Steals and Deals: Living in the Loop for Under $250k: 420 S. Clinton
Want to walk to work?
You can get a one bedroom plus den at the Gotham Lofts, at 420 S. Clinton, in the loop for under $250,000– including the parking.
The Gotham Lofts is a brick and timber loft complex converted in the late 1990s which includes 420 S. Clinton and 417 S. Jefferson.
Is this a deal?
The “den” is 9 x 8. The bedroom is 12 x 11.
Unit #617: 1 bedroom plus den, 1 bath, no square footage given
- Sold in July 2003 for $226,000
- Sold in May 2007 for $277,000
- Originally listed for $289,000
- Reduced
- Now $249,000 (includes the parking)
- Assessments of $315 a month
- Taxes of $1908
- Central Air
- Washer/dryer in the unit
- Top floor
- Century 21 Sussex & Reilly has the listing
That looks pretty solid to me. w/d in unit. parking included. decent assessments. I would have seriously considered this place if I hadn’t signed a rental lease for Aug 1 yesterday….
Isn’t the point of a loft to have lots of open space? And what’s that stain on the floor of the bathroom?
I have a friend in the building. She complains that there is terrible pollution over there from the highway and cannot breathe on the balcony.
This will sell quickly. It has all amenities and a great location at a reasonable price. I hope it kills the comps for the rest of the building.
Top floor, conversion looks OK if not outstanding. 1BR plus Den, although both smallish. Parking included! From the pictures of the balcony it looks like this unit faces away from the highway. W/D in unit. Seems like this one won’t last.
I doubt this one bedroom unit is worth $250k when I can rent a 2 bedroom with parking in the same building for $1,750.
http://chicago.craigslist.org/chc/apa/754278087.html
homedelete:
what do you think a reasonable price is for this?
This indeed looks like it won’t last because 250k is a very reasonable price … for now … but if the market continues to downturn like I believe it will, even the buyer of this place will be underwater just like everyone else…
I can easily envision 200-210k as a potential price for places like this in 2009.
“I doubt this one bedroom unit is worth $250k when I can rent a 2 bedroom with parking in the same building for $1,750.
http://chicago.craigslist.org/chc/apa/754278087.html”
“homedelete:
what do you think a reasonable price is for this?”
‘Reasonable’ is a subjective but maybe I can help you understand where I’m coming from. If I put 20% down on the list price of $250k: a $200k fixed rate mortgage at 6.5% is $1,264 + $159 taxes + ~$159 insurance + $315 assessments is $1,897 a month. For a one bedroom depreciating asset.
I can rent a 2 bedroom in the same building with parking for $1,700 without having to put 20% down.
Yes I know there are some tax benefits (which I doubt outweigh the renting) but from a purely cashflow standpoint I think you can see which is more property I would consider to be reasonable.
$159/month for insurance? An owner probably wouldn’t need PMI with 20% down, and homeowners insurance will be closer to $200-300 per YEAR.
The tax benefits will knock presumably ~28% off of the interest and prop tax, depending of course upon the tax bracket of the buyer. Interest would be $1000/month. Figure that’s $300/month in tax savings, then.
So… $1264+159+315-300+(monthly homeowners insurance, though one might consider renters insurance anyway)
Homedelete:
A little inaccurate. The 1264 pmt includes apprx. $200 that goes toward principal, and that amount will increase every month. $159 insurance??? If you are talking about property insurance, (you are not paying PMI with 20% down)you’ll pay $160 a year…+ it does not matter if you own or rent, you can get insurance on your assets either way.
So it is really 1264 + 160 tax + 315 assmnt(which might include gas)-$200 paid in principal each month = $1540 – tax benefit(would decrease your AGI buy roughly $14K)
Still not as good of a deal as getting a 2 bd for $1700.
Aleks,
It’s more than a “little” inaccurate, it totally changes the equation and proves homedelete’s conclusion wrong. Excepting those who don’t intend to stay very long, this is a good deal to purchase if the rental ask is realistic…though I suspect the rental rate should be closer to $1500.
I know that 1 bd in this area of West Loop were going for 240K with parking in 2007. Rental rates are around $1200. So your mtg pmt gets pretty close to the rental rates, especially if you are planning on staying for 5 + years.
Regarding my back of the napkin calculations, I may have been a little high at $1900 a year on the insurance but it is definitely not $200 per year. Furthermore, assessments are not tax deductible.
Still, using your figures, even if my AGI were to be reduced by $14k a year (which is incorrect because the AGI stays the same only taxable income is reduced), I could still take the standard deduction as a renter and get over $10,000 (married) of the owner’s $14,000 deduction. So $4,000 * .28 = $1,120 tax benefit. That barely registers on the significance scale.
And even if David is correct that the rental rate should be closer to $1,500 – it further proves my point that the unit is priced too high at $250k.
AND can rent with a 2 months deposit – not a $50,000 downpayment.
I don’t mean to be argumentative but if a one bedroom rents for $1,200 and the mortgage payment (adjusting for insurance from the above calculations) is closer to $1,600 (including the $1,120 a year tax deduction above and beyond the standard deduction)…..I could put $400 a month in the bank and save $3,600 * 5 years = $18,000 cash in the bank. Figure in maintenance and special assessments and the answer is obvious.
