In recent months, a few of my Chicago luxury real estate clients have sold their homes and opted to move into a rental.

Their motives vary widely. Some want to put the proceeds from their sale in the bank and wait for the right home to come along. Others are in a volatile career or financial situation and are reluctant to commit until they achieve more stability in their lives. Still others are renting because they have difficulty meeting the new down payment requirements that lenders require. The decision about whether to rent or buy your next home can be a complicated one – particularly when you throw in unpredictable careers, personal relationships, and market forces beyond our control.

If your decision to rent or to buy is primarily a financial one, then you might want to check out a tool from The New York Times. They have simplified the financial aspects of the decision with their online calculator. You simply enter the variables (rent costs, mortgage rates, property taxes, etc.) and you’re shown a real-time graph of when it’s best to rent and when it’s best to buy.

The difference in costs can easily exceed tens of thousands of dollars, so this is an important calculation to make. An additional rent vs. buy calculator can be found here.

On the flip side, as a residential real estate professional, I am occasionally involved in the rent versus sell discussion with my sellers. After they have moved out and are paying the expense of carrying two homes, they are sometimes feeling some pressure. These sellers have the option of adjusting the price of their home to help get it sold, but occasionally that strategy is ineffective or would require them to drop below their comfort zone. Their home may also be saddled with the stigma of a lengthy market time which makes it difficult to attract serious prospect buyers.

In that case, I may suggest we simultaneously list their home for sale and for rent with the goal of boosting the odds of cutting their carrying expenses. Renting gives a seller the opportunity to cover some or all of their cash flow while waiting until the market for their home improves.

Before listing a home for rent, I always ask my sellers if they are prepared to lease it out for more than one year. I suggest they consider a three to five year time horizon. It is not uncommon to have to repaint or refinish floors after tenants move out, and the costs can outweigh the benefits if the term of the rental is too short. I also suggest that we time our lease so that it ends just as the market is picking up. In Chicago, the first quarter has historically been our most active selling season over the years. In an ideal world, I would love to see my leases end on the last day of December, followed by a couple of weeks of clean-up and possibly staging, and then listing no later than mid-January. That would be an ideal transition.

So, no matter what side of the market someone is on, the rent vs. buy argument can still be an important one.

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  • musaad

    Interesting, I have heard little of the change in rental demand vs. housing demand since the credit/housing crisis really took off last fall.

    Are you seeing a spike in rental demand due to tighter lending standards? It appears that inventory keeps getting larger and the number of buyers is similarly decreasing due to stricter down payment and capital/credit requirements. This being the case it only makes sense that more are renting or leasing out their vacant property. If that is in fact, what you are witnessing on the higher end of the Chicago market, what does that say about how far we are away from the housing market really turning around?