prices might not gain a lot in the next 5 years or so, but many times you can get better quality per price by buying instead of renting with these rates, and at least you'll be knocking a little off with your principle payment for when you go to sell.
Awesome! Thanks for the reply! I appreciate it.
I'm definitely going to have to look around and see what I can find, since there are a lot of condos downtown. I would prefer living on a high rise (loft or one bedroom) and at the same time, make sure I'm budgeting right.
I'm single, have no kids, done with college and have 0 debt.
I was thinking about buying a luxury loft because renting is just a big waste of money...
Also, no car payment.
Quote:
Originally Posted by aragx6
Warning, wildly unsolicited advice coming:
I wouldn't buy a condo downtown right now. Too many questions in the market still.
The latest numbers indicate that distressed properties account for about 96% of all price declines now. Non-distressed properties are now holding steady.
That said, buying if you're not 100% certain you'll be in the same place for 10 years can be "throwing away" money every bit as much as renting (maybe moreso).
Renting:
Fixed monthly payment, may go up annually but easy to move and chance places to find better deals if it does. Say, $1,500/month=$18,000/yr. Over five years, that's $90,000 "thrown away."
Owning:
Fixed monthy payment if you get a fixed-rate mortage.
At 5% on a 30-year fixed-rate, for every $100,000 you borrow, in the first five years you will pay $24,038 in interest and only accrue $8,172 in equity. In other words, if you bought a $250,000 home and put down the $50,000 20% down payment, you'd borrow $200,000. In your first five years, you'd have paid $48,076 in interest and gained $16,344 in equity.
Property taxes that will increase over time. Downtown, on a $250,000 condo, you'd likely pay ~$3500/yr. You'd also have assessments. For a $250k place downtown, I don't think you'd get much below $300/month, and if it's a "luxury" one, you could end up paying $500/month. Conservatively, though, $3,600/yr. Then there's the opportunity cost of typing up your $50,000 down payment. Conservatively, you probably could get 5% annually from that with prudent investments.
So, in five years of ownership:
$48,076 interest + $18,000 assessments + $17,500 property taxes + $13,814 opportunity cost on $50,000 (5% compounded annually) = $97,390 "thrown away" being a homeowner. If you sell at that point, you also lose 5% of your sale price to broker fees, another $12,500. So we're up to $109,890 in costs that AREN'T going into equity. Now, offsetting that is the $8.172 in equity you have, so we're down to $101,718. IF the property appreciates (and that's a HUGE IF in the next five years) you'd had additional equity to subtract, but don't hold your breath. Finally to be totally fair, lets consider the tax advantages. You'd average $13,115/yr in interest plus property tax for deductions. That's $7415 over the standard deduction, so that's the benefit of home ownership from a tax standpoint. At a 30% recovery rate (marginal federal for your income bracket is 25% + 5% state), you'd save $2,225/yr in taxes, or about $11,123 over five years.
So, all together, your net cost to own a $250,000 home with 20% down and a 5% mortgage in downtown Chicago comes out to about $90,595. Virtually identical to paying rent for five years.
BUT, there's more.
You will have repair costs in your home. They could be minor, they could be a lot. You can get inspections and all, but it's a gamble. In a condo, there could also be special assessments. They're not at all unusual, even if they're not universal.
In my mind, the maintenance cost risk more or less washes out the possible increase in value. The most you'd likely see is about 3%/yr in appreciation. AT MOST. That would be $39,819 if compounded annually. Wait, that's $37,828 after broker fee. That sounds like a lot, but if you're like most people, being a homeowner will inspire you to do some remodeling. Maybe just a few updates. Maybe a lot. But you won't get all your investment back out, and it wouldn't take much remodelling to wipe out that $37,828. That also assumes your property tax doesn't rise dramatically. Mine has gone up 35% in the past three years.
In summary, as you can see from the numbers, in a market where home appreciation is anything but guaranteed, short-term ownership is not objectively better than renting.
Where ownership pays off is in strongly rising markets (this is not one), or in the long run. After 5 years, your payments start trending such that the payments are more equity, so you build equity faster. And over 10 years the chance of appreciation is greater, too. It can also pay off if you manage to buy a distressed property that doesn't come with surprises that wipe out your savings to fix. People make a lot of money buying distressed properties. Other people also lose a lot of money on them. It's a gamble.
Lots of good info and numbers above, you've definitely done your homework and I can't really argue with any of it. If it's close to a wash either way I say why not if you can afford the down payment. If not now then when? Maybe you stay 5 yrs, maybe you stay 10, maybe the market takes off and you upgrade to something bigger and nicer using the equity to keep similar payments.
Lots of good info and numbers above, you've definitely done your homework and I can't really argue with any of it. If it's close to a wash either way I say why not if you can afford the down payment. If not now then when? Maybe you stay 5 yrs, maybe you stay 10, maybe the market takes off and you upgrade to something bigger and nicer using the equity to keep similar payments.
That'd be a question for Lookout kid.
The OP might be a single guy seeking the downtown lifetsyle now, but what if in 5 years he's married and has a baby on the way? Living in a 1 BR loft won't seem so great then, and to get out, it's possible he might have to bring a check to the closing table.
I'm not even saying there's nowhere in Chicago I would buy right now, but I would have serious concerns about downtown just based on the large number of condos out there.
