Pre-Approval

One bit of advice I have, don't just pick up the phone, even if you have private banking and ask to be connected to a mortgage banker. You absolutely want to get a recommendation from a friend or colleague that has used and had a good experience with the banker.

Keith
TBG

While I probably shouldn't confess this here, I have never found transparency in the process. It is hard to compare quotes between mortgage brokers and mortgage bankers, because they don't release their pricing in comparable terms. When you do "shop around" for rates between banks, they quote you rates that they aren't really wedded to... so it becomes a "in ninety days I'll give you a better deal than the other guy" kind of situation. And sometimes a mortgage pro who has been consistently great for some of my clients will then prove a dud for others.

There is a frequent poster here who is a mortgage broker who goes by StreetSmart -- perhaps she can add some insight.

ali r.
upstairs realty

Second what porch says. It feels like it’s on purpose that banks don’t call their fees by the same name. Usually I copy and paste a list of possible fees that I give to all possible banks and ask them to provide their rates.

Possible fees by name:
Application fee
Processing or underwriting fee
Appraisal fee
Credit report fee
Bank attorney fee
Recording fee
MERS fee
Etc..

Then they may charge you points for lower rates.

Always always always ask for discounts. These loan officers have much more discretion than they will tell you they have.

To the initial question...

You don't need more than one pre-approval. The pre-approval is almost meaningless anyway since there has been zero underwriting. The question about how much work you should do in advance of having an offer depends on several factors.

Is your FICO over 720 and otherwise clean credit / public records?
Are you taking a loan of less than $3M?
Is your downpayment at least 25% with 12+ months post-close liquidity?
Is your DTI under ~38?
Do you have stable income for the last 3 years which is fully documented and likely to continue?
Do you have good existing relationships with a major mortgage lender, or some other reason to get friends-and-family consideration (e.g. their investment bankers regularly solicit you for business)

Your worries and the work you should do in advance should be directly proportional to the number of "no" answers above.

Good bankers in NYC condos include JPM, Wells, Citi, and First Republic.

Thank you everyone for all your advice. It's very helpful. I have been trying to read as much as I can here on these discussion boards since I am new to all of this.

My downpayment and will be 10% which will be a gift and I have a post liquidity of 10 months in my savings. No other concerns. Property price will be under $1M. I got a recommendation for WF loan officer who has been patient and responsive but it looks like they do underwriting for pre-approval. I haven't had any luck finding an "responsive" lending officer from other banks (even though I have accounts with Chase). If I only get one pre-approval letter, will there be enough time to look for other loans when I find a condo? If so, will that impact my credit score since there would be a 1-2 months gap between pre-approval and finding a place.

Thank you again!

Can someone please explain how to calculate DTI?
What counts as debt? Obviously, mortgage, but how about credit cards, apartment maintenance, student loans, note payable to relatives, etc.
Thank you!

DTI is payments on all of the above plus mortgage divided by recurring income. Typically must be under 43, sometimes below 38, depending on lender and how strong the rest of the file is.

OP, you will be better off if you can keep your loan under $822k so it's conforming not a jumbo. You'll still need private mortgage insurance, which is a material extra cost.

Many sellers in NYC will worry about your ability to close. In good times, they may insist on having that 10% put down as earnest money and that you waive financing contingencies. Maybe now you can negotiate better. Also remember that closing costs in NY are very high and cannot be added to the loan balance.

Don't worry about inquiries on the credit report affecting credit score unless you're right at 720. The impact is a point or two.

You could also try some of the online lenders. I don't think that SoFi is in NY yet, but Better.com is. Also Quicken Mortgage. They tend to have not the best rates but are responsive. You're not getting the best rate anyway bc you lack 20% down.

Considering the 10% down and the fact that it's a gift, I would also reach out to a very good mortgage broker/banker.

Try Keith Furer at Guardhill, he's helped a number of our clients that are just a little bit outside the box, so to speak. He's extremely knowledgeable and responsive, he also happens to be an attorney.

If you email him, put my name in the subject line, may assist with getting a faster response.

kfurer at guardhill.com

Keith Burkhardt
TBG

This is what doesn't totally add up. How does a person have high enough income to cover the mortgage, tax, and common charges, but doesn't have two nickels to rub together for a down payment? Perhaps a doctor who just paid off $500k of student loans? Otherwise I'm not sure that OP is financially prepared to be a homeowner.

