Should You Rent Or Buy In Old Town? A 900 Square Foot 1-Bedroom At 1212 N. Wells
This 1-bedroom in the Neopolitan at 1212 N. Wells in Old Town just came on the market.
It is a Fannie Mae Homepath property.
From the listing pictures, it appears the kitchen and bath are intact.
The kitchen has maple cabinets and black appliances.
The unit has two balconies including what looks to be a rather large terrace.
It has hardwood floors in the main living areas and a fireplace.
The unit has central air and washer/dryer in the unit.
However, the listing doesn’t say anything about parking. It looks like the prior sale in 2003 did NOT include it.
Here are some monthly payment scenarios if you were to buy this unit at the current list price of $209,500 (using Baird & Warner’s mortgage calculator):
- Putting 20% down ($41,900) with a 30-year at 3.75%: $1782 a month
- Putting 10% down ($20,950) with a 30-year at 3.75%- also includes PMI: $2018 a month
OR- you can rent nearly right across the street at 1225 Old Town, the new luxury mid-rise building. See the building’s website here.
It has a 1-bedroom, 1 bath unit with 875 square feet. Those are listed for:
- $2510 to $3825 a month
Parking is extra I believe. So you may have to tack on another couple hundred dollars a month.
Is buying now a no-brainer?
Katarina Ciric at Redline Realty has the listing. See the pictures here.
Unit #206: 1 bedroom, 1 bath, 900 square feet
- Sold in September 2003 for $276,500
- Lis pendens foreclosure filed in March 2011
- Fannie Mae Homepath property
- Currently listed at $209,500
- Not FHA approved
- Assessments of $473 a month (includes cable, doorman, tennis courts)
- Taxes of $4886
- Central Air
- Washer/Dryer in the unit
- Bedroom: 14×10
I hate this style of building (always seems like limited light to me, even with the balconies), but that calculation is pretty compelling if all Old Town rents are really at that level – are nice one bedrooms in this location REALLY renting for that much (w/o parking)? Holy crap.
“Putting 20% down ($41,900) with a 30-year at 3.75%: $1782 a month
Putting 10% down ($20,950) with a 30-year at 3.75%- also includes PMI: $2018 a month
OR- you can rent nearly right across the street at 1225 Old Town, the new luxury mid-rise building. See the building’s website here.
It has a 1-bedroom, 1 bath unit with 875 square feet. Those are listed for:
$2510 to $3825 a month”
Why in the world would you include the principal payment in the comparison? No wonder you think renting is cheaper than buying.
chuk, it matters a great deal if you are thinking about it primarily from a cash flow perspective (how much money will I have left over every month to live on after I pay for housing).
“chuk, it matters a great deal if you are thinking about it primarily from a cash flow perspective (how much money will I have left over every month to live on after I pay for housing).”
Yes, but what if I could buy a place in cash for $1mil, or rent it for $1000 a month? I would have better cash flow buying the place, but clearly renting is cheaper in this case. Being cheaper to buy and being able to afford to buy are 2 different things. Right now, most places are cheaper to buy than rent. However, that doesn’t mean that person could actually afford to buy it.
In my opinion it is still better to look at principal in the rent/buy equation which then allows you to assume no value upside – if your property value increases great, that rewards the liquidity risk of owning, but if value remains relatively flat then you would want to have factored principal payments into the equation because it certainly affects the cost of owning vs renting. I even look at the opportunity cost on the downpayment (despite interest rates being around 1% currently).
While the locations are obviously similar, I think its a little stretch to compare the cost of owning this unit vs. renting a new luxury apartment – different price points and the person looking to rent at 1225 Old Town would unlikely want to purchase this unit – on the second floor no less. There has to be a rental correction in the next 12-24 months – no way can these rents are sustainable especially outside of the downtown core.
Couple things:
1) I don’t think this building really compares to the new one across the street. If an investor were to buy this and rent it out, I doubt it would get any more than $2k/mo. Rent vs Buy needs to at least be comparing comparable properties.
2) Not counting principal assumes that the property will not lose value. As someone who is underwater, my mortgage check is gone every month, never to be seen again. I have made 3 years of payments, of which, I will never see a dime ever again.
3) Property value, at least somewhat, correlates to rental amount. A $1mil property will never rent for $1k/mo. If you can find a $1m property to rent for $1k/mo, you should do it, but it is an anomaly, not a normal scenario.
“In my opinion it is still better to look at principal in the rent/buy equation which then allows you to assume no value upside – if your property value increases great, that rewards the liquidity risk of owning, but if value remains relatively flat then you would want to have factored principal payments into the equation because it certainly affects the cost of owning vs renting. ”
This is incorrect. If the value stays flat, those principal payments are going directly to YOU. That is equity you have in your property. Consider it a “savings” account.
“I even look at the opportunity cost on the downpayment (despite interest rates being around 1% currently).”
