putting together a downpayment

I meant *income higher than 200-250k*

internet bubble...
aol

Started buying into a cheaper market, made the downpayment by moonlighting in a better employment market, kept living in places that buyers nowadays think are too small/not renovated enough, kept trading up.

anybody else?

ali

bought before the bubble. sold in the bubble. looking at affordable markets is the most important part of it. don't overextend on initial purchase and you'll be good.

Live in a cheap rental in the outerboroughs- with that we managed to save $ even in the very lean years- way less than $100k of income.

Save 25% of your after-tax income each year. If you're spending half of the other 75% on rent, then you should have a downpayment for an equivalent place after 5 years in a reasonably-priced market. Even after those 5 years, you need to keep saving 15-25% if you want to maintain an improving standard of living into retirement.

If you think doing that is difficult at a joint income level of, say, $200K then you've got a spending problem. Think of all the "poor" folks making by at $150K an pretend you're still a spendthrift, but just at that level.

Not that I bought anything, just saying how you save that kind of money.

I am with Ali, bought an apartment that was my brothers, which i bought from him. Apartment bought at bottom of the market in the 90's. Sold in 2005, put money in bank and rented for many years.

Without that and some help from family would never have been able to put 25% down as we just did last year.

Most people I know who have bought and are under 40, have parents that will help towards downpayment.

made my $$ as an equities trader back in 1998-2004, used that for first purchase in 2002. Sold that in 2006, rented for last 4 1/2 yrs, and used profits to help with downpayment for little home in CT few weeks ago

Save, save, save. If you cannot come up w/ a 20% down payment in 5 years or so, then buying a home at the price point you desire may not be the prudent thing. One of the reasons for the foreclosure debacle is that many homeowners, using 10% down or less, can no longer afford their places.

I do not disagree but Manhattan is different. Even when allowed to put down say 10% on a condo, most banks will not do that anymore. I was required to put down 25% last August on my apartment after expecting and having the 20%. The problem is that they do not really care where the money comes from so pulling out a loan against my 401k is not even factored into the equation and allowed for the downpayment.

I was more then able to afford the apartment either way as my costs would be close to the same had i gone out and rented a larger apartment.

Oh and saving also was helped by the fact that i was living in a rent stabalized building in washington heights.

In order to be able to buy you just need to sacrafice in the earlier years unless you are making a really large salary every year.

saving is the obvious answer, but there is only so much one can save. i think more young people than anyone wants to admit are getting help from families, which is problematic in many ways. the truth is, middle class young people have no place in manhattan. look around you. how old are the people getting married and just having their first kid? the answer is old as sh*t.

right, so not to sound ageist, a better way to say that would be that by the time middle class "young" people have saved enough by polite society standards to be getting married and having the littles, they are are far from young. that's better.

but to be more on topic, scrap the "starter" home. rent, bear your dogs, adopt your kids and THEN revisit buying a batcave to house the gang.

Before hitting 40?? The comments talk about saving in 5 years; the OP seems to be talking about saving in 18 years (assuming employment out of college at 22). Too many other variables. You mean people who come into the job market with $200K in student debt? Well, that is a down-payment. So, if you have that, you probably aren't going to save much until it is paid down. If you don't, look around at your colleagues who have massive student debt and manage to pay it off (with interest) -- that is how you save a down-payment. And, if you think they have it bad, my rather massive (relatively speaking) student loans 20 years ago were at 10% interest.

I think that is a great question and I think there are some great answers.
The important messages I am getting from the above posts, plus what I did first hand is increments of $ coming from everywhere and compounding together, ie NOT just one thing, like "saving".

I must have asked that question a hundred times "how on earth do people buy in NYC on a regular income?" I think besides getting help, it is your deep desire to own a property, to do what other people are unwilling/ or choose not to do, forgo some immediate pleasures for your long term desire.

