% of assets in home

What banks are requiring 40% down as the norm? Do you have a specific situation which requires a hefty down payment?

The banks that I have spoken to require 40% to get the bet rates for mortgages > 1.5M. For example Astoria Federal or Chase. In addition mortgage broker from Manhattan Mortgage told me same.

either way, that's not really the nature of my question. Regardless of what the banks require, what is a reasonable range of assets to put into your primary residence?

Makes sense. The more you put down, the less likely the lender takes a hit.

The best rate would be zero percent if you put 100 percent down.

Not true.. And the reduction in risk via higher down payment is not a straight line function. At some point, even if the borrower defaulted immediately, there's enough equity in the home to sell , pay off the debt and cover expenses, even if a sale is not done immediately. REO properties get done for about 20% below market, so that's worst case..

when I was looking to buy my primary residence, the banks I spoke to actually gave me a better rate for a 25% downpayment vs. 20% or 30%. I was surprised at the higher rate for 30% vs. 25% but I guess the bank wants to make more money by encouraging you to borrow more , but not borrow as much as 80-90%.

THis is a question for a financial planner, not a RE blog.

Mathematically 50% seems about right for what I imagine a co-op board would want to see. Take a hypothetical $1mm co-op with $1600 month maintenance. At 20% down payment your monthlies (assuming a 30yr) would be about $70k annually, so down payment = 3 years of expenses. At 25% down, down payment would be about 4 years.

"THis is a question for a financial planner, not a RE blog."

1) This is not a blog.

2) Most financial planners don't seem that awesome at their jobs. Why not look for transparent answers with their associated reasoning and figure out what to do on your own rather than pay someone who often has incentives that are poorly aligned with your own to figure the same thing out?

income and the outlook for future income are sorely missing parameters here. Can you help us out?

ali r.
DG Neary Realty

Thanks, I have rephrased the question in my '% of net worth' thread. But to answer:

1) Financial planners I have talked to, including my accountant, are weak. They are the same guys that were boasting about buying a condo in Vegas in 2006 for 'investment' purposes. I prefer crowdsourcing an answer.

2) Income is ~ 1M/yr with a stable outlook

So the question is, how much of my liquid assets do I put into my primary residence on a % basis, assuming liquid assets are between 2-3M

What is your industry, how long is your industry tenure, and how many years have you been earning "about" a million a year?

If you work in media or entertainment, I'd suggest you put down 100% and no more than $1 million.

If you work in finance with at least five years of earning that kind of income under your belt, I'd suggest no less than 50% down on a property worth a maximum of $3 million.

Here is how I've thought about this. We are cautious, lived in much less apartment than we could have afforded for quite a few years and built up liquid assets. When we did buy, we paid cash and put about 40% of our assets into the apartment, which was still less apartment than we would have liked to have and obviously less than could have afforded (simply by taking on a mortgage, for example). So the circumstances are somewhat different from those of the OP, but let's focus on the 40%-of-net-worth-in-the-apartment aspect of it.

I feel that 40% is a high concentration in any one asset and not desirable/not comfortable for me over the long or even medium term. However, if the outlook for income and further asset accumulation is good then it can be OK in the short term. Ali's point is therefore an important one. In our case, we were confident in income prospects, so that 40% at closing would become ~35% after a year, ~30% after 2, etc. as the denominator got bigger. 25% in the medium term and trending down from there feels like a good level to me, but that is certainly more personal preference than science.

Eight years later, the apartment is worth somewhat more than we paid (having been worth quite a bit more than that a one point in between) but assets are up quite a bit and the apartment is under 20% of total assets currently. This feels very comfortable, even for a nervous nellie like me. We have been thinking of trading up but remain cautious - a caution embodied in my SE handle. I would not want to put 40% of assets into a trade-up situation because the reality is that assets are no longer growing at the same rate (base is bigger and harder to grow) so the path from 40% to my target of sub-25% would be longer than the 3-4 years that I would like to see.

So that's my transparent answer and associated reasoning, to use jordyn's term.

SLS your apartment is also a prepaid expense - an expense that you know you'll have (some percentage of, though not 100%) regardless.

Sideline thanks for the detailed comment. Your approach does seem very conservative in that with the rates being so low for mortgages it seems to me like I can get a lot of extra value now by taking on a mortgage. In addition, since I am looking at 3BR units, buying all cash would take a majority of my assets and that would be uncomfortable.

