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New Survey Suggests Almost Half Of Chicago Renters Make Enough to Buy Instead

By Lisa White in News on Apr 22, 2014 9:40PM

(Avenue H by Annie Maus)

The Tribune published an article Monday stating that, according to a new analysis from financial data firm SNL Real Estate, almost half of renters in Chicago make enough money to buy a median-priced home rather than rent. And while although owning versus renting is feasible for many, the headline alone (and the article as I dove further in) left me scratching my head and feeling supremely poor when it comes to managing my money.

Right off the bat, there is no direct link to this report from SNL Real Estate, who based their analysis on a “variety of data sources,” in the Trib article. Most of their site is private to members only, so while I found the likely article, you can’t access the full data. Fair enough, let's take the Tribune’s word on all of this and dive into the reasoning provided.

First, the claim of “almost half of Chicago renters” is never addressed, but we’ll assume they used Census data to find a median income of those who rent versus own their own property within the city. According to their data given, a renter would need an annual salary of at least $32,389 in order to buy a home in the Chicago area. That is based on the median price of a home during the fourth quarter of last year, which according to SNL was $187,100.

Now, the Trib does point out that this data did not include taxes or insurance, which would likely bring the percentage down. Which to that I enthusiastically respond “ya think?!” As Chicago magazine pointed out earlier this year, Illinois has the second highest property tax in the nation. Factor in Cook County assessing your property and the frustrating confusion of attempting to break that cost down in general (Chicago Now actually has a post from 2013 looking at attempting to break down the Cook County property taxes for the year before) and you already can expect a decent chunk of money to add to your monthly costs. After taxes you have to think of insurance, which will be determined by an array of factors, but take to heart that it was just announced last month that State Farm hiked homeowner rates in Illinois recently.

Say you factored all of that in and you’d still rather buy a place instead of renting. Well, you have to qualify for a loan (assuming most folks have a mortgage and don’t bring in a duffel bag of cash), which can be a tricky thing based on many factors. Assuming you are a post college mid-20/early-30-year-old resident, you might likely have some debt that will possibly affect your qualifying. For many, a no in this scenario is the end of the road. But pretend you do qualify. Next step is finding a place to live based on the parameters given in this analysis from SNL.

There are a lot of options around the city to buy at the suggested median price given of $187,100, ranging everywhere from 1 bedroom condos to multi-bedroom family homes. But at this price cap, majority of the full homes are foreclosures sold "as is" or in neighborhoods far removed from the city—some almost suburban—and many of them in higher crime areas. Let’s assume you enjoy your current neighborhood, a central location in the city and close to public transit, and you’d like to buy somewhat close. For example, I chose the zip code I’ve lived in for years, 60647. On Coldwell Banker, I was able to find nine properties available at the median price or under. Of the nine, only one was fully ready to move in and finished. Most of the properties were sold “as is,” were missing major fixtures and in need of a good amount of renovation. I did up the price a bit and found a lovely two bedroom condo not far away in Ukrainian Village that was fully furnished and remodeled. Basically there isn’t a lot of wiggle room and much like finding a great place to rent, finding a great place to buy fully furnished within budget is a diamond in the rough scenario.

Assuming you qualify for your loan, buy your dream abode and can afford the property tax and insurance, you now own which means you need to be ready to fix things. So you have to save and have a budget for a new water heater (which start in the upper $200 range at Lowe's) if yours goes out. Or a new refrigerator (cheapest option at Lowe's run in the upper $300 range). Add to that labor costs to fix things if you aren’t skilled yourself. So basically on a salary of less than $33K a year, you have to have enough for your mortgage, property tax, insurance, utilities as well as materials and labor cost to fix things (emergency or planned), along with your basic living expenses, other bills and other savings for emergency situations. Sure, it is doable but it isn’t a comfortable living with a safety net at that salary range.

For example, the apartment that was slightly above the median average by $300? Coldwell Banker estimates that with 20 percent down, a 30-year mortgage at 3.75 percent interest rate and estimated property tax you’ll still be paying around $1,032 per month in rent without the cost of insurance or utilities. As someone who has worked a job around the salary average they gave, I could not have afforded rent that high even if I wanted to own. It just wasn't a smart choice in my budget.

Is wanting to rent versus owning such a bad thing? I like the flexibility of knowing that if I want to move across town or across the country, I can do so and not worry about selling my home. My water heater and refrigerator went out within weeks of each other last year right after being laid off from a job and I was thankful my landlord took care of it instead of it coming out of my own pocket. Yes, I see the value in owning something but I also see the value in waiting until the time is right and you have a sturdy foundation. And I don’t think buying your own home when you live in Chicago and make less than $33K a year is a sturdy foundation unless you have a hefty savings account. If you were making a bit more money (personally I think $40K would be a good starting point) then sure!

If you make around the median but you are purchasing the place with someone else and thus have two incomes combined then great! Otherwise it seems like a huge risk that maybe you’d want to sit on a bit longer, do some more math and wait until the time is right. It's kind of like what you do before any major life decision. You wouldn’t buy a car and not factor in the cost of gas, repairs and insurance. You wouldn’t buy a pet and not factor in vet visits and food. Or at least you shouldn’t, which is why no company should publish a report suggesting more Chicagoans in a lower income bracket should be buying instead of renting without factoring in property tax, insurance and other expenses. If SNL thinks these figures are accurate and a smart buy, then I’ve got a bridge to sell them.