This seller has the unit LISTED for $28,000 less than he bought it for 14 MONTHS AGO. AND the renter doesn’t have to pony up a $50,000 downpayment. Sometimes people drink the kool-aid that it’s always cheaper to own than rent – which in most cases it is not. At least not in this market it’s not.
Yet.
Homedelete – the annual insurance premium on my $500K condo is indeed $200. Full reasonable coverage with a major firm.
“a little high at $1900 a year”
This is not a little high, it is way off… you only need insurance for replacing the inside of your unit. For example, I have a $300K policy with additional $50K personal property, $1 million liability, and $6K in loss assessments ($1000 deductible) for $583 a year.
For a unit like this, you probably do not need more than a $150K policy… It’s going to be
oops… cut off again using the less than sign. I meant, closer to $200-$250 a year.
Ok so it’s $200 bucks (I’m not a property insurance agent so my estimate was a little high), nevertheless, my calculations show that it’s cheaper to rent than own, even if it’s only a couple of hundred bucks a month (not including special assessments and maintenance). Nor does the renter need a $50,000 downpayment.
The fact that this place is LISTED for $28,000 less than the purchase a year ago should scare the hell out of people. This is a falling knife and there’s no bottom in sight. If you pay $250,000 for this place it may be another 5 or 7 years before you return above water. It’ll be 5 or 7 years if you’re lucky.
Sometimes I can’t believe I’m arguing this stuff. Most sophisiticated investors I know have been saying for years that most properties in Chicago are cheaper to rent than own. I give a good example of a property where there is a good discrepancy between owning and renting including a 20% down payment and I get nitpicked over the cost of homeowners insurance.
Also, I used to live right down the street at 500 S Clinton. I had a small 1 br/1 ba that I rented out for 1 year at $1275 including 1 indoor parking spot. This was back in 2001-2002. The area is convenient for loop workers as the Clinton stop is right outside of the doorstep.
The $1700 rental at Gotham is probably a smallish 2 br. Also, no idea which side it is on.
Again, nitpicking on which side of the building the two bedroom is on. Look, I gave an example of a unit for sale in the building (the topic of this thread) and an example of a 2br for rent for $1,700 IN THE SAME BUILDING. For all practical purposes, I’m using examples in the marketplace today – the same choices a potential buyer would make. The nitpicking over insurance and it being a smallish 2br are insignificant. You’re simply trying to rationalize the familiar mantra “renting is like throwing your money away/flushing it down the toilet.” But examples clearly show that in this building I can rent a two bedroom about the same or even cheaper (figuring special assessments & maintenance) than buying a 1 br with $50,000 down.
Wow, I’ve wasted too much time here; lunch is over. Time to get back to work. It was a good thread – no personal attacks or insults, I appreciate that, I really do.
I don’t think anyone really would argue with you that it’s usually cheaper to rent than own. Owning has its own benefits and some people don’t mind paying more a month to do what they wish with their space.
Keep in mind that the owner of the $1700 rental unit might have had owned the unit since the beginning. I believe Gotham was completed around 1999-2000. If that’s the case, they can rent the unit out for $1700 now and even make a little bit of money depending on how much they put down. The 2br unit pre-construction back in 1997-1998 probably didn’t cost more than $250K.
Real quick, you’re right, the owner of the $1,700 unit may be cash flow positive. I’m trying to show that buying today for $250k is not cheaper than renting. I’m not against owing, I’m not some sort of socialist that wants everyone to rent from the government. The kool-aid flows thick in some parts. People think that buying is such a great thing and homeownership is always better than renting when its clearly not, especially in the south loop where there is so much inventory. Owning has its finer points and I’m not saying “don’t buy a home” I’m saying that buying unit home for $250k is not such a great deal when I can rent for cheaper and save myself a $50,000 down payment. Especially when this particular unit is LISTED for $28k less than the purchase price 14 months ago.
My policy for 500k/1mil coverage (relatively high limits, required by the association) on my condo is $225 annually.
The calculations should include the after tax interest from the down payment as a lost opportunity cost. This figure should be added to the monthly cost if buying the unit. Then it’s a wash if you figure the standard deduction for a couple. If there is only one person with a standard deduction, you can close your eyes and imagine it may be better to buy than rent. Paying down the principal increases the equity about .01% per year in the beginning years. That is until you add in the selling costs.
DD: “Paying down the principal increases the equity about .01% per year in the beginning years”
That’s a funky loan that only amortizes $20 of a $200k principal in the first few (how many?) years. I think you’re off by about 2 orders of magnitude. That’s a large error.
HD: “I could still take the standard deduction as a renter and get over $10,000 (married) of the owner’s $14,000 deduction.”
You’re ignoring the availability of (1) property tax and (2) state income tax deductions once you itemize. Say you just qualify for the loan–$80k gross income at 3% is $2400 and $1900 in RE tax, so it’s actually $8300+ in additional deduction or almost $200 per month. You’re only telling half the story–something you complain about when others do it.
I looked at one of these & didn’t like the noise or cramped layout.
That said, the rentals I’ve seen listed in that neighborhood were much higher than $1200.
(and my health insurance isn’t $1900 a year much less my homeowner’s insurance)
anon,
You are right. Once the itemized deduction door is opened a homeowner can take the state income tax and RE tax deductions. I wouldn’t call the itemization of taxes a direct benefit of home ownership but it is more of an indirect benefit. Still, after every imaginable deduction, itemization and benefit, rent is still $1,700 a month and the mortgage AVERAGES about $1,500 a month after tax benefits at the end of the year depending on your financial situation, making it the rent/own comparable.
