Buy vs Rent in North Center
“Should I continue to rent? Or does it make more sense to buy?”
This is a question that just about every adult will likely ask at some point in their lives, and one that has been asked for hundreds if not thousands of years.
There are many, many factors that go into making this decision, both personal and financial. Even if you have the financial means to purchase, it still might not make sense from a lifestyle standpoint.
Maybe your job status is in flux and you don’t know how much longer you’ll be in the city. Maybe you’re thinking about starting a family soon and not sure how that will change your priorities. Maybe you just like the flexibility that renting affords plus the lack of responsibility for when things inevitably go wrong. Maybe your rent is very low and you want to save money a little bit longer.
There are plenty of responsible, legitimate reasons to continue renting from a lifestyle point of view.
From a financial point of view, however, owning your own home is almost always going to come up as the clear victor due to the equity you can build over time.
In this series of articles (and videos), I am going to get into specific details of many of the most popular neighborhoods in the city of Chicago and break down the financial aspects of owning vs renting.
In this particular article I will be exploring the North Center neighborhood! I have analyzed 1, 2, and 3 bed condos and compared them to what it would look like if you rented a similar unit in the area.
(The following condo financial estimates are compiled using a 30 year fixed rate, 5% down payment, 3.2% interest rate, 1% PMI, estimated property taxes and homeowners insurance, median HOA, median sales price current as of the end of 2021, and average growth rates over the past 5 years. Rent figures based on estimate of rental units comparable to quality of median priced condo)
This exercise is not intended to convey investment advice nor should it be applied to each individual property and personal situation. This is simply to provide a general overview of what these numbers could look like based on average market conditions. Please reach out to Jake Lyons with any questions.
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For 1 Bedroom condos in the North Center neighborhood of Chicago, the median price point is at $249,900. The median HOA was $300, for an estimated total monthly PITI (principle, interest, taxes, insurance) of $1,938.74.
A comparable rental unit in North Center would go for an estimated $1,529.00, for a difference of roughly $409.74
We found the growth rate of the condos over the past 5 years to be 1.25%.
If this were to continue, in 5 years this condo would be worth approximately $265,854.83.
After 5 years of making mortgage payments, the amount owed on your loan would be approximately $212,945.34.
This results in an equity position of approximately $52,909.49, or 19.90% of the home’s value.
If you were to look at your monthly PITI payments as an investment and run the numbers as such (adjusting for the initial down payment), this would result in an annual rate of return (ROI) of approximately 6.27%.
To take it a step further.. Let's assume that the cost of rent ($1,529.00) is the baseline cost for living in the type of home you desire. If you were to look at the difference between PITI and rent ($409.74) as an investment that yields you $52,909.49 of equity in 5 years, that would be equal to an annual ROI of 32.9%!
Compare that to the cost of renting where, besides the utility of having a place to live, you gain nothing from an investment point of view.
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For 2 Bedroom condos in the North Center neighborhood of Chicago, the median price point is at $390,000. The median HOA was $285, for an estimated total monthly PITI (principle, interest, taxes, insurance) of $2,842.46.
A comparable rental unit in North Center would go for an estimated $1,983.00, for a difference of roughly $859.46
We found the growth rate of the condos over the past 5 years to be 2.94%.
If this were to continue, in 5 years this condo would be worth approximately $450,827.34.
After 5 years of making mortgage payments, the amount owed on your loan would be approximately $332,327.65.
This results in an equity position of approximately $118,499.69, or 26.28% of the home’s value.
If you were to look at your monthly PITI payments as an investment and run the numbers as such (adjusting for the initial down payment), this would result in an annual rate of return (ROI) of approximately 10.42%.
To take it a step further.. Let's assume that the cost of rent ($1,983.00) is the baseline cost for living in the type of home you desire. If you were to look at the difference between PITI and rent ($859.46) as an investment that yields you $118,499.69 of equity in 5 years, that would be equal to an annual ROI of 38.40%!
Compare that to the cost of renting where, besides the utility of having a place to live, you gain nothing from an investment point of view.
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For 3 Bedroom condos in the North Center neighborhood of Chicago, the median price point is at $540,000. The median HOA was $253, for an estimated total monthly PITI (principle, interest, taxes, insurance) of $3,794.10.
A comparable rental unit in North Center would go for an estimated $2,623.00, for a difference of roughly $1,171.10
We found the growth rate of the condos over the past 5 years to be 3.79%.
If this were to continue, in 5 years this condo would be worth approximately $650,340.66.
After 5 years of making mortgage payments, the amount owed on your loan would be approximately $460,145.98.
This results in an equity position of approximately $190,194.68, or 29.25% of the home’s value.
If you were to look at your monthly PITI payments as an investment and run the numbers as such (adjusting for the initial down payment), this would result in an annual rate of return (ROI) of approximately 12.82%.
To take it a step further.. Let's assume that the cost of rent ($2,623.00) is the baseline cost for living in the type of home you desire. If you were to look at the difference between PITI and rent ($1,171.10) as an investment that yields you $190,194.68 of equity in 5 years, that would be equal to an annual ROI of 46.45%!
Compare that to the cost of renting where, besides the utility of having a place to live, you gain nothing from an investment point of view.