Rent Or Buy? My hubby's company is relocating us to downtown Chicago. It is likely that we will move again

Asked by Cynthia, Chicago, IL Tue Apr 7, 2009

within 5 years. Is condo depreciation so much of a risk factor that we should just rent?

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Chuck Z, , Chicago, IL
Wed Apr 8, 2009
Michael Long's analysis is completely bogus. He concludes that
"Now...let's say you sell it for the EXACT SAME PRICE you bought it for 4 years from now. $400,000 minus commission and closing costs would put you around $375,000. Pay off your mortgage and you put $40,488 in your pocket not to mention all the money you saved from tax deductions. So, your initial investment of $40,000 and you break even...IF you sell for exact same price. So basically you lived in your condo for free on top of all those other perks of buying."

The suggestion that you're living there "for free" is absolute ridiculous because he's ignoring the monthly payments, simply waving his hands and saying that you get to write them off. Well, if you're in the 28% marginal tax bracket, that means you're writing off 28% of the payment, but you still have to pay 72% out of pocket.

Here's a quick and dirty analysis:
Assume a $400,000 purchase price with 10% down. That gives you a monthly P&I payment of $2,121.73 at an effective annual rate of 6%. Add in monthly costs of $200 for assessments, $50 for insurance, $125 for PMI, and $500 for taxes. So your total cash outflow over 4 years is:
$40,000 down payment
$143,843 in monthly payments
$183,843 total

What do you get in return?
When you sell the house, assuming a $400K sales price, you net $376,000 after a 6% commission. When you pay off the mortgage of $340,080 after 48 payments, you're left with $35,920.

On top of that, you get the tax benefits from the interest you paid and, I'll assume, the PMI and taxes. At a 28% tax rate, the savings are $31,338.

So you've paid a total of $183,843 over 4 years, and gotten back ($35,920 + $31,338), so your net out of pocket is $183,843 - $67,259 = $116,585.

What you're also getting in return in a place to live. You're paying out a net $116,585 to live in a place for 48 months, so you're paying $2,428 per month for that privilege. If you could rent a comparable place for $1,800 a month, you would save ($2,428 - $1,800) * 48 = $30,184 over 4 years by renting.

This ignores things like:
- the opportunity cost of the downpayment
- present value factors more generally
- future rent increases/decreases
- home repair costs
- value of living in a place that you can alter to your needs
- lots of other stuff

But to pretend that you'd live in the house for free under the assumptions given by Michael Long is ridiculous.
1 vote
Cynthia, , Chicago, IL
Tue Apr 7, 2009
Thank you to all of the wonderful professionals that have taken their FREE time to help me to make a qualified decision! I have been feeling like the country mouse headed for big city trouble but ALL of you have restored my confidence in myself and the human race! You are awsome! xo
1 vote
Tom McCarey, Agent, Chicago, IL
Tue Apr 7, 2009

Very subjective question. True, prices are at a low point, perhaps the lowest they will go. And also in your favor is the fact that mortgage rates are at perhaps their lowest-ever level.

What it boils down to, however, is your itinerary. If your length of stay is between five-seven years, you should be fine with a purchase as a normalization appears to be percolating regarding the market. If your timeline abbreviates due to another job shift in the family, you may give deeper thought to renting.

It appears that the table top has been reached in terms of downtown condo pricing. Remember, Chicago never egregiously rose as did other settings like Miami or Phoenix or Vegas. And as always is the case, value relates to location, location, location. With this in mind I cannot emphasize how important it is to select a real estate professional who is versed in the market to enable you to make an informed decision. So if you are leaning toward the downtown Chicago market (River North, Streeterville, Gold Coast), it becomes critically important that your real estate professional know the specifics of buildings.

One question for you - as you are arriving from Grand Rapids, are you familiar with Chicago and the intertwining nature of our neighborhoods? Thus, when you say downtown, do you mean the quadrant roughly between Grand to the south, the river to the west, and perhaps Division to the north? This area prominently features highrises (and highrises tend to features higher monthly homeowner assessments).

If your intention is to be in a smaller setting (less than ten or so units), then it will be necessary to stretch your boundary into areas that include Lakeview, Lincoln Park, East Village and Wicker Park.

And of course a critical component related to what you choose to do has to do with what your price point is and whether your next step is predicated upon the sale of your Michigan home.

At any rate, welcome to Chicago. Ours is a magnificent city. Feel free to click through my profile if what I say here resonates with you or if you have additional questions.

All the best!

Thomas McCarey
Accredited Buyers' Representative
Certified Negotiation Expert
Luxury Home Marketing Specialist

The Real Estate Lounge Chicago of @properties
1 vote
Cynthia, , Chicago, IL
Wed Sep 30, 2009
Thanks to everyone for their helpful offers and suggestions. We nearly purchased but at the last minute decided to rent (Aquabuilding). It just didn't feel right to spend all of the money we had saved for a down payment in the current economy. Thank you again.
0 votes
Kale Realty, Agent, Chicago, IL
Wed Sep 30, 2009
Hi Cynthia-

Are you familiar with Chicago?

If not, its better to rent and learn the neighborhoods rather then being tied down to one place- Just too many factors involved when looking to buy.

