Should I Buy or Should I Rent?

 

 

Ah, the age old question in real estate. Should I buy or should I rent? Well, if you ask any standard Realtor they will tell you BUY! But, if you haven’t figured it out yet I’m not your standard Realtor. I try not to drink the Kool-Aid and instead give you unbiased and practical advice. So in this quick blog I’d like to ask you some questions to help YOU figure out if you should Buy or Rent in Chicago.

Do you know where you want to live for the next 2 to 3 years?

This may sound like an obvious question, but it is a question most people don’t ask themselves. They may want to buy for the purpose of buying, but may focus more on what they can afford versus where they truly want to live in the next 2 to 3 years. So the question I ask you is, where do you want to be? Can you see yourself living there for the next 2 to 3 years? If so, then you’re at least one step closer to buying.

Can you afford home ownership?

Some sales people may say “You can’t afford NOT to buy!” Umm…yeah, whatever…that’s not the right answer. What I mean by, “Can you afford home ownership” is after purchasing the home will you at least have some sort of a financial cushion in the event there are any issues with your home. This can be small things like needing to replace an appliances to larger items such as roof repair on a single family home or a special assessment in a condo building. As long as you have some sort of cash cushion then you’re again one step closer to buying.

Is your family situation stable?

OK, this sounds like an odd question so let me explain what this means. Are you in the process of getting married and thinking of having kids in the next year? If so, then you might want to be looking to buy a place larger than a studio! Sounds like a silly question but you’d be amazed at how some people jump into things. Take your time to consider this. Let me give you good example of clients of mine who did the right thing.

I had a couple contact me off my blog about 4 years ago. They were an absolute delight to work with. We got along extremely well. They were looking at 2 Bedroom condos in River North / Streeterville for up to 375k. However, as we were looking over a month or so, they also started thinking more. They decided to put the search on hold for a bit to decide what they wanted and needed for themselves. A year later we were back on with our search and this time they were married and planning to have a child. Their search criteria now changed to a 3 Bedroom with lots of living space in the areas of Lincoln Park and Lakeview and now they upped their budget. They simply took some time to think about their situation and then they made a wonderful purchase where they will definitely be happy for at least 5 years.

What are you willing to do with your property in the future?

I’ve had some clients who have purchased a property knowing that in the next year they’ll likely move out of town. They still wanted to buy because they planned to rent out the property if they moved and planned to keep it as an investment. If you think you might be moving soon then buying might not be for you, or it might be if you have different goals for the property you are buying. However, if you are thinking of buying and renting out your property then you need to make sure you plan accordingly and purchase accordingly.

What tax laws will benefit me?

The interest deduction is a major factor for many buying today. The ability to write off interest (please consult your tax advisor as everyone’s situation is different!) on your home mortgage is a motivating factor for many. How much will you actually save if you buy? For many this could help make or break the decision in whether or not you should buy.

What is going to make you happy?

Making money on your home is a wonderful thing but focus on where you will be happy living. Look for the maximum value, but remember your happiness is a big part of that value consideration. Would you rather live in a property where you make only 1 to 2% appreciation a year and be extremely happy or would you rather live somewhere that is not your ideal location, but instead have a great chance of return down the road. Everyone is different, but only you can answer that question for yourself.

In some instances people can only be happy if they can remodel their kitchen and make their home exactly how they want it, which is something you cannot do if you rent. So again, if this is you, you’re one step closer to buying.

It is only a decision you can make

It is not a decision your Realtor can make for you, or your friends, or your mother. It is only a decision you can make for yourself. Take all of the above into consideration and make an informed decision.

 

Paul Blackburn is a licensed Real Estate Broker and Realtor with @properties in Chicago. Paul has been selling real estate since 2007 and is a broker and trainer for the Skowron Group which has sold in excess of $100 million in 2016 alone. For further information or questions please feel free to contact Paul directly at Paul@pkblackburn.com

What to watch for in Real Estate in 2017

What should we expect in real estate in 2017 across the Chicagoland area? Will 2017 prove to be a year full of growth in Chicago or will rising interest rates temper growth? Will rent prices decrease due to excess multi-family building or will demand rise and keep up with supply? We all have our own thoughts and opinions; I’m sure you know I have mine. However, regardless of your opinions of the future of the economy, Chicago real estate or the real estate market as a whole, here are a few things to keep an eye on in 2017 in Chicago real estate.