George, There are newish college graduates making $150k+. With low rates, they can afford to buy sub $1mm condo. They would be paying more or less the same in rent as to own for 1 bedroom. There was a closed sale I saw that newly married young couple bought a $3mm condo and parents were rich. Not uncommon for parents to help with down payment and buyer’s income is enough to sustain the rest.

For a responsive lending officer, try Jim Blackburn at Crosscountry Mortgage. He won't have those Wells "relationship rates" but otherwise competitive and highly responsive.

@krolik:

Housing DTI is PITI: Principal, Interest, Taxes, and Insurance. Plus your monthlies.

So on a condo, it's your mortgage payment (most NYC deals your property taxes are going to flow through your mortgage lender), plus PMI if you have to buy it, plus your common charges.

For a co-op, it's your mortgage plus maintenance, and maybe the co-op might have you throw in a little a month to represent your homeowner's/liability payments, and/or their estimate of what your recurring utilities payments will be; it depends on the building. A mortgage lender is generally going to look for housing DTI of 28 percent or lower; condos aren't really going to care; a co-op is generally going to be stricter than that, depending on the building.

Overall DTI is housing DTI plus the monthly cost of other recurring liabilities : student loans are usually the big one here, but this can also include alimony/child support, installment loans such as an auto loan or personal loan, debt to relatives, payments on credit cards, housing costs on other properties (with an adjustment for the income on those other properties, if applicable.)

@george has nailed it at 38/43 percent, depending on the lender.

ali r.
upstairs realty

I really have become quite the stereotypical old lady, but I would advise against anyone under the age of 40 buying real estate in Manhattan unless they have never lived anywhere else. I would add to that that I would advise against anyone’s buying in Manhattan if they need PMI.

@George

"DTI is payments on all of the above plus mortgage divided by recurring income. Typically must be under 43, sometimes below 38, depending on lender and how strong the rest of the file is."

Let's say, Maintenance of 3k/mo, Mortgage of 3k/mo, credit cards (min payment) and student loans Another 500 per month.

Recurring income (not incl bonuses) of 19.5k per month.

Is DTI 6.5k/19.5k = 30% ?

How to incorporate the bullet payment loan?

Lenders are not going to look kindly on someone taking out a $1m loan who has credit card debt and personal loans unless there is a good reason. I would recommend repaying all the other debt before buying so that the right side of your personal balance sheet is clean.

On the plus side, bonuses and stock options can go into income if you can show it has been received for 2-3 years and will predictably continue.

As for OP, I agree with our resident old lady that you are not ready to buy.

@front_porch Thank you, very helpful!

@George credit cards have a revolving credit. It is almost never zero for people that actively use their credit cards. I am talking about ~$10k balance for someone with ~$20k of take home pay (ex bonuses).

Student loans can take a long time to repay for people with advanced degrees. If monthly maintenance + mortgage is similar to rent, why not buy earlier rather than later?

I actually regret paying off my student loans early by applying most of my bonus money towards the loans. Had I refinanced with First Republic and kept the cash, I'd have more for down payment and be able to afford a nicer place, while paying only 3% interest on those loans.

@MCR with a 30-year mortgage as the typical financing option, wouldn't most people want to buy when they are 35-40 to have a chance to repay the mortgage before retirement? Why wait until 40? For most people, buying a home is a great mechanism for forced savings.

How many 35-40 yr olds in NYC stay in the same apartment for 30 yrs? If you are sure you are going to do that, go for it, but I just don't see that many that age having the kind of stability in terms of wants, needs and income to take that leap, and if there is any chance you need to sell within 10 yrs, not only will you not likely have saved antything, but there is a good chance you could lose some of the equity you put in with the hope that such equity would grow. Just my opinion, but it's a bit of a crap shoot, so if saving and growing your capital is a goal, buying NYC real estate would not be a vehicle I would personally recommend to achieve that goal.

I know I probably sound like a broken record saying this, most of the clients that I'm working with buy not because they're thinking they're making a great investment with their capital, they prefer homeownership. And with debt to income ratios typically below 25%, these sophisticated buyers continue to put other capital into more worthy investments.

