Sell or keep? (Chicago: real estate market, to rent, HOA)

[emathias]

I'm likely going to be locating in Miami for at least the next 2-4 years for work. My initial instinct is to keep the condo in River North where I've lived for the past 14 years - the new job would enable me to afford to keep it and pay rent in Miami. But with so much uncertainty in the Chicago real estate market, I'm reconsidering. I'd probably keep it until Amazon makes an announcement since, if Chicago did somehow end up with HQ2 I figure it would get a bump in value in the next few years. But once that's decided, what should I consider when deciding whether to sell or keep it? The main consideration so far is that I like this particular condo both in layout and in location and would love to have the option to return to it eventually. On the other hand, having capital tied up in it and carrying costs and carrying the risk of taxes and economy and just being a remote owner are all negatives. I could certainly make use of the capital and the savings in cash outlay although tax benefits do partially offset those costs, and if I bought in Miami there'd likely be a greater chance of price appreciation than in Chicago.

Any thoughts?

[fusillirob1983]

Originally Posted by emathias

I'm likely going to be locating in Miami for at least the next 2-4 years for work. My initial instinct is to keep the condo in River North where I've lived for the past 14 years - the new job would enable me to afford to keep it and pay rent in Miami. But with so much uncertainty in the Chicago real estate market, I'm reconsidering. I'd probably keep it until Amazon makes an announcement since, if Chicago did somehow end up with HQ2 I figure it would get a bump in value in the next few years. But once that's decided, what should I consider when deciding whether to sell or keep it? The main consideration so far is that I like this particular condo both in layout and in location and would love to have the option to return to it eventually. On the other hand, having capital tied up in it and carrying costs and carrying the risk of taxes and economy and just being a remote owner are all negatives. I could certainly make use of the capital and the savings in cash outlay although tax benefits do partially offset those costs, and if I bought in Miami there'd likely be a greater chance of price appreciation than in Chicago.

Any thoughts?

Are you able to rent it out while you're living in Miami?

[dtcbnd03]

If you can rent it out and at least break even factoring in PITI and HOA then keep it. Otherwise sell it. It makes no financial sense to own a property you don't live in and don't rent. Any "bump" in value will be more than offset in the interest, taxes, insurance, assessments and time decay of the property. Condos are so cookie cutter downtown and a dime a dozen so I bet by the time you move back there will be a brand new building nearby you can buy back into or you'll likely be able to buy back in your same building.

[ToriaT]

I'd say rent it out. You may not like Miami and want to return here. My husband worked in Florida for a while and he did not like it. The work ethic is not the same as here in Illinois and things are slow to get done. Its a different culture. If however you really like Miami and are going to stay it makes more sense to sell it.

[emathias]

Originally Posted by dtcbnd03

If you can rent it out and at least break even factoring in PITI and HOA then keep it. Otherwise sell it. It makes no financial sense to own a property you don't live in and don't rent. Any "bump" in value will be more than offset in the interest, taxes, insurance, assessments and time decay of the property. Condos are so cookie cutter downtown and a dime a dozen so I bet by the time you move back there will be a brand new building nearby you can buy back into or you'll likely be able to buy back in your same building.

This is not a cookie cutter downtown condo, it's a vintage unit in a vintage building - that's why I like it. It also means that "time decay" doesn't apply like it might to a new construction condo - it anything, as it becomes a smaller and smaller proportion of the available supply it probably appreciates faster than non-vintage condos.

Given I plan/hope to move back, there is also the legitimate financial consideration of transactions costs involved in selling and then, again, buying, if I do end up moving back in a few years. The minimum of that would be $5,000 (misc costs + transfer tax), and it's not inconceivable the actual cost would be 3-4 times that high. Just commission would be around $4,000 per percent commission paid. If I pay a 2% commission to the buyer's agent, and just a 1% commission to some place like Redfin, that's an additional $12,000+ the $5,000 in misc costs and transfer tax, and that's $17,000 without even adding in costs associated with staging and moving and/or storage of larger items I want to keep but may not want to move to Miami. Realistically $20,000 to sell is probably in the ballpark. Some of those costs you can say the buyer pays indirectly, but the reality is that they're built into the price, so when you buy and sell it becomes a real cost.
Then if I moved back and wanted to re-buy, not only would I have some of those costs again, but assuming I carried a mortgage, I'd be back at the beginning of a mortgage, meaning that those payments on a new place would be highly weighted toward interest instead of equity. At this point, a significant portion of my mortgage payment goes directly into equity instead of against interest.

