The only one of your reasons that matters is #3. Many advisors I’ve seen say that you should not consider your primary home to be part of your investment portfolio. In fact, that is exactly why many people ended up losing their homes in the '08 crash. They saw prices increasing at an astronomical rate and decided to try to get in on the action with their own home. Then prices crashed and they were under water. More than a few people walked away from their mortgages.
Just because you are not paying rent does not mean that all the money you are spending goes into the house equity and is thus increasing your wealth. No matter what you do, you are paying to live somewhere. Before S’s last move, we looked at buy-vs-rent in his area… The costs associated with buying (mortgage interest, taxes, insurance, maintenance, etc.) were comparable or more than the cost to rent. There are some online calculators available which can help with evaluating this (not sure where atm).
The houses with similar cash outlays were in sketchy conditions and/or sketchy locations, not to mention having to do your own maintenance and yard care, etc (or pay even more). And you never know when some catastrophic thing could happen and you need a big amount of cash NOW. We own a lot of rental units, and have had untold expenses come at us out of nowhere.
As for condos, they can decide to renovate or do repairs to something and assess you significant amounts which you could end up having to roll into your mortgage on top of the initial cost.
I would not do this yet. You don’t know if you will like your job or how long you will stay in the area. It is better to rent for a while in an area before taking on the more permanent commitment of home ownership. And while your parents are correct that ownership builds equity, renting isn’t really throwing the money away; you are, after all, paying for a place to live.
There are better ways than real estate to invest at any stage of life. The reason most people (other than developers or flippers) invest in real estate at all is that they need a place to live and sometimes, ownership makes more sense than renting. But it is seldom a better investment than stocks, bonds, and mutual funds. I encourage you to look for yourself at the long-term (say, 25 years) returns of all of these things before plunging into the housing market.
I agree with @mathmom that waiting a year seems reasonable. You will have had a year at your job, a year to save, and a better sense of how permanent your life there will be. There is a lot to be said for the joys of impermanence while you are young.
I wouldn’t buy yet. Owning a home comes with a lot of headaches. Save and invest your money and wait until you’re ready to settle down and have a family before thinking about buying.
Give yourself the freedom to change jobs, to jump at a job transfer, to realize you really don’t like living smack in the city, to find that you love the city but have fallen in love with a different neighborhood…
One example: a friend’s son moved into a fabulous rental in Chicago that came with a very expensive parking space. He figured he didn’t really need a car and the combined rent was too high, but he loved the alure of the high rise, so he left his car at his parents’ house halfway across the country. A few months later he realized that his weekend social life was miserable without a car, and he started looking for an apartment with a better fit. He moved when his lease was up. He’d have been stuck had he immediately purchased.
My D faced the same question (in the same city!) She went to school in Chicago and got a great well-paying job in Chicago. She LOVED Chicago and was seriously considering buying a condo there…until she met someone at a work function and fell in love. Unfortunately, he lived 400 miles away. Less than a year later, she transferred to his city where she and her boyfriend (now husband) settled down and bought a house of their own.
All this to say: buy a house in haste, repent in leisure. I am so glad that D did not have a condo to sell while she was navigating her relocation!
Give yourself some time to scope out the town and try out some different neighborhoods (there are so many great Chicago neighborhoods, each with its own vibe.) There’s lots to love about buying your own place, but it’s not a given that owning is “better than” renting. And there’s no arbitrary time deadline - you can always rent for a year while you’re doing your research on neighborhoods and home prices. No rush…
@blossom It sounds like you’ve had a rough situation, and I’m very sorry to hear about that. It feels like you’re reading and commenting on my post through that lens. I did not tell the OP that it was definitely the thing to do. I said it was something to consider. The OP said that parents were considering being a part of the decision and potential purchase, as well, so that may also affect the wisdom and goals of the situation. So, calling my advice “suspect” is a little harsh IMO. I know many people who have made a great life off equity in homes. My parents had very little money when I was growing up, and they bought some rental properties when they were young. That is what allowed them to be comfortable (not rich) and not worried in their later years, and my mother had plenty to live on after my father’s death because of those properties.