Perhaps you'll make some money after 10 years of ownership, maybe you won't, there's certainly no guarantees. However you did get to live in and enjoy your home, even if there was some premium to be paid over renting something similar.

Keith Burkhardt
TBG

The part of krolik's question that stood out to me was this sentence: "For most people, buying a home is a great mechanism for forced savings." It's not about renting vs owning for someone of that profile; it is about not losing money. I know I probably sound like a broken record too, but I view owning an apartment in NYC as consumption (i.e., it is in the "spend" category rather than the "save" category).

I bought my first apartment was I thirty, and a journalist. Since I hadn't picked a "master of the universe" profession, and I couldn't expect giant growth of my income, it was important to me to secure my housing costs. I believe I did end up having a lower net worth than if I had simply parked the money in SPX (look, @nada, I've teed you up!) but the difference wasn't between me having a yacht and me not having one. And I did love the ability to renovate -- for the six years I was there, I had *exactly* the kitchen and bathroom I wanted.

@mcr I don't totally disagree with you, I understand that a primary home purchase may not be the best pure play for your money/return. I was going to say there are other intangible aspects of homeownership one enjoys, but actually they are quite tangible, the enjoyment one gets from their home. And whether you rent or own in New York City the monthly nut is still rather significant, and the spread between renting/buying isn't life-altering for most New York City buyers. Especially in what I'll call the normal parameters of a purchase, not the $60M dollar variety where the rent- buy spread will take your breath away.

I've been spending the last nine Winters primarily in South Florida, and know a few people with boats. Now that is pure consumption! Look up what a 46-ft Viking costs new /yearly maintenance and what they sell for a few years later...that's consumption!

At least with a home purchase, besides the enjoyment you'll get out of it and the fact everybody needs a roof over their head whether they're renting or owning. At least there is the potential that you'll come out ahead of the game.

And again, homeownership for most New Yorkers does not prevent them from allocating money into equities etc to continue building their net worth.

Keith
TBG

I agree with Krolik on not repaying student loans sooner than you must, except if there's a chance you end up bankrupt.

Regarding the 30 year fixed mortgage, this is a uniquely American invention. The average person stays 7 years in their residence, hence why the 7/1 ARM is the ideal financing for many people.

I disagree with the common view that one should pay off their home before retirement, so they should buy by at 35 with a 30 year fixed. Maybe this thinking works for someone who works a union job where they can never get fired, have (and need) no geographic flexibility, and know their income today for the rest of their life. Otherwise, why not embrace flexibility and option value?

I agree with 7/1 or 10/1 if you have flexibility in your income for rise in interest rates. However, it also depends on the spread between 30y fixed and ARM as additional cost of 30y is just insurance.

@george I think everyone's different and has their own particular situation. I love the fact that I've had no mortgage for 5 years, I feel like it gives me the ultimate optionality. I can rent the house out and generate a great income or sell it...

I can also travel freely etc and continue to plow money into other investments.

I also love the peace of mind it affords me, but that's a very personal decision not necessarily a financial one. However I certainly understand, this may not be the best path for everyone.

Keith
TBG

@FP and Keith - I totally agree with you on the intangibles. I bought my first house when I was 30, not as my primary residence, but in Nowhere for my own psychological reasons (I lived in SF at the time and could not afford anything there that I actually wanted to own - rented my primary residence the whole time because I got more bang for my buck.) I did not expect to make money off of my Nowhere house (only rented it out about half the time I owned it), and when I finally sold it a few years ago, it was a wash in terms of cash in vs cash out, but that little house was a great comfort and happy place for me the entire time I owned it. I believe in a place called “home,” even if it is only a figment of my imagination. I suspect I put a higher premium than most on the intangibles of ownership. I know it is the right choice for me, but I am particularly wary for young families given the stress I see some of them under in my own building.

Points well taken. Still, I am in late thirties, and want's to purchase.

I bought my first home (cheap coop in an outer borough) at 26, also was not in a "master of universe" profession then. Held for 7 years, sold to pay off loans for Grad School.

Despite selling for 30% more, I believe my return was close to zero percent, especially after taking into account a new Home Depot kitchen (18k) and few other minor renovations.