To the other questions, level of income has been 900k-1.2M for the past 3 years, growing. I am in technology. I feel that my income prospects are in that range for the foreseeable future. What I would expect is that the % of net worth in the apartment would decrease over time as we are pretty decent savers although it likely wouldn't fall below 25% for another 5-7 years. Then again, I don't have any other major expenses on the horizon either and as I mentioned the volatility of my investments is not pleasant right now.

duecescracked,

If you dont mind, I am very curious. Technology field with 1M income can only mean the following

- You are a CTO for a large bank/hedge fund
- you own your own consulting company and have good repeat clients
- you are counting stock options sales are your income each year (working at somewhere like GOOG,CRM)

I know very few developers/programmers making more than 200-250k base salary working for someone else

this guy is obviously FOS!

The lenders that were mentioned specialize in volume, our niche is Jumbo lending.

Up to $3mm Loan Amount we require 25% down with 2 years of mortgage payments in reserves. Over $3mm is 35% down with 3 years of payments. Rates only increase on loans +3.5mm.

I would put down as much as you can to where you are ok with the monthly payment. I think you want to keep as much money as liquid and safe as possible. Real Estate is not liquid. You do have the option of putting cash down and taking out a HELOC to free up capital.

But I agree with Front Porch. Cash Flow will play a major part in this.

And FYI- If you put 100% down on your primary you just lost a $1mm tax deduction. Would rather pay 2% to the bank, write off the $20,000 and use my $1mm elsewhere.

"And FYI- If you put 100% down on your primary you just lost a $1mm tax deduction. Would rather pay 2% to the bank, write off the $20,000 and use my $1mm elsewhere."

It wouldn't be a "$1 million tax deduction." It would be a deduction on the interest.

I would expect a "mortgage man" to understand this distinction. But given how they've wrecked our economy, I suppose not.

Ummm, did I not write "write of the $20,000"? As in the 2% interest on $1mm?

But you are right in your blanket statement that everyone in the mortgage industry ruined the economy. There cant be anyone giving loans to good people with jobs and good credit. FYI-The banks default rate is 1/10 of 1%.

Yes, you're right.

Everyone at the banks did everything correctly.

And those 13 million people thrown out of work as a result of the mortgage meltdown (that apparently in your world didn't happen) just *quit* their jobs.

I am on here offering advice to people. You are on hear looking to pick a fight. You were wrong about my interest comment which you failed to address and now you are trying to put words in my mouth about the banking industry. Is that your thing. You sit on here and wait for people to spell something wrong and tell them how dumb they are and how smart you are. Sounds like a good time.

Interesting how the advice of a "mortgage man" is to NOT put 100% down.

I'm so surprised.

Matt, your comments are not really constructive. I agree on the benefit of taking out mortgage on my first 1M and in any case I didn't intend on buying all cash.

MortgageMan: thanks. Agreed on the fact that real estate is illiquid and as such would want to keep as much in reserve as possible. At the end of the day it comes down to keeping the monthly payment under control while at the same time getting a nice apartment that I won't have to upgrade from in 5 years as I want to pay the transaction costs only once if possible. In order to keep the payments in line I want to put down as much as is reasonable as it doesn't do me much good to pay more interest to the bank.

Bugelrex: I am in technology but I am not a developer, I am an executive at a successful software business.

I'm sorry I couldn't offer you more "constructive" advice than the folks who have a vested interest in trying to get your business.

Good luck.

Even more interesting you failed to address any of my points. Enjoy arguing with yourself.

What are your points?

But nobody is adressing his question: is there an answer?
I use 10% as my max as I consider residence a consummer good not an investment. 10mil net worth 1 mil home (lowerliquid assets), 20 mill 2mil. after 50mil it becomes irrelevant unless "crazy" trophy properties.
I never heard any rule.

You have been at this for 4 years...and then you were in law...what is the deal?

http://streeteasy.com/nyc/talk/discussion/2568-income-level-and-maximum-mortgage-size

I would say in your position, putting $1.5mm into an apartment and adding a mortgage of $2.5mm would be "reasonable."

Your housing costs would then probably be around $200K, maybe $250K per year, which is low enough against a $1mm income to get you into most co-ops.

Unless you spend insanely, that level of housing commitment should also allow you to continue to save some of your income.

You would have approx. $1 mm of assets "left" -- which is 12 months' income assuming you don't change anything. But in reality, if you lost your job overnight, you have four-five years' worth of baked-in housing costs, which would allow you to keep going in the current place for long enough to either find another job, get your partner working, or sell the primary residence without feeling like you'd been forced into a fire sale.

So I'd say 60%. My disclaimer is that 1) I'm assuming that you also have some minimal level of nonliquid retirement assets and 2) this level of risk tolerance is very very personal. My Wall Street clients would *never* leverage themselves up to such an extent, while I know those in other fields who wouldn't have a problem with it.

ali r.
DG Neary Realty

apt_boy you either have a good memory or are stalking me .. I am working in a technology firm as in house counsel now. And yes, I have been at this for 4 years as a happy renter since moving to nyc but I am getting closer to taking the plunge.

