How to be the "best" bidder?

do you feel you can afford this? do you think the apt is priced appropriately, taking into consideration the current market? how much cash will you have left over to cover maint and mortgage -- that's important too.

It totally depends on the seller. In my office someone just accepted a 20,000 higher offer with financing than the lower all cash offer (about 3% of the purchase price). A lot of people would have taken the lower all cash offer in this market, but this seller took the higher number.

The one thing you CAN'T control is the Coop Board: if your fianancials don't meet the minimum requirements of the Board, then you ARE dead in the water because no matter what you offer, you won't end up closing.

REmama, look at what the mortgage calculator tells you. A $500K loan, plus the maintenance, will make your nominal housing nut about $4.5K. ("Nominal" means just mortgage payment and maintenance.)

Now add up your current rent and what you're stashing away every month. (Don't count 401(k) contributions in your savings figure; you'll still be making those post-purchase.) If that total is less than $4.5K, then think about where you're going to get the difference.

If that total is more than $4.5K, and you're comfortable now, only then can you start thinking about how to persuade a lender and a co-op board that you're viable. It'd take a lot of persuading, just on the face of it.

On second thought, forget my last paragraph. A co-op board won't even look past the raw numbers, so there won't be a venue to convince anybody of anything.

REmama,

great question -- do you mind if I blog about this?

You are on the margin but it is possible.

Probably for comfort you will need to land the apartment for around $650-$675K -- I don't know if that's doable or not, depends on the seller.

Things that will help tip an even playing field in your favor are:

* enthusiasm (project enthusiasm for the apartment early and often, and that will help convince the seller that you will stay the course and not wander off and buy another apartment while he's issuing the first contract),
* a history of saving (hubby and I just bought a co-op for which we were marginal candidates, and I pointed out in our cover letter that we might not make much money, but that we had fairly hefty retirement funds, and that spoke to our financial conservatism), and
* how solid your job security seems to be post-salary cut.

You don't mention what assets you have outside of the $200K you're putting down, but those (both your liquid funds and your non-liquid funds) could make a substantial difference.

ali r.
{downtown broker}

forgive me but do you think it is a good idea to encourage people on the margin (your words) to stretch for an apartment purchase in this environment?

cc - good one.

the only part i disagree with is the first two words. you should be thanked, not forgiven, for asking this question.

I'm sorry, but I would reject your offer. I had an offer where the couple was going to do 50% down, but after they put the down payment in they had no cash left. They were heavily mortgage on their other house as well. You should have 6 months of mortgage and maintenance in the bank after you close. I don't want to waste my time with buyers that would not qualify. Even if I had no other offers, I wouldn't take their offer because it takes several months to close now, and I want a sure thing especially since the banks are getting more and more weary.

30yrs nailed it. Forget about qualifying for a mortgage, you first need to find out minimum requirements for the board. Some require 30%+ of purchase price in liquid assets after sale with a d/i component far more stringent than lenders.

cc & sls - the OP asked if this was doable and Ali is giving them good advice on how to proceed if they want to. She isn;t forcing them to purchase the apartment. They are adults and can make their mind up themselves when they have all of the facts....which Ali is helping to provide.

It may not seem like a good idea to you, but people have free will, their own reasons and their own money to make decisions that are right for THEM, not to please you.

does it seem like a good idea to you?

Maybe...maybe not.

"You don't mention what assets you have outside of the $200K you're putting down, but those (both your liquid funds and your non-liquid funds) could make a substantial difference."

That seems pretty important to me. Having information helps people make educated decisions.

In the early '90s I got gaga about about a brownstone duplex that was a huge financial stretch.
Lucky for me I got outbid. I moved on and purchased a home that met all my needs (financial comfort included). When I walk by that brownstone now, I can't remember why I was so smitten.

learned in business many years ago that its not the deals you didn't do that hurt; its the ones you did but should have known better.

"I have been hovering around an apartment and I know we don't look the best on paper. We will have about 200K to put down on a 725K apt. Maint 1100. We have hhi of 145K (big salary cut recently). Is this doable or are we dead in the water?"

Are you insane? What makes you think you could swing a $525K mortgage (plus $1100 monthly maintenance) on only $145K in income? You're looking at nearly $4200 in monthly apartment carrying costs, which would require nearly three weeks' worth of paychecks before you can turn on a light or buy a morsel of food.

