If you're interested in buying a condo in Chicago, you're not alone.
Almost ⅔ of all single family homes sold in the city of Chicago are attached condos and townhouses vs detached houses.
While buying a condo is usually simpler than buying a house or multifamily building in terms of the property itself, there are quite a few things to keep in mind when narrowing in on your dream condo.
Whether it’s a highrise box in the sky or a garden unit of a 3 flat, this is the only video you’ll need to watch to be armed with all the info you need to navigate your next move.
In fact I’ll be going into the top 7 things you need to know if you’re interesting in buying or even selling a condo in Chicago
Now let’s get into it!
Tip #1: Understand your financing and the variables that impact you
Assuming you’re not paying all cash, the first thing you’ll want to do is talk to a lender about getting pre-approved for a mortgage. This will help you know what price range you should be looking in. Even if you “know” you could afford a certain amount, there is a difference between the number you know you in your heart that you could afford and the number than a bank is willing to bet that you can afford over the course of 15 or 30 years, and unfortunately that 2nd number is the only one that really matters.
Once you get that number, know that there are many variables which could impact your actual monthly payment such as HOA fees (which we’ll get into in more detail next), taxes, and insurance.
If you’re using an FHA or a VA loan to finance your condo, make sure the building you’re buying in is on the list of approved buildings for those programs. If it isn’t, you can apply to get it on there and can usually still move forward with the deal, but there will be a couple more hoops you’ll need to jump through first and it will take a little longer to close.
As long as you’re working with an experienced lender and all parties are on the same page, this shouldn’t be more than a minor inconvenience.
Tip #2: Understand your HOA dues
Homeowners association (or HOA) dues will also commonly be referred to as the “assessment” and is the amount of money owed to the HOA each month in order to maintain the building.
HOA dues vary widely in the city, depending on what kind of building it is, whether the building is self managed or run by a management company, what kind of amenities the building needs to maintain, how old the building is, and many other variables.
HOA dues can range anywhere from $100/month to literally thousands of dollars per month.
So obviously, it’s very important that you know what it includes!
Almost every HOA is going to include your basic things like water, common area maintenance, snow removal, garbage removal (or “scavenger” as it’s referred to on real estate listings), and common insurance (not to be confused with your personal homeowners insurance)
Sometimes your HOA will also cover things like gas, electric, internet and cable, though that is less common
From there it just depends on the type of building. If it’s a bigger, high rise type of building, then there might be things like a door person, security system, on-site management, an elevator, pool, gym, business center, and other amenities like that that all of the residents are chipping in for.
As you might expect, this will normally come with a higher price on the HOA.
Though there are exceptions to everything, smaller buildings in the 3-12 unit range that don’t have a ton of extra amenities are usually on the lower end (I would describe as somewhere in the $150-400/month range) while bigger buildings that are more complex to maintain and have more amenities usually have higher HOA fees (what I would describe as somewhere in the $500-900 range or higher)
How much your share of the fees are within a building is up to the HOA to determine, but usually things like your unit’s size and floor level will determine how much your dues are compared to your neighbors.
Another huge consideration regarding the HOA is how much money they have in reserves.
A portion of the resident’s HOA fees should be saved in a reserve fund to pay for repairs or improvements as they come up in the building (such as a new roof, or perhaps replacing a sundeck or repaving a parking lot).
If something comes up and the building doesn’t have enough in reserves to cover the cost, then there may be what’s called a “special assessment” where each of the building’s residents are essentially required to contribute a certain amount of money towards the project.
Depending on the scope of the project in question, this could be anywhere from a few hundred dollars to many thousands of dollars required of each resident. Obviously this is not ideal.
If you’re thinking about purchasing a condo, always ask what the reserves are and make sure there aren’t any specials coming up. If there is, see if the seller will pay it before closing or make sure you’re planning ahead for it.
There is no one size fits all answer as to how much a building should have in reserves. It depends on many factors including the age, size, building materials, recent project and renovations, and number of units in the building among other things.
Just make sure you’re working with a professional who knows how to evaluate things like that.
Tip #3: Understand Your Taxes
Taxes are fairly straightforward, my main point here is just to make sure you understand to the best of your ability what your taxes will actually be.
When you see the taxes quoted on a real estate listing, it’s important to remember that the number shown is usually what the owner paid 1-2 years ago as that is often the most recent tax data available since Cook county taxes are in arrears and is also known to be a step behind, especially recently.
This is why, when we go to write an offer, it is customary to have a tax proration of 105-110% of the last known tax amount just in case the actual taxes in the most recent year that you would be partly responsible for are higher than what is listed and to make sure there is enough in escrow to cover it.
If you have no idea what I just said, don’t worry, that’s a little beyond the scope of this video and someday I’ll have an attorney on here to go over things like that in more detail.
Another thing to watch out for is tax exemptions. Sometimes you may come across a property with listed taxes that are considerably lower than other similar places and it seems too good to be true. When this happens, look to see if there were any tax exemptions that enabled the seller to pay a lower property tax amount than they otherwise would have.
The most common exemptions are the homeowners exemption, senior exemption and a senior freeze, but there are also exemptions for home improvement, veterans, and people with disabilities.
Tip #4: Know Your Amenities!
Amenities can play a large role in shopping for condos, especially in some of the more centrally located, downtown neighborhoods of Chicago like the Loop, River North, West Loop and so on.
Many of the downtown high rises will feature everything from door staff, package handling, security, and valet service, to things like a gym, pool, business center, dog walk, roof deck, and more.
