Market Conditions: Are Even the Rich Preferring to Rent Now?
Apparently, luxury rentals are hot right now as even the rich are finding value in renting versus buying properties in some cities like New York, San Francisco and Chicago
CNBC reported:
So in March he sold the Manhattan apartment he bought in 2008 for about the same price he paid and moved — along with his wife and child — a few steps away into a luxury, two-bedroom rental unit in a brand new building.
Lee wouldn’t disclose what he’s paying, but similar two-bedroom apartments in the building usually rent for $11,000 a month.
“I wanted to protect ourselves from prices going down,” says Lee, who is a managing director at a major bank. “I didn’t want to be an owner anymore.”
In Manhattan, a “luxury” rental usually means over $10,000 a month and up.
In the third quarter of 2010, 200 new leases were signed in that price range compared with just 89 in the third quarter of 2009.
In Chicago, the price which will get you “luxury” is not quite as high.
In Chicago, Aaron Galvin, the broker and owner of rental agency Luxury Living Chicago, says that he has rented 30 percent more luxury apartments in 2010 than last year.
Luxury in Chicago means anything over $3,000 a month, and a building with amenities like granite kitchen counters, stainless steel appliances and washing machines and dryers in the unit, says Galvin.
A recent client sold a multi-million dollar home in the suburbs to move into a rental building, waiting to buy a property until she got a feel for the neighborhood.
“The cachet that came with owning seems to be gone now,” he says.
Here in Chicago, you can rent a 3 bedroom, 3.5 bath nearly 3000 square foot brand new unit on the 60th floor of The Legacy at 60 E. Monroe with lake and park views for $8400 a month (includes two parking spaces.)
See the pictures of Unit #6002 here.
Will we see more luxury properties rented in the coming months?
Rich Americans ditch home ownership for renting [CNBC, Joseph Pisani, November 26, 2010]
This has been going on for the past two years. Growth in high end rentals will only continue on my opinion. I don’t think we’ve reached rent parity with many high-end sales prices yet.
It seems there are decent high-end rental deals in the city, and once-in-a-lifetime great buying deals in the prime suburbs (e.g., homes on the north shore selling at $1 million under the list price, etc.).
Articles like this can be contrarian indicators. That notwithstanding I have had several well capitalized, well qualified clients decide to rent single family homes recently after selling their condos. To me it comes down to rental parity. If you are at or near rental parity for a subject property, and have a long term outlook, buying probably makes sense. If you are not at rental parity, and especially if you don’t have a long term outlook, then don’t buy. I rented a SFH from November 2007-April 2010. It started to get a little old for various reasons. I found a home 40% below peak pricing and bought it earlier this year. It was at or below rental parity, and I have a long term outlook and a 30 year fixed mortgage.
I am happy to discuss with anyone in a similar situation, just shoot me an email. But rentak parity is the most important metric. There are values for sure renting high end properties downtown, so either rents will come up or prices will cone down on these ones.
Sure the view is great, but man those finishes are bleh.
Is that heating units all around the window floors?
Cool photo of that building, Sabrina. Interesting angle.
“Cool photo of that building, Sabrina.”
Thanks. I thought so too. The building looks different if you look at it from the south side versus the north.
Garrison says “But rentak parity is the most important metric.”
In the good old days, yes. However, I feel being a property owner in contemporary Chicago is fraught with risks, moreso that I can ever remember.
We are staring down the barrel of the pension issue at the city, county, and state level. Property taxes will continue to climb, as well as the state income tax. Government services, including police, and health services continue to fall. Will these ‘luxury’ buildings, designed around the pre-2006 luxury era be able to be economically viable in a murky Chicago future?
Why do I want to expose myself to those risks? What is the upside? If the high net worth individuals are becoming more risk adverse, shouldn’t I? Clearly I don’t want to be the one without a chair when the music stops, a lesson I’ve learned all too well from watching this blog and watching others.
I went from a high-end River North 2400 sq ft penthouse condo with Bulthaup and stainless and tandem parking (for a $5800 per month mortgage, $2400 assessment, and $18,000 annual tax bill) to a not-as-high-end-but-still-plenty-nice-granite-and-GE 2600 sq ft Streeterville loft rental(with 2 pkg spaces) for $4400 all in.
Very happy.