It appears that you don’t think much of Realtors. I assure you, we are not all out to make a sale at any cost. And we do NOT ignore downturns. I’m not sure why you even said a blanket statement like that. In my experience, we try to warn people as best we can when the market is shifting. The 2008 situation was unique and was a tough shock for everyone.
I got into the business to help people with what is sometimes the most stressful and exciting purchase in their lives. I also got into it to help people build wealth so they can put their kids through college without worry and tons of debt and so they can live out their later years on more than social security. I’ve also talked people out of selling (meaning I got nothing out of the deal), when I saw they were making a poor financial decision. So, I’m sad that your experience has led you to have such a negative view of real estate and Realtors. While I know there are people in every profession who are just out for their own interests, we are not all that way. I have nothing to gain from the OP by giving some things to think about.
I think everyone who has responded has given some valuable insight, and I have no intention of attacking anyone’s advice. Everyone’s situation is different and there is much to learn from each of them. I’m thankful there is a community that so freely shares, but instilling fear in someone is not the way I prefer to help. I offered some things to think about, not fully knowing the situation, and I trust that the OP and parents will make the decision that is best for them.
RENT the first year. Then let the job, location, lifestyle help you choose where to move or stay. Renting at first will give you time to learn which areas you want to live in long term (years- five plus?). You will meet so many people who live in many areas and learn about their off work lifestyles. You will get info on commutes, specific neighborhoods et al. No realtor can know everything. You can’t know the person you will be one year from now. Being a student is different than being a working professional. Be patient. It isn’t all about the money- it’s taking your time to choose options based on better information.
Rent the first year…save as much money as you can. Scope out neighborhoods, and see IF there is one you might like to make a purchase in.
But most important…as much as you like the idea of living and working in Chicago, you may find…you either don’t love it as much as you thought you would, or opportunity will come knocking in a different location.
You can always buy in the future if it looks like that’s where you really plan to stay.
Not sure if this changes anything, but the company I am working for is the same company I interned for during the summer (so I’m somewhat familiar with some areas (the Loop and West Loop, River North, Wrigleyville, Lake View, Lincoln Park). Clearly, it’s not the same as living in Chicago for a year.
We also lost money. The lovely condo we bought suffered from a market drop the next month. 6 months later, DH got a fab job offer across country. You can’t always reliably rent it out.
It takes savvy and you don’t have a crystal ball. You need a sense of what can grow in value (underpriced, maybe a fixer upper) versus total costs. Yes, condos have fees, regulations, and in older communities, there can be assessments to cover improvements outside the current budget. Eg, roads need resurfacing, major roof repairs- things not anticipated in ongoing accounting.
So inform yourself. It takes patience to understand the variables. Done right, it can be great. But at least Google the housing crisis to understand whst happens when excitement overrules smarts.
You can afford to take your time to learn and look.
Buying a house used to be a no brainer since real estate was always going up. That is no longer the case.
Pros:
Good to build equity which you can later put to use to buy another home or use for grad school etc.
Cons:
People often don’t factor in the hidden costs of owning a home and there are many. Roof, broken pipe, general repairs, property taxes ( gone FOREVER and constantly creeping up), loss when you sell or even just the realtor fee.
Since you are young, you will forgo the opportunity to move elsewhere for you job or if you meet someone you love in another city.
You will lose the ability to travel easily. Yes, you can rent out your place but that has risks.
When I was in my 20’s I had an excellent high paying job. I never bought a house or condo and don’t regret it. I was able to do many things career wise that others could not. Plus I was able to travel and didn’t have a mortgage. When I wanted to go to graduate school, I did. Move to Europe, check. And many other things. Once we bought our first house ( which was well below what we could afford, life got more complicated).
About 30, I felt this need to purchase something. It happened and honestly while I might a bit more equity, I don’t regret it at all. Honestly, I do wish I had purchased that tiny little shack in Nantucket though for 100K. That was a bad move on my part. We also had two homes at one point and that was also not a plus but a giant minus. There’s a lot to be said for simplicity. And no one plans for replacing house systems that break like the heating or roof or septic.
There is NO prestige in home ownership. Many people live above their means and life is about doing what you want and when you want. If you want to buy a home go ahead. But I would be pretty sure I was going to stay in that job for 5 years before you take the plunge. The housing market is really crazy. You can lose a lot of money.