I did get intangible benefits of ownership, and I did end up with a nice chunk of cash when I sold due to principal paydown. In my twenties, overall, the purchase was a poor decision that caused an extra headache when I went to grad school in another city.

But if no one under 40 buys, who will occupy all the 1br and studio coops? Downsized empty nesters? Or are these 2nd homes for people?

@Nycbuyer

I have a home equity lender that can do a simultaneous closing with a first mortgage on purchases. However the most financing they will do is for a CLTV of 85%. Their rates are excellent, last quoted was 2.49%. Your loan amount on the HELOC will be small. Your first mortgage will be a Fannie Mae loan.
Therefore in your particular situation your gift would have to be 15% or depending on your financial profile Fannie Mae may not require any reserves especially since you do not own other properties, therefore you can get the additional 5% from your money that you have set aside for reserves. This loan will not require mortgage insurance.
As far as closing costs go, my lenders do give lender credits to borrowers that can go towards closing costs. Also Fannie Mae does allow for seller concessions which go towards closing costs. If you work with a buyer broker, they’ll kick in some money also.
This is a very a straightforward loan and there is no need to sign a contract without a mortgage contingency.
There may be other available loan options.
I am sponsored by Fannie Mae to obtain underwriting findings.

Ellen Silverman
Licensed Real Estate Broker
Licensed Mortgage Broker
NMLS#60631
EllenSilverman@esfundingco.com

@krolik, don't take our collective nattering too seriously; we don't have much better to do. FWIW, a good many of my buyer clients are your age -- it's a point where people are starting to feel the success in their careers a bit, and to have saved up some down payment money.

ali r.

@krolik - I’m not worried about you; you obviously know your way around and are doing your due diligence. Re your question on the other thread, BHS is a 100+ year old white shoe property management firm in the city. Association with it appears to mean quite a bit to those in our building of a certain age and milieu. Behind the times does not even begin to describe where they are vis-a-vis the property management firms employed by other buildings I have extensive experience with. I suspect it is like any big firm where service depends n particular professionals assigned to your account. We got a new teal assigned to our account recently, and there has actually been significant improvement so we have given them another year and we’ll see how it goes over the next 12 mos.

Most sources online say that home ownership is one of the most important tools to build wealth.
Here is one article that finds home ownership beats S&P500 almost everywhere, including New York
https://www.urban.org/urban-wire/homeownership-still-financially-better-renting

One wants to do the responsible thing, and buy a home, rather than wait until almost retirement.

Krolik, It does not work for Manhattan which is really not a part of sample set used. Just look at average price. Manhattan rental yields are lower and price appreciation has been less. Separately, for non new development 1 bed room and lower end 2 bed rooms in Manhattan, rental yield is higher than high-end and larger apartments. But I do not think it has to be one or the other. You can buy a starter apartment and invest in SPX as well.

@Krolik - Manhattan is indeed a special case.
You don't really "own" in Manhattan (and most of the city) the same way you do in most of the country in terms of land+structure title fully owned.

To put some numbers to the concept of "rental yield" mentioned above - I lived almost a decade as a renter in an UWS doorman condo.
Because it was a condo, there were units both for sale and for rent so it is directly comparable.
I paid $2950-3500/mo for a 1bed/1bath over that window of time.
Comparable units (including one that I rented and landlord sold after not renewing lease) sold for $800k-$1M, with monthly costs (tax+maintenance) of $1800-2000/mo.
So a buyer of the same unit would be out $5000-6000/mo for the same unit... almost double the rent value.

I ended up buying a 2bed/2bath condo in Brooklyn instead, and even then I'm not 100% sure it was the right call.
By comparison my total monthly payments are about $8000/mo.. and comparable units quickly rent for $6000-7000/mo. Still cashflow negative but if I consider I am paying down principle I could already break even renting out in under 5 years ownership.

The UWS condo was a speculative lottery ticket on price appreciation by comparison.

+1 with exclamation points on both 300_mercer and Steve123 comments.

Buying an apartment in Manhattan is many things, but I would not put "a tool to build wealth" among those things.

Okay, so the problem is that cap rate is too low? rents in Manhattan have been growing (until corona). If prices are not growing with rents, that means cap rates are getting larger, or expenses are growing?