Thanks Ali. I am curious why you say your wall st clients would not lever themselves in that way. Despite all the news about variability in compensation on wall st it seems like MDs and the like are still taking down 1-1.5M/yr regardless of whether they are bad years or good ones. So outside of just thinking they will lose their jobs entirely, what is driving the caution, and more generally what price range apartments are your wall st clients looking for in a similar situation?

To answer the OP question, depends on your personality. I try to keep as little of my equity in my primary residence. 20-25% is my equity portion into the resident. While the upkeep costs (CC+ Mtg) would be higher, right now in this market, I like 'feeling' safe on the liquidity side and having it tied up in my home would have been a major issue. There are a lot of risks with the way we do it (loss of job, interest rate fluctuation, etc) but I'm comfortable with putting as little down for an apt (and thus less of my net worth) into my primary home...

Makes sense now if you are a lawyer as I was racking my brains as to how someone in technology (other than CEO, CTO etc) is pulling a 'stable' 1M a year in base salary...

"Lucille, what bearing does it have on my question? I provided the parameters around income and stability thereof. I am trying to not sidetrack this discussion and also maintain some level of privacy"

Here's how I would look at it. I'll assume $1M income, $2.5M assets, $4M home.

First question: how much will you be effectively spending? I'd allocate 5% to the cost of capital on $4M (whether it be your money or the bank's, with tax benefits offsetting higher risk being taken by your capital). Add to this around 2% for maintenance, upkeep, renovation amortization, etc. Add another 1% to amortize transaction costs. So you end up around 8% a year. Let's say you get 2% a year back in the form of appreciation (an iffy proposition to some, but let's run with it), you're looking at 6% of $4M as what you'll be effectively spending, $240K a year.

On the other side, you have $600K of after-tax income and $125K from the use of your capital (I figure you'll be at 5% on $2.5M whether you put it into the apt or a more-conservative portfolio given the liquidity needs for the apt). Let's say you spend $120K a year on everything else, so you're looking to spend about half of what you make. You can take a pretty big hit in income (down to $400K) and still be flattish.

So given that you can comfortably afford the place, the next question is cash management. Let's say you put down $1.5M and keep $1M liquid. Under this scenario, you'll have around 3 years of fully-unemployed runway: $200K for must-spend for housing ($150K for mortgage, including principal, and $50K maintenance) plus $120K for everything else. Good enough, IMO, but I wouldn't do anything appreciably less in terms of liquid asssets.

So if you're looking to buy, I think your plan is OK. Personally though, I'd rather just rent a nicer place for lower cost and not be constrained by the liquidity pressures of a poor-outlook illiquid investment. I've got better ways to spend / invest my money.

Personally I think the inflection point should be at roughly 75% for most loans with a floor at 60% for super-jumbo loans. The sole exception might be for loans where the borrower qualified on no other criteria other than LTV.

Nada, thanks much for the thoughtful response. The rent situation that you describe is what I've been living for the past four years. Currently I have what I think is a pretty good deal on a 3BR condo where I am renting from an investor owner who must be only making about 1% on his money, so on one hand it makes rational sense to try to keep that going as long as possible. On the other hand, the uncertainty of whether that deal will continue over the next few years has kept us from customizing our place so we are still living with white walls and some random furnishings accumulated over the years. When we moved to NYC in 2007 we wanted to rent for a year or two to get a feel for whether we wanted to stay in the city. Now our kid is in school and the wife is feeling pretty certain that she wants to keep the family urban. Add to that my inability to earn anything more then a few % points on my portfolio and the volatility which has been stressful and the signs are pointing towards looking at buying again, if only to create a feeling of 'permanence'. At the same time I love the flexibility and options afforded by renting, as well as the undoubtedly good deal I have going from a financial standpoint. Buying a place would probably mean doubling my monthly housing expenses as well as tying up a very big chunk of money. Then again, a good bit of my capital has been in short term instruments earning next to nothing, so I wonder what lifestyle difference would it have made if I had put it into an apartment in 2009 when the market sucked and you could work some nice deals ..

Now when I look at the asking prices for places it seems like we are back on the real estate gravy train for sellers ..

The next few years is likely to be very different than the past 10,20,30. Investors will be better rewarded for real income producing assets over financial assets. This means real estate, oil wells, pizzerias, etc. Sure there's mark to market risk, but we're talking relatively performance. Stock market is not the place to be.

