Hi all, Potential first-time apt buyer looking for some insight on whether to buy now or continue to rent. My current situation: Single, late 20s professional, stable 6-year midtown-based career, 100K current income that's been steadily advancing each year. Have been able to bank 70K and put 30K in my 401(K) over the past 6 years by living below my means, particularly in the housing dept. Now... [more]
Hi all,
Potential first-time apt buyer looking for some insight on whether to buy now or continue to rent.
My current situation: Single, late 20s professional, stable 6-year midtown-based career, 100K current income that's been steadily advancing each year. Have been able to bank 70K and put 30K in my 401(K) over the past 6 years by living below my means, particularly in the housing dept. Now ready to lose the roommates and get a nicer place of my own.
Apts/neighborhoods: Looking to either buy or rent a 1 BR in Williamsburg/East Williamsburg or Greenpoint (other BK areas a possibility but prefer either of those). Budget would be under $500K (lower depending on CCs) to buy or under $2200/2300 to rent. Either of these options would be a large chunk of my income now (40-50% of net income), but manageable, and hopefully become less of a burden if income keeps increasing.
Future plans: Generally plan to continue doing what I'm doing and stay in BK for at least the next 3-5 years. Long-term plan to escape the city for somewhere more rural, but for now, I plan on staying here for professional and social reasons. I do not see myself as being here past 6-7 years down the line, though.
My thinking: Interest rates are low, I've got a decent downpayment saved up, why not get myself a nicer place and start building equity now? I'm fairly sure I will be in NYC for 3+ years, which is the amount of time the NYT "rent vs buy" calculator tells me I need to own for before it pays off financially. If something changed and it came down to it, I could manage renting it out until unloading it became a viable option.
What would you do in my situation? Does the potential equity built justify the risk? Or should I just continue being a renter but bite the bullet on a broker fee and get a nice place of my own and hope the landlord doesn't gouge me on rent increases? Then throw my savings in a variety of investments.
Thoughts?
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Response by marco_m
almost 14 years ago
Posts: 2481
Member since: Dec 2008
youll be looking at an FHA loan for someplace in brooklyn. If its not FHA you will need at least 20% down for anyplace. It gets really expensive when you look at all the costs. owning might not be an option at this stage.
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Response by Ottawanyc
almost 14 years ago
Posts: 842
Member since: Aug 2011
Buy: You will be able to get a decent one bedroom or studio for that. Greenpoint is really hip right now (Williamsburg becoming increasingly annoying) and East Williamsburg or south has some decent places. Greenpoint though only makes sense if you work around times square. I know a great agent who does that area if you're interested (who is not a douche).
If you rent you do not need an agent.
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Response by Home_Body
almost 14 years ago
Posts: 34
Member since: May 2012
Marco_m,
Not necessarily. You can get a conventional mortgage with as little as 5% down. NYCT, you sound responsible, so I'm assuming your credit is in tact. You should look into a conventional mortgage if possible. That way, you'll only pay PMI until your LTV hits 78% or better.
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Response by Ottawanyc
almost 14 years ago
Posts: 842
Member since: Aug 2011
Also keep in mind that there is very, very little inventory so you will actually have some time to save a bit more for closing costs. Just eat Ramen noodles for a month.
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Response by ab_11218
almost 14 years ago
Posts: 2017
Member since: May 2009
if you know that you will be gone within 7 years, you rent. the NYT calculator does not take into consideration 12-15% closing costs with purchase/sale. also, you will be more flexible in terms of housing when renting. what if you find a significant other who wants to live only in ......, fill in the blank. with a condo, you will have to either sell or rent it out at a loss.
you should not be buying with less then 20% down and 1 yr of expenses in the bank, no matter what Ottawa tells you.
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Response by NYCT
almost 14 years ago
Posts: 4
Member since: Sep 2012
Thanks for the thoughts so far. I do have good credit, and have already been pre-qualified up to the levels that I'm talking about. Prepared to pay PMI up to 22% equity, and am including that in my considerations.
Unfortunately also all too aware of the lack of inventory, as I've been following the market and searching a bit for a few months now.
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Response by Brooks2
almost 14 years ago
Posts: 2970
Member since: Aug 2011
Also keep on mind that RE does not always go up in value, that it might actually go down especially when there is 10% unemployment and the economy is teetering on a fiscal cliff.
Keep this in mind even if the broker says you can borrow from your 401k.
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Response by alanhart
almost 14 years ago
Posts: 12397
Member since: Feb 2007
Am I missing something, or does OP appear to me willing to pay considerably more in monthly mortgage payment alone than he or she would pay in monthly rent? What's up with that?
