Flipper Alert: A 2/2 under $300k in 1720 S. Michigan
We’ve chattered about the modern new highrise at 1720 S. Michigan in the South Loop before.
CMK, the developer, is still trying to sell units in the building, which began closings in the Summer of 2007.
This two bedroom unit caught my eye. It’s the cheapest two bedroom that has two full baths.
Here’s the listing:
2 bedroom, 2 bath southeast corner unit. Window in each bedroom and living room. Oak hardwood floors. Stainless steel appliances and granite in kitchen. 9×18 terrace off living room is open to east and west for great outdoor living. Garage space additional.
Alan Shultz at Coldwell Banker has the listing.
Unit #608: 2 bedrooms, 2 baths, 1069 square feet
- Sold in September 2007 for $353,000
- Currently listed for $299,500 (parking is $36,900 extra)
- Assessments of $416 a month
- Taxes are “new”
1720 S. Michigan [CMK’s website]
In the top photo, is that water damage on the ceiling?
I like the Balcony/Terrace but dont like the ceilings. As cjriis pointed out, it looks like there is some damage in the first picture.
I vistied 1720 and the building is full of renters. The building also looks like dorm from the outside.
Is the assocation formed ? I wouldn’t be suprised if the assessments approach $600 a month, the windows used in the construction are a low quality. In the summer the units reallly heat up.
The bare concrete ceilings are an aquired taste, and although I think they are fantastic, I can see how they would not appeal to most people.
“It’s the cheapest two bedroom that has two full baths.”
There’s also 1002 for $305,000, and that includes the parking, making it the cheapest I believe.
Personally I like the building. I’m about to rent an 18 unit (my favorite 2 bed floorplan in the building) on one of the top floors. The view is fantastic and very affordable. I think CMK did a great job. Nothing is high end, but it’s not supposed to be given the price point and what’s there makes sense and looks good…
“I like the Balcony/Terrace but dont like the ceilings.”
The unit I’m moving into has a white ceiling and I like it a lot better than the concrete. I think plastering and painting the ceiling on such small units would maybe run 3k-4k? So that’s not a big deal really…
Garbage, Garbage, Garbage…Is this a dorm?
Bob–imposter du jour!
Looks like we’ve got some competition for the Bob moniker. Not the same Bob as me, the frequent commenter, but he’s not an inaccurate representation of my tastes–right down to the ceilings!
I tend to have a thing for the terrace levels on these places (1620, 1720 & Vetro especially) And I may well wind up renting here, too.
This building won an architecture award and I don’t see how it looks like a dorm. Not sure what school the commentators went to who made that association, certainly nicer dorms than mine!
Bob, it looks like a basic state school dorm. If you ever ventured out to U of I or IU you’ll see exactly what I mean.
That said, even if you pay for your parking spot you need to pay an additional $50 assessment, I think the parking area is heated (what a stupid idea)
These units, like the rest of the Chicago condo market, are overvalued by atleast 35% ! Thats assuming you just want to ‘break-even’.
Why do people put those type of windows in bedrooms?
By that alone I agree with the college dorm look.
University of Florida had dorms with those same exact windows lol
John–do you live in a hi-rise? Heated parking makes a big difference in the winter. Totally worth the extra assessment costs!
I like this building and am seriously considering it. The building has a nice dog run, which is what draws my interest.
It’s not a perfect building, but the units are very convenient and affordable for first time buyers.
Completely agree with Jenny. CMK buildings seem to be designs people either love or hate.
I like floor to ceiling windows, in every room if possible. I love big terraces in units like this (the 8th floor of this building). As for heated parking, some of us have nice newer cars or sportscars and want to minimize wear and tear on them. Park your car on Chicago streets and it will suffer significant wear and tear. Park it in an unheated lot less so but still significant amounts in winter.
I like the architecture of this building, too. I don’t like the location nor the prices of these units yet, however. Its a bit too far in the south loop to walk to work and I agree about the pricing. Not looking to buy here but would consider renting.
“Park [your car] in an unheated lot less so but still significant amounts in winter.”
Really? Cars experience “wear and tear” from getting cold? I guess I should insulate and heat my garage!
What about getting too hot? Should the garage have a/c too?
Anon,
Getting hot wouldn’t have nearly as much of an impact. Winter affects vehicles adversely, even stationary vehicles. Systems like the battery and alternator are subject to wear and tear from extremely cold weather. Ever wonder why they have plug-in engine block heaters in Canada? Plus your gas mileage for the first 15 minutes or so while your car is warming up is horrible, even for a Prius. Just the expansion and contraction of the metal in the engine block is enough to eventually contribute to issues over time as well.
Anon,
During the extreme cold of Chicago winters, oil will tend to be less viscous. Upon startup of the engine, a starvation period of lubrication will occur, contributing to engine wear. This will be minimized with a heated garage.
Decent location, but I agree that these units need to come down a bit more.
I own here and I’m happy with the unit itself, location, and view. As for the renters I can only hope that the homeowners find enough ways to make them uncomfortable. We just happen to have a few students here but it seems like the Association is working on that as well. I personally have had no problems. I have a clean respectful floor. I love all the windows in my unit. The A/C keeps it nice & cool during the summer and we have the custom window shades to help as well. People should consider the issue of window treatments when your condo is composed of glass. And as for the glass being cheap all I can say is that there isn’t much it can do for the sunlight but my condo certainly doesn’t get cold in the winter. We hardly ever have to use the heat. I think it’s a nice building for the price.
My bro bought here above my objection, and let me say he is miserable. While he likes the location, he is not happy at all with the quality, the renters, the common area is just freaking cheap and already wearing in one year. The comments about the cheap windows are spot on. He says it is not only the issue of renters, but the miserable quality of them. Indicated the % rental is something north of 40%.
And to Bob, the CMK sales cheerleader, AIA awards are a dime a dozen, and more political than Bejing Gymnastics.
Thanks Harris for the background info. I had doubt about buying in the South Loop after reading this:
“Renderings are one thing, but the actual product is abismal. I will have to post pictures of the 1st couple floors; it is a toss-up to what is the worst part about those projects:
a) The view into the residents homes with junk
piled up against windows. Nice touch.
b) The dead commerical space along Michigan Ave
with the sunken retail space
c) The long blank wall covering the garage podium
with several garage entrances directly onto
Michigan Avenue.
d) The incredibly high rental and investor
ownership and related issues.
We can agree, this project was tailored to one group, 1st time owners with the lowest cost per sq ft. Not surprising, take a look at the resales and people taking a bath.”
P.S.
You would think that with buildings housing 500 people there would be more activity. It really feels like a ghost town.
Sabrina, how can you verify what % of units are rentals ? Do they really keep track of this ?
I ask because every realtor I ask keeps giving me a different number.
The condo board should know the number of rentals.
I called the Forth Group and they said about 50% are rental !
http://www.forthgrp.com/
Good luck with financing a unit with so many rentals. The obviously necessary return to pre-bubble lending standards would mean non-conforming loan status for any building under 70% owner-occupied. That means at least a 20% down payment and higher interest rate. Of course, there is the little problem of nobody wanting to make these loans since even “fraudy and phoney” won’t take them.
Therefore, a building such as this will have to drop prices to entice cash-flow investors. This all but guarantees an over-correction since it will take a while to predict where rents are actually going here.
I looked. Not a good time to buy. South Loop is boring.
