Buying vs Renting in Streeterville or West Loop? (Chicago, Fulton: real estate market, apartments)

[Elliot413]

I know this issue of buying vs. renting in Streeterville (and essentially Chicago) has been discussed on this forum, but given the state of the market right now, particularly in my area of interest (Streeterville) I wanted to get some feedback.

I am 26 years old and have held a steady and healthy paying job for 4 years in Streeterville, and I've been currently renting for very cheap in the West Loop with roommates the past 2 years and I feel like it's time to upgrade my living situation. I consistently work late, and while I don't mind the 30 minute walk to and from work, it does feel like I'd benefit from living in the area because I feel like I "live" at work sometimes.

I've saved up for a downpayment and could easily qualify for a $160k mortgage, making my buying power 200k. This allows me to either live in a shoebox-- (er..I mean studio!) condo in Streeterville and enjoy a 3 minute walk to work, or get a larger 1 bedroom west of River North, with proximity to the 65 grand bus for commute (probably 30-40 minutes)

Right now, I'm mainly interested in the studios at 512 N McClurg Ct in River East- the assessments are very reasonable along with the building amenities, and the studios are considerably larger than other ones I've lived in before.

My plan would be to live in this studio for 3 years, while saving up more money and then maybe move in or buy something with my girlfriend, and keep the studio as a rental/investment and something that my future children could use during college/after college.

With all this talk of a "rental bubble" in Chicago, and thousands of new apartments about to inundate the Streeterville/Near North area, is it a bad time to buy there, especially a studio? The thought of being a landlord does not intimidate me, as I've researched the pros and cons of it extensively, but the state of the rental market has me concerned. I feel that I may be better off living in a more comfortable space farther west, something that I could stay in longer than 3 years. I love the West Town/Fulton Market area but I'm not sure if the location is as a good investment as Streeterville/River East. I'm not opposed to renting in Streeterville either, it would certainly be easier and allow me to keep my savings, but lets face it, rents are exorbitant there!

So as you can see, I have a lot of conflicting thoughts about each route, and I have to weigh the quality of life (or sacrifices of such) that comes with living closer or farther away to work and how these investment decisions now can affect my future in such a weird real estate market.

Any thoughts/feedback you have about any part of my buy&hold plan in Streeterville or West Loop/Fulton Market would be *greatly* appreciated. Thank you in advance!

[Jandur]

Personally, I don't know how great of an investment West Loop/River West is these days. It's developed a lot in terms of housing, but the amenities haven't followed in a way I would like to see. It's not a traditional residential neighborhood depending on where you live exactly. The warehouse aspect of it isn't exactly walkable. I think there are still some questions marks with the area anyway.

On the other hand Streeterville is a very established and in-demand area. There is a consistent demand for studio rentals from Northwestern students and some employees. It might sounds crazy given the price, but the area is filled with them. Your money wont go as far but it's a very stable area.

My gut would say Streeterville, but I'm sure other people will have some interesting insights.

[chet everett]

I often recommend that folks take a hard look at the VERY detailed rent vs buy calculator that is hosted by the NYT: Is It Better to Buy or Rent? - Interactive Graphic - NYTimes.com -- be sure to go into the advanced settings to tweak stuff like HOA fees, interest rates and maintainance. Anyone that assumes an apartment is some kind of "cost free annuity" is in need of some MAJOR education...

My gut says it would take about 9 years for a low rent type studio to be more cost effective to own vs rent assuing rent of about $1100 vs purchase of $200K....

[hindukid]

Originally Posted by chet everett

I often recommend that folks take a hard look at the VERY detailed rent vs buy calculator that is hosted by the NYT: Is It Better to Buy or Rent? - Interactive Graphic - NYTimes.com -- be sure to go into the advanced settings to tweak stuff like HOA fees, interest rates and maintainance. Anyone that assumes an apartment is some kind of "cost free annuity" is in need of some MAJOR education...

My gut says it would take about 9 years for a low rent type studio to be more cost effective to own vs rent assuing rent of about $1100 vs purchase of $200K....

My gut says that a 200K place is currently renting for $1700. Just bought in January a duplex down for 299K. Previous owner claims that they had an offer of $2500 rent they turned down to sell to me. Talked to my upstairs neighbor in the top unit which has no garden level and is half the size of my place. He is renting and told me he pays $1800 and he thought that is a steal compared to what he was seeing elsewhere. That unit would sell for maybe 230K. It is missing the entire garden level that I have which has an additional 2 bedrooms and 1 bath plus I have a garage spot. If I paid 299K, I can't see that being more than 230K and I think that's a stretch.

