Streeterville: Buying versus Renting, Advice Please (condo, home, costs)

[emathias]

Originally Posted by northwestern234

...
Obviously all of the realtors are encouraging me to buy, but are they wrong? I was set on buying, but with the abovementioned comments...I am growing more reluctant. Is it better to borrow some money my parents were going to give me for a down payment and use that to subsidize my rent versus buying?

If I had $200k now I would invest it all into stocks/mutual funds...now is the time to buy. Although stock market and real estate are two completely different entities, where is my logic wrong?

Lowest interest rates historically, buyers market= investment potential? Emathius, your points are all valid and reason I am seriously just considering renting. Any advice with renting in streeterville?

I think it's very unlikely that you'd see a 50% jump in prices in even 7 years. Why? Four reasons, three general, one specific to downtown Chicago:

1) People aren't going to forget this housing crash for quite some time. That will reduce demand in the future for, in my opinion, at least a decade and maybe more. A smaller percentage of owners versus renters means less demand.

2) Interest rates have nowhere to go but up. Inflation has nowhere to go buy up. Rising interest rates depresses prices for obvious reasons. Rising inflation depresses housing prices (or, more exactly, restricts them) because the value of people's savings - the source of their down payment - dwindles because people have to spend it to cover cost of living increases, or even if they don't, it tends not to grow in value as quickly as inflation meaning they can afford only so much house. In the long term, yes, inflation pulls up home values along with everything else. But in the short term, inflation steals money out of the savings that people normally use as down payments on housing, reducing their housing buying power.

3) Accumulated seller pool. There are a lot of people who don't *need* to sell, but *want* to sell. They won't sell at a loss, just on principle, but they want a new or just a different house. They want to retire to Florida. They want a bigger place, etc, etc. They don't have to move, but they want to. And once prices stabilize and creep up, more and more discretionary sellers will come on the market. If prices dip even slightly, they'll jump back out, but their presence virtually guarantees that there won't be any huge upward trends until they've mostly been able to sell.

4) Downtown Chicago still has relatively a lot of buildable space, not to mention a number of condo-quality buildings that were built to be condos but have been switched to rental. While starting a whole new building from scratch would take 2-3 years at a minimum, those condo-quality rentals could be converted within 18 months, easily matching demand. And if condo prices do stabilize and demand does pick up, more condos will be built, preventing any sort of skyrocketing prices. Some clever soul may show you charts of the price jump in the Near North in the late 1990s-early 2000s. What they won't tell you is that those prices in the area jumped then because the Near North had below-average regional pricing. Right now, Near North (including Streeterville) pricing is among the 2-3 most expensive neighborhoods in the city. It also didn't get hit as hard as the city at large during the recession. So prices will start to rise when the economy improves, but the Near North will not see big jumps in prices unless there is some sort of fundamental economic shift in Chicago - the only real driver of which would be ten-plus thousand new professional-class jobs suddenly being added to the Loop workforce. Another downtown caveat is that Chicago's downtown homeownership rate, pre-crash, was among the highest of any major city. That means it would be unsurprising for rentals to continue to be more popular than condos just because downtown areas tend to attract more nomadic people who are less likely to buy solely because of personal circumstances and Chicago's ratio needs to rebalance.

5) Bonus point, many homeowners who bought at the height of the market bought with weird loans or under circumstances that would not allow them to buy in the current marketplace. So even as discretionary sellers sell, a higher-than-average portion of them will probably be unable to convert to homeowners in a new property, further reducing demand (a house on the market, but not a new buyer on the market).

Counterpoints:

1) Accumulated buyers. There are some people (like you) who want to buy but are waiting for a sign that the market is primed for a growth spurt. In a normal recession, or a local home price dip, you can gauge this number by comparing the pre-dip and dip home ownership rates. But because so many people have been scared off for the long term, that can't be assumed to be a reliable way to estimate this demand number.

2) Really high inflation is unlikely, and enough growth to cause interest rates to spike is also probably a ways off still.

3) There seems to be truth to the lifestyle choice of returning to urbanity in the U.S. and Chicago in particular. That will continue to drive string demand in the central area that *might* even be strong enough and pent-up enough to overcome the large direct and indirect supply of condos in downtown.


I don't have much rental advice. In general, for people early in their career - even a career than in a few years may be quite lucrative - my advice is always the same: live within your means. If you do that, you'll never have to worry about losing your shirt to a bum investment.

[sfcambridge]

You are now presenting a different scenario. You are stating you will live there for 7 years, and that you have parents to give you a downpayment and help (?bail you out) if needed.

Only you know your true timeline. You just need to be honest with yourself.