Per mercer comment above, no new construction, no units larger than 2br. Let's say a hypothetical 2br for 1million/3k maintenance per month (36k per year)
2.5% interest on the entire amount (25k per year)
Insurance for 150 per month (1.8k per year)
To own it costs ~5,250 per month

Suppose the unit can be rented for 4800 today, if rent rises with inflation/corona recovery just a bit, owning becomes cheaper.

Of course, one could be earning more on their capital than 2.5% interest. Plus, any improvements and transaction costs need to be taken into account. Suppose, there are 180k of improvements and transaction costs and a 10 year holding period. That's 18k per year or 1.5k per month. However, I would imagine that price would also go up a bit with improvements and market, to compensate for these costs. The math is better outside Manhattan, but seems to work on resale in Manhattan as well.

The biggest questions are whether cap rates are expanding (why), and costs are rising faster than rents (why)?

Here is an example of a 2/2 that fits the pricing in my post
https://streeteasy.com/building/the-aristocrat/9e

Can somebody please explain what changes upon your 40th birthday with respect to NYC real estate?

another example (higher price but lower maintenance)
https://streeteasy.com/building/201-east-37-street-new_york/14gh

Don't forget monthlies go up too. My maintenance+tax is up about 25% in 3 years.

I think you fudged the buy side numbers down and the rent side numbers up to talk yourself into this.

Sub-$1M 2BR in Manhattan, in areas you want to live, and especially in a condo (if you don't have 30%+ liquidity or want option to rent out) are not common.

2,753 Two-Bedroom Apartments for Sale in Manhattan
Reduce to $1M&under and we lose 80% of listings..
590 apartments
Do you want to live north of 110th or in Midtown? Or the more typical Downtown/UWS/UES search?
249 apartments
Do you have cash&liquidity for a co-op?
34 apartments
And if we are spending $1M we might as well get at least 1.5 bath right?
12 apartments

Meanwhile on the rental side there are... 1000s of units under $4800/mo just in Downtown/UES/UWS.
You could rent a 2BR/1bath for as little as $2500 range, add the 2nd bath and still $3000 is doable.. a few are even in a doorman building.
Some of these are before net effective rent which will save you months and months of rent this year.

Okay, so maybe buying is prudent only in some areas, and UES/UWS is not it?

Personally, I do not get the appeal of FiDi. Aside from Battery Park City where maintenance is nuts for some reason (believe those are land lease buildings), there is nothing to do and commute to everywhere is inconvenient. Also, FiDi has very expensive new construction/conversion housing stock which mercer said above is a bad deal.

I currently live in a 1br in midtown and paying 3500 (did not get COVID pricing). I think COVID pricing has got to be a short term phenomenon, maybe 2 years, not a permanent correction. Pre-COVID 2br is ~5,000, and now is probably ~4,250.

Happy to stay in midtown - the listings I posted are in those areas. Coop 30% down sucks but doable. Realize I am hijacking a thread of OP wanting to put very little down (don't get me wrong, that would be ideal).

I think we can all agree that rents are going to continue to go up (esp. up from COVID prices).

Key questions are: 1) is cap rate changing? Why? and 2) are expenses changing. I get it that the city is raising RE taxes faster than inflation. Are any other expenses going up fast? Why?

Steve, post a couple of these unicorn 2/2s of which you speak... are they 900 sf?

Krolik, are you working with a broker? I have some comments on your listings, but I don't want to get too specific because I don't like to step on other people's toes.

However, generally...you're right that there's value in postwar buildings. some buyers don't like the standard 8-foot ceilings (you can see these at E. 37th), but OTOH you get big windows and good storage (you have even better-than-usual storage in the combo, because they had to take out that second kitchen). Whether you want the bedrooms split or side-by-side is an important consideration, and one that may change as your family size changes. The older of your two listings is from an era where you might be getting prewar graciousness with postwar materials, so doubleck sound transmission apartment to apartment (I don't know the building.)

Presumably cap rates will change when underlying interest rates change, but I think we as a market have been looking for rising rates for about ten years now and they don't quite seem to have ever happened. (When I bought my first co-op , way back in the day, my mortgage interest was 8%; I think in my current co-op, I'm on an adjustable and I'm paying... 2.25%, maybe?)

as to why costs are rising faster than rents... well, my answer to that one is that NYC tries to raise too high a percentage of its budget from property taxes and too low a percentage of its budget from income taxes. But I realize that's a very political answer. I do think rents will be higher two years from now than they are now.

ali r.
{upstairs realty}

"Can somebody please explain what changes upon your 40th birthday with respect to NYC real estate?"

