Author Topic: How to buy a home in NYC (for my specific circumstances and goals)? Or should I?  (Read 1255 times)

5oclockshadowmustacheNYC

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Hopefully this is the right forum for this.  Hi there, folks!  I'm a programmer in NYC, currently living in Astoria, who is fortunate enough to work from home.  My job is pretty damn comfortable, but it's not my dream job.  If I could do anything for a living, it would be to make video games.  Up until I discovered MMM about a month ago (I've been reading from the beginning, and I'm up to February 2014 now), the plan was to save up about two years' worth of living expenses into a bank account, quit my job, and pump out one or two indie games.  Though I have always lived below my means (the idea of living paycheck to paycheck was always terrifying to me), the math for early retirement was never laid out to me as it was in this blog.  It never occurred to me that early retirement was even an option!  Now that I know it is, I immediately identified about $300 of monthly spending that I have now cut out of my life, and I still have more room to trim that down.  The goal at this point is to make games on the side, with what time I have, and shoot for early retirement so that I can make games full-time without having to worry about where money is coming from.  I was hoping to find out if buying a home is right for me long-term, given that I like living in NYC and so does my girlfriend.

My basic finances are as follows:

  • $100k salary with up to 10% performance bonus at year's end (last year they paid 9.9%, so they're sticking to their word)
  • about $4800 take-home per month after 401k (contributing 5% to get the employer match), HSA, and other benefits/taxes
  • $25k in Vanguard; 90% VFIAX and 10% VBISX.  All extra money is going here every month, which is approximately 50% of my take-home, or $2400.
  • $61k in 401k
  • $4k in checking account for auto payments, $50k in savings account at 1.1% interest (all of the interest gets sent to Vanguard) to help me sleep at night in case I lose my job for an entire year and my girlfriend breaks up with me and moves out at the same time.  I know MMM would say this is totally unnecessary and is actually losing me money compared to inflation, but I'm a very risk-averse guy.  I anticipate my yearly expenses without my girlfriend paying into rent, and if I had to buy my own health insurance, would be about $47k, so I've got $50k in the bank.
  • Rent is $1725/month, and my girlfriend pays $700 into that.  I pay all utilities and streaming services, which comes out to be about $250-$300/month.  There's room to be more Mustachian here, but we also have very inefficient electric heat for the winter months.

Let me know if any other information is necessary.

Now I'm no expert, but everywhere I look in this city, there's more housing going up; I pass about 3 housing construction sites in the course of an 8 minute walk to the grocery store.  There's a completed luxury apartment unit across the street from me asking for $600k-$700k for apartments the same size as mine, and a year after I moved here, more than half of them are still empty.  I'm expecting housing prices to come down in the next year or two, but I don't have the statistics or know-how to really base that on anything; just intuition that supply exceeds demand.  I've got a year or two to feasibly put together $100k+ for a down payment on a purchase, if it makes sense, but I'm just paranoid enough that some "GOTCHA!" is going to come up in the process.  Mortgage calculators tell me that, if I can get a 15-year loan at under 4%, I could afford to make payments on a mortgage for up to $400k.  Ideally, the girlfriend and I would have a 2-bedroom apartment (one to sleep in, one for an office), probably >700sqft. so that it's spacious enough for a dog, and within 45 minutes or so of a train ride to midtown Manhattan, so that we can easily take trains or buses to visit family.  We don't really need a yard; we're both fine with an apartment.  I'm just new to this kind of thing, and I don't know what caveats and hidden costs might come along with owning an apartment/condo/co-op.

So basically, my questions are: at what point does it make sense to buy vs. rent (NYT has a calculator for it, but I'm also asking with regards to early retirement-minded people)?  And is there any reading you folks could point me to about buying a place in NYC so I can do my homework over the next year or two?  Anything you learned from buying a place in NYC yourself?  Thanks!

tralfamadorian

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  • $100k salary with up to 10% performance bonus at year's end (last year they paid 9.9%, so they're sticking to their word)
  • about $4800 take-home per month after 401k (contributing 5% to get the employer match), HSA, and other benefits/taxes
  • $25k in Vanguard; 90% VFIAX and 10% VBISX.  All extra money is going here every month, which is approximately 50% of my take-home, or $2400.

