Many neighborhoods in America have not seen massive depreciation in the value of their residential real estate. Here in Chicago there are a few neighborhoods that have retained a lot of value and where residential real estate is still quite expensive. West Rogers Park is not one of these neighborhoods. There are endless examples of condo’s being put on the market for 30-40% of what they sold for five years ago. The graph below, provided by Trulia.com, illustrates with the red line, the average sale price of a home in West Rogers Park. Years ago when I contemplated buying a condo in the future I expected that I would be spending $100,000-$200,000 on my first condo. After deciding I will move into a cheaper neighborhood and buy a car instead of paying more to live near ample public transportation, I’ve realized my price range for a 900 square foot condo with modern updates will be between $40,000 and $60,000.
The red line represents the average sale price of a home in West Rogers Park
I’ve went the last four years without a car and now that I don’t drink I can easily own a car and thus handle the logistics of driving 5 miles from home to other neighborhoods. Paying for cabs to go to and from West Rogers Park to the neighborhoods that are worth patronizing would not be a sensible idea. For the last few years I have said that I didn’t want to own a car or my own home, but now that the numbers have tilted to where owning is significantly cheaper than renting and I can drive all I want without the barrier of alcohol in my way it would be incredibly lucrative for me to own a condo at 30-40% of it’s prior sale price and drive a car no more than 20 miles a day. Gas prices aren’t really much of a factor when you live in a major city and don’t go outside of it much.
What exactly does $50,000 buy in West Rogers Park? Real estate is essentially impossible to commoditize, but I’ll try anyway. An apartment that is 900 square feet and not in a high rise and has modern updates will likely run you $1000-1500 in most high demand neighborhoods on the north side of Chicago. To buy a comparable condo in West Rogers Park now will cost you about $500-$650 monthly and that’s including taxes and assessments on a 30 year mortgage. It’s hard to overlook a spread that large and it’s actually hard for someone who saw condo’s like the one below sell for well over $100,000 imagine that they are now only $50,000.
As a minimalist, I really don’t want more than a two bedroom condo with updated appliances in a clean and relatively quiet neighborhood. These types of condo’s have dropped so far in value that if the situation were heavily publicized, the prices of real estate in West Rogers Park would likely soar on new found demand. At some point most people have to accept that it’s irrational to pay triple the price for River North. “Location, location, location”, yeah I agree with the saying, but there has to be a resistance point. Living in a River North 350 square foot apartment for $1000 instead of a spacious 2 bedroom only 5 miles away is definitely enough for me to get the point.
What about Opportunity Cost?
When you rent you are paying for the luxury to be able to leave, but at these prices I can always rent the place out at a competitive price to someone I know. It would not be hard to find a tenant for a place this size at $600 a month. As much as I’ve believed in ‘rent and keep the difference’, the reality is you are now paying more to rent and failing to build equity and get the other benefits of ownership in most scenarios.
Then What?
After I own a condo like this, which I should at the end of this year, I intend to use one bedroom as an office and make upgrades to the condo over the coming years. After I pay the place off, which I intend to do within 10 years, I can hold open houses and likely sell it for double what I paid ten years prior. It wouldn’t be a significant profit when you factor in inflation, but overall it’s an excellent alternative to burning more rent as I have in the past.