Dueces, to each his own. If it were me, I'd rent a $5-6M apt for $15K and put the $2.5M in a riskier place with expectations of a 10% return. I'd see it as a way of realizing $200-$250K a year more in value, half from the better / cheaper apt, and half from the higher return. Put $50K into nice furnishing and whatnot, you can take it with you, paint the walls aubergine. The extra risk on $2.5M? Worth the extra expected $200-250K annually IMO, and a more manageable form of risk than the liquidity risk you get exposed to with a purchase. But as I said, to each his own.

Nada, I think all that would make sense but when I look at rents for comparable 4-5m places they are asking 25k which makes the financial proposition untenable. Do you have reason to believe that the actual renting prices are in 15k range for that kind of unit?

inonada has posted tons of examples of favorable rent:buy ratios; see the recent "Weakness in the high-end rental market" thread, for example.

If you're in a rental situation that you generally find favorable, have you looked into whether the owner is willing to entertain longer lease terms? This might give you more confidence about making some improvements. Given the general financial situation you've described, its a bit odd you haven't done basic stuff like painting the walls even given the uncertainty--you're probably saving the cost of the paint job every month or two, and as inonada points out, buy some furniture you like and take it with you if you can't renew your lease.

I will check out the other thread and in any case we were going off topic on the rental angle. I did try to get a 3yr lease upon renewal last year but owner wasn't too keen. On the other hand he kept the price flat so I didn't push too much.

I guess we didn't invest in the current place because there was a feeling it was transient and therefor why bother .. Just hard to pull the trigger

Dueces, I think finding a $4M place for $15K is a no-brainer. Not every $4M place on the market will fit that bill, but a solid search and negotiations will yield something decent in that ballpark no problem. With a combination of flexibility and luck, you can get that up to $6M. The higher you go in price, the better the rental math becomes generally. Take up the budget to $25K, and you should start finding place like these to negotiated down no problem -- a prime UES townhouse for sale at $12M or rent at $30K:

http://streeteasy.com/nyc/house/138-east-65-street-new_york

I agree with jordyn on painting. It's a minor cost in the scale of things -- just do what you want. In my place, the LL was happy to paint the place whatever color I wanted as long as I paid for the increment beyond a basic paint job. I wanted the floor re-screened, so we split the cost down the middle. Is that a "fair" division given I only get 3 years of use? Not really. But who cares? It represents 0.3% of a rent that is running at half the cost of buying.

"I agree with jordyn on painting. It's a minor cost in the scale of things -- just do what you want. In my place, the LL was happy to paint the place whatever color I wanted as long as I paid for the increment beyond a basic paint job. I wanted the floor re-screened, so we split the cost down the middle. Is that a "fair" division given I only get 3 years of use? Not really. But who cares? It represents 0.3% of a rent that is running at half the cost of buying."

Agreed.

And the incremental cost goes down with each year you stay in the place.

I did quite a bit of work (no extensive renovations, though) in my Brooklyn Heights rental. People thought I was crazy for putting money into a rental. But the rent was insanely cheap, and I ended up staying there for 10 years. So at the end of the day ...

DC, in a similar situation, a Wall Streeter (the ones I know anyway) would spend around $2.5mm. The argument against spending anything more would be the risk of imminent job loss/wanting to retain the flexibility to leave.

I used to work on Wall Street decades ago, and there almost seemed to be a psychology of, "I deserve to make this much money because it's not permanent." Interestingly, enough, that's not a sentiment I've ever heard from, say, a CEO.

ali r.
DG Neary Realty

"I deserve to make this much money because it's not permanent."

If you don't think it's permanent, then maybe you don't deserve it.

A casually dropped inonada gem: "and put the $2.5M in a riskier place with expectations of a 10% return"

http://finance.yahoo.com/news/5-returns-upper-echelon-years-164332377.html

Why settle for a mere 10% Gordo, why not 15%, 20%...?

Agreed, I may be investing in the wrong things but I haven't seen anywhere close to 10% return over the past 5 years and I don't see how I could achieve that going forward without some major downside risk, which I don't have much appetite for ..

but deuces, if you have little appetite for downside risk, why would you leverage a decent piece of your net worth by 2 or 3 to 1 to buy real estate; an illiquid, very risky, volatile (of recent, to be sure) asset? especially when you can rent more cheaply

W, I guess my perception of real estate is somewhat different: without the daily mark to market the volatility is much less noticeable and with a long term outlook I feel reasonable that I probably will be in a decent position if the day comes that I need to get my money out. This could be wrong but I like the idea of the hard asset which also gives me some inflation protection (i think).