Given your income, your top federal tax bracket is 24% and NY is 6.65%. You are giving away over 30 cents on each dollar made by not maxing out your 401k. Meaning that whatever you do with those funds needs to grow over 44% to get back to where you would be on day 1 if those funds were invested in your 401k.

You said you are a cautious investor. Buying a property that maxing out your potential payments hoping for appreciation to make it work is not cautious. By definition, that's called speculation. 

5oclockshadowmustacheNYC

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Speculation?  I'm not buying a property to resell it (unless life circumstances change in ways I can't predict).  I'm hoping to buy a property in the interest of lowering my living expenses long-term.  If that leaves me in the wrong sub-forum, then please let me know.  I anticipate that prices will come down in the time it takes me to gather up a significant 20%+ down payment, and so I'm wondering if there's some magic threshold where buying is probably a better deal for me rather than renting for the rest of my life (where rent will adjust with inflation).  Specifically, I was curious what everyone's thoughts here would be with regards to early retirement.  The appreciation of the property value isn't of interest to me, only the affordability of the property.

As for the 401k advice, perhaps I'm mistaken with my game plan.  I'm 29, so being able to withdraw from my 401k the old-fashioned way is still decades away, and even if I got it out with the Roth IRA loophole, wouldn't I still need a 5-year buffer for that money, essentially postponing my retirement by about 5 years?

I appreciate the response.  Thanks!

sokoloff

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Given your income, your top federal tax bracket is 24% and NY is 6.65%. You are giving away over 30 cents on each dollar made by not maxing out your 401k. Meaning that whatever you do with those funds needs to grow over 44% to get back to where you would be on day 1 if those funds were invested in your 401k.
Well, that 401k money will be taxed as ordinary income upon withdrawal, so it doesnít need to grow by fully that amount unless his marginal rate in retirement will be 0% (extraordinarily unlikely for an NYC-based programmer).

On the games industry aspiration: I was a games programmer for a few years, shipped a title and worked on another successful AAA title. Itís a pretty crappy part of the programming industry even for successful titles and companies. Itís way worse for the also-ran titles. Indie titles have a tough time making significant money due to distribution/advertising challenges. Take a good look before you leap is my advice. I loved my colleagues, loved the challenge of maximizing the hardware, the graphics tricks, the physics engine. I hated the crush to ship and the economics were terrible overall. The only reason it worked out was I had shares in the startup and we got bought by Sierra, making us public. Then, Sierra was bought and things went insta-shitty and most of the good coders quit.

On buying NYC property, I bought in Cambridge, MA, fairly convinced that people are almost always going to want to live in the greater Boston area. I think that goes double for metro-NYC. People on MMM skew more conservative on average, which is understandable. MMM provides a roadmap for near-certain financial independence and plunking $150K down on a $750K volatile asset is far from a sure thing...

5oclockshadowmustacheNYC

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Given your income, your top federal tax bracket is 24% and NY is 6.65%. You are giving away over 30 cents on each dollar made by not maxing out your 401k. Meaning that whatever you do with those funds needs to grow over 44% to get back to where you would be on day 1 if those funds were invested in your 401k.
Well, that 401k money will be taxed as ordinary income upon withdrawal, so it doesnít need to grow by fully that amount unless his marginal rate in retirement will be 0% (extraordinarily unlikely for an NYC-based programmer).

On the games industry aspiration: I was a games programmer for a few years, shipped a title and worked on another successful AAA title. Itís a pretty crappy part of the programming industry even for successful titles and companies. Itís way worse for the also-ran titles. Indie titles have a tough time making significant money due to distribution/advertising challenges. Take a good look before you leap is my advice. I loved my colleagues, loved the challenge of maximizing the hardware, the graphics tricks, the physics engine. I hated the crush to ship and the economics were terrible overall. The only reason it worked out was I had shares in the startup and we got bought by Sierra, making us public. Then, Sierra was bought and things went insta-shitty and most of the good coders quit.