Nothing magic. Just my very unscientific personal opinion as to when individuals and families are more likely to be settled in their wants and needs.

@MCR so who is buying all the 1brs and studios?

Steve/Krolik- I think your maintenance assumptions are unreasonable for much of the 2/2 market. I bought a prime location UWS 2/2 coop this summer for $1.2mm with under 1600pm maintenance. Insurance is only like 60-70 a month. Total monthly nut is under 5100 on an amortizing mortgage with 2.625 financing and a comparable rental would probably be ~4.5-5k and it’d be hard to find comparable finishes. Happy with that trade.

Steve/Krolik- I think your maintenance assumptions are unreasonable for much of the 2/2 market. I bought a prime location UWS 2/2 coop this summer for $1.2mm with under 1600pm maintenance. Insurance is only like 60-70 a month. Total monthly nut is under 5100 on an amortizing mortgage with 2.625 financing and a comparable rental would probably be ~4.5-5k and it’d be hard to find comparable finishes. Happy with that trade.

Steve/Krolik- I think your maintenance assumptions are unreasonable for much of the 2/2 market. I bought a prime location UWS 2/2 coop this summer for $1.2mm with under 1600pm maintenance. Insurance is only like 60-70 a month. Total monthly nut is under 5100 on an amortizing mortgage with 2.625 financing and a comparable rental would probably be ~4.5-5k and it’d be hard to find comparable finishes. Happy with that trade.

@krolik: In no particular order:
People with set preferences and indefinitely stable income;
Pied a terre holders;
Widow/ers;
Professional real estate investors;
People who don’t care about/understand money.

@MCR you missed 23 year olds buying with mommy&daddy money

@UWS_er, agreed Krolik has the maintenance estimate high.
Your own numbers however imply you put down what.. 25..30%?

That said this conversation has shifted significantly.
First we are talking 10% down mortgages.
Then $1M 2beds.
Now we are at $1.2M @ 25% down.

My primary point was against stretching with 10% down trying to find a decent 2bed in Manhattan under $1M... and that said 2bed would not compare well to what you can rent for $4800.

Further talk of rental yield lead me to narrow my focus to condos as you really can’t include non-rentable coops in that comparison.

And also more so, if you buy in Manhattan and have a future lifestyle change you may find it hard to rent out without taking a monthly loss or to resell without taking a loss with round trip transaction costs... unless you live there more than say 7 years.

Change the underlying numbers / assumptions and the winners change.

Some sampling of current rental market
BPC 2bed/2bath 1100 sq ft full service, gym/pool/etc $4700 , net effective $3500
395 S End Ave

Murray Hill 2bed/1bath 1000 sq ft no frills $3400, net effective $2800
114 e 40th

UWS 2bed/1bath 975 sq ft full service $4000, net effective $3300
101 W 90th

UES 2bed/1bath 1100 sq ft no frills $3300, net effective $3000
161 E 81st

UWS 2bed/2bath 1100 sq ft full service,gym w+d in-unit $4100 + moving incentive
33 W End Ave

@Steve123 - I lump those who purchase with trust funds or family money in my last described category: “Those who don’t care about/understand money.” Many in that category who purchase in Manhattan are the way they are because they have no need to care about or understand money.

Also, for those estimating cost of ownership, don’t forget about individual apartment maintenance expenses such as appliance maintenance/repair (PTAC, dishwasher, etc) - not major but important for those thinking about stretching. Again, ownership in NYC makes sense for many, but, consistent with steve123’s point, I would advise against any young person stretching as a means of building wealth.