DC
1m/year does not equal 4m pad. no way. you're taxed as a worker.40-50%.the worst income. 2m apart no more.
If u made 1mil from commercial rental/business then yes for sure easily but in your case no.
15 rental makes no sense either. 180k/year post tax.300k pretax. but your job is not secure. Manhattan drowns in lawyers. One day they set u up and ..next please.
I assume you're in your 30s.wait til you reach 45. not so competitive anymore.
3-4mil in assets is no guarantee.
gold has made far more than 10%/year (1 year, 5year,10year).lower volatility than spx. without leverage.
don't assume you have a good rental deal:you say LL makes 1%.u don't know.U calculate rental/market yet u don't know his LTV, his interest rate, when he bought....he could easily be making 20%/year and u wouldn't know: who's the sucker now?
time is key.
real estate is not an inflation edge: the mortgage is (backed by real estate).

good luck

midtowner- you just sound really jealous.

midtowner - are you saying my range is too high because my job is not secure, or because of something else? I feel pretty decent about my prospects for various specific reasons around my circumstances, but you are right in that caution certainly helps me sleep better.

I wish I had jumped on the gold bandwagon but I didn't, again I am not that good at predicting the future, to me its gambling.

I know for a fact what my landlord paid for my apartment and the details of his deal, as its public record as you know in NYC. He paid in cash 2.5M for the unit. He is renting it to me for 8500/mo and that includes his common charges and taxes of approx 3.5k/mo, you can do the math on that ..

well. your landlord is an idiot or an accidental one. it happens.
If you feel secure then go for it.
The numbers just don't feel right to me.
If I were in your situation I would go for 2. 2.5 maybe. And no i'm not jealous.My numbers are higher.I am probably older.
But the home is consumption: no income coming in.just "pleasure" (or keeping score).I like it rough anyway so it doesn't apply.
For example I'm negociating a building in another state.3mil brings 50k net/month. no work involved once the deal is thru.
If you 're sure the income will keep on coming in....3? max.
and sleep well.and enjoy. life is really short.

Hi Deucescracked,

Figuring out what the right number is based on a lot of personal factors as previous posters have mentioned. Ultimately you need to take all these factors into account and use them to triangulate on the number.

I would suggest also looking at it from a spending perspective. Clearly housing is a non-discretionary item, and almost always the largest one. You know you will need some place to live. From my experience, housing ranges anywhere from 20 to 50% of people's budget. Having 40% of your net worth tied up in something you know with absolute certainty you will need** is hardly crazy then from that perspective. Certainly spending 40 to 50% of your spending budget on housing is not unreasonable.

That said (and the reason I added the asterisks above), there is always job and life uncertainty. You are the best judge of these things but judging from your comments, I would say you are at a place with life where you can a long-term horizon. Your stated horizon is 15 years and in the context of history, that length of time usually favors buying vs renting. I don't want to get into the merits of buying vs renting at this particular time in NYC other than to make a couple points:

1) The longer your time horizon, the more the scales tip in favor of buying vs renting
2) It is important to understand the equivalent housing cost of buying so you can compare apples to apples with renting

You will always be able to find examples on StreetEasy that you can say prove one in favor of the other (as Inonada does a great job of, in favor of renting) but ... to use an example from equities ... just because you can clearly identify stocks that are bad apples does not mean everybody should avoid buying stocks altogether (of course if you are just a poor stock picker, that is a very reason to outsource it) ... I myself am a recent homeowner, and I found a situation where it was clear that buying made more sense to my situation.

The third thing I will say is that instead of looking at it from the perspective of "I see myself living in a $3 to $4 million home" I would recommend looking at it from the perspective of "what are the characteristics of my ideal home for the next [15 years] ... ". Usually it is stuff like location (schools, work, neighborhood, access to taxis/subways), size, view, layout, desire to customize/renovate, etc. It is important as well to have an idea of a budget but from my experience people tend to let price be the driver rather than focusing on the underlying features. Said differently, you might automatically assume a more expensive home is "better" because that is the way human psychology tends to work. By focusing on the underlying characteristics, you can make more rational trade-off decisions like ... Sacrificing the view for more space ... High floor vs low floor etc. And who knows maybe you might find a home that is well below your range that meets all the characteristics that you are looking for - whether it is buying or renting. Having a budget doesn't mean you have to spend all of it. For me, I did have a "this is the max that I can afford" but I did not put a floor to that range.

Fourth, basing the decision on characteristics makes the decision very personal. There s no one better to choose and make trade off decisions than you. Ultimately only you know what is important for you, so when people make blanket statements like "you would be crazy to buy/rent" or "why would anybody want to live in [neighborhood]" I wouldn't really pay attention. I would pay attention to the underlying reasons and the pick and choose what is applicable for you.