Apparently Americans really haven't learned their lesson in the wake of this financial disaster.

holy shit! matt and I agree on something. maybe I should reconsider my earlier post.

Yup, CC, sometimes the best deals are the ones you walked away from.

Meaning the ones you didn't do... oh, you get my drift...

why do you want to stetch that much? The rule of thumb was always 1 weeks pay to cover house costs. Later, it went to 3x hhi. which places you at 435K, plus your down payment.

I think the unanswered question here is other assets. The OP has said that HHI was previously much higher than 145K. 3x HHI with 1 or two year's salary in the bank is, IMHO, a lot different that 3x HHI with $10K left over.

So I am encouraging the purchaser to "stretch" only in a situation where he/she feels that there is an asset cushion.

ali r.
{downtown broker}

shout out to waverly:

"So I am encouraging the purchaser to "stretch" " by her own admission she is going further than "giving them good advice on how to proceed if they want to."

i ask you again: "if someone you cared about, asked your advice about buying in the situation that has been described here, what guidance would you offer?"

"I think the unanswered question here is other assets. The OP has said that HHI was previously much higher than 145K. 3x HHI with 1 or two year's salary in the bank is, IMHO, a lot different that 3x HHI with $10K left over. So I am encouraging the purchaser to "stretch" only in a situation where he/she feels that there is an asset cushion."

Any financial planner worth his salt will tell you that using your "asset cushion" to meet monthly housing costs is a recipe for disaster, unless that "asset cushion" is big enough to subsidize those monthly housing costs for the entire life of the mortgage.

REmama, FWIW, my numbers are not much different than yours and I would NEVER consider a purchase like the one you're describing. I see tremendous potential downside and minimal upside here. Before someone offers "a wonderful home" as the upside, I'd mention that you can rent a wonderful home for likely a much lower monthly carry while you navigate your current financial downturn (sorry to hear about it).

Also, if the "mama" in your name is to be taken literally and there's a child to support, replay NYCMatt's first post with the volume all the way up. Most of us on this board have fallen in love with a property before. Many of us breathe huge sighs of relief thinking of ones we managed to avoid.

Your solutions of today are your problems of tomorrow.

Hey cc - If their other assets are significant and they could get the place for $675k then it might be okay. (I think the OP said it was listed for $725k). Financing $475k with a HHI of $145k and significant assets could work.

NYCMatt - I agree with you on that, but also remember that there are people who have had their salaries cut in the environment that will have them increased as soon as their companies begin to recover. It certainly isn't guaranteed to happen, but it will happen for most in that situation. So, the OP's HHI should get a bump in the next year or two as things improve (of course, they have to improve).

and of course, its financially prudent to make a major long term investment based on your income going up?

Geez, now I'm agreeing with CC. Yikes!

Waverly: "I agree with you on that, but also remember that there are people who have had their salaries cut in the environment that will have them increased as soon as their companies begin to recover. It certainly isn't guaranteed to happen, but it will happen for most in that situation. So, the OP's HHI should get a bump in the next year or two as things improve (of course, they have to improve)."

Waverly, any co-op board (and frankly, any mortgage underwriter, for that matter) would be wildly irresponsible to allow someone to overextend themselves by purchasing an apartment they can't afford today on a wish and a prayer that their income MIGHT go up in the future.

cc - The OP's salary was cut due to market conditions. This happens in times like this and companies raise the base salaries back when they have more capital. This is totally different than saying, "I'll buy this now figuring that maybe I will make more money later on". When the market is better their firm will move the base back to where it was or their competitors will do it for them.

I appreciate disagreement and debate, but you don't need to be so condescending. I know it's Friday and all, but c'mon.

"When the market is better their firm will move the base back to where it was or their competitors will do it for them."

And as a co-op board VP, I'd tell the applicant to get back to us when that happens.

Matt - I agree with you on that. But cc has twisted what was being said. No one said to buy it if you don;t have any assets left over. Of course that would be stupid. I wouldn;t recommend that and no co-op board would pass them anyway.

Without twisting the statements my answer is reasonable.

- "The OP's salary was cut due to market conditions. This happens in times like this and companies raise the base salaries back when they have more capital."

i do not recall any time that companies across all industries have had not only bonus reductions but reductions in base salary and even reductions for hourly workers (and I'm not talking about so called voluntary time off).