That is until the washing machine breaks, or you get whacked with a $10g special assessement, or monthly assessments are increased, or Toddler raises your property taxes to hire a few more of his family members, or your insurance premiums rise, etc. As a renter you don’t have to worry about those things.
And on a cash flow basis (i.e. paycheck to paycheck) – rent is less than a mortgage payment. The benfits aren’t realized until the end of the year.
Nor do you have to come up with a $50k downpayment.
My health insurance costs significantly more than $1,900 a year. But my employer pays most of it.
Homedelete-
Serious question… Do you think it’s a deal if you are looking to stay there long term? 5 years? 7 years? 10 plus years?
http://chicago.craigslist.org/search/apa/chc?query=%22south+loop%22&minAsk=1400&maxAsk=1600&bedrooms=1
111 one bedroom apartments in the south loop between $1400 and $1600 per month. Some don’t even require security deposits and others claim to have never been lived in. Do you think rent is negotiable?
TS, probably yes, but only because housing is *likely* to continue to drop. That is, not only no appreciation to keep up with inflation (and beyond), but likely depreciation in real terms.
Take at look at the NYT rent-or-own calculator on the right side of the screen and play with it. Fool around with assumptions about how much you thinking houses and rent will increase/decrease, expected taxes, diff. mortgage rates, etc.
It’s a complicated question. But in this market, right now, the easy answer is “rent.” (There are always exceptions.)
I mean, “No, it is not a deal to buy it; yes, it is a deal to rent it.”
Note *** If you need a rent vs own calculator you probably are not qualified to post on the board***
TS:
Serious answer. I guess it depends on your situation and finances. I know right now the condo in this thread has been listed for $28,000 less than the purchase price 14 months ago and some people think that’s a deal. I see that as a falling knife. I also know there are 111 ads on craigslit in the last week for one bedroom condos between $1400 and $1600 a month. I definitely wouldn’t want to buy a condo in the south loop.
If I had a wife and a baby and a few children starting to reach school age, then buying might be a better idea because you can lock yourself into a school district, have a nice home in a safe area, etc. Would I buy a $250,000 house in the exurbs like Marengo or Oswego? Probably not for that price even if I was staying for quite a few years. I’d probably consider buying something on the northside that’s on a good street in a good building in a good area. in an established area. That’s also very important. Then yes, I’d probably considering purchasing if it were within my budget. But I would’t look at housing as an investment because it’s not; it’s a place to live. It has to be affordable and within your budget. Contributing 45% of your income to housing isn’t OK because you’re going to live there for 5 – 7 years. There’s always the chance you might make LESS money in 7 years from now – you can’t predict these sorts of things.
You know, it’s up to each person when they’re going to buy; everyone is different and it’s not entirely about money saved vs. renting. But I do know that the mania of the last few years has been crazy and has jaded the views of a lot of people about what the historical norm is. Kind of like your grandmother who grew up during the depression is still a saver…..those few years early on can jade your view for life. So many people entered the real estate market in 2000+ and all they know is real estate goes up. They don’t see the bigger picture that 1 bedroom condo in the south loop in 2006 wasn’t worth $277k and isn’t worth $250k today. Ok I’m rambling, I’m leaving work now.
“Paying down the principal increases the equity about .01% per year in the beginning years”
At 27% interest, yes it does. As the interest rate is reduced, the principal paid in year 1 increases (to 1.23% at 6% interest).
TS, Steve Heitman is our resident realtor/NAR apologist. Like most (though not all) realtors, he gets very nervous at the prospect of marks crunching numbers before deciding whether to make one of the largest purchases of their entire lives.
Sabrina will be interested to know that the rent-or-buy calculator that she troubles to link to, disqualifies her from posting on her own blog. Got that, Sabrina? Not another peep out of you!
I’ve been around here for a while. I know who Steven Heitman is and I think he is a myth.
“I know who Steven Heitman is and I think he is a myth.”
So, which is it? Do you know him? Or do you think he’s a myth?
He’s obviously a troll, even if he believes everything he types.
Sorry, I am familiar with his posts.
there are less expensive units that are the same sf under contact right now. you can get this unit for less and it will make for a great deal. the location is GREAT and very desirable to many. it is a perfect first time buyer building. unit 416 sold for 235k with parking 2/4/08 as well as unit 311 for 235k w/ pkn, 602 for 237k w/pkn 6/3/08, 616 closed 6/2/08 for 237,500 w/pkn, 619 closed 7/3/08 for 243,250 w/pkn.
at the end of the day… renting is still tossing $$$ down the drain. when you can BUY for the same monthly amount as a rental. you may have to live in a smaller space than if you rent, but you don’t just toss the $$ out. you have NOTHING at the end of a lease. do the math… a $1200,00 a month apartment cost 14,400 a year!! that is a lot of money to have NOTHING at the end. and you get NOTHING in the way of a tax brake either.
Is renting still “tossing $$$ down the drain” when sale prices are dropping?
“Do the math.” Indeed.
Maddy, are YOU a myth?
I’m back to my theory that Sabrina is a devious genius who plants these kind of posts…
I like to think that to.
However, maddy sounds like another realtor troll. Or a bitter FB.
“and you get NOTHING in the way of a tax brake (sic) either.”
That’s not a typo.