1. SAVING.
Personally I have got a bit flabby about this (and the good news is you can choose to become more relaxed after you have done the hard work and get the equity working), and still I was recently blown away/reminded just how much you can cut away if necessary, a friend who was recently divorced (walked away with $500 cash, her daughter and a "shaky" $72,000 year income) asked me to do a budget for her as she didn't think she could survive without going into debt each month. I said not only can't you go into debt each month, you need a safety nest egg by taking the first $1000 each month and putting it in to savings. I was lovingly tough with the budget, eg her whole entertainment budget at the moment was Netflicks, her dining out budget was negligible eg coffee and dessert treat, supplemented by healthy pots of home cooked meals. She was amazing and at the end of 4 months she told me glowingly how proud and safe she felt about having $4,500 in her bank account, instead of being in debt.(I suspect those treats of diners out, etc would pale in comparison to the stress and sleepless nights of not having money to pay your bills.)

2. MAKING MORE $ FROM OTHER SOURCES
As Ali mentioned, working more. The other good thing about that is I notice when I am working more I have less time to go out spending.
Check the little things as well, once in place they work for themselves eg I have 3 credit cards, I like my "chase freedom" for 5% cash back (only on the first $1500 month), I like my "United Chase" for my frequent miles, it gives me 1-2 trips back to Australia a year, and my "American Express Starwood" for five star accommodation, that I love not paying for.

3. CAPITAL PRESERVATION AND GROWTH
Protecting what you have worked hard for, I won't get into growth investing here (which is important down the track), however even just checking your savings account, ie my Chase savings was .01%, which got moved to American Express online savings for 2.0% at the time (now 1.25%).( Obviously be mindful of $250,000 FDIC limits).

4. BUYING WELL
I invested my time, becoming very familiar with the segment of the market that I wanted to buy into. So that I felt safe in it being a good buy, which translates into either:
A) Needing less deposit, (because the property price is less than market) so you get there faster with your deposit.
B) Buying "more" property, because you are buying "well"

* BUILDING UP YOUR CREDIT SCORE
This is vital, it does NOT take much work, just time to keep increasing once you have it in place.

It isn't in stone, however with a credit score below 700 I would highly suspect you would be needing a 25%- 30% deposit for the same apt that you may only need 20% down if you score is over 720 (assuming you don't want a penalty increase in interest rate).
Furthermore get your score up to 760 and you won't need to "buy" points to get an interest rate reduction, which effectively is like saving 1% towards your deposit/equity rather than the banks (1% may sound small, however remember a 1% reduction on a 5% interest rate is 20% ie a 20% saving of your monthly payment going to you instead of the bank).

PS Now I have put out some clear black and white steps I feel I can add the least tangible factor of putting your intention out there, it is amazing what can happen in life if you are clear about what you want.

Good luck

"I want to know what middle class young families have done. thanks!"

As a general rule, the "middle class" does not buy property in New York City.

They rent.

"One of the reasons for the foreclosure debacle is that many homeowners, using 10% down or less, can no longer afford their places."

That's not correct at all, unless they squeezed in using creative financing a la adjustable rates that reset to a level they could no longer afford.

OR they lost their income for a substantial (and understandably unexpected) period of time.

For the first 10 years out of graduate school, my wife and I watched our income increase about 5x and we continued to live in the same apartment we moved into after grad school (roughly $2000). I think the rent increased $50 over that time period. During that decade, we watched our savings rate increase to almost 50% of our pre-tax income due to holding down our cost of living as best we could as our salaries increased.

At a certain point, we were able to start living off of one income and saving 100% of the second one. This now allows us to peg our quality of life improvements (ie, spending more money) to the one income and not allow it to interfere with our savings. We still rent in the city but we have a place upstate, also paid for on that one income. We will probably buy in the city when a 20% down payment is equivalent to 20% of our liquid assets. Maybe before if we find the right place but no rush. We make more than your cap now but were under your $200,000 limit for a majority of that 10-year period.

... lived/living in Brooklyn after several years of grad school living on upper Westside and Morningside Heights.