I would add that we have passed any reasonable measure of "times like these" and entered uncharted territory. As more and more people continue to lose their jobs, the liklihood of increasing previously reduced compensation moves further and further into an indefinite future.

If there's ever been a time to be financially conservative, now is it.

cc - You are just completely wrong with this statement. I know of many, many people in exactly the situation I described. I am on solid footing with what I wrote. You can either be open to learning something new or choose to continue thinking you know about this (and you don't).

which part...the guaranteed salary increase?

First of all, it's not a guaranteed salary increase and referring to it as that is another example of twisting.

Companies cut expenses and then cut base salaries to preserve capital (and jobs) and give their firm time to recover. As the market improves and sales increase, salaries are readjusted back to what they were before. This "defensive" move has certainly happened more today than in past recessions (due to the credit challenges), but I am already seeing signs of firms talking about making the salary readjustments. It won't happen in every case, but it will happen.

If OP borrows $500,000 at 6 percent, then mortgage and maintenance costs will be about $4k a month. That's 33 percent of income.

It's a ratio that might not get past every co-op board, but it will get past some. And where the heck do you people live, or what fancy jobs do you have, that you are paying substantially less for your housing?

Much of the middle class in New York lives like this. It's not the most conservative choice, but if there is some money saved for retirement, and some money saved for a rainy day, I don't think it's out-of-bounds extravagance either.

ali r.
{downtown broker}

Here is a hypothetical - lets say there was 1 mil in the bank and a hhi of 300k - what would the price range of apartments that could be looked at?

Ali - I figured that if the OP got it for $675k and put the $200k down the mortgage would be $2700 + $1100 maintenance would be $3800 month. That is probably about $2800/month after taxes. This could be fine, as long as they have other assets after the $200k down.

Windsor Court, you figure a loan balance of 2x-3x to HHI. In OP's case, I'd be willing to "push it" from 3x HHI of $145K = $435K, up to $500K, because OP wants to (and I assume he/she is not an idiot) and I think a previous higher income indicates that there might be savings there.

In general, though, you don't want to break 3x HHI, and for a tougher board you want to be lower than that. And for a tougher board you want to have more in the bank. I would also say the more children you have, the more you want to dial back on your mortgage debt.

So if you're keeping a year's worth of salary in the bank, and you put $700K into real estate, you're shopping in the $1.3M to $1.6MM range.

ali r.
{downtown broker}

There are some fairly agressive assumptions here on the pro-buying side. Let's take another look at the OP:

"We will have about 200K to put down..."

If there's so much left in reserve, why not the usual mention of "but we can put down an add'l x% if necessary." I don't get the impression there will be an especially large amount remaining.

"...on a 725K apt. Maint 1100."

She doesn't say "on an apt ASKING $725k." It sounds to me like this is the amount she expects to pay. At 6% I get a $4250/mo pre-tax total. While I'm all for including the tax deduction in considerations, shouldn't there be a little cushion here, an awareness that the tax deduction only helps if all the income is there to tax, and that any future earnings deterioation leaves you doubly screwed as a result? Also, with all the talk of tax and maintenance volatility, isn't it prudent to consider how one would manage if the maintenance or CC/tax went up over the next few years? How does a $145k earner feel about a pre-tax monthly nut that approaches $4500?

"We have hhi of 145K (big salary cut)."

Household income. Not "my salary" or "my husband's salary." No mention of whether this is one or two earners. If it's two, many of us here are probably familiar with Elizabeth Warren's research on the add'l risks.

Then there's the kid question I raised earlier. If so, it not only makes this a bigger stretch than initially thought (greater houshold expense), it also adds the responsibility factor to the equation.

Where in the big book of common sense does it say "You've just seen your earnings slashed. Go out and buy some property beyond normal standards of affordability."? Wouldn't it rather say "Settle into your new lower-income life, get a solid sense of future earnings and consider it then."?

Maybe REmama will return with more detail.

i am more concerned/intrigued by the posters egging them on. isn't this precisely the situation that the nytimes reporter described to such great derision a few months ago?

and waverly--you need to consider the fact that once companies lower salaries and in essence get away with it, the imperative to raise them slides away quickly. not because they are unsavory or unethical but because its prudent.

also, to say that this big wave of wage deflation has been seen in prior recesssions is flat out wrong.

tenemental, right, I came up with $4500 too. Just don't see it working on a personal-finance level, leaving all the lender and board issues aside.