I am considering to buy an apartment in Chicago as I plan to stay here for at least 5 years. I originally wanted to buy in Hyde Park (university neighborhood), so that after I leave I’d be able to rent to grad students and have an easy income (relatively speaking). But the prices here are around 80k, meaning it would cost more than renting or I’d have to pay for more than 5 years, risking losing the apartment.
My other option is to buy is the surrounding area which has some properties for 40k or lower, some of it has poverty and crime issues but not all. But the thing is grad students would only look in HP and nowhere else so it would not be as easy to rent out. I don’t mind living in an all black area (which is why most likely the price is lower). The question is – if I buy for 20k will I be able to get rid of the apartment, even for free, after 5 years? If I rent out will I be waiting months for the company to find a tenant and will they likely trash the place? I have no way to assess the risk of doing this…
You could buy something in Bridgeport. It’s cheaper than Hyde Park, but still pretty close, and there are still plenty of graduate students who go to IIT who would rent from you.
Paying for longer than you intend to stay isn’t bad, as long as the rent you can charge will give you some cushion against times when your apartment won’t be rented. Right now I have a rental house in a local college town. The PITI is 60% of the rent. The other 40% is being banked for contingencies such as repairs and the times when I may be between tenants. When I put my For Rent ad up on Zillow, I had 14 inquires the first 12 hours and had it rented to the first person who walked through. Yes, that could change, but friends who have rentals and have been in it for years say that they’ve never had problems finding tenants.
If you rent for the 5 years you’re going to be in Chicago, you’ll likely be paying well above your mortgage pmt, you won’t be gaining any equity, and you’ll leave with nothing more than you came with.
Pilsen neighborhood maybe? West Humboldt Park? Parts of it can be crime riddled but the trendy types are slowly moving in the areas from Wicker Park and they will definitely buy/rent. Just an idea.
Edit: Areas on Ridge Ave. are doing this too in Rogers Park.
The price isn’t lower because the neighborhoods are all black, it’s because they are terrible neighborhoods – and the people at U of C know it.
A few years ago, my son, a U of C staffer, was mugged during daytime on 63rd Street, less than a 10-minute walk from campus on the way to the Red Line. Stay away from Woodlawn (and Washington Park.)
Oakland, Kenwood, eastern Woodlawn, and South Shore are all areas that I expect to see modest appreciation in the next few years. The University of Chicago has now jumped the Midway in a big, big way, and junior faculty members are buying new townhouses in the area between 61st to 63rd. The Obama Center is expected to buoy the nearby neighborhoods, though I personally think that effect will be modest.
People who only know the South Side of 10 or 15 years ago don’t have the full picture. North of 39th, the Bronzeville neighborhood is seeing lots of Chinese purchasers (you can always spot the stainless steel security doors they favor). The 2020 census is likely to show the area around IIT as 25 percent white and Asian.
But my neighborhood in South Minneapolis is very popular right now because it is only 3 stops on the light rail transit to the University. (In fact, it’s now too expensive for students, because only 2 stops more is the downtown business district.)
Are there similar areas in Chicago which are not immediately near the University, but in cheaper neighborhoods, but where good public transit makes it convenient to the school? That would allow students to avoid the expenses of a car (payments, insurance, parking).
The first part is more the question I think. How much is rent compared to mortgage plus taxes?
The gain in equity by way of payments is modest as most of the first five years payments is interest (75% to start and still 2/3s by the end of five years I think.) And of course there is the opportunity cost - what else could you be doing at what likely rate of return with the 20% you are putting down?
Whether or not you leave with more equity than you came with depends much more on what the market does (and remember you need to net enough to pay the realtor and closing fees too). It may appreciate, especially if you are buying in the nearby neighborhoods and the future looks as Mr Downtown predicts … or we may have another significant drop and you could be underwater. Do you feel lucky? And more seriously, none of us know your finances - is that a reasonable portion of your investment portfolio to be investing in real estate right now?