I decided to call the Forth Group company and they said they did not know a rental number.
John S. you need to recheck your facts.
There are probably 1000 peopple living there now – when did you visit the building 3 a.m.?????
And those who are worried about heated garages don’t know Chicago and need to keep on renting because you don’t know about homeownership of a condo either – the mortgage is one thing but the assessments are killers! KEEP RENTING!
ENOUGH!
IF YOU DO NOT LIKE IT – THEN LOOK SOMEWHERE ELSE.
What difference does it make if the unit has a renter or an owner? Are we that shallow now? Some buildings have better renters than owners.
Hundreds of buildings to choose from in the city. All of the low end buildings will always have renters. What is an investor anymore??With hundreds of foreclosures in the city the investor is DEAD – half of the foreclosurers are these wanna be investors – the I am going to get rich quick – and guess what they cannot do it anymore – NO FLIPPING to try and resell right away for thousands more -NO one is falling for the flipping crap anymore – you can flip but the smart buyer will want to flip it out from under THE SELLER for thousands less!!- NO RENTING EITHER to cover the expenses for each month – the new renter (renting a condo) wants lots of space with lots of goodies in the building and wants to get it for next to nothing.Renters are smarter now.
WAKE UP CHICAGO!
And this buy in the South Loop because the Olmpics may come – ARE WE AMERICANS REARING OUR UGLY SELVES ONCE AGAIN ??- LETS RENT OUR CONDOS OUT FOR THOUSANDS A WEEK DURING THE OLYMPICS!!
SHAME ON YOU. SHAME ON ALL OF OF THE GET RICH QUICK PEOPLE!
really CHICAGO…….
Karein, I called the Fourth Group and they told me “more than likely 50%”.
That said, depending on which CMK agent or real estate agent you ask they will keep giving you different numbers. They
don’t want to admit the building is full of renters, for obvious reasons.
I visted the building during the day and night, during the day the place is bristling with teenage college renters. At night the area is dead.
I was at a party last weekend and met someone who lives at 1720, she told me the renters let their dogs pee on the carpet,are very loud while coming home late at night, etc.
Remember when you were in college and how you took care of your dorm ?
Trust me find any pet friendly condo building in Chicago and you will have dog pee all over the carpets. It doesn’t matter if there are no renters.
As for this building, it is an entry level condo building geared toward first time buyers, thus the lack of amentities and low assessments. If you are worried about renters in a new construction building, then almost every new building in the past two years and upcoming two years will be filled with 50% rentals as many of the unit owners are investors. Thats going to be the case in Streeterville, West Loop, River North…
I’ve been in the building and with 500 units its about as busy of a place as you can get in Chicago, so I’m not sure why you think it is dead. The South Loop obviously is not bustling at night time but there is plenty of traffic in a 500 unit building that probably has 750-1000 residents.
As for the renters over the next few years a lot of these investor owners will be selling there place and the number of renters as a percentage will go down. This is a pattern we will see in many buildings.
You will have very few or no new construction projects that will be finishing in 2010-2013. The only projects slated to finish then are the Spire, Legacy but everything else that has been planned will not get built. So in a few years these units that are finishing now will be the newest that are available.
“If you are worried about renters in a new construction building, then almost every new building in the past two years and upcoming two years will be filled with 50% rentals as many of the unit owners are investors. Thats going to be the case in Streeterville, West Loop, River North…”
So basically what you saying is new buildings are initially hyped and sold as an owner occupied residence, but investors looking to make a quick buck turn the building into a rental haven. Ironically, this destroys resale value and any hope of creating a viable neighborhood.
Accordingly, two years is the window when you can flip these problems to a greater fool. Any time after that, these problems become too acute and potential fools can not be tricked into ‘stories’.
“So basically what you saying is new buildings are initially hyped and sold as an owner occupied residence, but investors looking to make a quick buck turn the building into a rental haven.”
Close — American Invsco explicitly markets their buildings to investors and encourages them to rent out their units. Consider their 2-2-2 incentive.
In this market, it seems that lots of investors are getting trapped and becoming accidental landlords, making the problem even worse.
John,
I would argue that highrise neighborhoods such as Streeterville, South Loop, West Loop and to a lesser extent River North and Gold Coast never really had a chance of being a ‘viable neighborhood’ in the conventional sense in any case.
People live in these high-rises because of the proximity to work, and perhaps the architecture as a secondary, theres little other reason or amenities to live there. You really can’t compare high-rise neighborhoods to low-rise neighborhoods as they are completely different IMO.
Bob,
What are some areas in Chicago that predominately owner occupied and are or have the chance of becoming viable neighborhoods.
Are you seriously saying that there are no reasons to live in or amenities in the Gold Coast, Streeterville or river North? Are you kidding me?
Today, I looked at this building. It seemed amazingly inexpensive to me. A 3-bedroom facing east is about $405K.
A couple things:
1. Chase lets the buyer finance with just 95% down in this building. I thought that was nice.
2. The common area/entryway is nothing special and will take a lot of money from the Condo Board to fix up, once the building is turned over to them. (Speaking of which, *is* it yet? I don’t think so, as it’s not 100% sold, but I’m no expert).
3. Someone mentioned that they think the assessments will skyrocket. Why is that? Just because of the costs of heating and cooling? The person who took me on a tour said that the Developer has a history of being pretty much on target, having turned around several other buildings and the assesssments have stayed basically the same.
Anyway, overall, I thought it was a lot of condo for not a lot of price. If anyone has any responses to my questions, I’d really appreciate hearing them.
I also looked at The Columbian and liked it there, but you pay more for less.
The flippers/ investors who are now forced to rent their units are actually keeping the price stable. Imagine if all these units the owners now decided to sell them all at the same time. The inventory would be extremely high and drive the price down. As long as they can keep renting their units the price will be good. Actually the rental maket this summer and fall was the best it has been in 5 years. I rented all my onebedroom units in less than 2 weeks each and with year over year price increases.
As for high-rise neighborhoods not having a neighborhood feel. It all depends on what you consider a neighborhood. Would you consider the Upper East Side, West Side and other parts of Manhattan and Booklyn in which there is a predominance of high-rise buildings not to have a neighborhood feel. The Gold Coast, Streeterville, South Loop, East Loop may not be what you consider a neighborhood but each one has its own distinct feel and if you spend some time in the neighborhoods you would be able to see that.
As for this building. Most of the owners (investors and owner/occupied) bought in this building for its no nonsense lobby and amenities. I am pretty sure they are not going to spend any more money to redo a lobby that is minimalist in style. If you take a look at the previous buildings in which CMK has done, you will see that at 630 Franklin, 1620 Michigan, 1845 Michigan that the assessments are the same as when the developer turned the building over to the residents. I have owned units in some of those buildings and the reserves are very healthy and the association are doing fine. In 1620 Michigan the association was able to add free cable and internet due to its large reserves and not have to raise assessments. When you look at heating and cooling costs of a high rise ask if it is a 2 pipe or 4 pipe system. A 4 pipe system will always be siginifcantly more expensive. The reason is that in a 4 pipe you can turn on the heat or cold any time of the year. In a two pipe system the whole building gets only cold air or hot air. Many people complain about the two pipe but its only a few warm spring days and a few cold late summer days that it really effects you. But the difference in cost in assessments is $75-100/month for each unit. This building is a 2 pipe system, so I don’t expect costs to go up much.