I think the article is a little misleading.
“Luxury in Chicago means anything over $3,000 a month”
That would depend on whether or not you are renting a 1/2/3 bedroom right?
If you are renting a 1 bedroom for more than 3k a month…then yes that’s luxury. If it is a 2 bedroom or more, well I think it really starts to depend on where that building is located
Heck there are 2 bedrooms that go for 2500+ in Old Town and I don’t think of them as luxury.
I think that a lot of apartment buildings haven’t gotten the memo about $3,000 a month being luxury. I walk by apartment buildings in the Gold Coast, River North etc. that have rents far below that and claim to be “luxury apartments” but, in actuality, are nowhere near luxury. There should be some universally recognized standard for what constitutes luxury rentals because it appears everyone like to simply slap that label on apartments and charge a premium, even without any actual luxury amenities.
“and once-in-a-lifetime great buying deals in the prime suburbs”
Yeah if your memory only goes back 20 years. Beautiful pic of the Legacy in any case, Sabrina.
Renting can make sense with condos. Especially high end ones with big carrying costs. There has been a big spread, it is getting smaller as prices go down. The market is relatively efficient and should eliminate it eventually.
After selling our home in June, 2005, we’ve been renting.
Renting, to lower the risk of capital loss, is no longer assured. Because the Fed has engineered 0% interest rates, the cost of renting, relative to ownership, has increased.
In our circumstance, retired, the rent comes from savings. Effectively, this is equal to a decline in the value of one’s own home! Regardless of one’s circumstances, the calculation to rent versus owning has moved in the direction of ownership.
I agree with Kevin that many buildings claim luxury but offer nothing of the sort. But a universal standard is pointless as luxury means different things to different people.
Anyway, I have rented in a so-called luxury building for the last 5 years. Each year when the renewal period comes I look at my options. So far it has been a better deal to continue renting. I live downtown – but if I wanted an hour-long commute I probably would have purchased already. Downtown… Nowhere near rental parity.
“Regardless of one’s circumstances, the calculation to rent versus owning has moved in the direction of ownership.”
Not with falling rents.
I agree that it is no where near rental parity downtown in various unit sizes, unless you are comparing to distressed sales only. Even then, that is only in certain buildings that I wouldn’t even rent in anyways, let alone buy.
“Sure the view is great, but man those finishes are bleh.”
The pictures just suck and it’s not staged. The finishes are of very high quality here. What bothers me about this building is the low ceiling height and at least in the model everything was made for midgets. Odd low switch placement and low shower heads in the bathrooms. But the views are fantastic, floor plans are sensible and I love that that hvac isn’t using those awful wall units.
Is the favorite topic on here anything that’s negative about LP, or just anything negative about “the rich” generally?
The internet is very populist and there is strong anti-rich sentiment in these troubled economic times.
“Is the favorite topic on here anything that’s negative about LP”
Half of all cribchatterers hate Lincoln Park, generally. Almost all of us hate the “East Lincoln Park” parts you talk about.
The rich aren’t renting, they are looking for roommates to pay them $7,000 a month to shack up with them! Renting is so 2009.
http://www.rubloff.com/property/chicago/07667902.cfm
Anonny – your description of life in LP was much appreciated by me at least. You gave me pause to think about searching there for the next place to live as I’d prefer to plop down for 10-15+ years. I’m coming up on the magic 6 years in a 2/2 and I’m starting to itch for slightly more space, and perhaps a patch of grass to let the dog out on.
I don’t think I’d be happy living up around say Clark & Deming, but Old Town I definitely see the appeal of.
More talk about this please:
“Regardless of one’s circumstances, the calculation to rent versus owning has moved in the direction of ownership.”
“Regardless of one’s circumstances, the calculation to rent versus owning has moved in the direction of ownership.”
That statement makes no sense. I think that this harkens back to the days when people bought whether they had any money for a down payment and regardless of any promise of sustained/increased income. Look where that got us. I can’t help but point out how ridiculous the rental listing I posted above is — someone looking for a roommate to pay $7,000 a month. Here’s someone that probably did buy an expensive house “regardless of one’s circumstances.” Who wants to live with a random? Someone that overextended and needs a big chunk of change to sustain their purchase.
“I can’t help but point out how ridiculous the rental listing I posted above is — someone looking for a roommate to pay $7,000 a month.”