“Paying down the principal increases the equity about .01% per year in the beginning years”
My bad, I meant .01 or 1%. That 1% equity is not a good deal when compared to the risk of a lower price next year. Having the down payment money In this economy is also better than than having it invested in an illiquid asset. Still, at some price point it makes sense.
I have a very good client who is buying places up like mad and renting them out for a substantial amount of positive cash flows. He laughs when I talk to him about these posts. Again, it all comes down to buying the right property and knowing how much you can rent it for. They are all over the place if you know what you are doing.
He wanted to thank all the renters on the board as one of you may be his tenant.
“He wanted to thank all the renters on the board as one of you may be his tenant.”
Now that’s witty.
Creating fictitious clients, as well as fictitious personal investments, is a hobby I should take up. Let me give it a go….
I liquidated all of my real estate holdings from 2005-2006. Those exact same units/lots are now on the market asking 30% less than I sold them for.
I also have a friend who managed to get out at the peak, and when I tell him about a certain Mr Heitman he laughs heartily.
He wanted to thank Mr Heitman as he may be one of the fools who bailed him out of his depreciating asset.
A realtor that I’ve used a number of times also has a listing in this building — albeit a lower floor. Unit 209 is for sale for $234,900 with parking. Haven’t done a walk through of the unit myself so I don’t know if it’s a comparable layout.
Anyone know if this unit has any specials coming up or any info on what the condition of the treasury or strength of the association?
“I’m back to my theory that Sabrina is a devious genius who plants these kind of posts…”
Kenworthey- you give me far too much credit!
But Maddy and Mr. Heitman certainly do make things interesting.
Investor – again it depends what you bought and in what neighborhood. If you played the up and coming neighborhoods, then yes the run up in pricing was not warranted and you were right to get out. My favorite neighborhoods are doing great (LP, Old Town, Gold Coast)and rents are increasing as well. The rich get richer and the poor, well the poor get poorer!
Here is a question for you. Do you think a 2 bed, 2 bath in Lincoln Park will be priced higher or lower in 2012 than it is today?
You can buy a great Lincoln Park 2 bed, 2 bath for $450,000. Consodering taxes of approx $5000, and assess of $150 per month, your monthly payment (20% down from the rich professionals) $2,300 per month.
Can you rent a 1,300 sq ft condo (updated) for $2,300 per month? I understand the opportunity cost of the down payment, but today I would argue that putting your funds into housing will actually save you money (falling stocks, bonds, ect). After the tax savings of someone in the 25% tax bracket, your monthly expense is down to $1812 per month.
Now is it more intelligent to rent this unit for $2,300 per month or buy it for $1812 per month?
From my above post – So you not see light here? Unless you believe rents are coming down, the answer i to buy in the right areas. Always use rent vs purchase analysis and make the choice based on economics.
In the above example, tell me what the property is worth 5 years from today. Every $$ more than the purchase price further reduces the monthly expense of purchasing. If we have inflation as some predict you are protected. If you see flat prices you are protected. If prices decrease you increase your monthly housing expense. It is just math and I can’t understand how many of you just don’t get it. I understand that some areas (south loop, logan square) have declined, but if it costs more to rent aplace than to buy there is not a choice to make… you have to buy.
Do you guys want to come to my house for a lesson on financial responsibility?
Personally I think that location sucks. If I had to consider the West Loop, it’d be over the bridge and closer to Madison. I used to get off Union Station for YEARS (from the suburbs) and I’ve never been fond of the immediate surrounding areas as a residential place. This place is near the old Post Office where they filmed The Dark Knight and there’s nothing over there. $250K for that location? You can get the same in the South Loop on Michigan Ave WITH parking and you have nice trees, closer to the lake and no congestions from suburbanites. As for the old age discussion on rent vs. buy, who cares. This web site is mostly about houses FOR SALE, yet there’s a bunch of RENTERS posting stuff about not buying. Huh? Why visit this site if you don’t want to buy?
For those who argue that renting saves you some money, well according to my calculations, if you started working at 16 and saved some money in the bank, you should have more than enough to pay a good down payment on a 200K+ house before you hit 30 and still have money left over to cover a couple years of mortgage if you lose your job. Unfortunately, some people are dumb and waste it getting drunk or unnecessary expenses. It’s much better to admit that you can’t afford something rather than find excuses to cover up the fact that you can’t afford something.
434 w Armitage unit E – purchased for $422k in 2004 and sold last month for $503k. Oh the pain!
1660 n Hudson unit 1I – Purchased in 2000 for $356k and sold last month for $465K. Stop the bleeding!
425 Grant unit A – Puchased in 2003 for $418k and sold last month for $510k – Why did I not rent???
2720 Greenview – Puchased in 2005 for $390k and sold last month for $526K
1630 Mohawk unit 1630 – purchased in 2005 for $552k and sold this month for $652K – Where did all of my money go?
Heitman, how many $450,000 condos have $150/mo assessments? If this is the case, there would be a ton of maintenance and utility expenses this would not include, which a renter would not have to pay. To put things in perspective, I rent a $300,000 condo which has assessments of nearly $500/mo. Hardly anything bought at today’s prices can be rented for positive cashflow.
Pete – Try living in a building that was not an apartment 10 years ago. Most 3 falts built in the past 10 years have assess at or lower than $150 per month.