CMK properties are like a Chevy Cavalier, ugly and cheaply built to serve a simple function. Unfortunately, like the Cavalier, when it comes time to sell your CMK unit people will first laugh, than offer you much less than you paid for it.
As seen in recent sales data, people want to buy something that has lasting value ( i.e. built with quality and style). These Russian housing projects built by CMK, were solely built for the amateur condo speculator who foolishly bought at the end of the housing bubble.
It’s great that you could rent out all of your units, Condo Investor. Do you mind sharing with us how positive/negative the monthly cash flow is on those rentals?
Pete
On most of my units, I am around break even and at worst $100-150 negative per month for the first year, but as rents rise each year, they tend to cash flow positive then or in a few years. I don’t buy new construction condos on the thought of having them as cash cows but they are more of an appreciation play overa 10-15 year horizon. Also while I break even, I can use my losses from the depreciation I take on many condos to offset gains in pure cash flow properties (multi-unit buildings, triple net lease retail…) You can’t calue a condo in streeterville, river north, south loop the same way you value a 8 unit apartment building in Mt Prospect or a strip mall or 40 room motel.
Also, not every unit in a building makes a great return on your rental. A 700sq foot 1 bedroom makes a beter rental unit than a 900sq foot unit. Most people looking to rent a 1 bedroom have very little furniture and belongings in general so while they would value the extra space, they would usually rather pay $200 less a month for the smaller space. So a 700sq foot 1 bedroom you can easily get $1350-$1400/month but for the 900sq ft, you most likely will only get $1550-1600. In reality you probably paid $50-60K more for the larger unit and you will never make it up in rent. The same is true for a 2 bedroom in that a 1000sq foot unit, provides a better return than a 1250sq foot. Many people buy units as investment but they tend to buy the larger units because that is what they would prefer but don’t look at it from the point of view of the renters.
I think especially if you look in the Downtown core area, over the next 10-15 years these smaller units will have a lot more value because the zoning that the city is forcing upon developers. The city is restricting the number of units in buildings by increasing parking requirements and decreasing floor-to-area ratios so you will see most developers over the next decade or so build bigger units as that is where they will get their biggest return. This will leave a lower percentage of smaller and thus more affordable entry units for entry level renters/buyers. You have to have a long term outlook and be able to withstand short term bull/bear markets in real estate. Too many novices got in a few years ago thinking that real estate is a short term investmentbut. If you ever buy a property and there is a chance (no matter how small) that you may have to sell in 5-10 years then don’t buy it.
thanks for typing that up, condo investor. pretty informative. how long have you been doing this sort of thing?
Condo Investor:
Your post above has been the most insightful and interesting thing I’ve read on this board.
Editor’s Note: Please do not post entire news articles into the comments section. It’s fine to post part of it and a link- so others can read the rest of it. Thank you.
‘Straw buyer’ deals fuel tidal wave of foreclosures
By Pam Louwagie and Glenn Howatt, Star Tribune
June 9, 2007
She was 22 and tired of exotic dancing for a living. So Irene Thomas bet her future on real estate, hoping that becoming a landlord would be her first step toward exiting the stage.
With the help of Universal Mortgage Inc., a brokerage company in Brooklyn Park, Thomas signed the papers to buy a house early last year. And she kept signing. And signing.
In 90 days, with none of her money down, Thomas had $2.4 million in debt and 10 houses in her name, most in north Minneapolis. Nine belonged to officials of Universal, the same company that handled the transactions for her.
Less than 18 months later, Thomas was losing every property to foreclosure after the monthly payments weren’t made. Her credit ruined, she now says she was duped by a group of real estate insiders who sold houses at inflated prices.
The practice is so commonplace that real estate experts say it is helping fuel the nation’s foreclosure epidemic, which is destabilizing neighborhoods as home after home is lost to banks and other lenders.
In places such as north Minneapolis, hit by 600 foreclosures already this year, investors have used real estate deals as get-rich-quick schemes, leaving empty homes, abandoned tenants and wrecked credit ratings in their wake.
Property records show Universal has been at the center of a web of transactions where a small group of investors, including several Universal employees, bought rental properties and quickly resold many at above-market prices. At least 27 houses linked to the firm have landed in foreclosure, according to property records.
Earlier this year, a mortgage lender filed a federal lawsuit against Universal, accusing two employees of using fraudulent documents to make money from another real estate deal. And two other people who bought houses through Universal are accusing the company of taking advantage of their real estate inexperience to sell them overpriced rental properties.
Nine mortgages processed by Universal and signed by Thomas incorrectly indicated that Thomas would live in the homes. In other cases, documents for two other Universal clients, both unemployed, stated they held jobs.
“All along I feel like they were just screwing me over and they knew what they were doing,” Thomas said.
She said a state Department of Commerce investigator subpoenaed her early this year to talk about Universal and some of its employees. The department would not confirm the existence of any investigation.
John S,
I don’t have the data you’re looking for, unfortunately. I do know what I consider ‘viable neighborhoods’ are more the traditional neighborhoods and they probably have a significant portion of rentals.
For me a “neighborhood” is more of a low rise area, you’re preferences may vary. Basically if you can find the answer to your question you’ve found the next neighborhood ripe for gentrification I suppose..
Condo Investor:
“Also while I break even, I can use my losses from the depreciation I take on many condos to offset gains in pure cash flow properties (multi-unit buildings, triple net lease retail…)”
Huh? Yes I know the bookkeeping behind it…your commercial properties (including apartments) are cash flow positive but your condos are not. Wouldn’t it be better to dump your condos. I mean, the losses from the depreciation (which is later recaptured) you’d would be better off to not have those losses in the first place. Dump the losers.
And, yes, again I know all about the cash flow on properties versus the tax losses due to depreciation of the structure, expensing maintenance, etc. etc. etc. I’ve made millions in real estate but can’t figure out why you think having some loser condos helps you??? Enlighten me. I’d rather have all strip malls that are cash flow positive and make a profit.
I’m not a CPA but doesn’t making a profit generally imply paying taxes? I’ve seen returns where the depreciation amounts to hundreds of thousands of dollars in losses every year. And because it’s an s-corp, the losses flow through to the owner of the shares. The owners basically pocket the depreciation. Sure, it has to be recaputured at some point of time in the future, but they’ll be long gone by the time that happens.
John
Its just diversifying my real estate portfolio. Also the leveraged return over a long period of time is actually better on a condo than a commercial property. On the commercial properties lenders are requiring 25-35% as a downpayment and on the residential properties, you can purchase with 10% as your downpayment and over the long haul the numbers on a percentage return basis work out better for the condo. A similar analagy would be to growth stocks versus dividen paying stocks. You can always assure yourself of profits if you bought only stocks that paid dividends but your return over a long period of time is better with the growth stocks. The commercial properties are only worth as much the rent/cash flow it brings in. There is a limit to which that can be increased with long term leases and lease renewal options. With residential real estate there is more of a psychological factor that plays into the valuation and residential real estate is valued at a higher amount than it would be if it was purely a commercial property based on cash flow.
As homedelete mentioned, the depreciation does have to get recaptured but as long as the 1031 exchange is around, you can keep delaying and delaying that and with proper estate planning, you can pass it on to your estate with a much smaller tax consequence.