On buying NYC property, I bought in Cambridge, MA, fairly convinced that people are almost always going to want to live in the greater Boston area. I think that goes double for metro-NYC. People on MMM skew more conservative on average, which is understandable. MMM provides a roadmap for near-certain financial independence and plunking $150K down on a $750K volatile asset is far from a sure thing...

There are few opportunities to straight-up just get hired into the games industry in NYC, so competition is tough.  I'm going to keep attempting to get a job there regardless, but I figure...may as well put money aside for early retirement in case that never happens.  If my money keeps making me money no matter what, then I don't have to care how much money my indie games make.  I could just make games...or contribute to open source projects as I see fit.

And I figured $750k is not a reasonable purchase for my goals, but I'm trying to hone in on what number might be a reasonable purchase.  Thanks for the insight!  Did you work on anything I might have played?

sokoloff

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Probably not. I was tech lead for NASCAR Racing for OG-Sony PlayStation (1996 I think) and have credits on NASCAR Racing 2 (1997 PC).

Iím old. ;)

brooklynmoney

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Check out Jackson Heights. I almost bought there. Lots of beautiful affordable prewar coops close to the subway.

Bubble Beard

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Buying in NYC is itís own animal entirely and does not resemble buying in any other US market.  From your post, it looks like you have a fair amount to do before youíre ready to jump in, but your ultimate goal is not unreasonable: lower your long-term housing cost by buying into the market. 

The amount you can overpay for NYC real estate is completely unlimited, so to succeed at that goal you will need to pick something that suits your needs while minimizing cost, typically by accepting trade-offs that you wonít care about but other people do.  Easy ones (and the ones I have made personally) are not buying new construction, which is always insanely expensive, getting a place with fewer square feet but a more efficient layout, and buying in a neighborhood that has the conveniences, amenities, etc., you want without buying into a hyper-inflated ďcoolĒ neighborhood like DUMBO, Greenpoint, Williamsburg, Chelsea, etc. It sounds like youíve made headway on these points already by looking at smaller 2 bedrooms in Astoria.

Now, the financial piece.  This is where it gets tough.  The math you have suggested does not work. The mortgage amount and interest rate youíve proposed on 15-year loan is about $3k a month for P&I alone.  You are not allowing anything for maintenance, which varies but will in average will be about 30-50% of your mortgage payment for a low-maintenance building. An online calculator might think you can afford that loan on $110K, but a coop board will not.  You can avoid some of this headache by buying in a condo, condop, or a sponsor unit, but that will mean paying 20-30% more, which is a bad idea if you are looking to minimize housing costs.

So your first step is to do some research into coop boards in your preferred area.  I donít know what boards in Queens require, but my board requires 30% down, typically about 2 years of mortgage and maintenance payments in the bank after you close (retirement assets donít count), and monthly mortgage and maintenance cannot exceed 20% of income. Boards in your area may well be easier, but this is your biggest hurdle.

5oclockshadowmustacheNYC

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Buying in NYC is itís own animal entirely and does not resemble buying in any other US market.  From your post, it looks like you have a fair amount to do before youíre ready to jump in, but your ultimate goal is not unreasonable: lower your long-term housing cost by buying into the market. 

The amount you can overpay for NYC real estate is completely unlimited, so to succeed at that goal you will need to pick something that suits your needs while minimizing cost, typically by accepting trade-offs that you wonít care about but other people do.  Easy ones (and the ones I have made personally) are not buying new construction, which is always insanely expensive, getting a place with fewer square feet but a more efficient layout, and buying in a neighborhood that has the conveniences, amenities, etc., you want without buying into a hyper-inflated ďcoolĒ neighborhood like DUMBO, Greenpoint, Williamsburg, Chelsea, etc. It sounds like youíve made headway on these points already by looking at smaller 2 bedrooms in Astoria.