Had incomes some years way north of 250K and substancially south for others.
Always forced myself that no matter which year or what amount I made, my savings went up from the year prior.
I rented 15 years as well, while investing in the commercial end of RE.

Owning a home should certainly be an opportunity for everyone, but realized as a luxury and not as a born mandate.

"Owning a home should certainly be an opportunity for everyone, but realized as a luxury and not as a born mandate."

Agreed.

But it should also be understood that owning a home in NEW YORK CITY is largely out of the reach of the Middle Class (which according to the Census Bureau, spans the household income range of $30K - $92K). In New York City, the Middle Class rents.

In just about every other locale in America, however, the Middle Class has the "opportunity" to own.

SAVE! -- as a modestly well-paid young professional, starting at age 25 save 5% of your income toward retirement and an additional 10% in your "housing fund" for 10 years. After 10 years you can afford a very nice studio for $500K, and with two incomes and you can afford a very nice junior 4 or modest 2br for under $1M.

Year Salary 10%
1 100,000 10,000
2 104,000 10,400
3 108,160 10,816
4 112,486 11,249
5 116,986 11,699
6 121,665 12,167
7 126,532 12,653
8 131,593 13,159
9 136,857 13,686
10 142,331 14,233
Total 120,061
Interest @ 2% 130,625
DP @ 25% $522,500

In west34th's example, one's hooker and cocaine budget is quite minimal.

JH: you're double counting -- when it comes to sex and coke, if you have one you should never have to pay for the other.

Live 30% below your means and invest aggressively.
No treats.

West34 touche! I like to be a sport with friends.

"how did you manage to put together a 20% down-payment before hitting 40 yrs old?"

How did you manage NOT to put together a 20% down-payment before hitting 40 yrs old?

Sunday how elitist of you.

Anyone want to show me how a *typical middle class earner* [as specified by OP] *living within her means* would not be able to save a 20% down payment before hitting 40 yrs old? If you make less, you save less, and you buy a place that is less expensive. 20% down payment is not a specific amount; it's relative to the price of a place that's afforded by your income level.

Lived in Queens for 6 years, saved $50k per year. Glad that's over with.

Thank you so much for all the advice and comments. I realize now that I should have been more frugal in my 20s. It might help to tell you a little more about our situation. I come from a working class background and my spouse's family is middle class. We can't expect much help from our families. I was lucky to graduate with less than 50k in college debt but my spouse was not eligible for financial aid and graduated with 150k in debt. 10 years later we still owe 100k but we've saved 130k in 401k and 30k in cash. After reading the comments it seems that we need to be much more frugal. Our major cash drain right now is a 3.5k per month babysitter. I'm hoping once the kid is in public school to save much more aggressively. As workers in the public sector we can't expect major salary increases so it's all about figuring out how to save as much as possible.

One comment I completely disagree with is that middle class people only rent in NYC.

newdig -- welcome to that huge and ever growing fraternity of SE-ers who completely disagree with what Matt says.

Newdig -- don't beat yourself up. it's not you, it's the economy.

To have saved $160K in cash while having a kid and paying down debt is no small feat.

It's just that decades ago, when many of us on this board first bought, prices were lower, and we could buy starter places with lower savings, and then we rode the market up. You could probably buy my first apartment -- a doorman alcove studio in Chelsea -- for about $450K now, but the likelihood of it doubling in price in three years, like it did for me, is pretty small.

But keep at it, you'll get there.

ali r.
DG Neary Realty

is your objective to buy a home or to buy a home in manhattan? because those are very different things. the kid is about to start school and THEN you'll start to save aggressively? why? to fulfill some dream of owning a stacked box in manhattan? you would deny yourselves any sort of travel or indulgences with your small child? no treats, no toys, no princess dress up trunk? so that after living like paupers and probably growing increasingly bitter watching your kid's classmates' families live normal lives for the most part, you can buy that sh*tty generic tiny lego in a tower of legos and feel like you've finally arrived? just move somewhere cheaper and be normal!