Thanks for the reply. I understand having offsetting investments, esp. the use of depreciation which is later recaptured. It is a big help, HOWEVER, it makes little sense to have some properties that are under performers thinking that they somehow “help” you and it is a smart thing to do. In my mind, it basically is just a tax move with the incentive to buy a poor investment. When I run the numbers I’d rather have all winners in my portfolio, dump the dogs (are they really going to appreciate faster than inflation over the long term? Probably not really). When I invest, it is investment first, tax ramifications second. The 1031 exchange seems to encourage people to make bad purchase decisions, not all of course, but many. You make money in real estate at the time of purchase, not when you sell (see a previous post on the subject). I just don’t think that there really is a real asset “growth” in real estate other than inflation and the small possibility of a substantial increase due to nearby developments which works both ways on possible neighborhood declines. Just my two cents. But then again I am pretty conservative when it comes to using leverage (debt) too.
Also, my goal is wealth accumulation overall, not income or cash flow.
John
I agree with you, but these individual purchases tend to be a more risky leveraged investment than a cash flow property. I tend to be a bit more aggressive with using my leverage. It is the fact that the access to capital is or was much easier in the residential market, it allowed me to and others to accumulate or control of more properties. While in the short run these may be high risk as there may a be a 10-15% downturn in prices, but if you have a long term holding period, the risk is significantly reduced as you go through multiple cycles in the market and the return regresses to the mean.
I think a lot of people have buyers remorce when they buy a property. If you are buying a property just like a stock and you have a long term outlook, you shouldn’t care about the short term fluctuations in the market. If the property is good now and you feel it will be good in 10-15 years then why does the current price effect you. As an investor, I should only care about the price in 15 years.
Below is an example of two investors with $500,000 to invest. Investor A buys at the peak of the market but due to his easy acess to capital is able to leverage 90% of the property with loans so is able to purchase 5 million in property. Investor B waits and the same properties are now 10% less but his acess to capital is significantly reduced and can only leverage 75% of the property with loans so is able to buy 2 Million in property. So in current time Investor A has a portfolio worth 4.5mil and B is worth 2mil. Over the next 15 years, if you assume a 3.5% appreciation rate. Investor B after 15 years, his portfolio would be worth 3.35 Million and Investor A would be worth 7.5 Million. There is a lot more detail to the calculations that you can dissect but when you run the numbers, Investor A will end up with more accumulated wealth. Most people do not have the risk tolerance to invest like this but for those who can handle it, the returns can be really good.
Like I said this is a risky investment if you are a short term investor but every year you plan on holding hte investment the cumulative risk goes down as the average returns regresses to the mean.
Condo Investor: Hey, I’m just trying to question some of the conventional wisdom out there on real estate. Leverage does work both ways and IF you bought at a good to great price and keep the properties occupied, then you can get a fair return. For most people, real estate via financing is a means of forced savings which is why it usually is a retirees largest asset. With that said, in REAL dollar terms (inflation adjusted dollars) a lot of residential real estate will NEVER return to the bubble prices. This bubble was historic and won’t be repeated anytime soon. One advantage with capital gains is you’re not taxed each year unlike a current CD at 4% which after taxes probably won’t do better … and may be worse … than inflation rate.
The bottom line is, you make money in real estate at the time you buy the property, not when you sell. The two exceptions are builders who make money off of constructing the building and developers who put the land to a higher and better use.
My forecast is that in ten years we will be close to the long-term trend line for residential real estate prices. In the interim, we will go below, if not substantially below, that line. As this thing plays out, we’ll see why this was the biggest US housing bubble ever.
Best wishes.
Condo investor – thanks for your thoughtful posts.
Makes lots of sense to me but i can never find condos that break even in terms of cash flow, even with 25% down. I’ll keep trying but it’s time consuming. You said you had owned units in some new construction CMK buidlings and i don’t see how those would have ever cash flowed.
I’ll put in my $.02. Looks like investors are willing to accept negative cash flow initially. Let’s say the cap rate is 5% and they expect 3% annual rent increases. That gives them an 8% return on assets even though initially they will be losing money. As long as they can finance below 8% they make money.
As for condos that break even, I know of at least one. I stumbled upon it in South Shore but maybe that’s not an area you want to invest in. But this shouldn’t be time consuming. Just tell a decent realtor what you are looking for and see if they can deliver.
Gary,
I see you’re point on the investment side, but consider this: even though they make some return off of the net between the financing costs and the ROA, is it enough to justify the amount of time spent being an accidental landlord? My gut check is that for small players this might not be enough to cover their ‘hassle’ fee of being a landlord.
Larger players probably get more economies of scale but it sounds like from your calculations it in no way makes sense to go with 1-3 units but instead you need to make it your FT job and have many properties in order to eke out anything worthwhile.
I’ve always said I’d never be a residential landlord, I’d take a loss to sell first! Most people would make better money simply by taking their time and working as a greeter at Wal-Mart where there is no stress, no worries, no risk with a predictable schedule. Real estate can be a trap since it is not liquid and huge debt trap for those that lever their positions. It is something that I just wouldn’t want to get involved in ESP. if you don’t live within 10 minutes of the property!
The borrow at 6% and get an 8% return is seductive but you never know when that slim margin will do you in with a bad tenant or empty places….
Bob,
I completely agree with you. That’s why I don’t do it. And I’m not willing to accept an 8% return for something like this. I’m amazed that some people will. I think they have bought into the myth that real estate is the key to riches. Or they don’t expect to get an 8% return anywhere else – which has been looking like a valid POV.
However, the landlords that I think are smart do do it on a full time basis, do establish economies of scale, and…BTW…seek out higher returns.
I think it’s difficult to be a landlord and own individual units. The income per unit it too small. The successful landlords I’ve known have owned multi-unit buildings. My landlord owns a huge courtyard building – 36 units in all. At an average rent of $800 bucks each unit he nets $345,600 a year. His mortgage is very small and/or was paid off years ago. He lives 15 minutes away and has an office in the basement which he also uses for his part-time side business. He takes care of the building and updates when necessary. He is picky about tenants too. He says he’s only had to file eviction papers once in 20 years. My previous landlord owned a three flat in Roscoe Village. I think he broke even on the mortgage every month but I know he held on to it for the captial gains. He sold it after 5/6 years to a developer who tore it down and built another three flat. My former landlord made IIRC about $150,000 in capital gains. However, he got lucky and sold near the very top, if not the top of the bubble in ’05. The developer paid him $550,000 for a regular on Damen St. near Addison; the other lots in the area were welling in the $450’s. That being said, I think it would be difficult to replicate my former landlord’s situation. Anyone trying to do that nowadays would surely lose lots of money.
Oh, by the way, the word just came in. say goodbye to 95% loans from Fannie and Freddie soon. 90% will be max. Ouch. That will be felt throughout the housing food chain. Demand for apartments will rise.
Once the mortgage insurers stop insuring mortgages without a substantial downpayment, we will return to the mean….and with the low savings rate as a result of the housing wealth effect we will go below the mean…..
Condo Investor,
1)You mentioned “returns over a long period of time is better with the growth stocks”, this is false. Numerous studies have proven that buying value stocks (those with a low price and high dividend yield) produce a higher return over a long period of time compared to growth stocks. The reason is simple, people over pay for glamour stocks or good neighborhoods. As a result, their expected return is lower. More importantly, the golden rule in financial market theory states the higher the risk the greater the reward. Consequently, buying into area or stocks that are perceived to grow or become great investments is not taking on risk but rather lowering risk and lowering future return.