Jack Der (or should I say Jack Schitt?) you did not offer one reason why buying is better than renting, other than to say that someone should be able to afford to piss their money away if they saved properly. Why would I spend my nearly $100,000 in savings on an overpriced house? Even at the terrible interest rates banks are offering now, at least the money is not depreciating in value. The same cannot be said for most real estate.
Pete – Your money is depreciation in value. You do own the $$ right?? It is worth about 50% less (in global terms) than it was 5 years ago. If only you could rent $$’s vs owning them you would have saved a bundle. Damn!
Interest rates as of today –
30 year fixed – 6.125%
5/1 ARM – 5.25%
Those rates are aweful!
Pete: Who’s Jack Schitt? My post was not about arguing for buying vs. renting, so I provided no reason for why buying is better than renting. As a matter of fact, I said: “As for the old age discussion on rent vs. buy, who cares. This web site is mostly about houses FOR SALE, yet there’s a bunch of RENTERS posting stuff about not buying. Huh? Why visit this site if you don’t want to buy?”
I do not know why you would spend your $100,000 in savings on an overpriced house either. It’s not my problem if you plunked down $100K on a down payment. Of course, the term “overpriced” is subjective. Something might be overpriced to you but not to her. I never said “that someone should be able to afford to piss their money away if they saved properly.” I said “you should have more than enough to pay a good down payment on a 200K+ house”. It’s not my problem if you bought the wrong house and you pissed your money away.
So the depreciating dollar causes cash to be worth less but not real estate of the same value? Or are you saying that if I had bought 5 years ago I’d be ahead? Sure I would, but only if I sold at the right time. And I’d have really made a bundle had I bought Microsoft stock in 1985. Hindsight is always 20/20. But one thing I know for sure: putting money into real estate right now (in most markets) means less money 5 years from now.
Pete – If the common man’s predictions were so solid we would all be rich. When most think the end is near it is usually a buying opportunity.
Let me know if you have any buddies who need to rent a place in River North. I have a 2 bed, 2 bath that will be vacant in October.
I am currently renting a 1BR in this building (but am on this blog b/c I am looking at buying.) I can say that the noise is not an issue (so long as you are not on the side overlooking the Ike.) This unit is on the side farthest from the highway, though not in the courtyard like mine.
Also, where the parking is would be key. There is an outdoor gated lot, an uncovered garage lot, a covered garage lot AND an underground, heated indoor lot. Having your car sans snow and 72 degrees in the middle of January is worth a little premium. Though I bet the ad would have mentioned if it was one of those spots.
My only complaint is that yes, the places west of the Kennedy are rife with dining, etc… But being 22 steps from the blue line stop is nice when going to ORD twice a month.
I would predict that the price will drop closer to the 2003 number — probably around $240K.
Where do you think things will be 6 months from now? Almost certainly lower. So why buy now?
I agree we are nearing a buying opportunity, but you are calling it way too early. Check back 6 months from now and you’ll see some real opportunities show up.
This will be a very painful winter.
Steven writes at various points above:
“You can buy a great Lincoln Park 2 bed, 2 bath for $450,000. Consodering taxes of approx $5000, and assess of $150 per month, your monthly payment (20% down from the rich professionals) $2,300 per month.
“Can you rent a 1,300 sq ft condo (updated) for $2,300 per month?”
*** This assumes a 4% interest rate (fully amortized over 30 years).
“Interest rates as of today –
“30 year fixed – 6.125%
“5/1 ARM – 5.25%”
*** Steven apparently advocates true ARMs, not hybrids. And even then, I don’t know that 4% is obtainable anywhere today.
“Let me know if you have any buddies who need to rent a place in River North. I have a 2 bed, 2 bath that will be vacant in October.”
*** What will the rent on your 2/2 be? If the rent isn’t above about $3000, renting is still a better option. (Using your $450K, 20% down, $5K taxes, $150 assessment but a realistic 6% interest rate — $2725. The $90K down will earn about $250 per month in a good FDIC-insured MMA account — INGDirect has 3.0% APY. The tax deduction will gain you nothing this year, as it takes about 5 months of interest and taxes to match the married standard deduction at the level — in future years it will be worth about $4K at a 25% rate, or $330/mo.)
“married standard deduction at the level”
That should be “at *this* level”.
“1660 n Hudson unit 1I – Purchased in 2000 for $356k and sold last month for $465K. Stop the bleeding!”
Stevo:
You’re being disingenuous–we all know that prices are still above 2000–the question is whether they’re above 2006. And that’s only a 3.5%/year gain since 2000–they lost a lot of paper profit by not selling two years ago; as it is, they barely kept up with inflation–before paying $28k to realtors (which drops the return to under 2.5%/year). Good show–you demonstrated that someone who holds a property for 8 years can be pretty safe.
Anyway, nice start–you now have provided (almost–the ’03 is a partial credit, too) your offered 5 for ONE loser. Come up with some more, and this time show us how prices are above 2006.
I think all arguments here lead to one statement. It is not “Why Buy”, it is “Why Buy now”. Arguments for rent vs. owning can be made either way, depending on individual unit. But a reasonable person cannot argue the fact that if you buy a reasonably priced property, with a 20% down payment and lock into a 30 year fixed loan, 5 years down the road, your PITI will be less than your rent. A lot of factors the discussion of why real estate increases in value, but all of they are based on REPLACEMENT COST. If you feel that 10 years from now, it will be cost less to build a condo building, than by all means, you should not be buying. But China, India, Russia and Brazil only began growing,and will continue doing so at least for the next 20 years, thus requiring a sh*t load of raw materials – driving up the price.
