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You proved my point. Buying > renting if you are staying put for a minimum of 5 years. That is my definition of "winning" on your investment as it pertains to home buying since the only alternative is renting. Also, not sure where you see an increase of only 4.3% since 2011. I'm seeing a median price of ~$735k in 2011 vs. $840k in 2016 in Hinsdale (14.3% increase).
I was agreeing with you, just putting some numbers behind it. Not sure if you intended for this post to sound so adversarial, or it was just me that picked up on that vibe.
Anyway, that 4.3% gain was Chicagoland overall. Some cities might have seen double digit positive growth, others seeing double digit negative growth. So that's why I picked the median home value and typical home appreciation of 4.3% over the last 5 years. There's no reason to use a city like Hinsdale as a benchmark, or similarly negative suburb.
Renting is superior to buying in the short term only, but if your goal is trying to break even or make money in real estate as an investment, Chicago shouldn't be high on your list. You could pick almost any metro in the US and have better odds of success generally speaking. That's all I'm sayin'.
I don't necessarily think Chicago has the worst rent prices, but somebody on here has mentioned several times that run prices are skyrocketing and Chicagoland.
I won't hold my breath though, about home prices actually staying put. I see new construction homes selling for crazy prices but we track all of the sales and I'm seeing more and more that are selling or listed for a lower than they were previously purchased for. And when property taxes do you go even higher, there is zero chance that home prices won't drop dramatically.
And as far as the debate about renting versus buying with that Hinsdale house. How ridiculous is it that the debate is: which is the lesser of two evils? Losing 500,000 or losing 950 K? Obviously losing the 950 is worse, but the fact that that even has to be a debate for somebody is what blows my mind. That brings me back to my previous point of Illinois being a sinking ship. I hope for all of those good people here that they don't lose value on their homes, but something tells me Illinois is going to screw many people over.
Clearly, whoever bought that monster home in Hinsdale is not hurting for cash. For all we know, they could have moved to Manhattan or SF for a new job and are paying $10k/month in rent to maintain a similar lifestyle. Throwing away excessive amounts of money for a place to live isn't unique to Chicago or Illinois. Again, look at the cost of rent for apartments in the before mentioned cities.
I was agreeing with you, just putting some numbers behind it. Not sure if you intended for this post to sound so adversarial, or it was just me that picked up on that vibe.
Anyway, that 4.3% gain was Chicagoland overall. Some cities might have seen double digit positive growth, others seeing double digit negative growth. So that's why I picked the median home value and typical home appreciation of 4.3% over the last 5 years. There's no reason to use a city like Hinsdale as a benchmark, or similarly negative suburb.
Renting is superior to buying in the short term only, but if your goal is trying to break even or make money in real estate as an investment, Chicago shouldn't be high on your list. You could pick almost any metro in the US and have better odds of success generally speaking. That's all I'm sayin'.
Actually there are a number of real estate investors that have done exceptionally well in Chicago. The rental income to expense ratio works out very favorably for many landlords in Chicago even with high property taxes, especially for multi-unit dwellings.
Actually there are a number of real estate investors that have done exceptionally well in Chicago. The rental income to expense ratio works out very favorably for many landlords in Chicago even with high property taxes, especially for multi-unit dwellings.
I believe it.
You're talking about individuals doing well, I'm talking about the typical Chicagoan overall not doing well. Our points are not in conflict.
You're talking about individuals doing well, I'm talking about the typical Chicagoan overall not doing well. Our points are not in conflict.
I don't consider buying a home to live in a good investment or one in which profiing from is the only measure of a successful buy no matter where you are buying but that doesn't mean you shouldn't buy if you are staying put for awhile.
I don't consider buying a home to live in a good investment or one in which profiing from is the only measure of a successful buy no matter where you are buying but that doesn't mean you shouldn't buy if you are staying put for awhile.
I wholeheartedly agree. It's two fold, definitely something to be said for making smart, sound decisions about your finances... But loving where you live, having friends/neighbors and a safe place to live is equally important.
We just came to a crossroads where we examined IL so much and decided the risk was too great. Doesn't mean everyone here is unhappy or not making good decisions. Just means different people have different goals and ideas of what they'll tolerate and what they won't.
This is true, in the long haul owning a home beats renting. Short-term, renting almost always wins.
Breaking even is a much harder feat. Take these two scenarios for the Chicagoland market...
Scenario 1: buy a house at the median price, $200k in 2011. In 2016, sell for $208k (typical gain over this timeframe is ~4.3%). Add in selling fees ($20k), property taxes over 5 years ($30k), and home repair/reno ($10k), and the home owner is at -$52,000 total paid for housing.
Scenario 2: rent for $1600 over the same time period. The renter is at -$96,000. Now let's assume they had a 20% downpayment ($40k) to invest in the S&P 500 instead. Over that timeframe, their down payment would grow by $32k to offset the rent cost. This puts the renter at -$63k total paid for housing.
The homeowner "wins" because they're only out $53,000. The renter is out $63,000. Neither scenario has the homeowner even close to breaking even though.
See the above scenario. Rent or buy, you're still "losing" on your investment on a house in the Chicagoland area, even though home prices increase. The selling fees and property taxes eat up all of the gains of home value increases for many of us.