2) Your investment strategy in buying Condos is simply a highly leverage bet on price appreciation. Leverage is a double edged sword, small price decline can 100% of your equity. That said, you fail to explain or understand why property appreciates at x % per year. It appears you just believe, falsely, that property will magically appreciate at x% every year ad infinitum. Moreover, you believe that regardless of your entry point, you will always achieve the same historical rate of appreciation! Tell that to the person who bought NASDAQ shares in 2000 ! This fundamental misunderstanding of how financial assets are priced and what makes them grow is the sole reason why we have a bubble in real estate. The real estate brokers and agents don’t care, as long as you fools keep buying and selling they are making money.
3) Economic research has proven that real estate prices are a function of income. Yes, interest rates also are an important short-term determinant, but in the long run those differences in interest rates cancel themselves out. Historically, real estate has appreciated at the same rate as income growth. This fact also explains the reason why real estate is local, incomes can vary by location.
4) Using data from Case-Shiller, condo and home prices, as of September 2nd 2008, in Chicago are still 35% overvalued relative to income. If you are going to use history as any kind of guide, than either home prices need to fall 35% or incomes need to rise by 35% just for prices and incomes to get back to normal. More importantly, most of the inventory of unsold homes and buyers in the last 3 years were speculators, like yourself. This blog just further reinforces this dynamic. This is an important realization because unlike the home owner who need a place to live and could care less about yearly price appreciation, the speculator is in danger of massive losses due to highly leverage strategy based on false premises.
5) Those fools who bought NASDAQ stocks in 2000 had the same amateur thought process about investing as seen by those in real estate today. First, they extrapolate a trend but fail to understand what caused that trend. Second, they fail to understand how price affect return. Finally, they assume any price decline will have no affect on their intermediate returns. The reality is intermediate returns do matter because in the long run we’re all dead !
6) If everyone is in the business of becoming a landlord than who will they rent to ? And will the good tenants that pay on time really want to live in your place ? Renters aren’t stupid, they will look for the best deals especially with all the competition.
Real estate or stocks are not inherently bad investments. But at certain prices they are!
John S.,
Shiller demonstrated that housing prices over the long run basically appreciate with the rate of inflation. When you look at the historic Chicago Case-Shiller data you see that it appreciated at a rate of 3.7% per year from 87-98.
http://blog.lucidrealty.com/2008/04/25/the-truth-about-chicago-area-housing-prices/
Extrapolating that I get that prices need to drop about another 10% to get back in line.
Now prices are out of whack with income but have been for some time. I’m not sure how that is sustainable but it seems to have sustained in large parts of the country for a really long time.
Gary,
If you can get me recent median income figures for Chicago and/or by Zip Code we can more accurately asses fair value(using 30% of gross income as the threshold). Using figures from the 2000 census and increasing by the rate of inflation experienced since than, I estimate that prices still need to fall 30% in Chicago to be inline with income.
You don’t need to look that far back in history to see what happens to real estate prices when they trend above incomes, see what transpired in California or New York from 1990 to 2000.
P.S.
I cam across this video on youtube which greatly explains the bubble dynamic that had occured in real estate….
http://www.youtube.com/watch?v=xNKs8lBnd2U&feature=related
I think real estate pricing has a lot to do with interest rates as affordability for the majority of the population is payment based.
As our interest rates have been artificially low since 2000, it makes sense that real estate prices have leaped.
The CS index only measures nominal prices and does not account for interest rates. So I think comparing nominal real estate prices from higher interest rate times might not be accurate.
Bob – Huh? You might want to reread your post since it makes little sense. CS includes times of high and low interest rate times. Low interest rates allow monthly payment people to “afford” a larger purchase price, not necessarily a larger or better house. NEVER buy anything when the first thing the sales person asks is how much can you afford each month….that includes cars, houses, whatever. Price first, financing second.
Homedelete, you mean your landlord “grosses” 345K. He nets far less.
John S.,
I do plan on looking into the income/home price relationship some day. I want to add that to my data collection. I already know it is out of whack and has been for some time. The curious thing is that it has been out of whack in all the high cost cities forever: Chicago, NY, SF, LA, Boston, etc…My theory is that people put inherited wealth into homes but I can’t prove that.
Bob,
I believe that Shiller looked at the interest rate impact on housing and concluded that it wasn’t as big an effect as you might think. If you can access: Robert J. Shiller, “Irrational Exuberance Revisited”, CFA Institute Conference Proceedings Quarterly, Volume 23, Number 3, September 2006, pp.16 – 21. I no longer have access to this.
John S
You make a lot of valid points. You are right in that value stocks do better than growth, but high dividend paying stocks such as utilities are not value stocks, they tend to correctly valued based on current interest rates, income, and revenue. In a real estate analogy, a value stock would be similar to picking something up via foreclosure or a short sale in which the property purchased is at a discount to the comps in the area. That was my point in that cash flow investments like a triple net lease commercial space are usually pretty well valued based on the current interest rates, income, and revenue. These properties behave more like a utility stock did in the past beacuse the revenue stream is usually maximised and the future revenue is also known, so there is no real growth potential. If interest rates drop the cap rates tend to fall and prices of these properties usually go up and the same is true of a high dividend paying utility stocks. Obviously within a particular market there are values to be found but that is true of any asset or business.
The NASDAQ of 2000 is basically a broad term for the tech stocks. That would be like saying buying Las Vegas or Miami real estate in 2006. While the NASDAQ as a whole has not done well that is not a broad market and is not well diversified. Do you think the people who bought Exxon, Chevron, Mining stocks, Commodities, Phillip Morris, international stocks and even a tech stock like Apple are doing well. No one is saying to buy all of the real estate in the US or even the Chicago area but you can find submarkets, neighborhoods, and even particular buildings that will continue to do well. No one is advocating buying in cities like HArvey, Chicago Heights, Gary, Waukegan, Joliet, Aurora, Crystal Lake, … but these all get lumped in the index when they look at Chicago housing indexes. Yes I am betting that prices in certain Chicago submarkets will be higher in 15 years than now, but I am not willing to make that same bet for the whole Chicago or US market.
Housing prices are tied to income and take a look at a 2 mile radius from State and Madison (zero/zero). From 1993 to 2008 has there been a significant increase in the average income level and income density. This is also the case with inner ring neighborhoods such as Lincoln Park, lakeview, Bucktown, Wicker PArk, Uk Village, West Loop, UIC, Logan Square, … Chicago is becoming very much like many European cities (PAris, London, Madrid) where the wealthy live close to the city center and the poor tend to move further away in the suburbs. Just look at the demographics shift we have seen in Chicago and will continue to see more movement of young people as well as empty nesters into the City and all the amenities that are so easily accessable. Gas prices also dictate where people live and in 15 years with the amount of demand from China and India, gas prices will be significantly higher and many people even now are choosing to live near work and fortunately for us, the Loop/Downtown area is probably the second largest job district in America outside of Manhattan.
People rarely will ever buy in a large lump sum but if you tend to dollar cost average your investments you take away the timing risk. Yes people who took their life savings out of CD’s in 2000 and bought random dot.com stocks were idiots and so were people who put deposits on houses and condos in Miami, Las Vegas, Phoenix, Stockton,Ca…
I’m not sure how with an investment that for me is cash flow neutral, and I have a 30 yr fixed mortgage, how the market value of the property next year will effect me if I don’t plan to sell for 10-15 years.
