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Old 03-30-2012, 01:49 AM
 
2 posts, read 3,752 times
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I will be a resident at Northwestern. I am currently looking at condo's and i think it makes sense to buy right now versus rent.

Seems people have been saying the Chicago market has been at the lowest point now since 2008.

Decent 1 bedroom condos for rent in streeterville are $1500-$1800.

Much better 1 bedroom condo for purchase $250k, mortgage with tax/HOA fees are $1650.

I will be in chicago for 3 years, and potentially 6. Even if I am in chicago for only 3 years, I could rent my condo (mortgage + HOA fees) and just pay the taxes.

I see this as an investment worth making since the market is at a really low point, interest rates are historically low, rent prices have skyrocketed. It is just a huge risk to take being a resident with some loans from medical school to also worry about. Any advice?
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Old 03-30-2012, 10:20 AM
 
Location: River North, Chicago, Illinois
4,620 posts, read 7,434,150 times
Reputation: 6311
It's a highly leveraged risk, with also a high transaction cost. That means the price has to move up at least about 6% (realtor fees, taxes) in order to even break even. That's 6% of the whole price, so if you ended up selling for what you paid, you're out 6% of the purchase price. Even if you put 20% down, if it fails to appreciate (which is a possibility), then you've just lost 30% of your down payment, i.e. your "investment." If, for whatever reason, when you want to sell you're unable to sell for what you paid, then you start taking even bigger haircuts pretty fast. Even if it appreciates 5% by the time you want to sell it, you've still lost 5% of your investment. Of course if it appreciates more than 6%, you'd possibly make money.

Let's say, for the sake of argument, that you needed to sell in five years. Lets say that this year the market falls another 2%, but the following four years it grows at 1%, 2%, 3%, then 4% per year. So now your property is worth $273k. Now subtract your 6% transaction cost and you and your bank receive just over $256k. So in five years, you would have netting $6,000. If you'd put down 20%, that amounts to about a 2% annual return - not very good considering the risks you're exposing yourself to.

Risks:
1) Special assessments. The month after I moved into my condo, we had a $1,500 special assessment. We haven't had one since, but if that happened to you, there goes 1/4 of your hypothetical profit. And don't assume that a new building will be immune to this risk - new buildings have as much - sometimes more - risk of special assessments as compared to older buildings.
2) Repairs. As an owner, you have to repair things that break in your unit. Need a plumber? You pay that. Dishwasher breaks? You pay that. Washing machine overflows and floods your neighbor? Your homeowners insurance just went up.
3) Taxes. You know the taxes now, you don't know what they'll be in the future. I've lived in my place 7 years. My value hasn't increased. I pay $1,200/year more in taxes than I did when I moved in (despite appeals).
4) You hate your neighbors. Sure, you can move out, rent it out for a few years, but you still have all the financial risks and you're also paying rent that will probably increase every year.

These are all real, very possible, even probable (in the case of repairs and tax increases) risks. I don't know of anyone predicting a rapid increase in home prices anytime soon. You'd probably avoid a sudden drop in prices, but as I outlined above, you will still be exposed to plenty of other risks, with a pretty low probability of any significant price appreciation.

If you still decide to jump into the market, in your situation I wouldn't consider anything other than a short sale or other distressed sale, because that's about the only way you can protect yourself against an under-performing market and mitigate some of the other financial risk.
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Old 03-30-2012, 10:33 AM
 
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I would rent if you may only be here 3 years.
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Old 03-30-2012, 10:39 AM
 
Location: Tower Grove East, St. Louis, MO
12,063 posts, read 29,792,671 times
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If you do buy a condo with the thought that you can rent it out if need be, make sure the condo association allows that. Many have rules against renting.
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Old 03-30-2012, 11:26 AM
 
183 posts, read 312,192 times
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If you're in another city renting it out in 3 years, consider the hassle factor of being a landlord. Maintenance and repair issues, neighbors possibly complaining about your tenant. Sounds like you'll have a busy career. Are you going to want to fly in just to deal with issues? Being a responsible, not absentee, landlord is work.
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Old 03-30-2012, 12:25 PM
 
2,692 posts, read 3,941,685 times
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Risky.

You haven't even started Residency... what if you don't like the program very much and want to apply for Fellowship elsewhere? Or what if you don't get in to their fellowship program? The stress of trying to deal with your condo at the end of Residency while simultaneously trying to move with the very small amount of free time/vacation you have during Residency is asking for trouble.

And there is still belief that the market hasn't bottomed out yet, so values could still be dropping over the next couple years. You could lose a significant amount. And being an out of state.... or even in state.... landlord is not an insignificant hassle. Especially with a busy life in Medicine.

Give yourself a year to get settled, get in a routine, see if you even like it here and what your chances are of staying, and where you want to live. Streeterville is convenient... but not the greatest place to live.

If you have loans from med school as well, there is absolutely no way I would buy now with an unclear future.