OP, please show us your projected numbers, using the sort of financing you have in mind.
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Response by Ottawanyc
almost 14 years ago
Posts: 842
Member since: Aug 2011
Huh, when did I say to buy with less than 20%. Thought he had that. But even if you don't have 20%, if say you have 15% I think you can stop paying the extra once you hit 20% (might be wrong on that - anyone??) Any case, I am a big proponent of buying at a young age and not for 100% economic reasons, but for others too. It's just different owning.
But yes, as Alan says show us the numbers based on some places! I moved over to the area you are looking and am paying about 2/3 what I did (although I was not sharing and was in Manhattan). But numbers speak...
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Response by ab_11218
almost 14 years ago
Posts: 2017
Member since: May 2009
with 70K in savings, how much is he going to put down? less than 10% would be my guess.
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Response by alanhart
almost 14 years ago
Posts: 12397
Member since: Feb 2007
I don't even mean specific places.
OP would be willing to pay $2300/month rent, probably including heat & hot water.
But a $500K purchase, 95% financed @4% 30-year fixed is $2268 per month -- not including PMI, CCs, taxes, heat, hot water. Maybe it's a bit less with interest-only or something, but OP is not in a position to take that risk
Because the value of the property could go up or down, OP should assume PMI will never go away.
And so forth.
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Response by Ottawanyc
almost 14 years ago
Posts: 842
Member since: Aug 2011
In the areas he stated it would be a condo, with a new tax abatement and he would need to pay around $400,000-450,000. I've read places (but only read) that PMI can go away: http://homebuying.about.com/od/financingadvice/qt/What-Is-Mortgage-Insurance.htm But yes, needs a few more $$. Maybe Mom and Dad can lend you some $$ to make the accounts look a bit more healthy.
These are kind of places he is looking at. And I don't think there is much risk in prices going down too much here in the short-term. Everything going up now is rentals, so in three years I am sure there are lots of folks who would be interested in buying.
Yea yea that's it... Prices won't go down borrow from mom and dad or how bout that 401k?!
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Response by alanhart
almost 14 years ago
Posts: 12397
Member since: Feb 2007
Also, NYCT, be sure to understand how abated taxes work, how/why they'll affect future resale value even before they expire, and why you need to take both into account in putting chalk to slate.
Plus design obsolescence, wear & tear and aging of apartment & building, problems with small condos, problems with medium and large condos, et cetera.
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Response by NYCT
almost 14 years ago
Posts: 4
Member since: Sep 2012
Again, thanks for the thoughts. For those asking for specifics, see OttawaNYC's post for possible properties. As stated, I have 70K in the bank. I also have family gift and loans available of up to 30K or so. With this combination, I hope to make a downpayment of 70-80K and cover closing costs, leaving a bit of money in savings, with the knowledge that I can borrow from my 401(K) in the event of a catastrophe.
With a downpayment like that, I'm hoping to keep my loan around 400K or below, meaning monthly payments of around $!900/month assuming the 4% rate I've been told I should be able to get with my credit. With the $2400/month limit I was setting, that leaves up to $500/month or so for CCs and taxes, and as OttawaNYC pointed out, taxes are abated (currently to $0-50ish/month) for the next 15-25 years on almost all newer condos in the areas I'm looking. I understand how these abatements disappear over time, but given the relatively short time of ownership I'm planning on, their disappearance should not be too much of an issue for me in the next 3-7 years.
As for RE prices in the area, I've been following numbers for a while now both neighborhood-wide and on specific units, looking at what people bought and then sold for, and even in the case of people who bought before the bust and sold after, almost no one took a hit in these neighborhoods--and most are coming out ahead, even after having owned for only 3 or 4 years.
I realize all of this is a bit aggressive,so that's why I've asked the board for thoughts. Am I getting caught up in the idea of ownership and building equity now and in doing so putting myself at financial risk? Or am I taking a smart, manageable risk in trying to leverage my money now and also protecting against rent hikes in neighborhoods that just keep getting more and more expensive?
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Response by somewhereelse
almost 14 years ago
Posts: 7435
Member since: Oct 2009
> why not get myself a nicer place and start building equity now?
Don't confuse consumption (nicer place) with investment. Owner-occupied real estate is not an investment by definition. It might lower your long-term cost of consumption, but you need to do that math. If you just want to live alone, and think this is a good way to do it, great. But living cheap and banking it is usually the best investment. Run the numbers...
> almost no one took a hit in these neighborhoods
Past performance is a poor indicator of future returns. If anything, if it outperformed the Manhattan (which fell 20%), then you have to worry about a reversion to the mean.