Yea, it’s hilarious. As far as I can tell it’s someone looking for a fool to pay his entire mortgage. (looks like there’s about 1.3 million debt on it)
I doubt he’ll have much look with that…
Roommate wanted $7000 per month. Nice try but that could be the dumbest listing I have ever read. I would love to hear from that agent to hear how/why she came to that price.
BTW it looks like the former “roomie” moved out and took all of his dsleek modern sexy furniture. At least he left the coat racks for the master bedroom. Hopefully in addition to $7K per month the new roomie better has rooms full of DWR and other designer furniture to bring to the transaction.
It is so tough to see the remnants of a “partnership” breakup during the holiday season.
clio probably knows a dozen guys in the $7k per month roomie market. He’ll probably get a free meal over at Gibson’s and a $10k finders fee for hooking one of them up with this once in a lifetime opportunity.
“I can’t help but point out how ridiculous the rental listing I posted above is — someone looking for a roommate to pay $7,000 a month.”
This is why I love cribchatter. This site has been documenting real estate insanity in some of it’s posts for a good three years now. I am truly amazed given the lofty valuations of Chicagoland real estate how much lunacy exists in some people’s minds regarding their property’s value.
I wonder if this rental/share listing is just poorly written and means that the rent is $7000, and the person sharing the place would pay half of this. Even at $3500, I’m not sure they’d have much success, but get it down below $3,000 and assuming the personal holding the original lease isn’t too odd & really intends to share the entire place, they might find someone.
But if it’s the owner trying to essentially rent out a room, I’d say $500-$1000 might be the right price!!
“The rich aren’t renting, they are looking for roommates to pay them $7,000 a month to shack up with them! Renting is so 2009.”
ELP is awesome. Most people who claim to be haters are just jealous of those who live there.
Despite the pessimistic views towards chicago RE, imo, a dollar goes pretty far here.
I don’t know, I like the area but is Armitage & Paulina really the location to draw a single person willing to share a house for $3k? Gorgeous place, but really stretching for that one special buyer.
The pictures make me think they were going for that American Pyscho aesthetic, and price point.
“Gorgeous place, but really stretching for that one special buyer.”
His name is Godot.
The rent is too damn high.
Financially, it would seem to make more sense to rent when you are considering a luxury building (as assessments, taxes and mortgage costs are going to be extremeley high). However, I DON’T see many rich people renting because rich people tend to want to decorate/upgrade/change their places to accomodate their lifestyles, etc. Rentals usually don’t allow this. There are very few “low maintenance” rich people who will just move in a rental and be happy with it.
I guess the same could be said about leasing a car. To me, it would make much more financial sense to lease cars – but there is something about owning your own paid off car that is stabilizing/satisfying. I know that it is all psychological, but it DOES have an effect.
I’ve seen only one (!) listing on CC where, with reasonable assumptions inputed into the Rent v. Buy calculator, it behooved one to buy instead of rent. It was this $100k River North condo:
http://cribchatter.com/?p=9556
(And CCers generally concluded that this unit would trade higher than $100k, which might then make it cashflow negative too.)
I don’t think Chicago has any any GZ-area condos that are better to buy versus rent. Someone prove me wrong.
http://www.nytimes.com/interactive/business/buy-rent-calculator.html
I think leasing a car only makes sense if you can write it off for business purposes. Otherwise you are just paying more. Though it can be nice if you must have a new car every other year.
The round support columns look silly, they should just square them off with drywall. Oh but that would cost the developer money.
Yep… for the amount I lost on my property, I calculated that it was equivalent to paying $8000 a month in rent – not because of the equity loss alone. I am including realtor fees, asm, property tax, transfer tax (in and out) on top of the equity loss. I did not live there long & thank god I sold it bc the units dropped another 25% (and most people were telling me to “wait it out” and “it’ll come back” btw). I am happily renting now in the 2k range & I love my building 10x more than that dumpy ass condo I overpaid for. I cannot imagine when I’ll ever go back to the nightmare that was home ownership… but I had a bad experience for a lot of other reasons outside of the economic downturn.
“I know that it is all psychological, but it DOES have an effect.”
Well, to me, the effect of owning a home that is not liquid and depreciating daily has an effect too…called a peptic ulcer.