If I were the OP, I’d buy the condo in Hyde Park. $80K is a decent price and it will always be easily rentable. What are the assessments? $80K seems pretty cheap to me, so I’d expect the assessments to be fairly high. My wife and I own a condo in Hyde Park, and it’s been super easy finding tenants (on our own) and since we left it years ago, it’s never been unoccupied. And the tenants have all been either Ph.D. or post-doc students who take care of the place better than we did.
I think Chicago is relatively affordable real-estate-wise for a big city, but I wouldn’t want to know what kind of place in what kind of neighborhood sells for $40K. It’s just about possible you might find a small condo in my neighborhood (Archer Heights) for that price, and it’s a perfectly fine and affordable city neighborhood (though looking through listings, $70K seems to be the lowest I could find), but renting out here is more a roll of the dice.
DSeid - You’re right about the rates. I was going from memory about the rental house I bought a year ago. I paid 3.25 for 15 and so that’s what I entered.
So for 15 year at 4.35, the first year you’d pay 53% principal, 47% Interest.
After 5 years, you’re paying 65% principal and 35 interest.
On an $80K house, you’d have $21,750 in equity.
And payments would be $601.82, not including taxes and insurance and fees from the building. How much would rent be on a comparable unit?
This is what I was wondering about, as well. Studios and one-bedrooms in Hyde Park generally go closer to $1000/mo. Checking Zillow, I see more like $1200-$1500/month. We rent our one-bedroom unit for $950/mo, but it’s a bit below market, as we love our sequence of tenants and have never raised the rent for the last seven years. I can’t imagine what kind of apartment you can find in Hyde Park that rents for cheaper than the payments on an $80K property. OK, if you share with roommates, sure, you can probably find something. But for one renter? It’s going to be tough. (OK, looks like there are some 300 square foot studios for around $600, but that’s only on par with the house payments and you obviously don’t save up any equity over 5 years.)
Can I get a mortgage for 5, 8, or 10 years? or are the only choices 15 or 30 years?
How likely am I to get approved with about 20% upfront (~$16,000), a FICO of ~700, and Vantage scores of ~725? I will not have any cosigners and I am buying initially to live.
Sometimes they ask if you are a veteran. I am one, but not a US veteran. Am I supposed to mention that, just say yes, or no?
Renting
@pulykamell: have you managed to rent out easily in the winter too or just the summer? (I mean the start date)
How easy would it be to rent out long distance?
Anyone with experience using a property management company? How much do they take? Doesn’t that include the expenses of taking care of the property?
You could do a 7/1 ARM, where the initial rate is for 7 years. There are probably other variables, and there’s nothing to say you can’t do a 10 or 15 year mortgage and increase your payment.
Our first tenant started in maybe end of the spring term, in May or June, and then it’s just been a succession since then. I think we’re on our fourth tenant, maybe? It started with a Taiwanese doctoral student, and then when they were leaving, the apartment got referred by them to their Taiwanese friends, and then another, and then another. So at no point was there a break in the occupancy, though there was overlap when one tenant took over the rest of another tenant’s lease. This would have been since 2011. So I don’t really know what the rental market looks starting from scratch in the winter. I know when we advertised our place at first, there was no issue finding people to look at it. My wife would actually know better, since it’s her place and she herself got a PhD at U Chicago and knows the grad school situation there better and when students tend to arrive.
Renting out long distance? Well, that I wouldn’t know about, as we live about a half hour or so from it. I don’t think in our situation it would be difficult at all, as I personally only need to go to the property a couple times a year, but I certainly feel much more comfortable being local to take care of things as needed when the situation arises.
One of my friends has used agents to screen potential tenants, but not actively manage the property. For that type of service, finding and screening tenants for your property, his fee is one month of rent.
For screening tenants, I used a service called MySmartMove, which allows you to put in the parameters you want (such as no bankruptcies in the last X years, credit score, criminal background check, etc. The prospective tenant pays the fee (or you can, whatever) and they screen the tenants for you. For those that definitely don’t meet your qualifications, they’ll tell the applicant that immediately. For others, it gives you an rundown on them, without your having to do all the legwork yourself.