Should I List My Property For Sale or For Rent?

When it comes time to move for whatever reason; a new baby on the way, a job transfer or you simply want a change of pace, the initial instinct for many is to list their property for sale. The basic logic makes sense. You want to cash out and use that cash for your downpayment on a new home. However, we’re finding that many would be sellers are now considering holding onto their property and renting it out for the added cash-flow and to have a tenant help pay down their mortgage. This blog will be dedicated to asking you some basic questions so you can help decide if you should list your property for sale or list it for rent.

How much can you get in rent for your property?

The first thing you need to do is determine how much you can rent your property out for. If you cannot achieve a high enough rent amount to pay for your holding costs (your mortgage, your property taxes, association dues and insurance) then you need to consider if it is worth it for the difference to come out of your pocket.

Make sure you work with a Realtor who understands the rental market well. The rental market is starting to change and will continue to do so over the coming years (and not in the landlords favor). Make sure you also consider what time of year you are renting out your property in. For instance rents are typically much higher in May than they are in November.

Does your association have any rental restrictions?

Well, maybe this should be the FIRST thing you look into instead of rental price. Some associations prohibit rentals. Make sure yours does not! Other associations may have a rental cap and if they have met this cap (number of units they allow to be rented at any given time) then you may need to be added to a wait list before you can rent out your unit. Check with your association management to confirm any and all rental policies and restrictions. For instance, did you know that some associations may be pet friendly but do not allow renters to have pets?

Do you NEED cash from your current property to buy a new one?

If you’re buying your next property the question is can you afford to buy it without selling your current home. Look at your finances and talk with your mortgage broker regarding this. Do you need to sell in order to have 20% down payment? Or are you OK with just putting down 5% on your new property? Balance out the costs of this as putting less than 20% down typically means you’re responsible for PMI (Private Mortgage Insurance) which will increase your monthly costs on your new home.

What is the interest rate on your mortgage?

I was speaking to one of my clients recently who was deciding whether to rent or sell. She said her interest rate on her 30yr fixed mortgage was 3.35%. That is VERY cheap money! That played a role in her decision process of whether or not to rent or sell. She ended up renting out her place. If you have an incredibly low interest rate it might be a good idea to hang onto that property and rent it out.

Will it be difficult for you to manage the property?

Some condos are very easy to manage because the building maintenance staff can help with any issues that arise inside your unit. Other buildings may be self-managed and this may mean anytime there is an issue you will need to hire someone to come in and fix the problem. This should be taken into account. For instance, if you’re living in the same city as your rental property then management can be very easy even if you’re in a building that does not have maintenance staff. Conversely, if you are moving to Hong Kong for work then it might be difficult to manage your property especially given the time difference.

Can you hire local property managers? Sure, but there is a cost to that so you’d need to factor that cost into your decision.

What will be the financial state of your condo association in the future?

I have some clients who own properties in buildings that are on the downward spiral. There might not be any special assessments planned but my clients are seeing the quality of the building deteriorate and they’re worried that the building may have financial issues in the future. This is definitely something you need to take into account when considering whether your should rent or sell. Sometimes it might be better to sell, take your profits, and run!

Are you cash strapped?

There is no way other way to ask this but, are you living paycheck to paycheck? If you are then being a landlord might not be for you. It is important to have some cash saved in case you have any tenant issues or any property issues. Landlords need to understand that when tenants move out they’ll likely have to paint the property and make some minor repairs in order to get it ready for a new tenant. Do you have the cash to do that? If your dishwasher breaks can you replace it for the tenant ASAP? If your Washer / Dryer goes out can you replace it ASAP?

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

HOW MUCH HAVE RENTS INCREASED IN CHICAGO?

How much have rents truly increased in Chicago? Now, with a typical rental season now behind us we can look at all the data and that is just what I have compiled for you. The main rental season is considered from April 1st through October 1st. However, I expanded a month on both sides and researched my data from March 1st to October 31st in 2010 and 2011. I only used RENTED Comparables from the MLS during this period. I’ve broken down the research into the following areas. The numbers next to the areas represent the “Area Number” in the MLS System.

Loop (8032)

River North, Gold Coast, Streeterville, Old Town (8008)

Lincoln Park (8007)

Lakeview (8006)

When I started putting the data together I further broke down the data by number of bedrooms. We obviously want to compare apples with apples here so we don’t have the numbers skewed. If for instance more 2 bedrooms rented in 2011 than in 2010 this may make our average rent price greater if we did not remove 1 bedrooms from the equation. So here are the numbers

CHICAGO LOOP (8032)

Studios

Average Price in 2010 $1,168

Average Price in 2011 $1,206          3.25% Increase 

One Bedrooms

Average Price in 2010 $1,512

Average Price in 2011 $1,620     7.1% Increase 

Two Bedrooms

Average Price in 2010 $2,215

Average Price in 2011 $2,338     5.55% Increase

Three Bedrooms

Average Price in 2010 $3,739

Average Price in 2011 $3,595       5.9% Decline

Why the decline in 2011? Hard to say. The rest of the market is up, however the sampling we had was small. Only 64 units rented in 2011 and 61 rented in 2010. For purposes of the MLS the “Loop” is bordered by the River to the North, Lake on the East, Roosevelt to the South and Halsted on the West.

CHICAGO NEAR NORTH SIDE: RIVER NORTH, GOLD COAST, STREETERVILLE & OLD TOWN (8008)

Studios

Average Price in 2010 $1,113

Average Price in 2011 $1,221     9.7% Increase

One Bedrooms

Average Price in 2010 $1,585

Average Price in 2011 $1,729     9.05% Increase 

Two Bedrooms

Average Price in 2010 $2,539

Average Price in 2011 $2,781   9.56% Increase

Three Bedrooms

Average Price in 2010 $4,400

Average Price in 2011 $4,830   9.78% Increase

The Near North area comprises several neighborhoods including River North, Gold Coast, Streeterville and Old Town. The borders are the Lake to the East, River to the South, North Avenue to the North and Halsted to the West. This area was relatively consistent in their year over year price increases no matter what size unit, whether it was a studio or a 3 bedroom.

CHICAGO LINCOLN PARK (8007)

Studios

Average Price in 2010 $887

Average Price in 2011 $990       11.56% Increase

One Bedrooms

Average Price in 2010 $1,302

Average Price in 2011 $1,427       9.6% Increase

Two Bedrooms

Average Price in 2010 $1,967

Average Price in 2011 $2,073    5.4% Increase

Three Bedrooms

Average Price in 2010 $2,852

Average Price in 2011 $3,003    5.31% Increase

CHICAGO LAKEVIEW (8006)

Studios

Average Price in 2010 $851

Average Price in 2011 $876    2.9% Increase

One Bedrooms

Average Price in 2010 $1,209

Average Price in 2011 $1,300   7.52% Increase

Two Bedrooms

Average Price in 2010 $1,699

Average Price in 2011 $1,889   11.19% Increase

Three Bedrooms

Average Price in 2010 $2,297

Average Price in 2011 $2,440   6.22% Increase

 

PAUL BLACKBURN – REALTOR

@ PROPERTIES

PAUL@PKBLACKBURN

www.TheChicagoRealtyBlog.com