Our company can help you find a great place
Web Reference:
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Michael Pete…, Both Buyer And Seller, Chicago, IL
Wed Sep 30, 2009
My wife and I currently have available our condo loft in the West LOOP that you might live in while you're deciding. We're flexible and moving south to live near our grandkids. Just sending this in the event you haven't found your home yet. . . .
0 votes
Maria Clark, Agent, Chicago, IL
Wed Apr 29, 2009
Investing in real estate can be complicated but in the long run it is a wise move. Rates are at there all time low and there is ample supply, ( in most areas). The benefits of owning out weight the performance of the rental sector. I have four condominiums that you can rent with option to purchase. I have 15+years experience in residentail real estate renovation, restoration, rentals, as well as buyer and seller representation.

Should you be interested in the units I have for rent with option to buy, please call me direct at 866 923 9507.
or via email at
0 votes
Maria Clark, Agent, Chicago, IL
Wed Apr 8, 2009

You are welcome! An educated consumer is my best client! if you can be of further assistance please do not hesitate to reach me via email at

Enjoy your day.
0 votes
Ken Dooley, Agent, Chicago, IL
Tue Apr 7, 2009
Hello Cynthia,

Take a look at the following Buy v's Rent calculator:

You can plug in the details of what you would pay for a condo and compare it with what you would pay to rent for a like property and determine which is the best option. It's not perfect and relies on some assumptions but it's agreat tool to quickly compare and help you with your decision.
Also, here's a quick video of the area in and surrounding Millennium Park, one of the downtown areas you may wish to consider in your move:

Best of luck.
Web Reference:
0 votes
Christopher…, Agent, Chicago, IL
Tue Apr 7, 2009
Dear Cynthia,

This is a question that ultimately must be answered by you and your family as only you all can know exactly what your current financial situation is and what your future financial goals are. And while a home is not only a financial investment, the risks and rewards of purchasing v. renting can not be ignored (or they can be to the peril of your financial future).

Talk to a mortgage lender first. they can give you a clear eyed idea of what the exact costs of purchasing will be. These can very easily be compared to the costs of renting, and I do think that Michael makes a good point about some of the tax advantages to buying v. renting.

There are a few things that I'd add to the posts below.

There are many condo buildings currently that many lenders would consider "non-warrantable." For all intents and purposes that just means that the building either:

has not sold or closed more than 50% (or in some cases 70%) of their available units, or

the building's condo association is not yet in the control of the actual unit owners (or has not been in their control for a long enough period of time- in many cases at least two years).

Your mortgage lender should know whether or not the loan program that they are offering requires a warrantable condo building (and most do). The only thing that you should consider as you're looking is that it will be easier for you to get a loan for a building that is nearly sold out as opposed to one that is say 25% sold out.

The other item that I'd suggest you consider as you look at places is how many of the current units are rented? Many lenders put a restriction on loans such that none can be made in building with 40% or more of the units in the building being rented out. Many lenders in fact will only allow 10%, 20% or 30% rentals, and many condominium associations have similar guidelines (in many cases stricter than loan underwriting guidelines). This is only a concern for you if you buy into a building that you later might want to hold onto and rent out yourself. If the building is at or near its threshold of rentals, then you do not want to be one of the units that is not allowed to become a rental because the building has exceeded its threshold.


Christopher Thomas
Broker Associate, Sudler Sotheby's International Realty
1634 E. 53rd St. 2nd Floor Chicago, IL 60615
773-418-0640 (cell)
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0 votes
Maria Clark, Agent, Chicago, IL
Tue Apr 7, 2009
Dear Cynthia:

I believe the first thing you should do is to write a to do list. This will help organize the transition. Now is the time to rent your condo. It is the heaviest season for rentals April, May, June and October. For thirteen years I have had a 99% tenant occupied units. Now is the time to organize, paint and store the items you will be moving to Chicago with. (By the way a great city to be in spring, summer and fall). Familiarize yourself with
posting your rental on free sites, take it really counts people want to see what they are scheduling for. Then set up two dates and times minimum that is best for you to walk prospects thru. Also, if you would like more tips on successfully renting your unit simply contact me.
0 votes
Lucid Realty…, Agent, Addison, IL
Tue Apr 7, 2009
Hi Cynthia!

Great question and a tough one to answer given the condo glut in Chicago and the economy. There are some decent deals in certain areas of the city. For example, you might want to look at the University Village area, there are plenty of condos/townhomes to choose from and at pretty decent prices. According to the March stats, there is a seasonal uptick in condo sales, and sales are up 47% over February.

Lucid Realty is a full service brokerage, offering discounted commissions and buyer rebates. Check out our blog where you can lots of truthful information on the Chicago real estate market.

Web Reference:
0 votes
Kale Realty, Agent, Chicago, IL
Tue Apr 7, 2009
I disagree with Maria

If you are planning on staying in Chicago for 5 years I would recommend purchasing. Prices are the lowest they have been for years and downtown Chicago is always a desirable destination to live. Even in the slowest markets there is always demand.

I would only recommend renting if you are unfamiliar with the city and not to sure which neighborhood to live in. Then after that 1 year I still recommend purchasing :-)

Hope this helps!

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0 votes
Maria Clark, Agent, Chicago, IL
Tue Apr 7, 2009
March numbers just came in for Illinois. I would seriously consider renting.
If I can be of any help let me know. I specialize in residential rentals for the
past 13 years in Chicago.

Maria Clark
Newman Realty
0 votes
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