Now, the financial piece.  This is where it gets tough.  The math you have suggested does not work. The mortgage amount and interest rate youíve proposed on 15-year loan is about $3k a month for P&I alone.  You are not allowing anything for maintenance, which varies but will in average will be about 30-50% of your mortgage payment for a low-maintenance building. An online calculator might think you can afford that loan on $110K, but a coop board will not.  You can avoid some of this headache by buying in a condo, condop, or a sponsor unit, but that will mean paying 20-30% more, which is a bad idea if you are looking to minimize housing costs.

So your first step is to do some research into coop boards in your preferred area.  I donít know what boards in Queens require, but my board requires 30% down, typically about 2 years of mortgage and maintenance payments in the bank after you close (retirement assets donít count), and monthly mortgage and maintenance cannot exceed 20% of income. Boards in your area may well be easier, but this is your biggest hurdle.

Wow, see, the maintenance fee thing is exactly what I was afraid of.  I figured there had to be some ongoing building fee even after buying the unit, but up to 50% of of the mortgage payment?  A quick Google search tells me that the average fee could be $1500/month, which even at the low end of this would require a rather cheap mortgage for this to start saving me money in the long run.  Thanks, you've given me a lot to research, and right now it's looking like buying a home in this city might be a thing I do post-retirement with a large amount of cash on hand rather than postponing my retirement by that much longer.  We'll see what the market looks like in a couple of years.

Fomerly known as something

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My maintenance fee on my Old co-op in Queens was actually closer to 70% of my mortgage.  But co-ops are an interesting animal.  Maintenance includes property tax and often payments on an overall mortgage for the development. 

My queens place required 20% down was fuzzy on additional cash but required a minimum salary at the time of $50,000 for a single person $75,000 for a couple.

tedman

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Iíll share some stats about my 9 years in NYC.

School 5 years (went back to school, worked until going back after dropping out 15 years ago). Work 4 years (took a year to find a job total, 4 months after grad, and 5 months after 1st job while trying to work for myself and 1 day after I started looking seriously again this year while continuing to work for myself on the side).

Rent 2000 UES 2BR split 50/50 with GF, parents helped with 50% of rent during school (super fortunate to have parents with means) since in city tuition savings were insane, I paid everything else I could with part time book keeping work, GF paid for most expenses and food (we lived super frugally).

Rent stayed at 2k until 2014, then started going up by 100 a year until we moved in Late 2017.

GF has amazing Gov job, benefits out the wazoo pension etc. 15k cash. She pays into her pension and she pays for our healthcare, this is really our first full year of dual income, weíve saved 25k so far.
Iíve done the max Roth contrib every year since 2002, 229k. 3k cash. 12k taxable vanguard.

I make 65k, 15k-20k side business.
GF 70k + research Grant 9k, summer class teaching 8k.

All of this, and we STILL had to pull out all the stops to get approved by the board in Queens in a 300k co-op. Our place was in great condition, but old interior, newly renovated go for 360-400k.

Our mortgage is 1000, maintenance is 775. We pay 195 for a garage spot and Iím paying 300 a month in car financing/insurance (1.6 finance%)which MMM would strangle me for, but the two trips a month average we take to see family, friends, nieces nephews was so expensive with zip car or something that this actually saves us money long term, we take mass transit for work, walk to shopping and will bike when we get a bike spot in the co-op.

We are also fortunate that I will work in Manhatten or Brooklyn in finance and my wife works east on Long Island, so we settled in Kew Gardens which may be a good investment, but thatís not why we bought.

The bank would have given us a mortgage for 5000 a month, but the coop needs debt to income of 27%, and we barely made it basically (they didnít want to count my side hustle, or my wifeís grant work or summer work since that could end, but so could our jobs????? I screamed in my head during the board interview).

