Estimating appreciation?

Hi dempsey,

I'd sit tight for a while and keep renting... at least in Fort Greene. If you were looking to buy in Manhattan I might be a bit more optimistic on your being able to re-sell without a loss in 2-3 years.

My opinion is that the housing market has only just begun the 'search for the bottom'... and we're talking about a correction that will take at least 2-3 years for prices to bounce back... I believe things are going to get much uglier before they get better.

Best of luck

2-3 years is too short a time frame - any estimate you use will be wrong. appreciation is by far the largest variable in the return on buying. so rather than pick a number, at least do some sensitivity analysis (adjust the assumed appreciation rate up or down and find the break even).

More directly to your quesiton, I believe US historical average since after the depression is approx 6.5%

Excuse me, dempsey123. Have you been away or have you somehow missed just about everything written here, in newspapers, aired on TV about the current real estate market? Real estate does not automatically go up, let alone at a rate steady enough to predict in such a short-term investment. The NYC market may be going down, edging up, or running flat, and the US economy appears to be entering the throes of a recession. Factor out Manhattan's impact on statistics and you might see there is already evidence of the market pulling back in the fringe areas such as Fort Greene and Williamsburg (fringe meaning relatively newly popular--the opposite of Park Avenue, CPW, Greenwich Village--very highly desirable and well-established areas with historically high demand). Unless you get a real steal on a property today, it is a total crap shoot as to where the value will be in 3 years. There are tons of opinions on this point, but no concensus.

And 5% of purchase price for closing costs? Where is that from? A $1M apartment will have $50K of costs at closing? A $350,000 apartment will have the same closing costs? For what? Transfer fees are paid by seller, as is broker's commission. Lending fees will vary greatly depending upon how much money you borrow.

I think you have to spend some time educating yourself about real estate by talking to a financial advisor, a broker or two, friends who have recently bought/sold. Read the RE section of the Times, research comparable sales histories in your target neighborhood on streeteasy, keep a close eye on which buildings sell, which linger on the market, what properties are reducing or raising their sales prices, etc. This is a major purchase no matter what the cost of the apartment. It's good you are asking the questions you posted, but they also suggest you are just setting out in your information gathering quest to prepare to look to possibly buy something.

With a two to three year hold in Fort Greene I would estimate a 5% to 10% decline in value. Fort Greene is lovely but it is the starter home areas in Brooklyn and other boroughs that will first see a decline.

hi everyone, thanks for all the comments. clearly, i have much to learn and it's helpful to hear the various perspectives. thanks again.

Kylewest,
Closing cost on a 1mil apt cost close to 50k without the sponsor attorney fee & transfer taxes.
There are small things which adds up. Title, 3month reserve, mtg tax, esrow tax, attorney fee, mansion tax, etc.
I just closed an apt for just under 1mil (avoided mansion plus sponsor attorney & transfer taxes)
and my closing cost was over 30k. My taxes and maintenance reserve was very low as well.

dempsey123, you'll have to realize there are some characters on this board pretending to be experts.
I also budgeted 5% for a condo closing 1M+.

I don't think Kylewest ever bought an apt before. 1mil apt vs 350k apt differs in closing cost. Condo vs coop, new vs existing, etc all varies. Typical 1 mil+ new construction WITHOUT sponsor fee + transfer taxes will go for approx 4%-4.5% (most condos will still make you pay for the transfer taxes)

my 445k condo cost me around $16k for closing
My 950k condo cost me around $32k without transfer taxes/sponsor attorney fee

If you are going to be living there for 2 years and SELLING it, just stick with renting.
When you sell, with 5% closing cost plus 3-4% broker fee(when selling), it's not worth it.

If you plan on leaving the apt in 2 years but keep the property for rental, BUY it if you feel good about the property

Excuse me ba294. You miss my point entirely which is precisely that closing costs vary--d'oh. I said that closing costs are not a formulaic 5% of purchase price as a rule. Closing costs can vary a great deal. New construction has ridiculous closing costs that can easily exceed 5%. In existing condos and coops, closing costs vary and are often well below 5% as illustrated in your examples: you paid 3.6% on the $445K condo and 3.37% on the $950K condo. Despite your snarky-ness little attitude and lame jabs, I stand by my initial response. And I love the very helpful advice you offer ba294 to buy if "you feel good about it." Very sound financial counsel. "Feel good?" Yeah. That's helpful.

3.37% tax without mansion tax, attorney fee, transfer tax
Typical tax would be 3.37 plus another 2.8% = well over 6%
so why the heck you questioning dempsey123 about the reasonable 3% closing cost. Get a clue before mouthing off your uneducated RE sense.

sorry typo,
5% closing cost on dempsey123

It is typical for sponsors to pay for the broker but not the transfer taxes.
Even without the transfer taxes, you are still looking at close to 5% on 1 mil + apts
Mine was less than 4% due to 50k short of mansion tax.

Kylewest,
I reread your post and I may have misread or misunderstood your point. I apologize. Yes different price of the property has different % of closing and 5% basis shouldn't be used on every basis.