Yikes, Downtown Chicago Renters!

Here’s What You Could Lose By Signing Another Lease

Landlords have been rejoicing for years in the downtown Chicago neighborhoods. The rental market has gone gangbusters in recent years, with average rents rising 5.6% from 2014 to 2015 alone.

Happy Renting?

But you’re not a hater. You probably respect your landlord’s hustle. And perhaps owning a condo is not that big a deal to you. So you’re about to renew your lease on a one-bedroom apartment in ultra-convenient River North.

That’s going to cost you somewhere between $1,800/month from a landlord who owns an individual condo and $2,700+/month from a large management company in one of the newer luxury rental buildings. Add $200-$350/month for an assigned parking space.

For the sake of this analysis, let’s start with total monthly rental costs of $2,425. That’s going to set you back $29,100 over twelve months.

Unfortunately, none of that is tax deductible.

The Buy Side

You find a nice one-bedroom condo for $300,000 in the same neighborhood (likely with a larger floor plan). The price includes one deeded parking space.

With a 5% down payment and a 4% mortgage interest rate*, your monthly payments will break down this way:

P&I: $1,361**
HOA: $450
PMI: $128
Ins: $30
Taxes: $313
Total Monthly Costs: $2,282

On the surface, this appears to be a modest $1,716 (over twelve months) in savings. That’s cool, but only the tip of the iceberg.

Your Tax Bill on Home Ownership

Consider the tax benefits of owning the hypothetical condo above:

Year-1 mortgage interest paid: $11,309
Year-1 property taxes paid: $3,750

Let’s assume your annual income is $75,000. As a renter with no itemized deductions, you’d pay $12,069 in federal income taxes***. If you’re the homeowner described above, that shrinks to $9,854***— another $2,215 in year-one savings.

It’s An Investment

So rather than assuming some aggressive rate of appreciation for the future value of your condo, let’s just assume its value holds steady. In a year’s time, you will have paid down $5,019 of outstanding your mortgage balance. Any year-over-year increase in value would be icing on your already-wonderful, condo-owning cake.

All in, you’d save yourself a cool $8,950*** (versus renting) in the first year of ownership. Sure, you’d have to invest some cash for the privilege. But the tax benefits continue year after year***. And rising home values would make your investment potentially even more lucrative.

Respect your own hustle. Consider buying a place.

*Check current mortgage interest rates here.
**Assumes 30-year mortgage term
***Your situation is unique, and this is not tax advice. Please consult your tax advisor.

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