Some investments are not for everyone. You have to be prepared and willing to assume the risks that come with each investment.
“I’m not sure how with an investment that for me is cash flow neutral, and I have a 30 yr fixed mortgage, how the market value of the property next year will effect me if I don’t plan to sell for 10-15 years.”
It depends on what price you paid. That really is the bottom line. If you bought in the last 4-5 years you probably overpaid and in REAL dollar terms will not get any appreciation in 10-15 years.
With respect to gas prices, I have to laugh (not at you). Electric cars will be the norm and people will be scrapping their old gas cars by then since they will simply be too expensive to operate. The tech and econ behind electric cars has reached a critical point esp with the new battery tech that has come out. Maybe that will cause people to liver further away from the city center? The point is, who knows in 10-15 years? Don’t bank on the oil prices, foreign buyers, weak dollar, whatever to prop up home prices….
Gary,
I agree, buyers more than likely used inherited wealth to purchase homes beyond what their incomes could afford. As a matter of fact, they probably used all their savings and more than 50% of their income on top of ridiculously crazy financing schemes to make these purchases. The problem is this dynamic is not sustainable. When people realize using more than 30% of your income towards housing is not prudent and/or when people realize that savings or inherited wealth can be deployed in higher returning investments who will these people sell their overpriced homes too?
The question is why would anyone use inherited wealth and/or all their savings and/or all their income just to buy a house? The answer to this question reveals the true reason why a housing bubble formed.
As explained in the youtube video I posted (http://www.youtube.com/watch?v=xNKs8lBnd2U&feature=related) , many people falsely believed a house could appreciate 10% per year forever. Why wouldn’t they want to use all their money and any financing they could get to purchase what was perceived to be a ‘sure bet’ to riches and wealth.
Just as herd psychology drove prices up, the same dynamic will be in play to drive prices down. Don’t let these amateur investors fool you into bailing them out of their problems, they will learn their lesson just like those NASDAQ clowns in 2000.
John,
I’m not so sure housing will suffer near as much of a correction than even the general market did during the 2000 bubble burst. I believe this is because housing has much more of a utility value and a certain segment of the population will always prefer tangible things to invest in than abstract things such as securities.
These psychological factors of real estate, combined with the “pride of ‘ownership'” and the general sense that ‘owning’ real estate is integral to being successful in our country I don’t see changing overnight. Not to say a correction isn’t at hand just that I think there will remain an ownership cost premium in many areas even after this deflates.
John
Oil prices, gas prices, commute times do determine where people live. I don’t know if you had been to India or China in 1993 and see how significant the change has been since then and the fact that they are just at the begining of modernizing their economies and lifestyles. There will be strong demand and there isn’t that much cheap oil out there. If $4 gas has changed the way people think and act, just wait until we get $6-8 gas.
As for electric cars, the cost is still significantly high and with substandard performance. There are a lot of questions that need to be answered such as what is the lifespan of a electric car and the fuel cells. What is the replacement cost of the fuel cells? If the lifespan is only 5 years than a gas guzzler that last 10 years is still significantly cheaper over the life of the vehicle. Yes, electric cars will get better but it will take time to improve on the technology and make it cheaper. The problem also is that in this country is that most of electricity in this country comes from fossil fuels (mainly coal) as opposed to a cheap commodity like nuclear energy. This need demand for coal is going to cost more and electric rates have already risen, and will continue to rise.
Obviously we have a difference of opinion of what will happen over the last 15 years and that’s good for markets. For every bear we need a bull, and for stable markets we need a stable equilibrium of bulls and bears.
I’m just curious to where you think Chicago will go demographically over the next 15 years. Will we revert to 1980 Chicago or continue this migration of the two largest age groups that we have already seen and should continue to see.
What I am saying is that if you bought within 6-12 months of the peak, you will NEVER see home prices in REAL DOLLAR terms at those prices in your lifetime. Nominal dollars don’t matter. We are going back to traditional lending standards at a time when Americans didn’t save up, overburdened with debt, and can’t trade up their house because they owe more than it is worth. The worst case scenario is getting worse…
We will have less reliance on imported oil as the electric economy takes hold. The economics are what will drive this. The tech is here and getting better everyday and soon the dreams from the 70’s will take off. Electric cars are so low maintenance and the battery cells are easily swappable and recyclable. With the new lithium ion nano anode technology we are going to get 10x’s the charge capacity out of the same size and cost battery. It is a game changer….2,500 miles on one charge if the Tesla sports car had these new batteries, or simply use 20% of the batteries instead and make them in swappable packs which will make it faster then fueling with gas. It is coming…
I don’t think the power generation system can supply that much electricity. Natural gas is currently half the cost of oil for equivalent energy and we have loads of it. Look for LNG vehicles.
Regardless, the current trends indicate the rich occupying the cities and the poor moving out. Given some of the comments here I wonder if some of you read:
http://www.tnr.com/politics/story.html?id=264510ca-2170-49cd-bad5-a0be122ac1a9
It also important to note that the current real estate bubble also involved massive fraud, similar to other bubbles throughout history. Thus the reason why banks and the MBS bonds they issue are worthless.
Here’s an example of the massive Straw Buyer fraud committed throughout the USA:
A person buys a building in a crappy location for $20,000. He/She then finds an accomplice who willing to pay $300,000 for that same crappy building only a few months later. The accomplice is not going to use his money, but rather the banks money with no intention of ever paying the loan back. The accomplice is willing to ruin their credit for 5 years because of the cut he’ll get from the $280,000 profit generated from the sale. Many times, false information was used to secure the loan and as a result the accomplice never really harmed his real credit.
Because real estate values are based on comparables, real estate agents, speculators, and buyers now have justification for a crappy building to be worth $300,000, when it was worth only $20,000 a few months ago ! That person who bought those crappy buildings for $20,000 now can bullsh$t his way into convincing a fool into buying it from at $300,000. This time no accomplice is used, just a stupid speculator.
Similarly, because a crappy building in a crappy location is worth $300,000 it provides further rationale for a decent building in a decent location to be worth $1,000,000 !
As you can imagine, when banks finally forecloses on these properties they can only sell these buildings at massive losses to the original loan amount.
Who benefited from all this fraud ?
The Fraudulent parties involved, real estate agents, appraisers, lawyers, and anyone else that receives a fee as a percentage of the sale price when buying and selling a home.
Who losses ?
The greater fool who bought the home and was left as the bagholder.
Does this sound familiar to the fraud committed on wall street during the stock market bubble in the 1930’s or 1990’s ? It should because all bubbles are the same, and this time it isn’t different !
“If you bought in the last 4-5 years you probably overpaid and in REAL dollar terms will not get any appreciation in 10-15 years.”
But he doesn’t need to to have an okay return, so long as he’s actually breaking even on cashflow. And as noted, the condo investing was higher risk. If he gets real returns on the purchase price, it turned out pretty well, if not, then it wasn’t awful and if rents collapse, then there’e a problem.
anon – The investor stated that on the whole he was neutral and relying on asset appreciation and low rate / leverage financing. My point is that in REAL dollar terms we’ll never see prices like that again and any equity used to purchase is long gone. Too much hassle for the risk and meager return which could easily be negative. It is something I am just not willing to go into myself given my own analysis. I have heard many people make mistaken analysis in the past. Perhaps the investor will be in a good position…I don’t know the individual circumstances but on the whole these things don’t pan out as anything worthwhile.