Finally, treat this as an educational and evolving process. I learned a lot through my purchase decision and I also discovered that things that I though were important before were less so and vice versa. It is important to have a filter (based on those characteristics) but recognize that the filter could change as you go through the process. You might learn, for example that even though you can afford a $4 million home, you are perfectly happy with a $2 million home instead and you can spend more on other areas of your life.

Good luck on your search!

maklo - thanks very much, very insightful. I understand what you mean about thinking about the life needs rather than a price range. Perhaps I should have been more clear, the locations and size of apartments that I think will be appropriate for me to raise 2 kids in until they go to college (or high school at least) are in that price range right now .. I would love nothing more to find a good deal below that.

well. considering the comments I might have misread the thread: I thought this was a financial question (%/net worth) but it appears to be a practical/emotional question (kids ,location.bedrooms).
"spending 40-50% of your budget on housing is not unreasonable". It is. It's dangerous.The future is unpredictable.Can you make the payments if ur sick? can you make 1mil/year in a new job? maybe yes, maybe no.
With your income you have the potential to be financially free (that is generate enough passive income/without work to maintain your lifestyle no matter the circumstances).You can do this immediately by buying assets.Let's say you buy a 4m commercial property 10% cap NNN lease. 400k/year. Then yes you can leverage that income into a 3-4 mil house.easy.You still have you work to live and save.Safety, peace of mind, and satisfaction. Btw, as a financial statement your income is now 1.4 (not 1).Wanna be smart? borrow the 4m by pledging your 4m, your 400k are tax free (minus interest plus depreciation). and you still have the 4m.Ur highly liquid, with a bigger income and the 3-4 mil house u desire.
If you buy a 4m apt out of 4m of assets this is no longer the case.
This is the financial side of it. Your last statement is about real estate "deals". Now that's a completely different topic which has nothing to do with emotions/dreams.

midtowner, as with all things personal real estate, it is both a financial question as well as an emotional one. Could you clarify what you are suggesting, I don't understand as you seem to be saying to buy commercial real estate and lease it and to somehow derive a tax free income from that? If I do that, don't I have to tie up my capital just the same way as I would in my own home? Please explain .. thanks

duecescracked,

One thing to note, you are mostl likley hitting AMT at your income. I dont believe you can deduct the 'Real estate TAX' portion from your income, not sure if this affects your calculations.

Any experts, please correct me if I'm wrong about AMT and RE tax deduction..

"we are still living with white walls and some random furnishings accumulated over the years."

why haven't any of the new york friends you've made here in 4 years told you you can paint a rental? and why won't you buy furniture?

"One thing to note, you are mostl likley hitting AMT at your income."

It depends a lot on what other deductions you have, but I'd expect at ~$1M in income, your effective tax rate would be >28% so you'd be back to paying normal taxes again.

W, I guess my perception of real estate is somewhat different: without the daily mark to market the volatility is much less noticeable and with a long term outlook I feel reasonable that I probably will be in a decent position if the day comes that I need to get my money out. This could be wrong but I like the idea of the hard asset which also gives me some inflation protection (i think).

deuces, there are many illiquid, difficult to value/MTM investments you can leverage and hold for the long term--if that's your criteria, why real estate

lucille I am well aware I can paint the walls in a rental. As described above, we never got around to it because we were not certain if we would be in the current rental for 1 years or 3+. Furniture is a different story, I just don't like buying it because I never really feel like I am getting value for my money for the nice stuff. I also think that furniture has to some degree fit the environment in which it is placed so its not quite as portable as you might want.

Wbottom, its because I can live in this investment .. that the benefit.

for a hot-shot tech/lawyer executive, you sure have lots of time to be on the internets...hope you are not violating your own internet usage policy if you are at work and responding!!!

apt_boy: i have a lot of time to spend on streeteasy because I have slaves like you doing the gruntwork.

"Any experts, please correct me if I'm wrong about AMT and RE tax deduction."

You are correct. For married filing jointly, AMT starts at around $300K and ends at around $1M. Assuming annual taxes of $40K, you get a $14K tax benefit when you are well outside of AMT. Below $1.2M or so, you'll get a pro-rata share of that $14K benefit.

another thought: dueces, generally attorneys are poor real estate clients -- lawyers are generally trained to eliminate risk, while the most riskless real estate transaction is not necessarily the most satisfying.

I think the "usual" process of walking into open houses and falling in love with the architecture, and then learning the details and disadvantages of the building that you fell in love with, is going to feel very discomfiting to you.