@ Krolik
Not every building in BPC has a high maintenance.
My maintenance for my one bedroom apartment with direct river views with a balcony is about $1770.00; we just had an increase. Maintenances in the area vary a lot. My building has a great gym with pool which was totally renovated recently. There’s also a huge conference room which is also a place to have an event/ party. It’s referred to as penthouse amenities since the gym is on the 45th, 46th floor, great views, huge setback terraces.
You say there is nothing to do here. I have no problem walking to Tribeca, which is not exactly a hopping neighborhood. But the air here is fresher than the rest of the city, and in our COVID environment it’s a plus, but it always was. The pool is great. Unfortunately it is closed at the moment. I’m originally from the UWS where there was once a lot to do there, now not so much. But it’s trade offs since I like the fresh air.

@streetsmart sorry did not mean to disparage your neighborhood; I love the area, but since I work in midtown, I did not study home prices and maintenance in too much detail, just going off first impressions

@MCR - true about capital expenditures, but I thought I did include a nice chunk of it in my calcs
What I forgot to include were tax deductions for home owners
Of course those deductions are most valuable for the rich 40+ year old buyers in Manhattan that are in the top tax bracket. On the other hand, for me to catch up to them, I'd like some of that help from the government as well.

Here is a nice article on importance of home ownership for LOWER INCOME PEOPLE(=can we include Manhattan households with less than a million per year in income in this definition?) in building wealth. https://www.jchs.harvard.edu/sites/default/files/hbtl-06.pdf

They identify 5 mechanisms:

1) Forced savings thru principal paydown. This is the same reason that blue collar workers value their defined benefit pension more than its cash equivalent. Added discipline.
2) 0.8% real return (that is return in excess of inflation). Note that this is a compounding return!
3) Leverage - bank loan interest rate is likely below inflation and therefore below the rate of price appreciation. Buyer gets to keep returns on the entire home value, even though original investment (downpayment) is only a fraction of the total value. Even if the interest rate is higher than the rate of return, because the return is compounding, it eventually exceeds interest.
4) Tax deductions.
5) Reduction in rent volatility and reduction in housing costs as % of income over time.

The biggest reason for variability in monthlies in BPC is that at least in the beginning each developer cut their own deals with Battery Park City Authority. I'm betting steetsmart lives in a Milstein building. My theory on this is because Milstein planned from the get-go to retain a substantial portion of their units as rentals so they focused on long term, whereas others planned on getting out of Dodge ASAP (like those selling condos with 421a taking the money and leaving purchasers with long term disappointment).

Krolik, There is clearly truth in forced saving if all you currently save is 401K plus some more with fair bit of takeout / restaurant and vacation spending.

Agree on forced saving. Even if price appreciation does not materialize, buyer still has some funds in a locked savings account. This works as long as there is no chance the property ends up under water, which I fear is not outside the realm of possibility with just 10% down.

The forced saving is important, especially for blue collar workers with less sophistication and anyone with less self discipline. But also, inflation protection plus 0.8% average real compound return is pretty good, tax savings, leverage, housing cost hedge.

Compound interest concept is that you really need to invest early to make most of it, not wait until you are well past 40.

I view my purchase as primarily an inflation hedge.

I thought I'm the only one worried about inflation. You too?

I am worried about inflation, and I think 30yrs is as well.

I am definitely worried about inflation.

If you’re worried about inflation, I’m not sure RE is a great hedge.

Currently, inflation expectations are in the 1.5-2% range depending on horizon. Yields are in the 0-1.5% range, supported by the Fed’s massive balance sheet buying oodles of long-term bonds (including mortgage backed securities).

If/when inflation starts showing up, the Fed has a massive amount of room to respond in the form of reversal of the policies of the past decade:

1) Stop buying bonds.
2) Sell bonds on balance sheet.
3) Increase interest rates to stop being below inflation.
4) Increase interest rates to be above inflation. (OMG, who could imagine that!)

All of the above would be negatives for a typically levered asset like RE. In the aughts, you might recall mortgage rates were double-ish what we have now. The “buy RE with cheap loans” feeling you all might be having is by design, to fight deflation. It can/will be replaced in a heartbeat if/when inflation starts showing up.

Now of course, you might worry / argue that the Fed will totally abdicate its duties and that the US will start taking on the economic policies of Zimbabwe. Perhaps, but if you are worried about inflation, I suggest you first consider stage 1 of the likely scenario.

There are global demographic reasons why we are in a low growth and low inflation environment.
USD is going to devalue relative to what? JPY? EUR? GBP? We remain one of the cleanest dirty shirts.