With respect to electric cars and the power grid (there are more ways to charge the battery systems than just the direct power grid to car approach) most cars can be charged at night on off peak hours…..Lot’s of capacity then!
A back-of-the-envelope calculation I use to find out how much a condo or house should be worth today is to find the value at pre-bubble prices ( e.g. anything prior to 1997) and than compound that price by 5% per year to present.
For example, I found a 3 flat in Lincoln Park asking $725,000. I searched through the transaction history on ccrd.info and found out that building was purchased for $240,000 on 08/1996. Compounding $240,000 by 1.05 to the 12th power gives you a value of $431,000.
As a result, you can clearly see this property is over valued by 40%.
I run these calculations everyday on hundreds of properties in various neighborhoods in Chicago, unfortunately many are still overvalued by 30% to 40%.
Even though the Case Shiller Index says prices have fallen, Chicago still seems to be in bubble land.
John,
I would also question even 5% annual appreciation as a little ridiculous. Barring any improvement done to the neighborhood, over the long run real estate appreciation should approximate general overall inflation.
So I should go back to 1988 and see what microsoft was selling for and use an 8% return and that should give me the current value.
Don’t you think gentrification had anything to do with the price increase. Also what was the average income of people who lived in that area in 1996 to what the income level is now. What about improvements to the property.
So should we value areas like Logan Square as if no changes have happened since 1996. What about Roscoe Village, Bucktown, Wicker Park?
John S. –
is this property at 2106 Bissell? it would be fun to disect the particulars.
Anon said:
“So I should go back to 1988 and see what microsoft was selling for and use an 8% return and that should give me the current value.”
Wow. Besides Microsoft really doing poorly in the last few years, to compare a growth tech company that can increase its income exponentially (which is why it went up in price, wasn’t a big dividend paying stock) to a house that can’t increase its income substantially, it is the same house, is nonsense. You might want to rethink your post….that seems to be exactly how we got into this bubble mess in the first place. Best wishes.
“So should we value areas like Logan Square as if no changes have happened since 1996. What about Roscoe Village, Bucktown, Wicker Park?”
A handful of areas have gentrified in the last 10 years – big deal. Your examples are exceptions and not the rule. The example John S used was in Lincoln Park. I’ve lived in this city for quite some time. I know that the LP in general hasn’t changed all that much – except for the price of real estate. At least he had a method to provide a reasonable valuation based on past performance. That’s much better than some people did during the boom – such as the famous Gary Watts quote. He gazed mysteriously into the crystal ball and proclaimed, ““Fifteen percent is pretty much in the bag for Orange County in 2006”. Yeah, that didn’t happen.
Anon said:
“Don’t you think gentrification had anything to do with the price increase. Also what was the average income of people who lived in that area in 1996 to what the income level is now. What about improvements to the property.”
This measurement is more suitable for areas that have not seen major shifts in median income, which is the case for most neighborhoods throughout Chicago.
That said, I always wonder where all these high median income individuals migrated from prior to landing in Lincoln Park. Where did professionals with high median incomes in Chicago live prior to 1996 ? More importantly, shouldn’t this shift have had a negative impact on prices and growth in the areas they either left or area they would have gone too. Did Chicago really create this many new high median income jobs since 1996 ?
P.S.
I also run models using discounted cash flow, simple cap rate models, etc. I then compare all the results to get a much better idea of the true value. Like you said, median income is the most accurate measurement if you can get the #’s.
“I know that the LP in general hasn’t changed all that much”
The one meaningful change has been the building of new single family homes and “luxury” condos on standard city lots–In the mid-90s, there weren’t a lot of brand new SFRs going up.
The price of a buildable lot has gone up and hasn’t fallen off too much from the peak. John S.’s three flat is probably priced more as a teardown than a rental. Is that sensible? I think not, but it’s been the reality.
And, yeah, the gentrifying ‘hoods should have an adjustment. It’s probably most “accurate” to do the same annual inflator and add a percentage to reflect the improvement to the ‘hood.
“Did Chicago really create this many new high median income jobs since 1996 ?”
(HD will get all over this b/c it’s “only” 500 people and student loans are a big factor, BUT:) In ’96 the starting salary for associates in the biggest lawfirms was $72k (exactly 30% of the subject 3-flat); in ’08 the same starting salary is $160k–which is 30% of $533k (and 4th years have gone from about $85k to $210k). So, for a segment of the young, upper-middle class, salary growth has exceeded 5% by a meaningful amount–not really enough to support the current pricing, but enough to have a real effect on the market.
I will get on your case about big firm salaries. It’s like tyring to justify high real estate prices because the top 1% of income earners make even more money than they did 12 years ago. What about everyone else?
BigLaw associates I’m not sure would have enough affect on the market, to be honest. There are probably just as many young small business owners their age or more who could equally have as much an effect on the market.
For an area the size of Chicagoland even 5,000 very well paid people won’t have much of an affect. This city is huge.
On that note its interesting to see just how many developers overshot the market. On YoChicago it is uncommon to find 1br/1ba condos under 200k and most start in the upper 200s. Its really quite comical when you see how much median incomes haven’t budged (and have dropped in real terms) over the past eight or so years.
Anon-
The compounded annual growth rate since 1996 ( according to your #’s) for the starting salary for associates is 6.88%. ( i.e. 160000/72000 to the power of (1/12) )
That’s not that far off from the 5% growth rate use as a base rate.Using 6.88% as the new growth rate, the subject 3 Flat in Lincoln Park is now valued at $533,296. Still overvalued by 26% !
But the question still remains, where would the typical associate live prior to 1996 ? If it was in a different area, than we should observe a decline in price apperciation. Right ?
John S – interest rates are much lower now that in mid 1990’s – cheap money drives values higher.
John S
isnt capital appreciation on income properties a bit risky, in the long run isnt hte value usually set by the value of the rents and the cost of money, with the excpetion of the last few years. I would expect to see capital appreciation more in line with inflation.
am I carzy?
Haywood – No you are not crazy. You are correct.
I was doing more research on median incomes for neighborhoods in Chicago and stumbled across this treasure chest of data provided by the City of Chicago.
http://egov.cityofchicago.org/city/webportal/portalDeptCategoryAction.do?BV_SessionID=@@@@1221187509.1220517093@@@@&BV_EngineID=ccceadefdhhdgfgcefecelldffhdfif.0&deptCategoryOID=-536886129&contentType=COC_EDITORIAL&topChannelName=Dept&entityName=Planning+And+Development&deptMainCategoryOID=-536886126
Unfortunately, the data is from 2000. However, by using data provided by the Bureau of Labor Statistics we can fill in the holes to present day.
For example, BLS tracks compensation growth (see link below):
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CIU1010000000000A
According to the BLS, compensation growth from all workers has increased 3.6% per year since the end of 2000. We know median incomes by neighborhood from 2000, to get an estimate of what they are today multiple the median income by 1.327 (3.6% or 1.036 taken to the 8th power = 1.327).
Using this process outlined above, one could estimate that the median income for an individual living in Lincoln Park today is $91,050.
So the question is how much house can this person afford without overstretching him or herself? Keep in mind that a responsible adult has to save for retirement, eat healthy meals, enjoy the life$tyle that attracts everyone to the city, and pay other miscellaneous bills. Don’t forget you need to save a little too.
