Our clients often ask if they should buy or rent in Chicago. So here we discuss the pros and cons of buying vs. renting in Chicago. Including all the key factors to help you decide which is best for you.
First we’ll discuss the best reasons to buy in Chicago. Then we’ll get into the best reasons to rent.
Best Reasons To Buy In Chicago
Buy for freedom, hedging inflation, forced savings, building equity and potential tax benefits.
Let’s look at each of these reasons to buy vs. rent in Chicago:
Freedom is for many people the primary reason to buy a home.
When you’re a home owner you have total freedom to express yourself creatively and productively in your space.
For many this translates to a higher quality of life.
For example, home owners have the freedom of creative expression and choice. You can choose to 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 you’re buying, this freedom may be curtailed a bit by the condo bylaws, rules and regulations.
To Protect Against Inflation
With inflation comes higher rent rates. If you’re a home owner with a fixed mortgage you basically are protected against inflation going forward.
Chicago rents have been going up for years now. As a result, many renters feel the pain of annual rent increases. And those annual increases add up fast.
Alternatively, buy a home and you lock in a mortgage interest rate for 5, 7, 10, 15 or 30 years.
And 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.
To Build Equity
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 the housing market appreciates (no guarantees!) when you sell your home years later, you 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.
For Tax Incentives
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.
Tip: For more detail read The Tax Cuts And Jobs Act And What It Means For Homeowners And Real Estate Professionals by the National Association of Realtors®.
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:
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 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.
To Save Up
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.
To Avoid Unexpected Expenses
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.
To Avoid Local Real Estate Taxes
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.
To Avoid Real Estate 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.
Resource: Explore The Latest Chicago Rentals
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.