So I guess the real financial question is how strongly I believe I'll move back to Chicago within a few years. If I will, then the carrying costs have a pretty strong counter-balance in transaction costs and mortgage interest considerations even if I don't rent it out. Not 100%, but some.

[emathias]

Originally Posted by ToriaT

I'd say rent it out. You may not like Miami and want to return here. My husband worked in Florida for a while and he did not like it. The work ethic is not the same as here in Illinois and things are slow to get done. Its a different culture. If however you really like Miami and are going to stay it makes more sense to sell it.

I'd been thinking I might actually get a roommate for the Chicago place. I wouldn't get as much income, but I'd have a place to stay when I visit, and might even be able to get a potential roommate to pay slightly more than they would for a normal roommate situation since I'd be gone 90%+ of the time.

I basically had a roommate like that for a while, and it was nice. I've also owned long enough that even just a roommate's payment would go a long way toward offsetting the cash carrying costs of ownership. If I got someone to pay me $1,000/month, it'd cover half the cash costs and close to all of the actual, long-term costs (accounting for the equity portion of my mortgage payment as a cash costs, but discounting it out of the long-term cost).

[chet everett]

I don't generally advocate folks keeping real estate and trying to play "remote landlord" but I believe that your situation, with a vintage type unit, and prior history of using AirBnB as well being away for previous periods associated with education and such put in the category of folks who've likely seen LOTS of potential bad situations and now are able to try to structure things for "minimal hassle".

I don't think folks outside the really technical areas of IT really understand how powerful Amazon is getting with their AWS offerings and you are likely over-estimating the impact that HQ2 will have (positive or negative...) for wherever it goes {personally doubt Chicago will get it...} so I wouldn't really put too much weight on that...

You are also probably worrying a bit too much about not just transactions costs, but over hassle of selling -- nice units in good locations can and often do sell while still a "pocket listing" /pre-MLS listing and if you have connections with an agent that is tied into potential buyers through their own marketing you could very likely sidestep all the hassle...

That said, if you have the means to consider your exiting home like a "vacation place" while you are working in Miami the decision to keep it for eventual relocation back to Chicago is a no-brainer -- you'd kick yourself if you can't find a similar place when you move back!!

[dtcbnd03]

Originally Posted by emathias

Then if I moved back and wanted to re-buy, not only would I have some of those costs again, but assuming I carried a mortgage, I'd be back at the beginning of a mortgage, meaning that those payments on a new place would be highly weighted toward interest instead of equity. At this point, a significant portion of my mortgage payment goes directly into equity instead of against interest.

Sounds like renting is the answer until you 100% know if you'll move back. You have an emotional attachment and don't want to lose the unit/building. If you leave it unrented you will absolutely lose money financially. Second homes are a luxury...never an investment. In fact primary homes are an expense too and rarely an investment without the help of leverage. Which leads me to my next point.

If you keep your condo now you should 100% cash out refinance it for a 30 year fixed. It will allow you to do it as a primary homeowner leaving a smaller down payment and lock in interest rates while they're still historically low (rates are set to skyrocket). Paying off your home will give you "peace of mind" but does not help at all financially. While your money sits at the bank it could be invested elsewhere earning more than your interest rate or at the very least offsetting it. Plus leverage is the only way real estate comes close to making stock market returns. Remember, over time real estate goes up by as much as inflation (i.e. wages) which is about 1-2% so with 4-5x leverage you see a 4-10% return on your money.

I honestly wish I could figure out a way to find people who want to pay off their mortgage. I'd just have them pay me and then I'd refinance their home and promise to make the monthly payments and then use that money to invest elsewhere...

[OyCrumbler]

Do you also have close enough friends or family in the city that would check-in for you every once in a while if you rent it out?

[jdiddy]

I was hoping to vote for emathias in the next mayoral election. Damn.