Your numbers are also off. Don't forget the $500-800 per month condo fee. And your taxes are likely a bit higher too. That's downtown high rise living.

I do understand the impulse. I really do, and have it myself. i agree that short sales and foreclosures may be the best bet for you considering your timeline. But that is the assuming you have the time to mess around with all of this.

[Chitownguy27]

I live at Lakeshore Plaza in Streeterville and like it a lot so far. I pay only $1375/month for a large 750 sq. foot 1 bedroom, with 2 huge walk-in closets. There's a free fitness center, and outdoor pool and jacuzzi free for residents. It's at 445 East Ohio (www.lakeshoreplaza.com). It doesn't have stainless appliances, granite counters, and isn't brand new for the Streeter, but it's a nice building for the price.

[valpoguy]

Originally Posted by northwestern234

If I had $200k now I would invest it all into stocks/mutual funds...now is the time to buy. Although stock market and real estate are two completely different entities, where is my logic wrong?

Your logic is wrong in a few ways ways.

1) Stocks are much easier to sell than condos when you want or need your money out of them.

2) Stocks cost very little to maintain. The fees you pay your financial planner are much lower than the fees you pay the condo association, repair people, and the property tax collector. That means your $200K condo needs a much greater increase in value for you to break even than your $200K mutual fund does.

And the biggest problem with the comparison:

3) You would presumably invest $200K in a mutual fund now with the hope that it has earned a decent profit in 25-50 years when you retire. That's a far safer bet than hoping for a decent profit in 3-6 years.

[ChicagoTicketWriter]

I would rent on general principal regardless of income for several reasons.

1. The point about all the fees that you need to attempt to recoup when selling are a good one. With the real estate market being Buyer friendly and not Seller Friendly....If you decided to move out of the City you'd either lose between 30 and 40% of what you initially spent unless you got really lucky with a market turnaround.

2.Property Taxes are at an All Time High, and are going to increase againt next year. A rental protects you (to an extent) from Property Tax increases as they are usually spread out between all the tenants in the monthly rent.

3. You are not responsible for any repairs of things that come with the apartment. No Condo/Home Owner Association Fees or anything like that. But as a home owner, the buck stops with you. Lawn Care, light bulbs, water bill, energy bill, oil/gas bill, potential outlay for ALL appliances plus the Repair costs when/if something breaks.

I've lived in Lincoln Park since 2001. I've paid between 1050 a month and 700 a month for apartments. I wouldn't live anywhere else.

[ChicagoTicketWriter]

Streeterville is over priced though.

You can take 445 East Ohio at 1345 a month for a 1 bedroom and go to Lincoln Park and get a 1 bedroom at 1850 n Sedgwick for 850 a month.

[Jandur]

For what it's worth I find Streeterville incredibly over-priced. Not from a market standpoint, but simply from what you get out of the location. Obviously being near Northwestern is huge for you though. But beyond that it's a pretty sterile neighborhood and isn't exactly convenient for day to day life in my opinion.

[VinceB3]

Assuming that you qualify for the loans, etc, I would still rent. The monthly payments for rent may seem like they are higher, but when buying a place you also need to keep in mind there will be monthly condo fees, maintenance fees, etc. Normal condo fees would add hundreds of dollars to the monthly amounts you would pay when owning a place. Throw in property taxes, insurance, unit maintenance and repairs, and the occasional special assessment levied by condo boards, and renting starts to look a whole lot more attractive.

Here are some tips for finding apartments in Chicago... They rarely have negotiating room and often have incentives for those willing to sign right away. Some complexes do offer discount rates if you're willing to sign longer than a year. The privately owned units usually have more room for negotiation but its likely there are a lot of others interested in the same unit. Make sure you have your references, credit score, etc ready.

Don't work with any professionals requiring that you pay a commission, generally a landlord offers the commission to the agent helping you find your apartment.

[linicx]

1. I would not buy a condo unless I wanted a permanent home without the upkeep a house requires.
2. A 3/2 house has been the best selling property in America for the last 60 years.
3. Unless Streeterville suddenly becomes a ghetto it will always be a very desirable location.
4. As the economy continues to change and improve those who moved to the suburbs for X reasons, are slowly returning to Chicago for its conveniences such as walkability and shopping.

[Vlajos]

Originally Posted by linicx

1. I would not buy a condo unless I wanted a permanent home without the upkeep a house requires.
2. A 3/2 house has been the best selling property in America for the last 60 years.
3. Unless Streeterville suddenly becomes a ghetto it will always be a very desirable location.
4. As the economy continues to change and improve those who moved to the suburbs for X reasons, are slowly returning to Chicago for its conveniences such as walkability and shopping.

This is all very reasonable.