Given the pandemic, the answer to the question “should I buy or rent in Chicago” is more important than ever. We updated this article to help you find the best answer for your situation during these challenging times.
First we look at current market factors to inform your decision. Then, we’ll explore the age old pros and cons of buying vs. renting in Chicago.
Current Market Factors
Let’s face it, generally it’s a great time to be a renter in Chicago. According to the Chicago Tribune, rents fell by 12% in 2020. And right now inventory of rental units is plentiful so good deals abound.
Resource: Explore The Latest Chicago Rentals
The inventory of detached single-family homes for sale in the City of Chicago is down 46.6% vs. last year. Since the supply is low, it’s a sellers market and this has driven the average sale price of a single-family home up by a whopping 23.4%.
The inventory of condos, lofts, townhomes (attached single-family homes) in Chicago is actually up 29.4% with sales prices up 12.1% or half as much as for single family homes. But 12.1% is still huge.
Given these market factors, it’s generally fair to say that renters are getting bargains now and buyers are paying a premium.
Next let’s take a look at the traditional pros and cons of buying vs. renting.
Best Reasons To Buy In Chicago
As always, buy for freedom, to hedge inflation, as a vehicle to force savings, to build equity and for the potential tax benefits.
Let’s look at each of these reasons to buy vs. rent in Chicago:
For The Freedom
The primary reason many people want to buy a home is for the feeling of freedom it brings.
As a home owner you have total freedom to express yourself creatively and productively in your space.
The result for many is a higher quality of life.
For instance, home owners have the freedom of creative expression and choice. For example, you can transform an older kitchen into a modern hub of social activity for friends and family. You own it, you decide!
Of course, if it’s a condo, this freedom may be curtailed by the condo bylaws, rules and regulations.
Resource: Chicago Relocation Guide
To Hedge Inflation
Normally, with inflation comes higher rent rates. If you’re a home owner with a fixed mortgage you basically are protected against inflation going forward.
Historically many Chicago renters have felt the pain of annual rent increases. (Note: this past year was an exception to that rule with rent rates frozen or going down as many renters lost their jobs and ability to pay.)
Alternatively, buy a home and you lock in a mortgage interest rate for 5, 7, 10, 15 or 30 years.
Plus, knowing what your monthly payment will be in the long haul provides a sense of peace that renters often don’t enjoy.
Resource: Chicago Home Search
Over the years, home ownership has been a really good investment for many Chicagoans.
Clearly, it’s not without substantial risk as we know from the 2008 real estate crash. But bubble aside, the long term savings value is evident.
Plus, home buyers buy on a huge margin, in some cases with just 3% to 5% down. That’s a deal not found in other investment venues like the stock market.
When deciding whether to buy or rent in Chicago, building equity may be one of your primary reasons.
Over the past 75 years buying a home has been a great way to build personal wealth.
Each month a portion of your mortgage payment is applied toward paying down your loan principal.
So, assuming home prices appreciate (and did they ever in 2020!) when you sell your home, you’ll receive the principal you paid in plus money from any market appreciation.
This sounds pretty good compared to paying rent, a 100% monthly expense. Money gone.
The tax incentives for many home buyers in Chicago are still pretty significant.
Those living in markets with high local property taxes and super expensive housing (think NYC and Silicon Valley) are not seeing the tax incentives they did prior to the recent federal tax reform.
However, mortgage interest and property taxes remain tax deductible for many Chicago home buyers. Rent however is generally not tax deductible.
In addition to annual tax deductions, home owners can often make money on the sale of their home and take profits tax free within certain limits. Talk with your tax accountant about your specific tax circumstances.
And now, if you are thinking seriously of buying, here are some more resources for you:
Best Reasons To Rent In Chicago
Rent for career and financial flexibility, to save a down payment and to avoid repair bills, real estate taxes and real estate market risk.
Let’s delve into the best reasons to rent vs. buy in Chicago:
With employment uncertainty due to the pandemic, these days flexibility matters more than ever. For many the best reason to rent is maintain career and / or financial flexibility.
You’ll want the flexibility that renting provides if you expect a job change, you get a promotion to a new market or meet that special someone who lives in Atlanta. (Note: if that happens check out our sister company Best Atlanta Properties!)
Consider your time horizon. If you can’t see beyond three years then you should probably rent. You’ll appreciate that flexibility when you want to make a change.
Or rent if you want the financial flexibility to invest your money somewhere besides a home. For example building a small business may be a better use of your capital at the moment.
Say you want to put 5, 10, 20% down on a home purchase but need to save more to get there. Then rent and save until you have the money needed. It this is the case you want to be sure it’s actually cheaper to rent than buy in Chicago. To answer that question right now, run the numbers with the New York Times Buy vs. Rent Calculator.
Owning a home can be expensive at times. If you’d prefer not to pay for those things that go wrong then rent. For example, if you rent and the HVAC fails, of course the landlord pays the big bucks to replace it.
Let’s face it, real estate taxes in Downtown Chicago neighborhoods are really high. And at the moment it seems they will only go higher.
For example, a spacious 2 bed / 2 bath West Loop condo can come with real estate taxes of more than $10,000 a year. In the neighborhoods we serve we see property taxes ranging from $4.25 to $6.50 per square foot.
If you’d rather not be committed to pay those taxes, renting might be best.
Reduce Market Risk
If you believe that in the next few years home prices will go down, you probably will want to lease a place to avoid market risk.
When renting you can manage risk by negotiation a fixed rent for a second or third year in advance.
Conclusion: Should You Buy Or Rent In Chicago?
We hope this discussion of the pros and cons of buying vs renting in Chicago has helped you answer this question for yourself.
If you have further questions or want to get started, ask us, we’re here to help you buy or rent in Chicago.