Look at the velocity of money, it’s been on the downtrend since the dot com bubble burst.
It’s one of the reasons that the Fed keeps printing and we don’t get the doomsayers inflation to go with it.

The Fed is quite like the BOJ right now wishing they could create some inflation rather than just blow stock market bubbles.

Buy an apartment if it makes sense for you financially and emotionally.

I don't think 70s-style inflation is *likely*. I just think, if it does happen, RE will hold value better than the cash I'd been sitting on. (Obviously if this was a purely financial play I'd have bought shares in a REIT index or something, not in a co-op.)

@richardberg would you buy a REIT on a margin? RE is typically bought with 70-90% leverage.

I have felt like we have been on Japan’s trajectory for the last 10 years, and I recognize that implies run-away inflation is unlikely. Nevertheless,
I can’t wrap my head around the mechanics of unlimited borrowing indefinitely having no consequences. The consensus of all the scholars I follow is that inflation is unlikely, but I don’t have any real understanding of how they get there so I don’t discount the risk as completely as others do. (Such as those in my building who assure me that interest rates in 2028 when the building has to refinance its IO mortgage will be negligible).

I'm sure my understanding of all this is significantly less than yours MCR. But one thing I do know, markets can really surprise you, equally good and bad. If anyone really knew the trajectory of anything, there would be a lot more billionaires on the planet... For the shareholders in your building's, sake I hope you're 'pundits' are correct.

I think I've got to go back to typing, talk to text isn't working out, grammatically speaking.

@Krolik I don't think it makes sense to talk about leverage on a particular asset. Before I had a balance sheet with lots of assets and no debt; now I have a balance sheet with a few more assets and some debt. My overall VaR is still much lower than it was 5 or 10 years ago as a yuppie riding the 100% equity train.

It so happens that (for stupid political reasons) banks give much better rates lending against co-op shares than they do on my liquid assets. But their choice of collateral doesn't meaningfully effect where my portfolio's efficient frontier lies.

REITS are already leveraged at a property level and possibly at a corporate level.

@Krolik - REITs tend to have have embedded leverage, as most take on debt in purchasing properties (they are not buying all-cash)

If we are concerned about hedging inflation & preserving capital, why would you buy any exchange listed product on margin? That's veering into Robinhood day trading territory.

@Keith - I agree. I feel those in my building (sadly for me the majority) who feel there is no interest rate risk are playing with fire. I’ll be fine either way because I am not betting on either scenario, but being financially conservative would put a crimp in the lifestyle of some of the shareholders in our building who are living large on credit.

I don't have any insight on macro trends (and if I did I wouldn't be allowed to share them here). All I know is, 30 years is a really long time. 30 years ago mortgage rates were in double digits, the music charts were dominated by hair metal, and Apple was teetering toward insolvency.

Of all the buyers remorse I might encounter over the next 30 (and Manhattan RE is sure to hit some doozies between now &then), I don't think holding a long-term option to borrow/lever at 2.375% will be one of them.

RB>> I don't think 70s-style inflation is *likely*. I just think, if it does happen, RE will hold value better than the cash I'd been sitting on.

The runaway inflation of the 70’s was predicated on a Fed not doing its job in response to modest inflation. If modest inflation shows up now (whatever likelihood you attribute to that), do you think it’s more likely the Fed will do its job or not? And if it does its job, what happens to RE values?

If inflation does materialize, RichardBerg is in a nice position of having his housing cost relatively locked down. Inflation would likely also involve real estate prices rising along with his salary. He could pay off his mortgage with inflated dollars and continue to enjoy his housing or trade up given his likely higher net worth. If one has lots of cash right now, has a preference for consistency in their housing, reliably growing income (RB strikes me as someone with little-to-no income insecurity who is still growing in his career) and a love of New York, I cannot think of any better use of that cash. Life is short, and I suspect he already has a host of other investments that will not provide him with the tangible pleasure that his NY apartment will. I doubt RB will lose money on his apartment; I would bet money that he will actually make money on it, but either way, he appears well positioned to bear the risks that come the move.

I would add that getting quotes from multiple brokers is best.
The lack of transparency ( LIES) from that group leads to much frustration for buyers

I really can’t think of any group that is transparent whether it be lawyers, doctors, etc.