“it takes about 5 months of interest and taxes”
And you don’t get the tax deduction first year anyway, as it wasn’t your obligation b/c of payment in arrears.
“Russia . . . only began growing,and will continue doing so at least for the next 20 years”
Um, only if they change dramatically and start allowing immigration–the population of Russia is shrinking at an alarming rate. That said, the point stands.
What does replacement cost have to do with pricing? There are many places where homes cost less than replacement cost. Besides, Chicago overbuilt the luxury end of the market in this boom so getting one for less than replacement cost is coming soon to a neighborhood near you.
Building materials are dropping fast in cost. Copper might be higher (and is a small % of bldg cost,) but lumber, drywall, etc have fallen dramatically already due to supply and demand. Labor is dropping too, since so many are begging for work.
G
I work for a major company that produces building materials. Drywall prices have fallen if you compare with 2006 prices, but they have increased by at least 25% in 2008. Prices of steel and natural gas have gone up. But you completely misunderstood my point. Your example about building materials dropping fast is only valid in the US – only in 2007. Prices are stabilizing this year, and it will take 2009 and 2010 to get back to 2006 prices – in the US.
But there is also something called global economy. A little example for you: do you not think that you’re paying $5.00 a gallon because China’s and India’s demands for fuel have increased???
Burj Dubai Tower is using the drywall produced by my company – shipped from Baltimore. Think about the logistical nightmare they had to go through to pack drywall on ships and send it there. If someone oversees is paying more, do think companies will continue to sell in the US for less??? Or will they ship overseas? And would not that cause prices for raw materials in US to go up in order to be competitive????????
I can give you numerous examples like that.
Well, I actually think we are paying close to $5/gal for gas because of the devaluation of the dollar and oil speculation. Do you think “China’s and India’s demands for fuel” increased as suddenly as the price of oil?
We shall see how much of the rest of the world’s demand for building materials is due to a bubble like ours. The entire world is running out of qualified RE buyers, so I wouldn’t ramp up production to meet some anticipated need. Especially when those Chinese and Indian manufacturers will be getting in on the action at much lower costs/shipping than anyone can do in Baltimore.
“The entire world is running out of qualified RE buyers”
I really cannot argue with this well thought of, supported argument that makes perfect sense.
It is useless arguing with you. I see customers coming to USA from Russia that want to build a wallboard plant using our technology there or buy wallboard here, because they expect the demand to quadruple in the next 10 years. Are you aware that China has 100+ cities with a population of 1,000,000 or more. Are you aware that at least 30% of housing units in USA are 50 years or older?
But you’re probably right, the world is running out of qualified RE buyers. Demand is gone. Completely.
My turn.
Demand has been “borrowed” from the future. Are you aware of the number of vacant homes in the USA?
The Chinese will of course buy their drywall from the US, because they have no desire to manufacture anything there because whenever they try it just costs too much. Your technology will be safe and secure with the Russians and they will never be able to manufacture for less than we can and will always respect your trade secrets.
Do you remember the housing projections for the good old USofA back in the old days, say 2006? Most wallboard manufacturers ramped up for the need, how did that go for them? Good thing they did or they would be in trouble today.
I am not and never was saying that Chinese or anyone else will buy drywall from US. I am saying that because China and everyone else is growing fast, building plants, factories, etc, they will require more raw materials, which will cause the prices to go up everywhere in the world, US included, making it more expensive to build, thus increasing the replacement cost.
You disagreed.
I disagree because I don’t think we have reached “peak gypsum” so new sources and foreign labor costs might lead to lower drywall prices for everyone.
I am not talking about just Gypsum. I am talking about steel, natural gas, fuel, aluminum, etc.
so sad that you are so hostel– you will always be a renter. yes, continue to help the rich get richer! PAY MY MORTGAGE on my investment properties!! LOL!! good luck to you all who think they know everything. the rest of us will continue to thrive… maybe there is something to the rich getting richer and the poor staying that way. humm…….
G:
honestly, what you said was stupid.
“Well, I actually think we are paying close to $5/gal for gas because of the devaluation of the dollar and oil speculation. ”
Here are pure facts:
From 1995 to 2002, gas prices in US have gone up from 1.00 to 2.50. Was dollar devaluating then? Absolutely not. It was actually increasing against the Euro, gaining buying power.
In Canada, price of gas has went up from 1.00 o 1.40/gallon Canadian from 2006 to 2008, and that’s during the time when Canadian dollar gained against the US dollar.
Your assumptions are bases on feelings and speculations at best, and never on facts.
“I disagree because I don’t think we have reached “peak gypsum” so new sources and foreign labor costs might lead to lower drywall prices for everyone.”
What new sources? Name one. Your general statements without bringing a single example are pretty pathetic.
Do you even know what “peak Gypsum” is? Can you tell me what is the reserve of Gypsum is for the next 20 years in the USA??? the World??? I’ll even make it easy for you, name one substitute for Gypsum that can be used in the production of drywall, if you think you “KNOW IT ALL.”
As I was saying, please tell me what is the reserve of Gypsum is for the next 20 years??? and name one (there is at least one) substitute for Gypsum that can be used in the production of drywall – which would help to bring down the price of wallboard down.
Until then, good night my friend, good night.