This is correct. The correct way to look at the formula is to take your opportunity cost, plus your expenses (interest, taxes, assessments, maintenance), and also assign a “risk value” to the equity you will be building with your principal payments. If you are certain market will be flat, you will assign a value of 1.0. Of course there is NO way to know if it was “right” to rent or buy until years later depending on the value of your property at that time.
Bottom line is, because no one can tell the future, it is impossible to ever say it is better to buy than rent. But you can make educated calculations based on today’s known values. Including your entire principal payment is not one of them.
“I have made 3 years of payments, of which, I will never see a dime ever again.”
Never is a very long time.
“2) Not counting principal assumes that the property will not lose value.”
But why include the entire amount? That assume it will lose 100%. You need to assign a risk value to it, but it is not 100%.
“As someone who is underwater, my mortgage check is gone every month, never to be seen again. I have made 3 years of payments, of which, I will never see a dime ever again.”
3 years ago is not now. Just because you bought the top of the market, that doesn’t have ANYTHING to do with someones decision to buy vs rent now. If you bought XYZ stock at $100, and it is $20 now, does that mean it is bad idea to buy that stock now?
“There has to be a rental correction in the next 12-24 months – no way can these rents are sustainable especially outside of the downtown core.”
Where is this “downtown core” of which you speak? It sounds expensive. Thank goodness for affordable alternatives like Old Town.
“I have made 3 years of payments, of which, I will never see a dime ever again.”
27 years more and you will have an asset you own outright and can sell at market value. You would have had to spend something to rent all that time anyway.
If value stays flat at 20% down you will need to stay in the place around 4 years to breakeven on a purchase – commission and closing cost credit should be taken into account. The principal is not going to YOU for a few years (unless you never plan on selling, which is unrealistic for most). If there were any lessons to be learned from the housing bubble looking at homes as a ‘savings account’ would be at the bottom of the list. Also dont forget the almighty tax savings on mortgage interest and RE taxes! They can easily add a few hundred $/month to the opportunity cost of renting.
“The principal is not going to YOU for a few years ”
Of course it is. But you just have to spend it to cover closing costs.
“Of course it is. But you just have to spend it to cover closing costs.”
Exactly. A cost that does not come with renting, thus the whole ‘rent vs. buy’ conundrum that started this conversation…
“Exactly. A cost that does not come with renting, thus the whole ‘rent vs. buy’ conundrum that started this conversation…”
Right. Transaction costs are factor in that decision. 100% of principal payments are not.
This looks to be a great option for an “in town” or crash pad… possibly a parent purchasing for their student. The location can’t be beat, good stuff
what about the $473 a month in assesments? that isn’t pocket change and should be factored into the monthly payments
“The location can’t be beat”
Especially bc it means that you don’t have to see it out your window. That’s one ugly building.
Keep in mind that the Atrim Village reconstruction is going to make that corner kinda unpleasant for several years starting soon.
Until recently, I rented a 2-bedroom in this neighborhood (Division St, 1100 block) and the going rate for 2 bedrooms is around $2.1K – $2.3K. 1 bedroom units are closer to $1.7K – $1.8K. The new deal at 1225 Wells is an attempt to get Streeterville rents in Old Town. I wouldn’t use that as a comparison.
“There has to be a rental correction in the next 12-24 months – no way can these rents are sustainable especially outside of the downtown core.”
Of course there will be. The recent increases in rents simply isn’t sustainable much longer.
Anyone who thinks the rate of rental increases over the past 1 1/2 – 2 years will continue much longer is using the same mentality that back in 2007 that said the huge increases in home values would continue their ridiculous appreciations.
nwzimmer (August 23, 2012, 1:02 pm) ““There has to be a rental correction in the next 12-24 months – no way can these rents are sustainable especially outside of the downtown core.”
Of course there will be. The recent increases in rents simply isn’t sustainable much longer.
Anyone who thinks the rate of rental increases over the past 1 1/2 – 2 years will continue much longer is using the same mentality that back in 2007 that said the huge increases in home values would continue their ridiculous appreciations.”
Rental bulls aren’t banking on rental price increasing – they are banking on them staying flat. I don’t think anyone here who is bullish on renting out their place is assuming 25% increases in rent over the next few years (what we saw over the last few years).
What do people think the rental price of this unit would be? It doesn’t have any of the cache of the place across the street. $1800 / month?
“What do people think the rental price of this unit would be? It doesn’t have any of the cache of the place across the street. $1800 / month?”
Sounds right to me. Parking would be extra $200/month
It is on a low floor, so I’d have to see how it looks from the inside. The building as a whole is nice , compared to some of the others nearby. Location is great and at 875sqft is on the larger size for a 1br so depending on the layout it might feel larger than other 1brs.
It appears to be one of 2-3 units in the building with a terrace, thats pretty cool
“It appears to be one of 2-3 units in the building with a terrace, thats pretty cool”
Looks like definitely one of only two.