Owning vs. Renting is not a financial choice. It's a lifestyle choice. The fact that home ownership is viewed as a smart "investment" is perpetuated by a dangerous special interest group (NAR) and bad government policy (mortgage interest deduction, govt. subsidized mortgages via freddie and frannie).
I cringe every time I here someone say renting is throwing money away. There's the opportunity cost of that down payment for a home - money that could be invested in stocks, commodities, TIPS, whatever. There's everything that emathias listed above.
A condo or home is a very illiquid investment, and if circumstances change (family, job) you'll want that flexibility. Don't forget about the transaction costs (closing, stamp transfers, realtor commission).
There are many reasons to own a home or condo - I just wouldn't rank financial as one of them.
Owning vs. Renting is not a financial choice. It's a lifestyle choice. The fact that home ownership is viewed as a smart "investment" is perpetuated by a dangerous special interest group (NAR) and bad government policy (mortgage interest deduction, govt. subsidized mortgages via freddie and frannie).
I cringe every time I here someone say renting is throwing money away. There's the opportunity cost of that down payment for a home - money that could be invested in stocks, commodities, TIPS, whatever. There's everything that emathias listed above.
A condo or home is a very illiquid investment, and if circumstances change (family, job) you'll want that flexibility. Don't forget about the transaction costs (closing, stamp transfers, realtor commission).
There are many reasons to own a home or condo - I just wouldn't rank financial as one of them.
It's a financial choice if the roof over your head is viewed as an investment. I don't find it to be 'throwing money away' to pay for shelter and a place to sleep. Others don't see it this way and feel swindled. Personally, I like the freedom to come and go as I please (as you mentioned.) I'm going to be on my third neighborhood/apartment since I've moved to Chicago.
Also, I'm curious how so many people who aren't financially blessed are coming up with 20% down payments. I see that as a huge, huge hurdle to ownership.
...
Also, I'm curious how so many people who aren't financially blessed are coming up with 20% down payments. I see that as a huge, huge hurdle to ownership.
As another posters said, home ownership shouldn't be exclusively a financial question, but you have to be aware of the financial implications of the "lifestyle choice" you end up making. Both have positive and negative aspects, and some of those positives and negatives are decidedly financial in nature whether the decision is thought of as an investment or not.
Part of what caused the bubble was the relaxing of the traditional 20% downpayment. That inflated the cost of housing, which then makes it an even bigger hurdle.
One thing to keep in mind about buying a house with a mortgage and considering it an investment is that it is essentially a highly leveraged investment. With a 20% downpayment you have a 5:1 leverage. For comparison the normal limit for buying stocks on margin (another leveraged investment) is 2:1. Professional day-traders can go to 4:1, and then only for intraday trades. So a house, even bought with the "conservative" traditional downpayment is leverage greater than professional stock investors are allowed to use. When you get into HUD loans or mezzanine-financed loans (where you get a home equity line of credit for the down payment), your leverage can get to 20:1 or even higher. That's seriously high leverage, and at that degree of leverage even a small price move makes you a lot of money or wipes you out completely (as all too many people have discovered).
The OP might be a single guy seeking the downtown lifetsyle now, but what if in 5 years he's married and has a baby on the way? Living in a 1 BR loft won't seem so great then, and to get out, it's possible he might have to bring a check to the closing table.
I'm not even saying there's nowhere in Chicago I would buy right now, but I would have serious concerns about downtown just based on the large number of condos out there.
I don't plan on getting married any time soon (if ever). I'm well off by myself rather than with someone. I'm almost 25 and I've only had 2 relationships that lasted about a year each. I'm more of a single guy who likes to party on weekends and have no one to report to. That's just how I am.
I like doing my own thing and go out with friends without having to worry about a GF/wife or kids.
Quote:
Originally Posted by sthornt1
Owning vs. Renting is not a financial choice. It's a lifestyle choice. The fact that home ownership is viewed as a smart "investment" is perpetuated by a dangerous special interest group (NAR) and bad government policy (mortgage interest deduction, govt. subsidized mortgages via freddie and frannie).
I cringe every time I here someone say renting is throwing money away. There's the opportunity cost of that down payment for a home - money that could be invested in stocks, commodities, TIPS, whatever. There's everything that emathias listed above.
A condo or home is a very illiquid investment, and if circumstances change (family, job) you'll want that flexibility. Don't forget about the transaction costs (closing, stamp transfers, realtor commission).
There are many reasons to own a home or condo - I just wouldn't rank financial as one of them.
I'm going to move to Chicago to stay. I will most likely stay there for 10+ years (could be there forever, who knows).
Love it there and that's why I wanna move. If I have that lifestyle in mind, buying would definitely be a better deal in my opinion.
Quote:
Originally Posted by MannheimMadman
It's a financial choice if the roof over your head is viewed as an investment. I don't find it to be 'throwing money away' to pay for shelter and a place to sleep. Others don't see it this way and feel swindled. Personally, I like the freedom to come and go as I please (as you mentioned.) I'm going to be on my third neighborhood/apartment since I've moved to Chicago.
Also, I'm curious how so many people who aren't financially blessed are coming up with 20% down payments. I see that as a huge, huge hurdle to ownership.
I agree with you about renting and being flexible. But if you get something right in the heart of the city, I mean, you can get anywhere you want easily there.
I have about 20k saved up (but I have fairly well off parents/grandparents so money isn't really an issue for me).
How much do luxury lofts cost in Chicago? 150-250k? Could you find cheaper ones? I'm sure I could find something around the 100k area. I mean, it's a loft...
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