Question: My wife and I are considering retirement to NYC. We hope to make a near all-cash purchase of a one-bedroom or studio in either Manhattan or Brooklyn. The current maintenance on the units we’re looking at is between $1,500 and $2,000. How much net monthly income will we need to live comfortably? Frugally?
— Coming Back to New York
Dear Coming Back:
As I said in Part I of this answer, you and your wife can live quite comfortably, very well in fact, in Manhattan on $50,000 to $75,000 year, excluding housing costs.
That you’re considering studios and one-bedrooms with $1,500-$2,000 in maintenance fees, suggests that you are looking at high-end doorman buildings. Good. You don’t want to be old living in a walk-up without an adequate staff around.
But I’d hold off on your plan to pay cash for a place. Consider renting.
Here’s why: Let’s say you have $750,000 cash that you want to spend on a new place. The median asking price for Manhattan studios as of Feb. 2018 is $575,000. One-bedrooms are going for $939,750.
You’re thinking: “I’ll pay cash, have no mortgage and then just pay maintenance.”
But money doesn’t really work that way. The cash you put into an apartment is cash that’s not producing income for you. Example: Invested in a New York tax-exempt municipal bond fund, your $750,000 could produce 5 percent or more a year of income — $37,000 a year-tax free.
If you spend that money buying a new place, you would, in effect, be forgoing, or paying, $3,000 a month, plus your maintenance charges. Your monthly housing nut, then, actually would be more like $5,000 a month.
Invest your money, rent and save the maintenance.
ONE FINAL NOTE. Before I hear the wails from you and others about my suggestions, here are my answers:
Tax benefits for home owners have been greatly reduced by the new tax law. They weren’t as great as people thought before, but they are worse now.
Yes, you forgo the appreciation you would have seen if you owned an apartment, but appreciation isn’t money in your hand. You have to sell your place or borrow against it to see any real money. Good for your heirs, but not so great for you.
Yes, rents go up. So do maintenance fees.
In a large apartment building, you are virtually assured of lifetime tenancy as long as you pay the rent. If you do decide to move in the future, it could take six months and tens of thousands of dollars to sell your apartment. If you live in a rental, you could have the movers arrive in the morning and be sipping cocktails on a beach that night.
David Crook is a veteran journalist and author of The Complete Wall Street Journal Real-Estate Investing and Homeowner’s Guidebooks. Do you have a question about anything real estate-related in NYC? Write him at email@example.com. For verification purposes, please include your name and a phone number; neither will be published. Note: Nothing in this column should be considered professional legal advice. If you have a legal issue, consult an attorney.
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