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Response by Brooks2
almost 14 years ago
Posts: 2970
Member since: Aug 2011
Someone sounds disingenuous
Wants others to confirm his stupidity
My read fwiw
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Response by hifier
almost 14 years ago
Posts: 15
Member since: Jun 2012
How much would rents have to rise in order to justify the transaction costs of buying? The risk that rising rents pose are negligible compared to tying up all of your net worth in a 5 to 1 levered asset. I think you already know this though.
We are close in age and I can understand the draw of home ownership. But I do not think that your circumstance is permanent enough to be seriously considering buying. What if you meet someone, get a new job, or just change your mind about NYC?
10 years is the min time horizon IMO. You'll need time to build equity and savings before doing another transaction of this magnitude again. We're in the middle of our first purchase and I can tell you that buying is stressful, draining, and expensive!
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Response by apt23
over 13 years ago
Posts: 2041
Member since: Jul 2009
If you can stand another year or two of austerity, I would wait to buy. The market has come up significantly since 2009. But there is sure to be a downturn in the stock market and thus the RE market in the coming year. Interest rates should stay low for at least a year. If you protect your savings against inflation --TIPS/gold etc, you might come out ahead. The downturn in price might make up for higher interest. Plus you would have a year or two to build up more of a cushion. There will possibly be more inventory/choices. You seem to be cutting it kind of close. You really don't want to have to tap your 401K if you lose your job, etc. With a larger cushion you will not sweat the risk.
I think it is a good idea at your age to buy RE, but you need to be secure in your choice. Doesn't sound like you are quite ready.
youll be looking at an FHA loan for someplace in brooklyn. If its not FHA you will need at least 20% down for anyplace. It gets really expensive when you look at all the costs. owning might not be an option at this stage.
Buy: You will be able to get a decent one bedroom or studio for that. Greenpoint is really hip right now (Williamsburg becoming increasingly annoying) and East Williamsburg or south has some decent places. Greenpoint though only makes sense if you work around times square. I know a great agent who does that area if you're interested (who is not a douche).
If you rent you do not need an agent.
Marco_m,
Not necessarily. You can get a conventional mortgage with as little as 5% down. NYCT, you sound responsible, so I'm assuming your credit is in tact. You should look into a conventional mortgage if possible. That way, you'll only pay PMI until your LTV hits 78% or better.
Also keep in mind that there is very, very little inventory so you will actually have some time to save a bit more for closing costs. Just eat Ramen noodles for a month.
if you know that you will be gone within 7 years, you rent. the NYT calculator does not take into consideration 12-15% closing costs with purchase/sale. also, you will be more flexible in terms of housing when renting. what if you find a significant other who wants to live only in ......, fill in the blank. with a condo, you will have to either sell or rent it out at a loss.
you should not be buying with less then 20% down and 1 yr of expenses in the bank, no matter what Ottawa tells you.
Thanks for the thoughts so far. I do have good credit, and have already been pre-qualified up to the levels that I'm talking about. Prepared to pay PMI up to 22% equity, and am including that in my considerations.
Unfortunately also all too aware of the lack of inventory, as I've been following the market and searching a bit for a few months now.
Also keep on mind that RE does not always go up in value, that it might actually go down especially when there is 10% unemployment and the economy is teetering on a fiscal cliff.
Keep this in mind even if the broker says you can borrow from your 401k.
Am I missing something, or does OP appear to me willing to pay considerably more in monthly mortgage payment alone than he or she would pay in monthly rent? What's up with that?
OP, please show us your projected numbers, using the sort of financing you have in mind.
Huh, when did I say to buy with less than 20%. Thought he had that. But even if you don't have 20%, if say you have 15% I think you can stop paying the extra once you hit 20% (might be wrong on that - anyone??) Any case, I am a big proponent of buying at a young age and not for 100% economic reasons, but for others too. It's just different owning.
But yes, as Alan says show us the numbers based on some places! I moved over to the area you are looking and am paying about 2/3 what I did (although I was not sharing and was in Manhattan). But numbers speak...
with 70K in savings, how much is he going to put down? less than 10% would be my guess.
I don't even mean specific places.
OP would be willing to pay $2300/month rent, probably including heat & hot water.
But a $500K purchase, 95% financed @4% 30-year fixed is $2268 per month -- not including PMI, CCs, taxes, heat, hot water. Maybe it's a bit less with interest-only or something, but OP is not in a position to take that risk
Because the value of the property could go up or down, OP should assume PMI will never go away.
And so forth.