As you're narrowing your shopping to a price range, I would say the next step should be to really familiarize yourself with the buildings in your target neighborhood so you can decide which ones you like. Especially since you don't seem under particular time pressure, I think this way around is going to get you the best result.

ali r.
DG Neary Realty

>Especially since you don't seem under particular time pressure, I think this way around is going to get you the best result.

Does that mean you don't want him as a client?

Deucescracked, it may be helpful for you to go more thoroughly through the exercise Maklo suggested - what are the key things you're looking for in an apt. You mentioned neighborhood and size, but without getting more specific (e.g., which neighborhoods are acceptable), how much space do you need (3 bedrooms? how much living space?)

Whether you decide to share this info with the rest of us or not (I bet if you do you'll find more people happy to slave away at some gruntwork), being more explicit may help (i) identify which items are most important and which can be traded off, and (ii) whether there are in fact places that meet your needs at a lower price point.

Sorry a little late to the discussion. Here is an alrernative to way to think at things for someone with high income (>$600K per year)

- Starting point is what you need and will be happy to live in for the next 10 years at least. Since you live a three bedroom, I would think that you would want at least that + nice separate office/guestroom, large living room + real dining room and small play area. The space will be appx 2000-2500 sq ft. The cost will be at least $2.8mm for a nice apartment. This is your floor.
- In terms of mortgage, I would like to have min 3 years of your full expenses in the bank after the downpayment. At $250K per year post tax for some one with children, this means at least $750K.
- In terms of monthly payments, I like to take a 50% hair cut on my income and see how much mortgage I can afford without cutting down on any other expenses. This will give your appx mortgage affordability.
The remaining 50% goes towards savings or paying down your mortgage.

Here are the general parameters: would like a 3BR + real office or 4BR. Have 2 young kids kindergarten age and currently have 1900 sq ft 3BR with a small office area and if I were to move I would want to be at 2400+ and gain a room or real family area for kids to hang out in. Outdoor space would be a real plus but is not absolutely required. We are currently downtown and I think we would like to stay downtown. I like tribeca a lot because of the architecture which gives the streets a nice scale. Saw a couple condos in GV and they were nice but honestly do not see what all the hype is about. Doesn't seem as appealing as tribeca, from a family standpoint, architecturally (other than the townhouses) and even from the point of view of parks and playgrounds for kids. West Village we like a lot but there just doesn't seem to be any apartments of the size we want.

We would be potentially prepared to buy something and renovate it although that means double carrying costs for 12-18 months and that would not be that pretty .. but that seems to be the way to go to get the best value if one has patience. If I could find a good sized loft space for 1000-1100/sq ft I could put another 400-500/sq ft into it for a high end reno and be left with something truly great.

Unless you really are particular about customizing your home, I would not go through the nightmare and significant distraction from work. GV is not for every one but people who like would not live anywhere else especially in Tribeca which does not have a city vibe. Due to limited supply, 2500 sq ft apartments are hard to find. However, you may get a nice loft space with real 2500 sq ft excluding exterior walls (rare these days as for new condos exterior wall are included in the state measurement, 2500 real is typically marketed at 2800-3000 sq ft, do not expect all bedrooms to have windows). That puts you in $3-$3.5mm category unless you are looking for a new condo. Search the web for Keith Burkhardt and he will give you some of the commission back and help you find a nice place. When you buy I have nice interior decorator recommendation as well.

May I say that at $1mm per year, more than $3.5mm is really streching it despite your savings. No high level corporate jobs are secure.

Honestly, for the space, bedroom requirements, and price range you're looking for, you really need to look uptown where you'll find more truly family-sized apartments.

http://www.halstead.com/sale/ny/manhattan/upper-west-side/220-west-93rd-street/condo/1984960#

What about this one, farther north than I would like but seems like a nice unit

http://www.bhsusa.com/manhattan/upper-west-side/320-central-park-west/coop/1547582#

Whats the situation at the Apthorp? Maybe some deals to be had there? Anyone seen the units?

dueces, you are all over the map.. literally. You have to decide on a couple of hoods you really like before you buy. If you do not like the hood you buy in, you have to suffer very heavy transaction cost and bid-offer to move. There really is different feel in each neighborhood.

Someone that makes 4 millions on his own need an advice on money matter? Weird.

300: as I said, downtown especially TriBeCa and west village are the hoods we like as first choice. At the same time a second choice would be UWS especially for the prewar layouts which are more liveable than the big open loft spaces. So either area would work.

Switel: not weird. Humble enough to recognize there are a lot of things I could use help on, one of them being NY real estate.

dueces, You will have trouble finding that much space in a traditional apartment. Typically, there will be some combined apartments with ridiculous maintenance per sq ft. Also, prices for such apartment are much higher than lofts on a per sq ft basis due to a lack of supply. Also, most ceilings are 9.0 feet or lower even in pre-wars which for that much space looks a bit out of proportion. You may be able to find a loft with three exposures which can have many real bedrooms with windows. All the best.