What’s in the “hut” bt the building and the tennis court? Gym/party room?
Will probably lose privacy when the Tower Olds lo gets built on.
You need to factor in assessments- ~$2250- $2500 per month to own, with $473/month in assessments. And property taxes.
What the hell is going on? Since when does Chicago command $2500 1bd prices. I used to live in NYC up to 2007 and at that time that was the going price there. I would NEVER rent for that amount. You can rent from a private landlord for a lot less. Com’on $2500 for a one bedroom. That is ridiculous.
“I used to live in NYC up to 2007 and at that time that was the going price there.”
Are you sure that $2,500/mo was the going rate for large one beds in doorman buildings in Old Town-equivalent hoods of NYC (e.g., SoHo, WV, GP, etc.) at the peak of the bubble? In 2000 or 2001 (the summer, can’t remember which), I had an exclusive on a building right on Ave A (just north of 7th) along the park. It was a walk up above a deli/beer store, with a big 3 bedroom on the second floor and a couple of nice sized one beds on the third floor. (A year or so of semi-daily beer/coffee purchases with a very friendly attitude towards the store owner and staff resulted in him one day saying, “you are apartment rental guy, right? Come, see upstairs, they almost done. How much you get for rent to me?” It was the sort of moment that real estate brokers daydream about – three big, easily rentable move-in-ready units, with no rent limits, just a few doors from my own building.) While Thompkins Park was certainly greatly improved by that point in time, a walk up above a busy food/booze joint right on a crazy street, with units that had hardly been updated (basic vintage baths, new standard NYC cheap-o white stove/fridge (and a few feet of formica counter), freshly sanded floors and a coat of paint), was hardly comparable to a newer doorman unit in a more established upscale hood. I think I got around $2,300/mo for the one beds, and maybe $4,500/mo for the 3 bed. From the first phone calls I made to the closings, it took me about a day and a half to get three signed leases and checks (commissions of 15% of one year’s rent).
I used to live in the UWS on Edgar Allen Poe Street (84th). I remember large studios in an elevator building in the UWS were around $2,000. I think you’re right the 1 bd were more something like $3,000. Still $2,500 in Old Town is out of control in my opinion. You can get into a condo owned unit for a lot less. My sister lived in Sandburg Terrance (I know not the nicest place) but her unit was pretty good, balcony and faced LaSalle Street, sunny West exposure, etc. and she pain $1,200. Huge 1bd. $2,500 is too much. This is not NY (thank goodness!). I love NY but I found it is a better place to visit than live. Old Town equivalent would probably be Gramercy. SoHo, West Village, etc. are too “hip” to be Old Town.
“Still $2,500 in Old Town is out of control in my opinion.”
Remember, it is 60% rented (at rents far higher than $2500 a month.)
Well don’t worry, benny bernake will continue to pound the housing market so that only investors can afford homes for basically free money, don’t complain when your rents go up and you have no other places to live because your huge multinational rental company needs to up their dividend 3%
$2510 to $3825 a month for a <1000 sq ft 1 bedroom in Old Town is pure fantasy pricing. Even NYC transplants know not to pay that much. Try $1500-$1700. In this crazy market you just might get $2000 if the place is really nicely furnished.
“The new deal at 1225 Wells is an attempt to get Streeterville rents in Old Town.”
I think they’ll get them. Good developers don’t follow the market, they create and lead a new market.
“$2510 to $3825 a month for a <1000 sq ft 1 bedroom in Old Town is pure fantasy pricing. Even NYC transplants know not to pay that much. Try $1500-$1700. In this crazy market you just might get $2000 if the place is really nicely furnished."
You obviously aren't in the rental market- even in Old Town. A smallish 1/1 without in-unit laundry in a condo tower just a few doors away from 1225 Wells can easily get $1500 a month (that's 650 square feet with no granite/stainless and carpeting.) Make it all shiny and new and you can charge much, much more.
Like I said- they are 60% rented at an average of $3.03 per square foot. They don't have any rental incentives (why should they?)
Maybe we should all start asking why we think these rental prices are "pure fantasy pricing" and what that means for the Chicago housing market that it seems absurd to most people posting here.
“You need to factor in assessments- ~$2250- $2500 per month to own, with $473/month in assessments. And property taxes.”
How do you morons come up with these numbers?
523 Interest on 167,200 at 3.75%
473 Assessments
407 Taxes
1403 Total
If you are daft you can add in another 252 for the principal.
I actually just put the list price into the Baird & Warner mortgage calculator. It included the assessments, taxes, PMI and other things.
Your numbers depend on what interest rate you use, downpayment etc. (obviously.)
“I actually just put the list price into the Baird & Warner mortgage calculator. It included the assessments, taxes, PMI and other things.
Your numbers depend on what interest rate you use, downpayment etc. (obviously.)”
Yours were good. I was talking to the people who were coming up with $2250-$2500.