We saved very aggressively, by staying in a small RS studio instead of moving up as our income grew, and banking any raise, gift, bonus, extra income, tax refund, you name it. We saved what we needed in 2.5 years (planned it would take 5 years.) The problem I see is that incomes are not higher now than they were 12 years ago for young middle-class folks, but prices are at least twice as high. When we first bought, it was cheaper than renting the equivalent, and it made sense to me, as we had to pay a 20% downpayment. Now that calculation is upside down: new buyers must put 20-25% down, and even after tax, pay more every month than it would cost to rent. Savings are very good, but don't go blowing them away in some sort of key money scheme.

I think its very do-able, but like others have said you have to be frugal and can't live like your banker friends.

I'm 32, and have saved $100k in cash (my downpayment) in addition to another $100k or so in retirement and brokerage accounts. I graduated college with $20k of student loans, which i paid off at more than the required monthly amount, and which are all paid off as of today.

I have always rented (looking to buy now), but haven't forced myself to live in marginal neighborhoods. In fact, i lived in the east village for almost a decade (and this is after that neighborhod got "good"). I just never spent beyond my means, made sure to contribute to my 401k every month, and took pride in how much i was putting in my savings account each month. I would go out for steak dinners with my banker friends and indulge, but not more than every other month or so -- i never felt "poor" doing that.

I just think its really easy to get swept up in what is considered a "basic" lifestyle in manhattan, especially in your 20's. You don't need to send out your wash, you can do your own laundry. You don't need to eat out every night, you can cook your own pot o' soup. That kind of thing.

Good luck!!!

but they're not 20, they are adults with a kid. even if they themselves eat rice and beans and shop at goodwill, are you guys seriously advising this family to do this to attain their demented manhattan dream? they have a kid! they can and should live a comfortable family life that includes small indulgences here and there.

"You don't need to send out your wash, you can do your own laundry. You don't need to eat out every night, you can cook your own pot o' soup. That kind of thing."

Neither one of those is any great savings.

lucillebluth: I don't think wishing to own a home in the place we grew-up, where our families and friends live, is at all demented. We live normal, not miserly, lives and manage to take two vacations out of town a year (one abroad) and my kid is definitely over indulged. We are looking to buy a place because our current apartment is too small for our growing family and we will basically pay the same amount in rent or mortgage a month once we upgrade. It's a practical consideration not a status thing.

gabrielle904: thank you for outlining those strategies, some of which we still need to put in place.

After reading Mh330's story I think the school debt is what set us back so much. We would already have saved that 100K. My kids are going to Public University!

wishing for things that are just not realistic is demented. how do you plan to upgrade if you don't have a downpayment? and if you're having such a hard time getting that together, how do you plan to get past the board? just tell them you grew up here and your family is here and this is who you are and you should just live here because it's your birthright? yeah, that doesn't work. trust me.

and i think a few rambunctious posters around here would love to have a go at this magical apartment that will cost you as much to own as to rent.

Have you looked into daycare? Might be cheaper than 3500/month. If you get home by 5ish, 6, it's doable. Tendercare, Preschool of America, River school.

If your kid is not in elementary yet, don't buy before you know where the school is going to be. Do the whole G&T/Hunter blabla testing. Obviously, less desirable school zones are often cheaper.

Your scenario is the poster child for what is wrong with higher education in America. Students who graduate with $200K in debt, but don't make Wall Street money to pay it off, have a long road to erasing debt, particularly when wages are not growing.

Rather than criticising yourself, here is some very simple math, making some very rough assumptions. If you started $200K in the hole, and paid off half that in 10 years, applying a basic amortization schedule over 20 years at 6% means you also have paid about $100K in interest to date, and probably are paying about $1500 a month. So, since 2001, you are out of pocket $200K, and had you put that $1500 per month over 10 years into a relatively modest yielding investment at say 5%, you would now have about $235K in hand (in other words, a down payment, with a little cushion).

lucillebluth: I don't get your hostility. I don't think my expectations are unrealistic, it just may take us a longer than others to realize our goals. Where do you get all the stuff about a birthright? I think the only person sounding demented right now is you!

nyc_sport: thanks for the refreshing perspective.

you basically have 30K and a lot of debt. are you cashing in your 401K?

