22 Year Old Moving to Chicago -- Rent or Buy? (Washington: fit in, apartment)

[SoonToBeChicagoan]

Hello all,

So I just graduated from my university this semester (undergrad) and am moving to Chicago for my first job. I am looking for a 1 bedroom - 1 bath apartment/condo (no studios). I've talked to my parents and some of their friends, and the general concensus seems to be that now is the perfect time to put my income to use and go ahead and invest my own apartment. I plan on staying in Chicago for the long term, and have done lots of research on established areas, as well as up-and-coming areas of Chicago.

I am really looking to buy a place that is very close to the El and in an area which would not be difficult to rent out to someone else in the future. I will be working downtown, earning $56,000/year, and would ideally like to find a place that is in the range of $200k-$230k. I have spent 3 months in Chicago last summer, so I have a general idea of the different neighborhoods.

I haven't talked to any banks yet, but I am also looking for an interest only loan, so that I can get the benefits of tax deductions.

My questions for you all are -- do you think it would be a good idea for a 22 year old to start right out by buying my own place? Or would it be smarter to sign my income away to a landlord? Also, what are the best areas to look into, given my job location (the Loop), salary, and current property value trends in the Chicago area.

Thanks in advance.

[Drover]

Since you plan on being here long-term, I don't see any drawbacks to buying. The rule of thumb is that the mortgaged portion of the purchase price should be no more than three times your annual gross salary. That gives you $165,000 to work with. Just don't forget to budget enough money for the monthly condo assessment fee. That price range is mostly going to confine you either to areas of the city that aren't exactly desireable, or to larger buildings (100+ units) in upper lakeshore neighborhoods like Uptown, Edgewater and Rogers Park. You may be able to find a unit in your price range in a smaller building in Rogers Park. Transportation to downtown from those areas is pretty convenient (though a bit slow-going due to maintenance issues and construction) using the CTA Red Line train, or perhaps the Purple Line Express train if you live far enough north in Rogers Park.

Another thing to consider is that your purchase price may not include a parking space -- those are often deeded separately and can cost up to $30,000. And street parking is going to be very difficult in those areas so you'll want off-street parking. It may not be so bad if you can find a unit in a smaller building in a "neighborhood" part of Rogers Park. Absent that, if you plan to own a car, make sure to figure out if parking is included in your purchase price, and if not, how much extra it will be.

Finally, I'm not sure if an interest-only mortgage is such a swell idea. Particularly in your price range, I don't know that it's really going to save you all that much money. Since your payments are going almost entirely toward interest for the first several years, I don't know that there's much of a tax advantage to it either versus a traditional loan. Plus it's not that much different in principle (pardon the pun) than signing your income away to a landlord; you're just signing it away to a bank instead.

[BRU67]

I'll play devil's advocate and say you should wait. You're new to Chicago and don't have a feel of the City or where you want to live. You'll be guessing. The condo market is glutted right now and while that offers some buyer's advantages, I have serious doubts about the upside to a condo purchase, at least for the next 5-10 years. I don't see the market adding the equity you'll need to make a 3-5 year condo starter home worthwhile. And the problem with renting a condo is that you don't know what the market is going to be like. You can bet that many of those excess condos are going to find their way to the rental market, which will do God knows what to rental rates.

Interest only offers no tax advantage whatsoever over a standard mortgage. The interest and property taxes you pay are tax deductable -- and you pay those on interest only and regular mortgages. Interest only loans are generally not recommended unless the market is on fire and you're planning to flip for a 100% profit in a year. In 2001 that was an excellent idea. Today, no.

I'd personally rent for a couple of years and save money. I'd also try to rent in two different parts of the City so you get more of a flavor of what the Chicago is like. I think you'll be happier that way.

[cw68]

I would also say to rent for a while, but perhaps not as long as two years. Rent for a year and check things out first. There's a few reasons for this.

One is to try renting in one of the neighborhoods in which you could afford to buy to make sure you like it. If you find that everything you usually need is walkable, you may not need a car, so a parking space may not be necessary and you may not need to plunk down the money associated with a dedicated parking spot. You also may find that you just don't like living there and you can move.

Also try to rent something that you could afford yourself. Live in it a while and see if it really fits. Since you've never owned before, you'll find yourself concerned with things you never are when renting. Rent from an owner's view. Is there enough closet space? Storage space? What things wil you find that you want different in a place that you will be in for years?

Interest only-loans are very tricky and only valuable for a few people. I wouldn't say a 22-year is a good candidate for one since so many things may change in the future. You may find that your career brings you to a different city a few years down the line and renting long-distance is difficult. You want to avoid being upside-down on your loan.

[Fuse_5a]

guys, this is out-topic question !! sorry

does the buses or the metro system is 24/24 ??
thanks

[Drover]

Some bus lines run 24/7. Only the Red and Blue line trains run 24/7 but the others run probably 20 out of 24 hours a day, albeit infrequently at the extreme ends of their schedules.

Here (http://www.transitchicago.com/maps/systemmaps.html - broken link) is where you'll find the system maps so you can figure out which bus runs where, and here (http://www.transitchicago.com/maps/bus/bus.html - broken link) is where you can find their respective schedules. The ones that have the "OWL" designation at the end are the ones that run 24 hours.

[andrew61]

Also, make sure you study the bus schedules closely... particularly the start and end destinations. Some of the "OWL" (24/7) buses don't travel the full route late at night.

[jman07]

Get the condo now. Prices will go up a lot each year. Especially if we get the olympics. Start building equity early.

Thats a good salary. What will you be doing?

[BRU67]

Originally Posted by jman07

Get the condo now. Prices will go up a lot each year. Especially if we get the olympics. Start building equity early.

Thats a good salary. What will you be doing?

That's no guarantee. They could go up, but you never know. Condo prices in the south loop have not gone up much over the past 5 years due to all the building and conversion. The smaller they are, the slower the appreciation. He's not going to get a big unit for $165k. The Olympics will likely put an upward pressure on prices near the Loop and south of it but: a) we still have to get it over some pretty formidable international competition; and, b) the true impact, perhaps saving some land speculation near Washington Park, won't be felt until 2017 or so. This poor guy will be in his mid-30s and probably have 3-4 kids by then!

[jman07]

Originally Posted by BRU67

That's no guarantee. They could go up, but you never know. Condo prices in the south loop have not gone up much over the past 5 years due to all the building and conversion. The smaller they are, the slower the appreciation. He's not going to get a big unit for $165k. The Olympics will likely put an upward pressure on prices near the Loop and south of it but: a) we still have to get it over some pretty formidable international competition; and, b) the true impact, perhaps saving some land speculation near Washington Park, won't be felt until 2017 or so. This poor guy will be in his mid-30s and probably have 3-4 kids by then!

We'll theres building and conversion EVERYWHERE on the north side. Condos going up everywhere and they have still appreciated a lot.

I was under the impression that the olympics will increase property values everywhere. We are also the favorites to get it. I would save for a downpayment though. Dont do interest only. It would be better to rent in a trendy area your first year and save up some cash and have a good time doing it.