And to the comments about decorating, many buildings let you do whatever you want. You can’t pick out flooring & counter tops…but you can paint & put up whatever you want…and in the small chance you go to far – then you owe like $200 at the end of your lease for it to be patched up. Never having to fix anything and being able to go wherever I want & know there is a 24 hr staff who will fix anything in here (for free) is so much better than having my life taken over waiting for maintenance ppl. And dealing with a condo board of pain-in-the-ass people is far less preferable to having a well managed building. Wow I never realized how bitter I was about it…cuz I could actually keep going but I am stopping myself.
“I think leasing a car only makes sense if you can write it off for business purposes. Otherwise you are just paying more.”
False. Remember, you can typically sell the vehicle during the lease term and actually make money on the deal. Not to mention the fact that some lease rates are less than purchase rates. I wont even get into residual value effects…
False. Remember, you can typically sell the vehicle during the lease term and actually make money on the deal. Not to mention the fact that some lease rates are less than purchase rates. I wont even get into residual value effects
Pete – Interesting concept on leasing a car but not accurate at all. First from a business aspect you can write off either a leased or owned car based on usage (miles) or actual expenses. On an owned car you get to take depreciation. I have not leased in the past but without calling my accountant to verify Im pretty sure that you can not depreciate a leased vehicle.
AFed – Good luck selling a leased car for more than you owe during the term of your lease. For most drivers that would be an extremely big long shot. People wear out cars faster (miles) than expected and living in an urban area is hard on the exterior of a vehicle. If rates=monthly payments then I have some news for you. Virtually all lease rates are less than purchase rates. They are based on you just keeping the car for a predetermined period of time or set number of miles. A sale is based on the idea that you own that car forever.
Residual value is the key ingredient used to determine the cost of the lease. A model with high demand or a proven secondary market star (think Accord & Camry) are likely to command a greater resale value in 24 to 36 months. This is what will keep the lease costs down. A model such as that unique thing called the Pontiac Aztec from the early 2000’s had the highest dropoff in value of all cars on the market. Just try and sign up for a lease on that set of wheel as the residual value might actually make the lease payment higher than the purchase payment.
BTW What is the cost of a studio or one bedroom rental on a lower floor with this type of view. We got married and had our reception in Millennium Park and on our wedding day I actually promised the wife that someday we would have a place that overlooking the park so that we could look out and remember that special day each morning.
Basically I’m f’d with that statement. Fortunately for me we have a kid now and she does not believe everything I say…..
“I actually promised the wife that someday we would have a place that overlooking the park so that we could look out and remember that special day each morning.”
Give it a few years – that desire will pass.
Funny Clio but I think not. Assuming that I’m still alive I am extremely confident that we will still be married in 20 years! I hope that the desire to have an in-town will pass. I’d rather have a lake house with a water ski boat to look at each Saturday and Sunday morning!
“BTW What is the cost of a studio or one bedroom rental on a lower floor with this type of view. We got married and had our reception in Millennium Park and on our wedding day I actually promised the wife that someday we would have a place that overlooking the park so that we could look out and remember that special day each morning.”
jp3Chicago- how sweet! But don’t forget- there are plenty of buildings nearby with similar views and all don’t cost what The Legacy costs (I’m thinking 310 S. Michigan or some of the older Randolph Street buildings like 360 E. Randolph.)
As the source used in this article about luxury rentals, I want to clarify that the figures cited were only a sampling of the information I provided. The price of a Chicago luxury rental apartment does vary based on size, location and building. Since there has been such a movement towards rentals versus condo ownership in the past 24 months, there are many newer options, ranging from psudo-luxury to ultra-luxury and everything in between. In reality, the $2000 mark seems to be the accepted amount for a downtown luxury 1 BR and the 2 BR breaking point is around $3000. We don’t see many rentals much over $3000 unless they are in the ultra-luxury category.
As Mr. Garrison mentioned, rental parity is the most important metric to decide whether to buy or rent, luxury or not. When you factor assessments, taxes and other fees, it seems renting usually wins out these days.
The loan wholesaler I frequently check brought back 40-year mortgages it seems. No IO loans like during the boom but 40-year mortgages are an indication the loan standards are being loosened. At least the liberalization in mortgage loan standards worked out last time. LOL.