In the areas he stated it would be a condo, with a new tax abatement and he would need to pay around $400,000-450,000. I've read places (but only read) that PMI can go away: http://homebuying.about.com/od/financingadvice/qt/What-Is-Mortgage-Insurance.htm But yes, needs a few more $$. Maybe Mom and Dad can lend you some $$ to make the accounts look a bit more healthy.
These are kind of places he is looking at. And I don't think there is much risk in prices going down too much here in the short-term. Everything going up now is rentals, so in three years I am sure there are lots of folks who would be interested in buying.
streeteasy.com/nyc/sale/729760-condo-137-java-street-greenpoint-brooklyn
streeteasy.com/nyc/sale/697253-condo-29-montrose-avenue-williamsburg-brooklyn
streeteasy.com/nyc/sale/665356-condo-308-eckford-st-greenpoint-brooklyn
streeteasy.com/nyc/sale/713515-condo-242-south-1st-street-williamsburg-brooklyn
Yea yea that's it... Prices won't go down borrow from mom and dad or how bout that 401k?!
Also, NYCT, be sure to understand how abated taxes work, how/why they'll affect future resale value even before they expire, and why you need to take both into account in putting chalk to slate.
Plus design obsolescence, wear & tear and aging of apartment & building, problems with small condos, problems with medium and large condos, et cetera.
Again, thanks for the thoughts. For those asking for specifics, see OttawaNYC's post for possible properties. As stated, I have 70K in the bank. I also have family gift and loans available of up to 30K or so. With this combination, I hope to make a downpayment of 70-80K and cover closing costs, leaving a bit of money in savings, with the knowledge that I can borrow from my 401(K) in the event of a catastrophe.
With a downpayment like that, I'm hoping to keep my loan around 400K or below, meaning monthly payments of around $!900/month assuming the 4% rate I've been told I should be able to get with my credit. With the $2400/month limit I was setting, that leaves up to $500/month or so for CCs and taxes, and as OttawaNYC pointed out, taxes are abated (currently to $0-50ish/month) for the next 15-25 years on almost all newer condos in the areas I'm looking. I understand how these abatements disappear over time, but given the relatively short time of ownership I'm planning on, their disappearance should not be too much of an issue for me in the next 3-7 years.
As for RE prices in the area, I've been following numbers for a while now both neighborhood-wide and on specific units, looking at what people bought and then sold for, and even in the case of people who bought before the bust and sold after, almost no one took a hit in these neighborhoods--and most are coming out ahead, even after having owned for only 3 or 4 years.
I realize all of this is a bit aggressive,so that's why I've asked the board for thoughts. Am I getting caught up in the idea of ownership and building equity now and in doing so putting myself at financial risk? Or am I taking a smart, manageable risk in trying to leverage my money now and also protecting against rent hikes in neighborhoods that just keep getting more and more expensive?
> why not get myself a nicer place and start building equity now?
Don't confuse consumption (nicer place) with investment. Owner-occupied real estate is not an investment by definition. It might lower your long-term cost of consumption, but you need to do that math. If you just want to live alone, and think this is a good way to do it, great. But living cheap and banking it is usually the best investment. Run the numbers...
> almost no one took a hit in these neighborhoods
Past performance is a poor indicator of future returns. If anything, if it outperformed the Manhattan (which fell 20%), then you have to worry about a reversion to the mean.
Someone sounds disingenuous
Wants others to confirm his stupidity
My read fwiw
How much would rents have to rise in order to justify the transaction costs of buying? The risk that rising rents pose are negligible compared to tying up all of your net worth in a 5 to 1 levered asset. I think you already know this though.
We are close in age and I can understand the draw of home ownership. But I do not think that your circumstance is permanent enough to be seriously considering buying. What if you meet someone, get a new job, or just change your mind about NYC?
10 years is the min time horizon IMO. You'll need time to build equity and savings before doing another transaction of this magnitude again. We're in the middle of our first purchase and I can tell you that buying is stressful, draining, and expensive!
If you can stand another year or two of austerity, I would wait to buy. The market has come up significantly since 2009. But there is sure to be a downturn in the stock market and thus the RE market in the coming year. Interest rates should stay low for at least a year. If you protect your savings against inflation --TIPS/gold etc, you might come out ahead. The downturn in price might make up for higher interest. Plus you would have a year or two to build up more of a cushion. There will possibly be more inventory/choices. You seem to be cutting it kind of close. You really don't want to have to tap your 401K if you lose your job, etc. With a larger cushion you will not sweat the risk.
I think it is a good idea at your age to buy RE, but you need to be secure in your choice. Doesn't sound like you are quite ready.
http://www.nytimes.com/2012/09/11/business/as-low-rates-depress-savers-governments-reap-the-benefits.html?hp