Rent or buy in Chicago? That’s a question residents and soon-to-be residents ask themselves all the time. And the answer changes depending on your financial situation and lifestyle preferences. Let’s take a look at some of the important factors when deciding whether you should rent or buy in Chicago — with insights from a couple of local real estate experts.
Are you a long-time resident who knows the city inside and out? Or are you new to Chicago? Chicago has nine districts with 77 community areas and over 200 neighborhoods within those communities. If you’re a long-time resident, you likely already know the pros and cons of different areas and have narrowed down where you could see yourself living. But for someone new, there’s a lot to learn.
For this reason, Maurice Ortiz at Apartment People, a website that helps people both rent and buy in Chicago, says that most people will rent when they first arrive to Chicago. Renting allows you to get to know the city without the massive commitment that comes with buying property. After getting the chance to explore different neighborhoods and find areas that you really enjoy, anyone interested in buying can make a more informed decision.
When people are comparing renting and buying, the financial aspect of it is often the first thing people think about. Your lifestyle is just as important a factor. And it’s one many people forget about.
According to Ortiz, one of the most attractive things about renting is the freedom it provides. Owning a home is a major responsibility that many don’t want or that doesn’t make sense right now.
If you like moving regularly, aren’t sure what the next couple of years will look like, or simply aren’t looking for the responsibility and time commitment that comes with owning a home in Chicago, there are plenty of reasons why renting makes more sense. Some of the things that you should consider when thinking about renting versus buying are:
The Time Commitment
Owning a home is a major time commitment. Many embrace this, but others love the convenience of renting. Though renting might be more costly from a financial perspective, owning your own home can be more costly from a time perspective. And not having to spend time maintaining your home or taking care of the yard (if you have one) is more important for some people.
Ease of Moving
If you own, selling your home is an ordeal. For renters, you just leave after your lease is up. The freedom that renting provides is something that many renters love. Often, people want to live in different areas of Chicago every couple of years. Renting is the only way to go if the freedom to move is something you value. Of course, if you love a neighborhood and moving around isn’t appealing to you, buying is a no-brainer.
Your Immediate Future
Are you sure about what is ahead? Are you sure you’re going to be at the same job for at least a couple of years? Are you sure you’re even going to live in Chicago for the next few years? If you’re confident the answer is yes to those questions, buying is a safe choice. If you’re thinking about making any significant changes in the next couple years, renting is probably the better option.
From a lifestyle perspective, owning a condo provides a lot of the same benefits that renting does. Jenn Kim, an agent with Redfin, specializes in Chicago neighborhoods such as River North, West Loop, and South Loop, where condos are the primary option for buyers. Kim says that condos often provide the best of both worlds.
“When you buy a condo, you have a homeowners association, and most of the common maintenance is taken care of for you. Really, you’re only responsible for your kitchen appliances and your HVAC, but some buildings even have central heating and cooling. You don’t really have to do anything. If a light bulb burns out, they take care of it,” says Kim.
Of course, the homeowners associations is an additional cost on top of everything else. Condos also don’t offer the same flexibility to pack up and leave whenever you’d like. But if ownership is appealing and you prefer to have more time to experience the city rather than maintain your property, you can’t beat the convenience that comes with condo ownership.
Another critical component in this conversation is whether or not you’re in a strong financial position to buy. Chad Lubben, SVP of Mortgage Lending at Guaranteed Rate, recommends meeting with a mortgage professional three to six months before you buy a house (and before you meet with a realtor and fall in love with a home) to take a comprehensive look at your current and future financial situation. The major things that Lubben goes through with clients to help them make a decision include:
Rent vs. Buy Comparison
A great first step is to get an estimate of what it’s going to cost to rent versus buy a similar property. This will take into account approximate rental inflation in comparison to approximate real estate appreciation. In most instances right now, Lubben says that buying comes out to be the same or less expensive than renting in Chicago.