1) Interest Rates

The Fed raised rates in the last quarter of 2016 and is expected to do so two to three more times in 2017. Sub 4% interest rates for a 30yr fixed is no longer in our vocabulary, but how high will interest rates go? Keep an eye out for how consumers react to rising rates. While the economy appears to be very robust and we are at what is considered full economic employment, it will be interesting to see how rising interest rates affects home buyer sentiment. In order to get a feel for the market talk to Realtors and talk to mortgage brokers to see how rising rates are influencing their clients decision making process.

2) Increased programs for low down-payment buyers

In the recent year we’ve seen several new programs come out that are what I call, FHA alternatives. They’re essentially low down-payment programs or programs that give rebates or closing cost credits that allow you to purchase a place with as little as 3% down. As these programs gain more momentum and awareness it will be interesting to see a couple things

a) How long will these programs last

b) How these programs are influencing demand in certain price ranges and areas

3) Keep an eye on how rental supply will influence both the rental and sales market

Increased supply on the rental market can greatly affect both the rental market and the sales market. Rent prices have increased drastically in the past 5 years in Chicago but they’re currently peaking and vacancy rates have increased in multi-family. New buildings are offering concessions as high as 2 months free. With more than 4500 units coming to the market in 2017, will people put off buying in favor of taking advantage of rent concessions? What happens if not only concessions increase but rent prices decrease as well? This coupled with rising interest rates could have first time home buyers thinking twice.

4) Supply….

Depending on the price range you’re looking in, supply is still low relative to the amount of buyers in the market place. We’re seeing increased supply of new construction in areas such as Ukrainian Village and increased high end supply in the Near North area but besides this supply has remained low which has help prices increase over recent years. Keep an eye on two things

a) New construction has been selling at a huge premium. Watch it’s market time in 2017

b) Will we see more existing construction come on the market to compete with new construction in 2017? Existing construction has been selling much cheaper than brand new construction. With rising interest rates existing construction may be more appealing given its lower price point.

5) Everything is wonderful…keep an eye on everything wonderful

Unemployment is at all time lows. Interest rates are still at all time lows despite recent rises. Property values in prime neighborhoods are at 2006 levels. The equities markets are booming. Startups are everywhere. Getting VC funding for new companies is like taking candy from a baby. Everything is going well. Keep an eye on leading indicators in all sectors of the economy that may signal a slow down. In real estate I am specifically watching the following in Chicago

A. Market Time of both existing and new construction

B. Absorption rate (How long does it take to sell all properties on the market if no new ones come on the market).

C. Price to rent versus the price to buy the same property. Currently it makes sense to buy given the increased rental prices. If rent prices decrease this could become a slippery slope.

 

The above is not meant to be a negative outlook or a “debbie-downer” of the real estate market. Personally, I think there are some areas that are a bit over valued but others that are very much under valued. I think the Chicago real estate market is strong, however, I do believe we’re now in a normalization of the market where prices will increase minimally to moderately each year and I think we will see rent prices decrease in the coming years.

Does this mean I shouldn’t buy? No, it doesn’t mean that. In some situations some people maybe should not buy. In others they definitely should. Each persons situation is different and that is why working with a Realtor that is completely transparent and honest with you is always the best policy. Anyone who tells you that buying is always the best option is nothing more than a salesman.

 

Paul Blackburn is a licensed Real Estate Broker and Realtor with @properties in Chicago. Paul has been selling real estate since 2007 and is part of the Skowron Group which has sold in excess of $100 million in 2016 alone. For further information or questions please feel free to contact Paul directly at Paul@pblackburn.com

Obama’s FHA Insurance Premium Cut EXPLAINED

All over the news the past couple of days has been the fact that President Obama announced a cut to the FHA Insurance Premium. Rhetoric from both sides of the isle may have you confused as to what this means, whether you are in the real estate market or not.

A FHA loan, is simply a loan that is INSURED by the FHA (Federal Housing Authority). FHA guidelines are such that allow lower down payments and more flexibility on basic qualifications than traditional lenders. Typically, whenever you put less than 20% down, you must acquire mortgage insurance. Even if you were not getting a loan insured by the FHA, you would still need to purchase mortgage insurance. Mortgage insurance is typically priced as a percentage and added onto your payment every month.

For example. If you had a loan that was only 10% down through Chase Bank you would need mortgage insurance. Your interest rate on a 30 Year Fixed may be 4%, but the mortgage insurance premium might be .7%. Therefore, at the end of the day, your effective payment would be 4.7% (now these are very simplistic terms as it is a bit more complicated than this, but this is the basics of it).