*shrug*
none of my business.

Uh oh. Hfscomm1

you know, the thought did cross my mind. he does like to keep his audience on their toes, doesn't he.

Luckily, we consolidated our school loans at very low interest rates (1.5 - 3%) so I think we paid significantly less than nyc_sports' estimation. Our work schedules don't allow for day-care. Our kid won't be in elementary for 2.5 more years so we are starting to prepare now for an eventual move. And we will also look into the GT programs.

Looking through SE, it seems that a 6.5-7.5k/mon is not unrealistic for a two bedroom in Manhattan.

not cashing in 401k. it'll probably take another 10 years to pay off the school debt. once the kid is in school will be putting away about 3.5k+ a month. it's becoming clearer that we should get real financial advice on how to better capitalize on our savings. I still have eight more years till 40!

Hey lucille, I kind of missed you. Recently there was a disappearance of nutcase $500psf pollyannas, like the hairy ape on 67th street, or that total nutcase in apartment 23 (who probably bought something but couldn't admit it), or that extortionist lady, and on the other hand, you and some others weren't around either. I guess Lent is over, so people are back, right?

By the way, I found a pair of yellowed dentures and it had an address to return to Hudson, NY. Anyone know where that is?

save and save again.
that means, stay away from bars/drinks after work is probably the most important as is avoiding 'eating' out all the time.
Bunk up with room-mates for a few years and/or rent outside of manhatten for a bit.

How cute is hfscomm1 as Lucille?

How do rate that performance vs. The huntersburg person?

How fucking predictable is columbiacunty? Only weighing in to accuse someone of being hfscomm?

So now hfscomm1 switches to the next person. And I'm predictable?

Yes. As death and taxes. And about as likable.

Hfscomm1.

Seems like you're getting tired.

thanks hb. it wasn't for lent, i think ar may be the only catholic among the missing, and i doubt she practices.

Who do you think you're kidding at this point?

My wife and I lived in a rent-stabilized place for a couple of years, then an aunt unexpectedly left me 17k in her will. regardless, combined income at the time was under 100k. We basically didn't spend anything for 2 years and saved 3k a month. Our first dp was 105k.

While searching on SE I found out about income restricted developments. We are eligible for some of the developments with the higher income ranges since we still fall below the max 198K income. Unfortunately many of the developments are in marginal areas. We would consider buying one these apts in an 'up and coming neighborhood' but how does one find out what developments are in the pipeline? And does anyone have experience with purchasing one of these apts? Thanks again for all the info.

A friend of mine bought into one of these developments in East Harlem.

There are definitely plusses and minuses.

Pluses:

-- Gorgeous new building, and everything brand-new.
-- More space than he otherwise would have been able to afford elsewhere on his salary ($60K-ish, 2 bed/2bath, 1200 square feet).

Minuses:

-- It's freaking EAST HARLEM.
-- It's freaking EAST HARLEM.
-- It's freaking EAST HARLEM.

Keep in mind that "up and coming" neighborhoods don't always "arrive". Back in 2006 when he bought, and NYC real estate was overheating, it seemed logical that with so many "regular" people all but priced out of anything below 96th Street, East Harlem was without question "up and coming".

Then the crash came.

Then Below 96th Street became affordable again.

So much for the "up and coming" gentrification of East Harlem.

Now he's stuck there.

"kept living in places that buyers nowadays think are too small/not renovated enough, kept trading up"

Too many young people today won't settle for places that aren't spectacular. Your willingness to embrace reality is rare.

