Chicago Real Estate: Gold Coast - Good Buy or Foolish?

[chesebert]

I am quite torn on whether to rent or own in the gold coast area or to abandon the gold coast altogether.

Background:
Salary: 250k+
NW: ~1M
Age: mid-30s
Family: DW, DD and me
Properties: 1 condo in Lincoln Park and 1 condo in Michigan - both rented out and cash flow positive
Properties as percentage of total assets: ~35%
Prospective property: 2-3 bd with 2 bath

DW and I really like the gold coast area, but the HOA, taxes and parking fees are giving us a second thought. However, when we looked at the rental market, there is clearly a economic divide between less desirable properties (but fit our basic criteria) in the 2200-2800/month and the more desirable properties that goes for $3500+.

[In terms of purchasing, there is a 3 bd unit in a fairly well known building that is selling for ~500k but has been on the market for a long time; we are ready to make an offer for 400k to start the process. The problem with this unit is that it's got a $1k+ HOA fee, high taxes (7k+ a year) and owners are not permitted to rent out the unit. We like the property and think we can carry the property for a good while even if we have to move sometime down the line. But we are definitely paying through the nose for the privilege of living in that part of the town (close to Hancock building, Magnificent Mile, etc).

I am concerned about several aspect of owing an expensive condo in the city. First, if I were to purchase condo at the offer price (not likely but let's assume for now), my properties to total asset ratio would be close to 50% increasing from 35%, which would expose my total portfolio to a greater risk in the RE sector. Second, if I were to decide to sell the property I do not have the option of getting a tenant in the unit during the sale process, which means I will need to carry the property in the interim period. Third, the HOA+tax+ parking fees (if I decide to have a car) are easily $1500-2000/month which are essentially  thrown away and cannot be recovered. This will result in a significant lower/negative NPV on the investment with modest housing price growth down the road. ]**

I realize I can't treat this property like my rentals as I plan to live there for 5 or 10 years and I am paying for the "experience" so the speak. However, I still don't want to get into a situation that will significantly delay my FIRE date because of a bad decision.

What are y'all thoughts on this situation? Should I just abandon the Gold Coast area for now and come back say in 5-10 years when I have more money saved? Any thoughts on the prospective property mentioned above?

** Already made an offer and seller rejected - I suspect the seller is a semi recreational seller (seller has moved out but is paying $1900/month on HOA + taxes)

[dess1313]

i believe our condos are similar to your home owner's associations

Pros....many if not everything is taken care of.  If you're not handy, hate mowing lawns, and really don't want to worry about leaky roofs this is great

Downsides
Your association sounds very expensive already.  The 1k you mention, is that per month?  Is there pools and gyms to maintain?  Makes it nice to live there but more prone to having assessments because the pool cracked or something.  Also the problem of the association suddenly deciding to take a uturn and wanting to redecorate everything.  You're stuck going along for the expensive ride. 

We had problems here with people were acting like chicken on our board little because the reserve fund was not high, and we are going into 10 years of high cost maintenance with supposed 5-10% increases planed per year.  I ended up going on the board to just see if we couldn't get some common sense into things.  still working on that.  not sure if i'd ever buy a condo again down the road.  i love my place but i see a lot of the limitations now

Also need to find out if there's something wrong with the area.  If its been on the market so long, is it the price or something going on with the HOA?   any big projects coming up like redoing roofs on all buildings etc?   What is the reserve fund like, as well as is there any issues with redevelopment near by?  We have a few condos here in my city right beside some land that could be greatly improved into a beautiful residential area but it could also become a slum area.  depends on who wins the fight over it.  Prices there have dropped like rocks because people don't know what is going to happen and no one wants the bad option living next to them

Third, the HOA+tax+ parking fees (if I decide to have a car) are easily $1500-2000/month which are essentially  thrown away and cannot be recovered.

Coming up to $1500 per month or more, in just HOA, that's an entire mortgage payment in a lot of other areas, or a big portion of a payment.  Even waiting a year that would be saving between 12k and 24k saved up that could be used to buy something better.  i'm not familiar with your area to know what other living options are around there.  In 5 years of living you'd be out $125k at baseline if not over $200k paying for convenience.  If convenience and location is important then that's good.  If not maybe taking a year to shop around more would be better.  Might take a while to find the right gem in the rough.

[Ricky]

No, just...no. Be happy the seller rejected your offer and happily move on with your life. Since it has basically literally zero probability of being an investment, and it isn't intended for that purchase, why would you buy what amounts to be an extremely expensive luxury purchase when your goals don't align? If you had a $10M net worth and then somehow still settled on this ridiculously priced condo, while it would still be silly, I wouldn't blame you.