This is a true point. However - I keep coming back to the notion that one absolutely needs a place to live. You're going to be spending money on rent or on housing in the majority of scenarios.
Let's take an alternative viewpoint.
Someone purchases in Downers Grove, median home, in Jan 2013 for 271K. Same median home is now 312K. Taxes of 5K/ year puts them at about 18.5K in taxes. Appreciation value (41K) minus taxes (18.5K) equals net positive of 22.5K, not factoring in tax breaks for mortgage interest, etc. Let's assume little or no equity has actually been built beyond appreciation.
This median family had 10% to put down, (27K) and did so.
Instead of buying, they decided to rent, in the median rental in Downers Grove, which was 1800 and is now 2000 -- so lets split the difference and say they averaged 1900/ mo. That's 79,800 in rent over 3.5 years. Even with investing the 27K in the SP 500, that 27K would be just over 39K today.
79800 in rent less 39K earnings in the SP 500 is a net loss of over 40K.
This median family also had decent jobs in the Chicago metro area, and two children who get to utilize the quality public schools that their taxes pay for.
We can make up anecdotal stories -- and yes, some people might be better off outside of Chicago -- but there is a large swath of people for whom Chicagoland (and all of the area w/ high taxes) that want to live there because of the services (see schools) that the taxes support.
It's about micro-locations and specific school districts in the suburbs, and that will drive property values. Some suburbs will do very well, others won't. It's just like the broader view of housing in the entire country.
This is a true point. However - I keep coming back to the notion that one absolutely needs a place to live. You're going to be spending money on rent or on housing in the majority of scenarios.
Let's take an alternative viewpoint.
Someone purchases in Downers Grove, median home, in Jan 2013 for 271K. Same median home is now 312K. Taxes of 5K/ year puts them at about 18.5K in taxes. Appreciation value (41K) minus taxes (18.5K) equals net positive of 22.5K, not factoring in tax breaks for mortgage interest, etc. Let's assume little or no equity has actually been built beyond appreciation.
This median family had 10% to put down, (27K) and did so.
Instead of buying, they decided to rent, in the median rental in Downers Grove, which was 1800 and is now 2000 -- so lets split the difference and say they averaged 1900/ mo. That's 79,800 in rent over 3.5 years. Even with investing the 27K in the SP 500, that 27K would be just over 39K today.
79800 in rent less 39K earnings in the SP 500 is a net loss of over 40K.
This median family also had decent jobs in the Chicago metro area, and two children who get to utilize the quality public schools that their taxes pay for.
We can make up anecdotal stories -- and yes, some people might be better off outside of Chicago -- but there is a large swath of people for whom Chicagoland (and all of the area w/ high taxes) that want to live there because of the services (see schools) that the taxes support.
It's about micro-locations and specific school districts in the suburbs, and that will drive property values. Some suburbs will do very well, others won't. It's just like the broader view of housing in the entire country.
I think my response in post #127 covers this too. Just because individuals do well doesn't mean everyone overall is doing well. Is 15% growth in 3 years typical for Downer's Grove or Chicagoland? I haven't been able to find any data to support that, perhaps you could link it.
Also, not to be too nitpicky, but you forgot to include the selling costs for that house (~$31k). After all, you can't spend a house. You also double-counted the principal in the second scenario as earnings.
This means in your scenario 1, that fictional family is at -$8500 (even with 15% appreciation in 3 years!). In scenario 2, the family is at -$67800.
And that's my whole point. Both are terrible from an "investment" perspective. One is just less terrible than the other. It's like saying "if you invest $27,000 with me, I'll keep all of your money and you'll either have to give me another $8,500 or $67,800." Something tells me you wouldn't want to hire me as an investment banker to begin with. In today's Chicagoland market, housing is not an investment, it's a cost. There are many housing markets in major metro areas where you can still make money as a homeowner. Statistically though, the odds are very much against you in Chicagoland though.
And that's my whole point. Both are terrible from an "investment" perspective. One is just less terrible than the other. It's like saying "if you invest $27,000 with me, I'll keep all of your money and you'll either have to give me another $8,500 or $67,800." Something tells me you wouldn't want to hire me as an investment banker to begin with. In today's Chicagoland market, housing is not an investment, it's a cost. There are many housing markets in major metro areas where you can still make money as a homeowner. Statistically though, the odds are very much against you in Chicagoland though.
Ah, yes, I did double dip! Thanks for the clarification. And you are right, it is a question of the specific metro area. But aren't many of these places priced much higher? Can people afford a similar place in SF or NYC or even Denver or Portland?
I still think it holds that if one needs to have housing, buying is not necessarily a bad thing to do if the job market in the area supports the house that you want to have here. It doesn't for many, but it does for a lot of people.
Couldn't we say that in SF/ NYC/ many major urban centers, housing isn't an investment either?
Just because we've seen huge gains, does that mean they will continue?
Most are priced out of these markets. At least in Chicagoland it's somewhat affordable. I don't know if people can get into the market in those other major metro areas for ~350K, whereas you can here. That's the distinction that is important to me and my family, at least. On the 1MM + range of things, certainly, I wouldn't spend that kind of money here. But 400K for a decent place w/ good schools? I would.
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You also double-counted the principal in the second scenario as earnings.
