QUALITY OR SPACE IN CHICAGO? WHICH IS THE BETTER INVESTMENT?

Quantity over quality or quality over quantity? If you’re spending $400,000 should you buy a 1 Bedroom or should you buy a 2 Bedroom? Now for many people the choice is simple because they have a need for extra space. However, for those of you where space doesn’t matter but instead you’re thinking about what is the best investment then this question could be one that  you are reciting in your mind.

In many different neighborhoods of Chicago you have the option of choosing a higher quality, Class A building 1 Bedroom or a Class B building 2 Bedroom if you have a budget of $400,000 to $550,000.

Higher quality can be found throughout the city such as 1201 S. Prairie in the South Loop (Museum Park), The Fordham and the Pinnacle in River North. There is 600 N. Fairbanks, 240 E. Illinois and 505 McClurg in Streeterville and there is 340 E. Randolph in Lake Shore East.

Now if you are looking for my opinion I will sit you down and ask you a bunch of questions to help you determine what is best for you. But if you are still torn, or if you were to ask me “What would I do?” then here is my answer.

First off, I have no need for a second bedroom. I currently have a home office in a second bedroom but I could do without it, especially as the need for a printer and fax become less by the minute. When we look at the real estate market in Chicago and evaluate it over the past 5 years there is one thing that holds true above all else: Quality holds value. Buildings such as 340 E. Randolph and 600 Lake Shore Drive weathered the real estate storm exceptionally well while cheaper buildings in the same area were hit hard.

My advice, if you truly can live happy with either option, is to choose quality over quantity. The better quality units tend to be in better built and well run buildings. These buildings tend to have more financially sound buyers that can weather an economic down turn. These buildings tend to see less fire sales (they’re not full proof though!). In every bubble, no matter what the industry, buyers becomes obsessed with quantity. When the bubble pops it is these buyers that fall to the ground thus hurting your property values. While quality buildings are not full proof and will always be at risk to market volatility, they are better suited to weather the storm.

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Chicago Real Estate Market Update!

 Chicago Market Update

I am sure you have seen market updates in the news and in the paper over the past months speaking of the positive trends in the real estate market. While these market reports can be very valuable in understanding the current market conditions, however, I prefer to write my own to explain in my own words with regard to what is taking place in the current real estate market.

Buyers

Buyer traffic has increased dramatically not only for my own business but for that of my colleagues. When the market first started to stabilize we saw first time home buyers primarily driving the numbers up. However, in recent months we have seen an increase in second and third time buyers as well as those purchasing in-town and vacation properties in Chicago.

While individual markets within Chicago are highly localized with respect to demand levels, we have seen increased demand throughout Chicago’s most popular neighborhoods.

Inventory

Believe it or not the largest challenge currently facing the market place, from the Realtor perspective, is the lack of inventory. While great deals can still be had and property prices are phenomenally low, demand has gobbled up excess inventory in most markets. This decrease in supply levels has caused multiple offer situations and some properties to sell in excess of the list price.

Investors Getting Back Into the Market

We have seen a tremendous amount of investors get back into the housing market, which is more than likely due to the low return in other areas such as treasuries and equities. Foreclosed properties, particularly in the downtown market are often selling for well above list price and are receiving multiple offers within hours of hitting the market.  This has greatly helped the market overall as it has started to increase prices in some of Chicago’s most troubled buildings such as 10 E. Ontario, 440 N. Wabash, 345 N. LaSalle, etc.

We are even starting to see areas that were dramatically over built during the boom, such as the South Loop, regain excellent traction. Specific areas within the South Loop (short walking distance to Roosevelt & Michigan/State) have seen a great Increase in buyer demand. These buyers have depleted inventory in several of the South Loop’s most established buildings.

Sellers

Some seller’s are under the assumption that since the market is picking back up they can now obtain the price they paid years ago. This is definitely NOT the case. While the market has picked up significantly we are only seeing marginal increases in pricing at the current time.  While demand is strong it is not strong enough to sustain excess levels of price increase or interest rate increase.

Financing

Financing has eased slightly and is heading in the right direction but obtaining a mortgage still requires good qualification on the part of the borrower. We have, however, seen increased lending options for investors as well as owner occupants in “troubled” buildings. These financing options are definitely more expensive as the lender must take into account the increased risk, but we are starting to see a glimmer of hope for some buildings that were impossible to finance years ago.

Is it a Good Time to Buy?

It is actually a great time to buy! Currently this market requires patience, as inventory levels are low. The positive side is that interest rates and prices are still extremely low.  Builders are slowly starting to enter the market again and are delivering High Quality product that in 2007 would have cost anywhere from 20 to 50% more.

 

Rental Market

The rental market in Chicago remains strong and we have seen double digit rent increases over the past several years. As the job market recovers we are seeing increased demand for rental property as young professionals seek housing in the downtown market place. However, developers are quick to answer that call and currently have 15 high rises under construction in downtown Chicago which will add over 5,000 units to the market in the next year.

My concern for the rental market is with interest rates low and a stabilized housing market we will see a decrease in demand growth for rental property. While I do believe that rental demand will increase in the coming year it will do so at a slower pace than expected and I do believe that developers are outpacing demand with supply for 2014.