Buy Or Rent In Chicago?

Buy Or Rent In Chicago?

This article gives you the exact info you need to correctly answer the question “should I buy or rent in Chicago”. Today there are more factors than ever to consider.

For instance:

  • Increasing mortgage interest rates
  • Inflation
  • Supply chain problems/ construction delays
  • War in Ukraine
  • COVID Pandemic

All point to higher prices for buyers and renters as well.

Let’s take a look at current market rates, then we’ll explore the pros and cons of buying vs. renting in Chicago.

Current Market Rates

For renters:

Here are the median average rent rates and year-over-year increases per Zumper as of May 9, 2022:

  • Studios average Chicago rent is $1,350 up $319/ 31%
  • 1 bedroom average Chicago rent is $1,895 up $495/ 35%
  • 2 bedroom average Chicago rent is $2,200 up $450/ 26%
  • 3 bedroom average Chicago rent is $2,600 up $400/ 18%
  • 4 bedroom average Chicago rent is $3,250 up $350/ 12%

Of course these numbers will vary depending upon the neighborhood.

Moreover, inventory of rentals is down considerably, especially in popular neighborhoods like the West Loop where our office is located.

So, if you decide renting is better for you than buying, you will have to work hard and compete to find the right place.

Resources:

How To Find A Rental In Chicago’s Competitive Rental Market

Explore The Latest Chicago Rentals

Contact Us Fo Help

For buyers:

Here are the average sale prices and year-over-year increases for the City of Chicago as of the end of April 2022 per Chicago MLS:

  • 1 bedroom or less average Chicago sale price is $224,879 up 2.1%
  • 2 bedroom average Chicago sale price is $365,271 up 6.5%
  • 3 bedroom average Chicago sale price is $500,415 up 11%
  • 4 bedroom or more average Chicago sale price is $740,829 up 17.6%

Our observations that may assist you:

  • Inventory of condos is down 25.8% year-over-year
  • 1-2 BR condos in some areas of the city are still priced relatively well
  • 3+ BR condos, townhomes and single family homes have seen the more dramatic increases in price and intense bidding competition
  • Going forward, rising mortgage rates may dampen the number of qualified buyers in the market
  • Those thinking of selling their current 1-2 bedroom places to step-up to larger homes are pausing to consider if they can still afford it
  • Steep competition and bidding wars for larger homes has not let up yet

That’s all very nice but should I buy or rent in Chicago? As mentioned, prices to buy and rent have both increased significantly year-over-year.

Our advice:

“If you plan on staying 2-3 years or less, renting is still best. However, if you plan on staying longer than 3 years, buying makes more sense. Especially if you can buy a 1-2 bed condo in the city at a price not so different than last year. This could be a great bet against rising inflation even with current mortgage rates hovering at 5.25 – 5.5%.”

Resources: Search All Current Chicago Listings or Contact Us for help with your decision and your search.

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 (suddenly more important!), 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 Freedom

The main 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.

As A Hedge Against 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. And we are seeing this again in today’s market.

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.

To Force Savings

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 home prices appreciate, 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.

For The 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 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 Tips For First Time Home Buyers In Chicago

Buying A Chicago High-Rise Condo

Mortgage Calculator

Get Pre-approved For A Chicago Mortgage

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 The Flexibility

These days flexibility seems to matter 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 two 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:

Here are two excellent calculators for automatically doing the math for your exact situation:

Nerd Wallet’s buy-vs-rent calculator -or- The New York Times Buy vs. Rent Calculator.

For The Lower 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 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 Reduce Market Risk

If you believe that in the next few years home prices will go down, you may want to rent 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 determine the best course of action for your situation.

If you have further questions or want to get started, ask us, we’re here to help you buy or rent in Chicago.