And you can find cheaper apartments. Look at some of the people trying to rent their condos because they can't sell them (the situation you could be in ... in 3 years....). I rented a good one for $1250, a few blocks North of Northwestern (nicer place to live... quiet... right on the lake...). Scour Craig's list every day, and closer to June... walk up and down the streets in that neighborhood and chat with the doormen and management offices of some of the buildings. Dress nicely... ask if any condos are being rented to people like you - a responsible doctor working at Northwestern who works long hours and is quiet. You'll find something.

Or if you want to save even more money, move to Ukranian Village and take the bus or drive to work.
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Old 03-30-2012, 01:28 PM
 
Location: Not where you ever lived
11,543 posts, read 28,309,472 times
Reputation: 6379
Streeterville is a highly desirable, wealthy, family community. A one bedroom condo is targeted for a specific group that is generally single or a couple with no children. It does not have the same quick sale or family appeal, as does the 3 bedroom 2 bath SFH. The 3/2 is a better investment with lower risk. The downside is the larger real estate tax. The upside is you can rent two rooms to your fellow students.
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Old 03-30-2012, 02:03 PM
 
1,303 posts, read 1,757,705 times
Reputation: 996
Quote:
Originally Posted by emathias View Post
It's a highly leveraged risk, with also a high transaction cost. That means the price has to move up at least about 6% (realtor fees, taxes) in order to even break even. That's 6% of the whole price, so if you ended up selling for what you paid, you're out 6% of the purchase price. Even if you put 20% down, if it fails to appreciate (which is a possibility), then you've just lost 30% of your down payment, i.e. your "investment." If, for whatever reason, when you want to sell you're unable to sell for what you paid, then you start taking even bigger haircuts pretty fast. Even if it appreciates 5% by the time you want to sell it, you've still lost 5% of your investment. Of course if it appreciates more than 6%, you'd possibly make money.

Let's say, for the sake of argument, that you needed to sell in five years. Lets say that this year the market falls another 2%, but the following four years it grows at 1%, 2%, 3%, then 4% per year. So now your property is worth $273k. Now subtract your 6% transaction cost and you and your bank receive just over $256k. So in five years, you would have netting $6,000. If you'd put down 20%, that amounts to about a 2% annual return - not very good considering the risks you're exposing yourself to.

Risks:
1) Special assessments. The month after I moved into my condo, we had a $1,500 special assessment. We haven't had one since, but if that happened to you, there goes 1/4 of your hypothetical profit. And don't assume that a new building will be immune to this risk - new buildings have as much - sometimes more - risk of special assessments as compared to older buildings.
2) Repairs. As an owner, you have to repair things that break in your unit. Need a plumber? You pay that. Dishwasher breaks? You pay that. Washing machine overflows and floods your neighbor? Your homeowners insurance just went up.
3) Taxes. You know the taxes now, you don't know what they'll be in the future. I've lived in my place 7 years. My value hasn't increased. I pay $1,200/year more in taxes than I did when I moved in (despite appeals).
4) You hate your neighbors. Sure, you can move out, rent it out for a few years, but you still have all the financial risks and you're also paying rent that will probably increase every year.

These are all real, very possible, even probable (in the case of repairs and tax increases) risks. I don't know of anyone predicting a rapid increase in home prices anytime soon. You'd probably avoid a sudden drop in prices, but as I outlined above, you will still be exposed to plenty of other risks, with a pretty low probability of any significant price appreciation.

If you still decide to jump into the market, in your situation I wouldn't consider anything other than a short sale or other distressed sale, because that's about the only way you can protect yourself against an under-performing market and mitigate some of the other financial risk.
Having dipped my toe in the Chicago Real-Estate market myself, this is excellent advise and I second it.
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Old 03-30-2012, 02:18 PM
 
2,692 posts, read 3,941,685 times
Reputation: 7182
Quote:
Originally Posted by linicx View Post
Streeterville is a highly desirable, wealthy, family community. A one bedroom condo is targeted for a specific group that is generally single or a couple with no children. It does not have the same quick sale or family appeal, as does the 3 bedroom 2 bath SFH. The 3/2 is a better investment with lower risk. The downside is the larger real estate tax. The upside is you can rent two rooms to your fellow students.

Again, so so so so risky. For a possible timeline of 3 years.

And the life of a medical resident can be SO awful, the last thing you want to worry about is when your tenant calls you when you are on call at the hospital and says there's a problem with the heat that needs to get fixed...

And this person who has loans from med school could easily have $150k in loans already. Asking for trouble...
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Old 03-30-2012, 04:11 PM
 
2 posts, read 3,752 times
Reputation: 11
thank you everyone for the advice!
For a nice apartment it seem prices on craigslist/realtor: $1600-$2000 (Streeterville area)

$200,000 loan X 4% interest= $8,000/yr
Property Taxes= ~$3,000

So if I purchase a condo, it would have to appreciate $11,000 for me to break even. Since the market has tanked, these rentals once sold for $350-400k? If I purchase for $230k hold onto it for 7 years and potentially sell at $350k...that is a $120k-77k (taxes/interest)= $43,000 profit.

This is probably best case scenario. 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?
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