Here’s an example of what this comparison looks like: rent-vs-buy-comparison
Evaluate the Additional Benefits of Home Ownership
After getting a base understanding of what it will cost to buy, Lubben will start to factor in some of the additional financial benefits of ownership, such as mortgage interest tax deduction and estimated real estate appreciation.
Forecast How Long You’ll Live There
By setting an estimated length of time for living at the property, you can work backwards to get an understanding of how much you’ll save by buying over renting. In most cases, the longer you stay, the more you’ll benefit.
Get an Idea of Real Estate Appreciation
Another thing that’s important is to get an understanding for how homes in your ideal neighborhoods are appreciating. Lubben says that appreciation has been around 3.5 to 4% each year on the North Side of Chicago, which is a more sustainable growth rate than what Chicago has experienced in the past.
Evaluate Current & Future Financial Situations
Of course, in order to buy a home, you must have the finances to make it happen. How much you have for a down payment and your credit score are two critical components of your current financial situation. Lubben says that basing your decision off of these two things alone isn’t the best idea, though.
Do you have more savings beyond what you’re using for the down payment? How is retirement planning going? Is buying a home going to derail other financial goals you have? Do you need to buy a new car soon? Are you getting married or do you plan on having children in the near future? These are things that Lubben stresses as important to consider before buying a house.
Understanding the Full Cost of Home Ownership
According to Lubben, it’s also a common problem that buyers don’t understand the full monthly cost that comes with ownership. Buyers will often come in thinking they can afford a property they can’t because they’re basing their price estimate on only the property value.
But property taxes, HOA fees, and individual homeowners insurance are costs that have to be accounted for. Lubben says that there are times when taxes and HOA fees are just as significant of a cost as the property itself. So in order to get a realistic idea of the type of property that makes financial sense for you, Lubben suggests setting the monthly payment you want to make and find properties that will fit within that number after all of the monthly costs are accounted for.
Which Is the Smarter Long-Term Financial Decision?
If you have the means to make a down payment, buying is smarter financial decision right now. According to Zillow, the breakeven horizon—or time you’d need to stay in a home to make it more profitable than renting that same space—is only two years in Chicago. On top of that, Chicago’s rent-to-buy ratio is only 9%. When this ratio is below 15%, buying is considered to be the better financial decision. Some of the factors contributing to this include:
Low Interest Rates
Both Ortiz and Kim reference the low interest rates as major motivators for buyers. “One of the biggest reasons people are looking to buy is low interest rates. Younger generations might not understand it yet, but rates are so low,” says Ortiz.
Kim agrees, saying that people are willing to buy and sell even going into the off-season because there’s no guarantee that interest rates will stay where they are.
“We have clients asking if they should wait until the spring to list, but with the interest rates where they are, we’re suggesting they list right away,” says Kim.
If you’re waiting for the right time to buy, it’s now.
People often refer to renting as throwing money away because you aren’t building equity. Once again, you must have the means to make a down payment and must account for the expenses of home ownership, but building equity is a much better financial decision than paying someone month after month to live on their property.
Rising Rental and Ownership Prices
In addition, rental prices are rising at record pace in Chicago. Home prices continue to rise as well, but this only confirms the financial benefits of buying. By buying now, you lock in your mortgage at the current value and enjoy the benefits of your property’s rising value.
According to Zillow.com, home prices in Chicago have gone up 2.4% in the past year and are projected to rise 3.0% over the next year. If you wait a few years and home prices continue to rise, you’ve paid tens of thousands in rent over that time and will be paying even more for your home when you make the decision to buy.
There is always the risk of your home’s value decreasing. This is a risk any homeowner assumes when buying property. That said, home prices are projected to keep rising in Chicago, and as Lubben says, the growth right now appears to be very sustainable.
Should You Rent Or Buy in Chicago?
It all depends! For established residents who know they’ll be around for a while, buying is by far the better financial decision. But for those who enjoy less responsibility and more freedom, renting provides tremendous advantages.
Whether you rent or buy, Extra Space Storage can help you move, organize, and make room for life. View our selection of Chicago storage units today, and make sure to check out our list of the best neighborhoods in Chicago to live in!