Seven years in a Chicago Condo - my experience (with numbers)

[nippycrisp]

Hi all. I mostly lurk, but I recently sold my condo in Chicago after living there for seven years. In the wake of the experience, I wrote a blog post with an up-the-skirt look at the financials of my primary residence as an investment, along with the lessons I took away from the experience. I hope it's helpful to people who are considering making the leap, or for those who are still weighing the buy-vs-rent decision (particularly in an urban environment).

http://www.ofmiceandmolecules.com/blog/the-home-as-an-investment-my-experience-with-data

If there's anything I left out, feel free to ask.

[Jon Bon]

Whoa I definitely disagree with some of your math!

Principal pay-down is not income or gain as you call it, nor is tax savings or 1st time home buyers credit. All of these things would have happened with ANY home that you bought, so calculating them in your return does not really make sense in a more traditional real estate valuation. The only gain I would count would be the gain on the sale (price sold - priced paid), and probably the air BNB income.

I guess something could be said for gain in net worth versus net income, but under no circumstances would I call that a 6% return on your money.

I did enjoy the blog post though :)

[andysandp]

Wow, you bought in 2010 for $300,000 and sold only for $302,000 in 2017?!

In general the prices in Chicago havn't gone up since 2010?

[dandarc]

I thought the first time homebuyer credit was $8K?

[chesebert]

OP probably breached the condo's Articles and Bylaws regarding tenants having tenancy less than 1 year - i.e., ABNB.

Op is lucky he/she was never caught (fine + restitution payments to HOA). I own a couple properties in downtown Chicago and all the buildings I looked at have minimum tenancy clause.

[chesebert]

Wow, you bought in 2010 for $300,000 and sold only for $302,000 in 2017?!

In general the prices in Chicago havn't gone up since 2010?

OP didn't do so well on the RE investment. Chicago market has been going up since 2010 - been relatively flat since 2015, however.

Could have bought a greystone for $1M in 2010, put in $1M in reno and sell for $4M in 2016. People who bought in back in 2010 have their money at least doubled.

[dandarc]

This is a real strange way to look at this.

You've got a $50K outlay ($60K down less $10K tax credit), probably $50-100K in net expenses over the 7 years, maybe more.  Closing gets you a check for $80K or so, and somehow the conclusion is "OK investment".

We can take some of the info given and construct some of the actual expenses.  Example - $22400 in "tax refunds" at a 25% marginal rate.  Even if we go with a 35% total marginal rate to add some state and local taxes, OP spent at least $64,000 on interest and possibly property taxes over the 7 years - net of the tax benefit, that is $41,600 going out, not $22K coming in.

Interesting read, but the reasoning doesn't jive for me.  Maybe OP did better than renting, but unless I missed it, an estimate of the rent they'd have payed wasn't given.

[nippycrisp]

I'll jump back in to try and address some stuff:

I looked at this from the perspective of an investment where the downpayment goes into X (X being an initial investment in whatever) and then looking at what comes back (this has to wait until you sell for obvious reasons). Since the absolute cost per month of the two are quite similar in this particular building, it seemed like a fair (or at least straightforward) comparison between renting and buying. Renting would be zero ROI in this case, whereas the credits/principal/tax rebates/renovation costs/etc affect the ROI on that initial investment of X.

u/Jon Bon - I consider principal paydown as a gain in this situation, as a corresponding rent payment would have never come back to me. Again, this equity is somewhat trapped while you're there, but a sale realizes the gain or loss. I understand this is not how a "real" real estate investor would do their numbers.

u/andysandp - Purchase price was 291K (we borrowed closing costs) and sold for 302K. Appreciation of 11K total, but totally flat considering we did some work. This building has been really flat for prices; it's a high-rise and there are 39 identical copies of this floorplan, so we had excellent comps over time. Maybe I should have asked for more though.

u/chesbert - This is something I was quite concerned about at first; I checked our bylaws REALLY carefully before we did AirBnB and there was nothing that prevented it (that actually surprised me). As you know, Chicago is not super friendly towards AirBnB and the building can vote to eliminate short term rentals at any time. Hasn't happened yet in this building, but it is super common. One unit in our building did get a thousand dollar fine, but they were renting out the whole place, instead of just a bedroom. 

u/dandarc - it's tucked in the post somewhere, but our building is about a wash for renting versus buying as far as monthly cost. I ignored the cost of mortgage payments/taxes/insurance in my examination, and solely focused on what financial advantages I reaped or suffered solely as a result of being an owner versus a renter.