FHA Insurance has been considerably higher than standard mortgage insurance. The result of this has been those who would normally get an FHA loan have decided not to and instead go with a loan that only requires private mortgage insurance, provided that they can qualify for such a loan. What are the FHA Premiums and what will be the new premiums?

The old FHA premium was 1.35%. Yes, that’s right, 1.35%. That means that if the lender gave you a rate of 4% on your FHA insured loan, then your effective rate, with the FHA insurance would end up being 5.35%. On top of this monthly premium, FHA also requires an up front premium of 1.75% of the total loan value. Meaning that if the loan value was $100,000 then you would have an additional cost at closing of $1,750.

The new FHA premium that will be introduced will be cut by .5, meaning it will now be .85%. This is a big difference as it now puts FHA within the realm of private mortgage insurance (but still at the high end of it). The 1.75% up front premium, however, is not slated to go away.

At the end of the day this means that the average FHA borrower will save roughly $900 per year. While it is not a lot of money, for first time home buyers that $75/80 per month could help push them off the fence from renting to buying.

At the end of the day, this means that there are more options for borrowers today which will hopefully mean more buyers will enter the market to help continue the growth of a stable, healthy real estate market.

 

Paul Blackburn is an Illinois licensed Realtor and Broker with @properties. He can be reached anytime via e-mail at Paul@PKBlackburn.com

Chicago Condos Still Selling Fast!

Buyer demand, in Chicago’s “hottest” neighborhoods, has continued this spring and will likely continue throughout the summer and fall. Inventory levels remain low throughout Chicago’s best neighborhoods such as Streeterville, River North, Gold Coast, West Loop, South Loop, Lincoln Park, Lakeview…need I go on?

We are seeing many first time buyers enter the market, but they are not the same first time buyers we saw years ago. The last real estate crash scared many away from buying for a significant period of time. Therefore, we are seeing many first time buyers that have established families and excellent income levels. Many think when we say the “first time buyer market” is hot, we are only talking about cheaper condos priced between $100,000 and $300,000. This is no longer the case. Many first time buyers are now couples with children who are purchasing larger units throughout the city at, and even well above, $500,000.

In-Town buyers are back again in full force as well. What we thought may have just been a fad when interest rates were at 3.5%, second home buyers continue to pick up property in Chicago. To clarify, what I mean by “In-Town” buyers are people who have their primary residence elsewhere and are purchasing a home in the city to use on the weekends and holidays, etc. These buyers are not just purchasing small studios, but instead are purchasing everything from high level, large One Bedroom condos (think Trump or The Pinnacle where 1 Beds sell for $525,000 on up) and even single family homes!

If you follow national on the real estate market you will see random stats such as new home starts are skyrocketing but at the same time builders confidence level is decreasing. Some stats are showing that there are less first time home buyers than a year ago. I can see this being true, but after all we had so many people sit on the fence for several years that it would only make sense we would see one year (last year) with an abnormally high amount of first time home buyers. We can’t compare every year to last year! Though, economists always love to do that.

In conclusion, what should you take away from this? The condo market in Chicago is very healthy. Supply is low, demand is high across the board from various types of buyers and buyers that are interested in various types of products. This means the market is healthy; it is as simple as that.

MY ADVICE TO FIRST TIME BUYERS IN CHICAGO

First Time Home Buyers always have a lot of questions. Listed below are some of the most common questions and concerns I hear working with home buyers in Chicago.

What Neighborhood in Chicago is the best investment?

Chicago is extremely diverse with so many different neighborhoods each offering their own “feel.” The old saying is real estate is “Location, Location, Location.” This saying continues to be very true, but not just for your pocket book. If you are buying a home to live in, then YOU need to enjoy the location. Try not to get too wrapped up in “How much will this area appreciate in the coming years” but instead focus on “What will I enjoy about this neighborhood while I live  here?” Many buyers don’t give themselves enough credit. The things in a neighborhood that you love or hate, are likely the same things that the next buyer will love or hate as well. Focus on what you will love about the neighborhood first and then focus on what appreciation you may see in the future. After all, if you don’t like the location, then are you really getting your money’s worth?

How much space do I really need in Chicago?

Do you want a two bedroom or a one bedroom? What is more important to you: Space or Quality? Sure, it is great to have both but if price remains the same quality will decrease as space increases. Many people may say “One Bedrooms are not good for resale” In some areas this may be true, but overall I do not find this to be the case. Instead, you need to ask yourself the question “OK, this is only a One Bedroom but what do I like about it over some of the Two Bedrooms I have seen?” Chances are the quality is better, the living room space may be larger, the view may be better. Are these things important to you?