There’s a good reason that many people don’t buy a home in their 20’s. I would strongly discourage my kids from buying a house too young. Go out and live and find out what you want in life. You can always buy a throw rug but you have a limited window to go climbing in Nepal.
Adding, you may love the job, stay years, find a local partner. And be able to afford a fancy vacation. It’s not all about abandoning the Chicago area. But you’re only just beginning. Also, though I don’t know all the Chicago terrain, it seems at least some of the areas you know now may be expensive ones. Not what young folks buy into, first year of first big job.
It might be just as priceworthy to find a great apt you share, avoid the many costs of ownership, at first, while you look. .
I bought my first house when I was 25 and fresh out of grad school. BUT I had already lived in the community for two years prior to grad school and knew I wanted to be there. I was in that house for 5 years…then I moved to a different place. I kept it as a rental property for 6 more years…and then sold it to a friend. I was very lucky…because I rented to friends only…and they were very willing to do minor maintenance which I paid for.
But…I was lucky…very lucky.
When I relocated, my husband and I rented for seven years before we bought our first house in this state. It gave us plenty of time to figure out exactly where we wanted to look…oh and if we planned to stay in this area.
There is something to be said for being a renter. There is flexibility to move when and where you want if a new job/transfer comes along, a job is lost, or a relationship changes for the better (or worse).
Also, it is so much simpler to call a landlord to fix something than to have to research contractors and pay for it yourself. I just heard that an acquaintance had her bath room roof cave in. Her home insurance won’t pay and she doesn’t have the money to pay right now. It is covered with plywood and will stay that way for awhile.
So, consider if you would have the money to pay for a major problem this first year? It may be better to rent for awhile and save up not only the down payment but also a nest egg to cover emergencies.
No, don’t immediately buy a home in Chicago. Instead, rent, and steadfastly educate yourself about the precarious political/financial states of Chicago, its county, Cook County, and its state, Illinois.
Situation is very worrisome. Real estate and state income taxes will significantly increase, again, because that’s how governments work there. There’s a 10.25% sales tax. There are lots of additional fees, fines, and extra charges. Fiscal picture for government entities, public pension funds, and thus taxpayers “on-hook”, is dire. You may not want to plant yourself here. Your employer may want to move out-of-state. Illinois has the highest to burden, the worst public finances, and the largest number of outflowing residents.
People want to leave. Real estate market in Chicago area was recently reported as slowest in USA. Have I made my point yet?
Your first priority as a recent college graduate should be your career.
I do not know enough about you, your job or your future plans to enable me to make a strong recommendation, but I can offer a suggestion.
As noted above, owning is an anchor. What is the likelihood of being transferred to a different city, going to graduate school or seeking a new employer within the next 5 years ? If the likelihood of any of these events occurring is high, then consider renting. But if the potential or likely grad school is in Chicago near your current place of employment, then consider purchasing a home.
Would be helpful to know your field of employment & whether or not a graduate degree is expected within the next several years.
I don’t think there is anything wrong with buying a home young. Really it can be a great investment.
However, I’m in the camp of renting for 1 year, building up the emergency fund, researching the neighborhoods/schools/taxes (important for resale), and then buying.
I bought my house a few years ago when I was 24 and had just started a PhD program.
I had the money, and many years of guaranteed income and figured why not.
I also wanted to buy it before I got married because my credit was so strong and my now-husband had no credit whatsoever.
I wouldn’t buy unless you know you’re going to be in an area for at least 5+ years or you know the area very well. I moved back to where I went to high school and knew I wanted to raise a family there.
I have not read the other responses, but my son 2018 grad) was thinking of buying a house/condo right away, and I advised him not to. I think it’s good to “live a litte,” get settled in your job (or not), and figure out what’s next for you before buying a place.
My son is now living in an apartment with a couple of other people, and is happy he didn’t buy a place. He will rethink things in a couple of years, once he figures out if he wants to go to grad school, stay in the area, etc. in the meantime, he’s living fairly frugally/saving money, so he will be ready when he decides.
I could help him some, but I suspect he will feel better about it if he does it on his own, as you kind of indicated.