As you get further from the downtown highrises, those types of amenities become less common as the buildings simply get smaller, although things like gyms, security systems, and common area roofdeck can still be found.
The main point here is to know what you’re looking for and what you’ll actually use. It’s always amazing to me when I’m touring these buildings with high end swimming pools and gyms and saunas and all kinds of other crazy things and nobody is ever using them!
Don’t be that person. If you’re in a building that has these things, you’re probably paying a hefty HOA fee for them so you might as well enjoy them and have the whole place to yourself!
Thing #5: Want to rent it out? Know the rules!
It seems like not a week goes by where I don’t have to let someone down from their hopes and dreams of owning a condo in downtown Chicago that they can visit every once in a while and rent it out on AirBnB the rest of the time. Unfortunately, this is just not a thing in Chicago.
The hotel industry lobbyists have firmly put the right Chicago politicians in their pockets (rewind).. Chicago politicians have listened to the people in these various areas who have apparently complained of their buildings and neighborhoods being overrun by out of towners not respecting where they are staying.
It is now all but impossible these days to casually have an AirBnB listing unless it’s your primary residence and you’re renting it out part time.
You can still rent out many condos the old fashioned way, however. You just need to know what your HOA’s rules are. Some HOAs don’t allow rentals at all, though that is relatively uncommon. What is much more common is for the building to have a “cap” on how many can be rented at a time, usually somewhere in the range of 20-30% of the units in a building.
Sometimes there may also be a requirement that the unit has been owner occupied for a specific amount of time, 2 years is the most common number I see for that.
If your building is already at its rental cap, then you’ll have to go on a waitlist before you can rent out your unit.
Some buildings don’t have any rental cap at all, which can sound like a good thing but you may run into issues with financing if the type of loan you’re working with doesn’t like buildings with more than a certain amount of renters. This would be a question for your lender.
Tip #6 Determining value
Like all residential real estate, the value of a condo is largely if not entirely based on how it compares to other properties that are most similar to it, what we in the biz call “comps”, with particular weight given to comps that have sold over comps that are still on the market or even ones that have accepted an offer but haven’t closed yet.
The more recent the sold comp, the better.
No matter what anyone tells you, determining the value of a property is part science and part art. While it’s in theory based on objective numbers, there is still an element of subjectivity when it comes to what things the valuator or appraiser is prioritizing.
Where it all starts for me when I’m analyzing a property is bedroom and bathroom counts, size, age, proximity, and timeframe. If the subject property is a 2 bed, 1 bath condo in a 12 unit building, then a 2 bed, 1 bath condo that sold 8 months ago in the same building is still probably a better comp than a 2 bed 1 bath condo that sold 4 blocks away in a 3 unit building even if it only sold 2 months ago.
However, that condo that was sold 4 blocks away is probably still a better comp than a 4 bed, 2 bath condo that just sold in the same building because that’s a much different product.
This may seem like common sense, but you’d be surprised at how people see what’s happening around them and come up with ideas of what they’re home is worth based on ultimately irrelevant data.
From there, we move on to comparing more secondary features like the presence or absence of laundry machines, parking spots (garage vs exterior spots, or no spots at all. If the comp had a parking spot, was it included in the price or sold separately?), finishes like hardwood vs laminate vs carpet, or marble counters vs quartz or granite, central AC or window units, outdoor spaces like balconies or roofdecks, gas or electric cooking, what the view is like, what level the condo is on (which is especially important in the downtown high rises), and any other features that stand out about the subject property for better or worse.
From there, you see what all is out there that either has or doesn’t have the features of the subject property, estimate the value that should be added or subtracted from the subject property based on the presence or absence of that feature, and make your adjustments.
(For example, you might determine from other comps that the presence of a balcony ads $50,000 to a property’s value, so if the subject property doesn’t have one, then you would discount $50,000 from the sold price of the comp that did have one).
Rinse and repeat until you’ve exhausted all of the relevant features you’re accounting for and have arrived at what you believe to be a fair value.
That, in summary, is how it’s done. This process is simple, but it’s not easy. It takes a certain amount of specialized tools and specific market knowledge to do it correctly, so much so that an assigned appraiser for a property has to meet certain criteria of demonstrated knowledge in the area before they are to perform an appraisal there.
So, when you’re looking for an agent to work with on either the buy side or the sell side, this is arguably the most important skill to look for in a real estate professional.
(Oh by the way did I mention that I’m a National Association of Realtors certified Pricing Strategy Adviser?)
Tip 7 - Things to look for during an inspection
The home inspection for condos can often feel like more of a formality than inspections on houses and multi family properties. There is simply less that can go wrong when you don’t have to worry about things like the exterior, or the roof, or sump pumps, or leaks in a basement, or sewer lines, or a whole host of other things that come up on other types of properties.
(Not that these things should be ignored, per se, because they still impact the building you live in and you should make sure the building has the ability to handle these things, but they are typically not your individual responsibility.)
Still though, you should always get a professional inspection done because you just never know what you might find. Operational failures on electricity, plumbing, gas, windows that have blown their argon gas seals, loose toilet bowls, safety hazards, and more are the kinds of things that might come up and, even if the items in questions aren’t deal breakers, you’re likely about to spend 6 or 7 figures on this home so you might as well know everything you can about the asset you’re purchasing!
Skipping this step would be a very silly way to try to save a few hundred bucks.
If you are looking into buying or selling real estate in Chicago, feel free to contact me directly or book a call with me via this calendly link https://calendly.com/jakelyonsrealtor/30min