Transportation

How close are you to Transportation? Do you use the CTA or no? While that six block walk to the red line may seem wonderful in the summer time, it will feel like hell in the winter time so keep that in mind. If you are the kind of person that doesn’t mind walking a mile to the train in the freezing cold then your options can be much broader. If you are like me a despise walking even two minutes in the cold then your options will need to be more constrained.

Stay within your means

You may love the amazing condo that is pushing your budget but what good is it if you can’t afford to furnish it properly or enjoy the wonderful restaurants and bars down the street. Be conservative with your budget. Sometimes you can spend less money on a purchase and then some money on great renovations or furnishings and end up with a place that is perfect for you.

THE CHANDLER 450 E. WATERSIDE – LAKE SHORE EAST

450 E. WATERSIDE  – LAKE SHORE EAST

450 E. Waterside, also known as “The Chandler” is located in Chicago’s Lake Shore East neighborhood. For those of you not familiar with this area, Lake Shore East is located on the south side of the River where the river meets Lake Shore drive. The Chandler is one of the newest buildings in the Lake Shore East neighborhood.

The Chandler in Lake Shore East - 450 E. Waterside

The Chandler in Lake Shore East – 450 E. Waterside

What I like about The Chandler 450 E. Waterside

The Chandler, located at 450 E. Waterside, was one of the last buildings completed by Magellan as condos in the Lake Shore East neighborhood. It is slightly more expensive than its sister building, the Regatta built one year prior. The majority of the units in the Chandler are upgraded with Snaidero Cabinetry and most have great views, at least for the time being. The building is situated on the far North East corner of Lake Shore East. This allows it to have prime views of the River, Navy Pier and both the North and South skyline of the city.

The building boasts a phenomenal indoor rooftop pool and sundecks on either side of the pool complete with an outdoor whirlpool. The sundeck makes for amazing Air & Water Show watching. The building has a fitness center and media room on the second floor as well as a party room off the lobby which opens out onto an outdoor deck with River and Navy Pier views.

Most of the floor plans in the building are very functional and make a good use of the space. There is very little wasted space in condos at the Chandler so 1000 square feet is a true 1000 square feet versus some buildings that have obnoxiously long hallways and “nooks” which eat up space. All units will have Hardwood Floors, Granite and SS Appliances. Most will have updated cabinetry and all units with the exception of a few will have a balcony.

What I don’t like about The Chandler

I love the building and the build quality. Some of the South Facing  units, specifically the 04 tier will eventually have their view blocked when new buildings are built on the vacant lot directly to the South of The Chandler. There is some talk about a building going just East of the Chandler but I’m not sure if any of those claims can be substantiated at this time.

The building has a new rental cap. The specifics are a bit vague but it appears that new owners will not be allowed to rent their units until the rental percentage drops to around 30%?? Currently the building has roughly 44% tenant occupied units.

What do condos sell for in The Chandler?

One Bedrooms start around $310,000 in The Chandler and move up from there depending on floor height and view. Units facing North sell for a premium since these units have the protected and much preferred River view. These units tend to be larger. However, be warned that a couple tiers on lower floors facing North do not have balconies.

Two Bedrooms in The Chandler start in the $500’s but they are the smaller square footage Two Beds around 1100 to 1250square feet. Larger Two Bedrooms will start in the high $600’s and can exceed well over $750,000. The Chandler does have three bedroom units but expect to pay over a million for any 3 Bedroom with some going well over 2 million and others competing with some of the most expensive condos in the area.

WHAT DOES THE FISCAL CLIFF MEAN FOR HOME BUYERS?

I’ve received some e-mails recently from those who have read my blog asking my thoughts on the fiscal cliff and whether or not the outcome will greatly affect the housing industry. In other words they are asking “is it still a good time to buy?” Here are my thoughts on the “Fiscal Cliff.”

First off the fiscal cliff has been blown out of proportion by the media, by the current administration and by both parties. Basically all the fiscal cliff is, is the need to balance a budget and reconstruct some tax laws and policy. Hypothetically if nothing happens and congress cannot come to an agreement we will NOT go into recession January 1st. It is simply not possible. It is not economically possible to wake up one morning and suddenly be in a recession. That is not how the economy works. You may have a small market disruption, a quick sell off, etc. but housing would not see any affects of this.