DC, another problem that you'll have is that you like what everybody in your cohort likes -- so when a new unit comes up, it may go quickly, or there may be a brawl over it, which is tough for a first-time buyer. (A convertible 4 in my building -- UWS -- sold in two weeks this summer.)

For your initial scan, be open to co-ops, combos, and possibly even townhouses in Brownstone Brooklyn.

ali r.
DG Neary Realty

Ali this may be a naive view of the world but who are all these people falling over each other to buy 4M apartments?! Is there really so much demand and income to support this?

Looked at a very nice brownstone in park slope but the distance from
Subways is a little annoying. And the inventory in the heights is minimal ...

Duece: in the niche market I am most familiar with (3br+, THs, UWS), there is that much money out there. People who have high incomes and are willing to have hefty mortgages are competing with others with many years of accumulated wealth.

We were in a similar position - renting (convinced that the market was insupportable) an apartment that wasn't 100% comfortable. Even a high-end paint job or nicer furniture wouldn't have fixed the problems inherent in the apartment (layout, kitchen, proportions). What we contended with was a lack of rental inventory at prices we wanted to pay given very tight geographical constraints. With hindsight, we should have increased our budget by 30% but that wouldn't have necessarily worked either - our dream rental has only been on the market once in the last 6 years (and rented immediately at 20% higher than 2005).

As for investing, we have failed to capitalize on the equity, fixed-income & foreign-currency markets by twiddling our thumbs too long when we recognized historic market lows or buying too little to make an effective difference in our portfolio. It's not easy to take those risks when you've saved for years (without the certainty of keeping up that savings rate) and you see such big market swings in a short time.

Not having found the right rental property after 2 years of renting, we decided to buy again. We didn't have a specific ratio/net worth in mind but tried to optimize the following factors:
1) Good public school zone
2) Square footage
3) Total utter gut job (having done renovation before, at least we're not paying for someone else's taste
and place will be in very good condition should we need to sell and also we can wring a little value out of the deal)
4) Monthly nut (assume 30-year fixed) = market rent
5) No obvious issues that will delay a sale (1st floor, pitch dark, $$$ maintenance)

Being ultra-conservative, it would be nice to say that the total value of our home is 1% of our net worth but that's not true. But if we got out having lost exactly all our equity, I would not lose any sleep over it.

I would also add this - try to buy quality, if you are going to buy. Don't be seduced by low price/psf for the location or views or light. If the ability to get out is important to you, then look at how long listings in that building typically last on the market (in both hot and cool markets).

Duecescracked,

I have lived in Tribeca for almost 6 years now. Prices in Tribeca are a bit bonkers, but nyc10023 is right, there is silly money out there looking for larger spaces.

But given your price range, this apartment caught my eye:

http://streeteasy.com/nyc/sale/603801-condo-155-franklin-street-tribeca-new-york

nyc10023,

Regarding your factors, I am having real problems getting a "monthly nut" that is anywhere near my present rent for a 2000-sq ft space - that is without putting down 40-50%+.

You do realize that you contradict yourself with your renovation comments, but I do agree that you shouldn't pay for someone else's taste....

As for failing to capitalize on the markets, you probably didn't anticipate that all of the risk/reward rules were undone and rewritten to allow big losers to become big winners. Oh by the way, they are the ones buying these huge lofts in Tribeca... Go losers! (I mean winners!)

>nyc10023 "But if we got out having lost exactly all our equity, I would not lose any sleep over it."
must be nice to be able to lose $2-3 million dollars and not mind.

Memito: Most people want renovated as long as it's not too personalized. What this means for an older renovation, I am not sure, but I have to repaint our 3 year old builtins already because our kids are hard on the paintwork. I can put up with the pain of renovating but that means that I can wring a little bit of value out of the deal. If you can't find a place where the monthly nut is near your rent without putting down 40% - don't buy!

duecescracked,

Does the school zone factor into your decision. You have to factor the possibility that even though you're in the correct zone, your child is sent to another zone due to over-crowding. At least in a rental, you could move easily...

Schools do factor in, in fact we would ideally like to keep our kid in the same elementary school which we could do if we stayed around tribeca. But then again, its not the primary factor as he is still very young. I am equally at a loss at finding a place where the selling price + maintenance/tax is similar to the rental price when assuming 20% down and a 4% interest rate. I am still going to explore the idea of doing a rental with a 3 or 5 year term with annual renewal option although I would need to find something already setup with all the features I like and a flexible landlord that can negotiate on price.