I also know that our 299K place is very similar to our previous place which we rented which is 2 blocks away. We signed our old place at $2400 in 2009 and I would bet they can get $2800-$3000 now. My current PITI payment is $1800 and I am building about $500 in equity per month.

Right now is a great time to buy IMO because rents have gone so far up and prices have kept coming down and interest rates too. My feeling is that places are currently getting one months rent in the range of 0.8 to 1.0 percent of the purchase price.

[Jandur]

Originally Posted by hindukid

My gut says that a 200K place is currently renting for $1700. Just bought in January a duplex down for 299K. Previous owner claims that they had an offer of $2500 rent they turned down to sell to me. Talked to my upstairs neighbor in the top unit which has no garden level and is half the size of my place. He is renting and told me he pays $1800 and he thought that is a steal compared to what he was seeing elsewhere. That unit would sell for maybe 230K. It is missing the entire garden level that I have which has an additional 2 bedrooms and 1 bath plus I have a garage spot. If I paid 299K, I can't see that being more than 230K and I think that's a stretch.

I also know that our 299K place is very similar to our previous place which we rented which is 2 blocks away. We signed our old place at $2400 in 2009 and I would bet they can get $2800-$3000 now. My current PITI payment is $1800 and I am building about $500 in equity per month.

Right now is a great time to buy IMO because rents have gone so far up and prices have kept coming down and interest rates too. My feeling is that places are currently getting one months rent in the range of 0.8 to 1.0 percent of the purchase price.

The purchase price of the unit isn't exactly relevant to it's rental price. Sure there is some correlation but it's not an exact science. Studios in streeterville generally go for $1200-$1500.

[Elliot413]

Thanks for your response everyone!

Jandur: I agree with you about Streeterville being a more stable investment than River West/West Loop - I love the area and the urban grit that comes with it, but I think life would be so much more convenient for me in Streeterville. I do worry though about the influx of new apartment buildings being constructed in Streeterville and how that will affect the market - over 7000 new units flooding the market I think is what I heard..could be wrong about that figure though.

Chet & Hindukid - I know for a fact that the quality of studio I'd be interested in purchasing would rent for at least $1350/month. Assuming a purchase price $185k (after analyzing comps), using that NYT Rent vs Buy calculator with conservative settings (1% home appreciation, 2% rent increase per year) and tweaking the advanced settings with numbers on the high-end, at year 5 it becomes more cost effective to own.

Hindukid- I think it all depends on the area - not sure where you bought but in Streeterville there are a ton of studio apartments, and even though the demand is there, there's a lot of competition.

[long101]

I cant see you coming out ahead if you only plan on staying put for 3 years. Youll spend 10k on closing costs, 10k on selling the place, + any maintenance during the 3 years.

[hindukid]

Originally Posted by Elliot413

Thanks for your response everyone!


Chet & Hindukid - I know for a fact that the quality of studio I'd be interested in purchasing would rent for at least $1350/month. Assuming a purchase price $185k (after analyzing comps), using that NYT Rent vs Buy calculator with conservative settings (1% home appreciation, 2% rent increase per year) and tweaking the advanced settings with numbers on the high-end, at year 5 it becomes more cost effective to own.

Hindukid- I think it all depends on the area - not sure where you bought but in Streeterville there are a ton of studio apartments, and even though the demand is there, there's a lot of competition.

I bought in East Uk. Village. I'd agree that 5 years is probably break even. Though most of that comes from transactional cost of selling which I think can be significantly reduced if you know what you are doing. I'd have expected a 185K place to rent for more than $1350, more like $1600 but I suppose thats not too much difference.

Also I guess I probably believe the ratios get better as number of bedrooms goes up. A third BR doesn't add that much to purchase price but often adds a lot to rental price.

[Elliot413]

Originally Posted by long101

I cant see you coming out ahead if you only plan on staying put for 3 years. Youll spend 10k on closing costs, 10k on selling the place, + any maintenance during the 3 years.

I completely agree - it would be financially stupid to sell it after 3 years. If you read the 5th paragraph of my (long winded) first post, I said that I would buy it as a primary residence for the first 3 years, then rent it out as an investment for long term should I decide to move on, or move in with my girlfriend in a bigger place - I don't see having kids in the near future either. So this purchase would be more of a longer term investment. I'm fully aware of the potential setbacks and costs when it comes to being a landlord. However, this market has created a unique opportunity to buy property (especially condos in a great area like Streeterville) for reasonable prices that, when calculated out, meet or beat rental parity, and hopefully *should* further beat rental parity in the long run as rents hopefully increase.