Kevin – If you have to ask why you ONLY consider interest for your monthly payment you should not be discussing this issue. My example used a 6% interest only monthly payment along with assess and taxes. Whether you choose to pay extra money towards your loan (amortize it), or put that same money into a savings account, it is NOT something you consider in the rent vs own analysis.
Sorry but you may need to come to my finance for dummies class…
Steven:
Tell us a bank or mortgage company that is actually giving out an interest only loan right now.
I haven’t heard of any recently.
It’s unrealistic to do housing calculations by using a loan product that is no longer available to 99% of buyers.
Aleks, G:
No one really knows why oil is so expensive. OPEC says it’s demand, Congress says it’s speculators, some say China has been hoarding it, investors and economists say its the devaluation of the dollar, and oil men say that it’s the premium we pay for extracting oil from volatile regions of the world. If you can figure out why oil is expensive feel free to invest in the market and make a killing.
Sabrina: At the end of May I saw a 5/1 interest only jumbo arm w/balloon after 10 years. It required 25% down and great credit scores and sizable income. these neighbors of mine bought a million-plus dollar home. The couple is in their early 30’s – I was like “how the heck did they do it?” That’s how old I am and I have a good job too! ”
Three minutes in the basement of the recorder’s office I realized that if I wanted to pay over $4,000 a month in interest plus taxes and crazy utilities I too could gamble that ‘real estate only goes up.’ What further irks me is that the house was built new like 5 years ago and the buyers paid the seller about $100,000k a year in appreciation just for living there….The sellers thought they were getting a deal at $100k off list price…The moral of the story is that there are still knifecatchers out there and this bust is truly a slow moving train wreck.
“Tell us a bank or mortgage company that is actually giving out an interest only loan right now.”
According to BankRate, 30-year IO for $360K with 20% down for Chicago is available from three lenders:
* AimLoan.com at 6.625%
* Mortgage Capital Associates at 6.625%
* National Bank of Kansas City 7.000%
If we look at 3/1 ARMs, AimLoan and MCA drop to 5.625%, and Countrywide appears at 7.125%.
So, there are a few freak lenders advertizing IO loans, but not at Steven’s 6% (unless you *really* like stupid risks).
Kevin – Again take a class. When you compare rent vs own you look at real expenses associated with either option. Rent is an expense and I,T, Assoc dues are expenses. Amortization is not an expense and actually is a form of savings plan.
Why is it that all financially sound people use interest only loans? Because they feel they can get a better return on their savings than paying off a 6% interest rate. Financially sound people DO NOT max out their cash flow positions on interest only loans but choose to invest their savings in places other than paying down their loan.
Make sense?
Homedelete – Someone paying $4k per month for housing is not crazy. It is all relative to their perspective cash flows.
Get a raise and you might be willing to live in a better place as well…
Sabrina – I can’t believe I am having this conversation. Rent vs own compares the EXPENSE associated with renting vs owning. What you are refrring to is comparing cash flows of renting vs owning. Amortization of a loan is a savings account that builds wealth over time. If you include this amortization on the owning side you should add the same amount to the rental side.
Someone please chime in here.
Stevo: “Someone paying $4k per month for housing is not crazy.”
I agree(!) with you. To fit within the 28% of gross for housing, $4k/month “only” requires an annual income of $171k (i.e., two typical professional incomes). Add in the taxes, insurance and amortization that usually go into that 28% and you get to (maybe) $5500/month–still “only” $235k annual income–or typical income for two moderately successful professionals in Chicago. Given that there are thousands of people in Chicago who make well over $100k, there isn’t any reason why $5000/month for housing is “crazy”, even if it wouldn’t be one’s individual choice.
When comparing renting vs. owning it is best to subtract out the 1) equity portion of the ownership payment and 2) the tax savings of itemizing and deducting interest expense.
As well as add in: 3) taxes, 4) insurance, 5)HOA fees/assessments, 6) possibly PMI and 7) an estimate for expected maintenance expenses that a landlord would provide if renting.
Steven —
Name *one* lender who is currently providing 6% fixed-rate IO loans. Assume 850 credit scores and 20% down if it makes you happy.
Your job is lying about the *future* to con clients into buying real estate. Lying about the *present* is a much more serious matter.
Bob — don’t forget to add in the opportunity cost related to the down payment as well. Even 2-3% in a savings account adds up.
Where does the 28% come from? If some makes $200k or $16,600 per month what do they need the $11,000 per month for over the housing expense? The 28% ratio is important for people that make $50k per year as necessities like food and clothing and taxes take up the rest of their income. At higher income levels these life necessities are basically a fixed cost. Once you clear these costs the rest of your income is simply gravy and can be spent on vacations, jewelry, or a really nice house. To each their own but the 28% ratio commonly referred to is not constant as your income increases.
Wells Fargo, Chase, EverBank, Countrywide
Kevin,
In normal, stable times, the expected appreciation would basically cancel this out. But its wise to note that these aren’t normal times and you are right that that should be another consideration.
Kevin – Don’t forget to add is the historical appreciation average of 3 -4%. If we are to assume interest on the down payment is a given, let’s go ahead and assume a long-term hold will produce appreciation.
agreed?
28% of $50K = $14,000 ($1166/mo) for housing
That leaves $3000/mo for other expenses.
Steven — if your client earned $200K ($16,666/mo), would you really recommend that they buy a house with a monthly expense of $13,666? No wonder real estate (and associated idiots like Steven) are driving the economy to ruin.