Using this simple calculator from CNN Money we can get an idea what this person can afford. I assumed $1,100 in monthly expenses.
http://cgi.money.cnn.com/tools/houseafford/houseafford.html
According to the calculator, the median income person living in Lincoln Park , making a Gross Salary of $91,050 can only afford a house between $225,000 and $250000. Which is between $1,200 and $1,400 per month.
In my experience and with a recent search of the MLS Listings, I could not find anything in decent condition in LP between $1,200 and $1,400 per month.
Keep in mind that when you make median income for a neighborhood you should be able to live in the median type/style home for that area, not some hole in the wall.
1720 is so very small too many units crammed into the building
very cheap materials used – very morgue like
there is NO living space at all – the kitchen and livingroom combo is so small – scary small
small units small price
my re person said the building has turned into a rental community due to the fact that most people who buy long term buy bigger places
the new building by the same builder on VanBuren is even smaller and cheaper
KEEP looking AND don’t buy just to buy – big mistake now – keep renting – when you rent – you can walk away if you do not like it!
WOW – just heard that the few houses that resold at 1720 sold for 5% to 50% less than what they paid.
And 12 foreclosures already.
All rentals -really?
NO luxuries – no gym no store no pool no conference /gathering room
Took a look – did not like it.
Yes very cold – what is up with all the exposed cement walls?
And the differnet colored shades on the windows.
DISSAPPOINTED IN THE SOUTH LOOP
TOOK a look – not a great place – very low end. There is no lobby very cold – very much like big dorm buildings out east. The living rooms run right into the kitchen – bad floor plan . AND NO perks – nothing really – the bike room is big enough for 100 bikes and there are 500 units – what is that all about?
I hear that there are many students living there too – that of course is not a bad thing – renters can be good people too! Renters – yes I hear 60%.
Heard there is another one of these buildings in the loop – and the units are even smaller – how could they be smaller?
Good time to be a renter.
building is so cheap – its aimed at the first time buyers -but the first time buyers are being ripped off
looks like low income houising on the outside and inside
very bland – dull – dreary
the South Loop really sucks – nothing to do!
has the feel of a low income building on the outside
suppose to be modern
more like just cheap
units LR and Kitchen blend into one small area
all rental
my friend wants to sell and take a loss to get out fast – says you can hear your neighbors talking thru the walls
Hi,
I’ve been reading the comments and wanted to throw in my 2 cents.
I’m on the board of 1720 and some of the points are valid and true. This building is geared towards 1st time home buyers and also people who already have homes but want an apartment downtown for those weekends or nights they want to stay in the city.
The building is modern and minimalistic…hence the floor to ceiling windows and lack of amenities. Assessments have not increased except when the building was turned over and we could actually budget for ourselves as an association. Also assessments will not be increased (so 3 yrs barely any increase in assessments).
Other buildings have similar assessments but once the economy gets going and prices start increasing agian…buildings with pools, tons of staff, and amentities are sure to see increases in thier assessments.
The units are what they are. You can paint your ceiling or do whatever you want. I’ve seen people actually put in false ceilings with recessed lighting which looked really nice but technically this is all out of your pocket. If you have imagination I guess you’re only limited by $$$.
As for the “dorm” look…most newer buildings have this “dorm” look. Trump has floor to ceiling windows for example as does a lot of Museum park buildings. The difference is that 1720 is on Michigan Ave and you have a lot of nosey curious people always looking up to see into units. To fix that…put in curtains!!! Also if you don’t like the look of the building…look in the other direction. Sometimes I look out my window and see some of the trash that walks by and think the same thing…where are these punks from?!?!…COLLEGE?…Shouldn’t they be walking and prancing in the burbs rather than downtown Chicago? Dorms definitely don’t look like 33 story all glass highrises in the middle of the 3rd largest city in the US. If that were the case…you’re tution would be like $25,000 per yr just to cover your mortgage…simple math.
I blast my 7 speaker surround and my neighbors don’t hear anything or else I’d be fined $$$$$$$.
The lobby is taking a beating but when you have 498 units and maybe 1000 people going in and out daily…things wear down.
As a board…we’re looking into upgrading the common areas and also doing this in a way that will last longer and age better than what’s originally there.
If you are on a board of a high rise, you’ll know you can’t change everything at once and you have to budget for aesthetic items while dealing with major building components. Also you’ll know that just adding new plants can costs $10’000+
The South Loop is quiet…Mayor Daley lives there. Less foot traffic and traffic in general than Streetville or up north in LP
Still there are quiet a bit of unsold units @ 1720 S Michigan. Here are some of the listings:
$352,000 Unit 808 2 bdr/ 2 bth
$349,000 Unit 1410 2 bdr/ 2 bth
$340,000 Unit 2310 2 bdr/ 2 bth
$330,000 Unit 3002 2 bdr/ 1½ bth
$300,000 Unit 303 2 bdr/ 1 bth
$285,900 Unit 3012 2 bdr/ 1½ bth
$285,000 Unit 1706 2 bdr/ 1 bth
$256,000 Unit 206 2 bdr/ 1 bth
$249,000 Unit 2205 1 bdr/ 1 bth
$239,900 Unit 1103 2 bdr/ 1 bth
$239,500 Unit 1205 1 bdr/ 1 bth
$229,900 Unit 1711 2 bdr/ 1 bth
$221,900 Unit 3117 1 bdr/ 1 bth
$215,000 Unit 1013 1 bdr/ 1 bth
$210,000 Unit 305 1 bdr/ 1 bth
$185,000 Unit 1707 1 bdr/ 1 bth
$182,900 Unit 1216 1 bdr/ 1 bth
Regards
Sunny!
Thanks 1720 Board Member for all the useful info! My wife and I are strongly considering purchasing a unit at 1720. We used to live in the west loop up until we had our little one and decided to move out to the burbs for work reasons. However, we miss the city life so we find ourselves heading out to the city on the weekends; so we’re one of those homeowners who want to have a place to crash in occasionally.
There are several reasons why we are considering 1720:
1. Location. Proximity to my wife’s work place. I’m also a marathoner and I love how reasonably close it is to the start/finish lines, though I know its not as close as it would if I stay at the Hilton, LOL.
2. Accessibility to public transportation just in case we don’t feel like driving (i.e. CTA bus stop right at your doorstep)
3. Reasonable assessment (we don’t need all the bells and whistles that the other condos have since we’re not going to use it; we both go to Lifetime Fitness which pretty much surpasses any other gym there is in town hands down).
4. We also thought street parking for visitors is decent compared to the other neighborhoods where you have to circle around numerous times just to snatch one or pay $$$$ to park in the parking garage.
5. Quiet. When you have a 1 1/2 year old, you would appreciate the things that quietness does especially when they are asleep.
6. Over-all value for our buck.
We’ve checked out the units on two separate occasions and yeah, we feel like the unit that we’re interested in takes a beating from the sun at some point during the day, but then again, that’s something that a window treatment would take care of. Also, having purchased a 3,400 sg ft home out in the burbs, something the size of the condo at 1720 would seem measly, but we don’t want that extra footage. We’d rather spend a couple of nights there on the weekends and have a few friends over, than stay in one of the hotels like we’ve done in the past.
So there goes my spiel. I’m pretty sure that we are not the only one who likes 1720. I’m definite that we’ll be happy with our purchase.