If you remember a little while back there was talk on raising the debt ceiling. If it was not raised the US was not going to have the legal ability to pay its debts. The markets were panicked, the media was eating it up, our bond rating was on the verge of a downgrade and the international press was having a field day. However at the very last hour a deal was passed. I’m sure something very similar will happen here.

The housing market is currently recovering nicely due to low interest rates, rising rent prices but most importantly renewed consumer confidence. Despite the fiscal cliff all my buyer clients are very excited to purchase and cannot wait to close on their home. It is this confidence that we need to watch and will remain an indicator of the strength and resiliency of the housing market.

Interest Tax Deduction: The Home Mortgage Interest Tax deduction has come up in the news recently. For those of you who don’t know what that is, it is a tax policy that allows you to deduct your home mortgage interest on your taxes. This policy has been in place for years and years and has become one of the biggest selling points in today’s market for buying a home. Even if home prices remain flat for years the ability for you to deduct your interest can save you thousands year after year. The media has recently made comments that this sacred cow of a tax policy may be taken away. Nothing can be further from the truth. While media has spoken of it and a few idiotic congressmen/women have mentioned it; it is NOT something being considered by congress as part of a revenue generation plan. We may see the deduction limited to $750,000 or $1,000,000. This would mean that the interest on your mortgage of 750k or 1 Mil would be deductible but nothing beyond that could be deducted. Such a cap would have very very little affect on the market if it is passed so I am not worried about it.

At the end of the day lets just look at what congress has done for decades. They’ve just kicked the can down the road. Many times they wait until the last minute to kick it and worry the market but they will always give it a kick and this time it will be no different.

Where is the BEST PLACE to Buy a Condo in Chicago?

When the real estate market boomed in Chicago people forgot the old adage in real estate “Location, Location, Location.” Instead, people followed pricing trends and focused on areas that saw massive price increases, some above 20% per year. When the real estate market crashed, however, these areas were the first to feel the blow. Why? Because the location never justified the price increase. What should you look for in a location in Chicago?

1. YOU – Think about what YOU want. What type of restaurants do you like to visit? What sorts of shops do you want to be able to walk to? How easily can you get to work? Chances are many people will share your wants and needs as well.

2. TRANSPORTATION – Proximity to the CTA and in some cases the Metra is HUGE in Chicago. Cutting down on commute time to work and play can easily entice someone to pay more money for a unit in one location versus another. When you are looking at locations always think of Chicago winters. A 7 block walk to the train or bus may seem great on a summer day in the city but on a blustery cold day in January it will not. Think about the worst weather conditions in Chicago and THEN think about proximity to transportation.

3. WEEKENDS – Can you enjoy yourself on the weekends? Prices in the loop may be high for instance but in many cases they are lower than prime areas of River North and the Gold Coast. Even though the loop may appear more crowded it only offers advantages during the week. On the weekends the streets and businesses become desolate. This can easily influence price. You need to think about both – your work week and your weekends.

All these things I mentioned may seem very elementary and you may be saying to yourself “I could have told you that.” The reality is you could have. The difference is so many people get side tracked when looking for a place that they forget the very basics of real estate…location, location, location. Those who remembered these basic items still were affected by the real estate crash but much less than those who forgot these important real estate principals.

Buyers are back in the Chicago Real Estate Market!

What is the state of the current real estate market in Chicago? Well, if you’re a buyer you may be happy with low prices but not crazy about the selection. Right now I am working with several first time buyers as well as some repeat buyers and inventory is actually low! Overall inventory has dropped but still remains high. However, inventory of quality condos in Chicago continues to lessen which is great news for sellers sitting on desirable properties but also slightly frustrating news for buyers.

I have recently seen several properties go under contract in the South Loop before my clients could even see them. These were not foreclosures or short sales either!

I also have another client who simply can’t find anything she really likes. While she knows what she wants she really isn’t being that picky however. So our solution to this problem is simple: We are going to direct mail owners of units she likes hoping we find someone who may be looking to sell in the near future. Do you remember when people were doing that during the boom?

The market is still not what it once was but it is starting to return to health. Values are still depressed but buyer activity is increasing heavily as rent prices continue to tick up. This is why today is the PERFECT time to be a buyer. The timing of record low interest rates and home prices is fueling this market.

 

Paul Blackburn is an Illinois licensed Realtor and Broker with @ Properties. He can be reached via e-mail at Paul@PKBlackburn.com