Bob – You are saying that interest on a down payment would cancel out the same rate of appreciation???
Don’t forget you only get the interest on the down payment while I get same % return on the entire purchase price.
I see nothing on Wells Fargo’s website that indicates that they have IO loans.
Provide evidence, Steven.
“If you include this amortization on the owning side you should add the same amount to the rental side.”
Hey, again, not quite agree (b/c it’s not necessarily the “right” way to look at it for the “typical” homebuyer), but you are correct in a holistic investment analysis. The payment of principal is an allocation of investment cash, rather than a strict cost of housing. Once you buy, you’re long on your house and you’ll remain so until you sell (whether you put down $0.10 or $1mm); any principal paid is, effectively, put in an account with a maturity date equal to your future sale date. And the return on that money isn’t very good–you’re only guaranteed the effective return of not-charged interest on the reduced principal and it reduces your effective ROI on the property when you sell (by increasing your invested basis).
Kevin – I would not recommend paying $11k for housing but paying $5,000 per month (Expense) is no big deal.
Further, the lowest rate Wells Fargo is advertizing is 6% for a 15-year fixed.
If you make a million per year you can spend 60% of your income on housing and it would be fine. Agreed?
Kevin – I posted this on originally on Tuesday and rates were at 6%. The 10-year was at 3.8% vs 4% today. Rates do move daily. Use 6.25% today…
“Kevin – I would not recommend paying $11k for housing but paying $5,000 per month (Expense) is no big deal.”
$5000 of $16,666 ($200K/year income) is 30%.
That certainly is a big difference from 28%.
Anon – Hence the interest only option the financially sound people use. It makes no sense to pay off a low interest rate when you can get a better return else where. No to mention the tax deduction you lose when you pay down the loan.
I am glad you agree…
Wells Fargo says their conforming rates are:
40-Year Fixed 6.875%
30-Year Fixed 6.500%
20-Year Fixed 6.500%
15-Year Fixed 6.000%
5-Year ARM 6.125%
https://www.wellsfargo.com/mortgage/rates/
They do not advertize IO loans at all, and the only amortizing loans that are cheaper than Steven’s 6.25% revision are the 15-year and 5/1 ARM. If Wells is really charging only 0.125% extra for an IO loan, I have another bank to short…
Anon: Because of COURSE! Everyone makes $235k per year! I best most posters on this board make double that! It’s totally normal! I mean, households that make $235k are a dime a dozen in Chicago! You only need to be moderately successful to be 31 years old and have a household income of $235k a year! Everyone does it! If you’re not breaking the $200k barrier by 28 then you are a complete loser! The streets of Chicago are paved in gold for the young urban professional! Opportunities to make millions are everywhere and even the ‘moderately’ sucessful can make household incomes of $171k by just showing up to work in the morning?
now back to reality – I highly doubt this couple makes $235 and probably not even $171k. They’re probably levered more like 5.0x income. The good downpayment and the good credit scores helped. Their loan is the californization of the chicago housing – it’s not ‘wise’ investment planning.
If you think that $5,500 a month for a 31 year old couple DINK couple on an interest only 5/1 ARM loan with a 10 years balloon is a ‘wise’ investment decision……I’ve got a box of stupid to sell to you.
Steven: By choosing to put one’s money into other investment opportunities do you mean putting money into a bank account at 1.0% where anything over $100k is not insured? Or the stock market which has lost 20% in recent days? Or into CDO’s and MBS’s which have lost tremendous amounts of value? Or into the securities auction market which have virtually frozen? Or into hedge funds (which begs the question why take out a mortgage at all if you can afford to buy into a hedge fund!) or into oil contract? Tell us wise investment planner Steven, where does one invest their money to get a better return than paying the principal on a mortgage?
Back to reality – people get interest only loans because the monthly nut is cheaper, plain and simple. Buyers can afford more house with an interest only loan. Trying to sell it as a wise investment product is the same as trying to sell an option arm pick-a-payment loan as an investment tool. “use your money how you want; don’t waste it principal or even interest! put your money to work for you – with a countrywide pick-a-payment loans.” Of course 90% of all people pay the minimum payment and then after a few years of negative amorization they can’t make the reset payments and go into foreclosure! Ha, this site cracks me up! The kool-aid is still flowing !
(Wells Fargo’s jumbo loans start at 7%, but the original example was $450K with 20% down — conforming.)
Stevo: “Where does the 28% come from?”
You make me sorry I posted in support–now I have live with the infamy of having agreed with an obstreperous twat of a troll who argues even with those who agree with it.
Since you apparently KNOW NOTHING about housing that happened before the year 2000, 28% is the “traditional” underwriting standard for determining whether a home loan is “affordable”. It never really applied to private banking clients (i.e., those with $1mm+ annual incomes, or future potential to make such $$ and folks with significant assets), but had been a standard in the mortgage lending world for DECADES until the past 8 years (or so).
The personal attacks are really getting to be too much.
I’m outta here.
“If you make a million per year you can spend 60% of your income on housing and it would be fine. Agreed?”
60% of gross (which is what we’re talking about)? $50k a month in housing expense–that’s a serious residence.
I guess that would be okay, if you’d like to be someone with seven figure income who can’t afford new clothes or to eat out ever (not to mention furnishing that $5mm+ house). Basically all that person’s income would go to taxes and housing–in fact, I don’t know if there’s enough $$ left over to pay all the utility bills.