That said, the "kept trading up" part only works in a market where prices are rapidly increasing; your increase in equity - even after transaction costs - outstrips the additional downpayment needed for a nicer place. In a sidways or normally appreciating market - which we will be in for a generation - trading up is much more difficult; the transaction costs kill you. So i'd advise young people today to RENT a place that is "too small/too unrenovated" until they have enough DP for the place they want.

"Trading up" on spouses, on the other hand, is always a good idea :)

I would imagine the transaction costs associated with trading up on spouses would be much higher.

The only way my spouse and I could see to get a toehold in the real estate market was an FHA loan. We bought a downtown Brooklyn condo with one last year -- 3.5% down. Closing costs actually exceeded the downpayment (ow), but the whole thing was vastly more affordable than 20% down, which would have taken us at least another decade to save. We had some cash, but tapped our IRAs for most of the downpayment -- you can each take 10k penalty free for a home purchase. (You do have to pay taxes on what you withdraw, though.)

We now pay twice what we did in rent, but it's still a total we can comfortably afford, and we love owning the place.

Good for you, Kiz!

Please, though, tell me you're saving aggressively. In this job market, it's SO easy to lose your job for at least a year or more. Please tell me you have at least a year's worth not just of mortgage and maintenance payments in the bank, but of total living expenses.

We are talking about taking 5-10yrs to put together a DP for an asset that is clearly a stretch cost-wise.

What scares me about the advice being given is that there is absolutely NO talk of the downside risk of an unexpected event.

Let's say you save the DP of $100K and then take on $400K in debt for what would be a marginal apartment in many parts of the city, what would you do in the case of:

1. Loss of job(s);
2. Sickness;
3. Loss of equity - the apartment loses value;
4. Increased carrying costs - taxes and maintainance;
5. Other unforeseen circumstances.

Essentially, you are planning to put all of your eggs into one basket and assume all of the risks in what is clearly an overheated and artificially-inflated NYC RE market.

My question is whether owning is worth that sort of risk exposure?

"My question is whether owning is worth that sort of risk exposure?"

For many people, it definitely outweighs the alternative of guaranteed rent hikes every single year, and the likely need to move at least every couple of years ... most likely farther and farther away ... to maintain an affordable rent to income ratio.

Matt,

You can't be seriously equating taking all one's life savings and putting it into an asset with the "risk" of rising rents and the expense of moving.

Clearly, NYC RE has done really well over the past 15 yrs and continues to resist any real downward pressure thanks to trillions of dollars of government support and record-low interest rate policy - both of which are by their very nature temporary (and if they aren't we are in a whole other world of hurt).

The point is that investing all one has into an NYC apartment **RIGHT NOW** (and in the short-term future) is a very speculative and leveraged gamble that most people probably don't have the financial status necessary to survive its downside.

Raising rents and moving expenses might be a sunk cost relative to "building equity", but they pose far less overall risk compared to the pitfalls of overexposing oneself to own a single asset (which has its own associated increasing costs).

Look, if someone has the money to burn and can take on the risk, they can buy whatever they want and whatever price they want. I just don't see how someone that needs 10 years to save up for a downpayment on a marginal 1-bedroom apartment is the best candidate for that sort of purchase.

@NYCMatt yes. It would be unpleasant but part of our contingency planning was a) making sure we could withstand a job loss and b) buying an apartment we could pay the mortgage on with just one salary. If push came to shove, we could.

put yourself through college, put your self through grad school, dont borrow money, pay off your credit cards every month.-- save an invest wisely.. buy a place in manhattan for cash.. that' how i did it.

I just turned 25 and I saved around $28,000. I have no student loans because I went to a state school and was a resident assistant so housing was "free". I lived in Tribeca for half a year in a luxury apartment where I paid $600 a year. Currently I'm planning to move to Brooklyn in east Williamsburg. I don't spend money on luxury items but I do travel a lot. And I work for a nonprofit and make $42,000 a year. So trust me you can save money if you really want to. I only worked for a little over a year because I was living abroad for a year and a half. I would like to buy a place before I get married as an investment.

I meant $600 a month lol