Anyways long story short, settling for a very modest place by NYC standards means that I will be able to ďretireĒ in another 5-10 years and just keep doing my side hustle. My wife is stuck for another 18 years minimum but her pension is so insane itís worth it given her work load, and Iíll gladly be the person cooking and cleaning at home when we get there.

lhamo

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I lived in NYC from Sept 1999-Feb 2002.  Bought a co-op in Jackson Heights in mid-2000 and sold in early 2003.  I LOOOOOVED Jackson Heights. We lived in the Greystones, on 80th street, which are landmarked buildings.  They tend to not have underlying mortgages, so the maintenance is cheaper (it was about $450/month when we lived there, now probably 700-800).  But our building also had a lot of deferred maintenance -- we had a large assessment to put on a new roof, put in new windows, and have the whole building's brickwork done.  We knew it was coming when we moved in, and were prepared for it -- were not prepared for how resistant the older contingent of homeowners would be to having necessary work done.  Ended up being a major battle for control of the board, with newcomers winning out and forcing the work through.  Made for some ugly conflicts in the building, which was not fun. 

You definitely need to have your financial ducks in a row to make an offer on a co-op -- usually 30-50% down is required.  We got our place because the board didn't approve the finances of the people who offered before us.  We also voted to turn down a purchaser later because both had unstable job history. 

Jackson Heights has gotten much more expensive, so consider also surrounding neighborhoods like Woodside and Elmhurst. 

Good luck!

Mariposa

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Is your current place rent stabilized? We bought a couple of years ago, but we would have continued renting forever if we had a rent-stabilized space that worked for our family, or even if we could get into a 2bd/2ba moderate income unit for $3500 a month, subject to the city's rent board cost of living increases each year. We bought because we plan to stay in NYC long-term, and rents continue to get more out of control each year. It does look like there's more real estate inventory this year, but I don't know about a substantial fall in prices. There are just so many people living here and so much wealth.

I agree with what others said about buying a co-op here. We did not buy in Manhattan or prime Brooklyn, we have zero debt, two secure W2 incomes, and we had to pull all the stops, too. Our co-op required 33% cash down; in addition, we showed $100k cash in our accounts after closing. We were also required to submit 6 letters of reference and be interviewed by the co-op board. The board had already rejected a previous buyer, who refused to disclose all sources of income. And we were lucky to get in when we did. The people who bought in this building after us submitted an all-cash offer, and the people after them make a lot more money than we do, like $500-600k.

You can get a 1bd in Jackson Heights for $400k. I would say a 2bd is $550k and higher if you want to live in a historic building. Our maintenance, which includes property taxes, heat, water, and building maintenance, is 40% of our mortgage and considered fairly low. In addition, we're usually charged a $1000-2000 assessment each year for a building project (new boiler, roof repairs, etc).

Check out: streeteasy.com

norabird

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I bought for a 3 b/1 ba for  440k 4.5 years ago (parent’s down payment), in a condo where prices are now almost double. Maintenance is 550 and there’s a tbd assessment pending, but I don’t know the likely number on that—several thousand, ten thousand? Where I am in Brooklyn, 400k is now not really enough to buy, though I can’t speak to Queens. You save on car costs being here obviously, and I do love it.

Do max out your 401k.

BrendanP

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Quote
There's a completed luxury apartment unit across the street from me asking for $600k-$700k for apartments the same size as mine, and a year after I moved here, more than half of them are still empty.  I'm expecting housing prices to come down in the next year or two, but I don't have the statistics or know-how to really base that on anything; just intuition that supply exceeds demand 

Two things:
Don't be so confident prices will come down anytime soon. Astoria is a pretty hot area right now. I've lived in Harlem for almost 10 years and there's new luxury buildings on every other street, but I'm not seeing prices drop.

Are you taking CC and taxes into account? They can be substantial depending in the building. Especially if there's a doorman and elevators. Just saying.

5oclockshadowmustacheNYC

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Thanks for the advice, everyone.  My apartment is not rent stabilized, but I'm not expecting too crazy of an increase in rent in the near future, especially since I'm surrounded by much nicer-looking apartment buildings with vacancies.  I'm not married to Astoria, but I do like living here; all things being equal, I would buy a place in Astoria, but the public transit system can make this large city quite small, so there are a good number of other neighborhoods I would definitely be okay with moving to as well.  If the prices don't come down to a level that makes sense, like I'm expecting them to, then I guess I just won't buy a place for a long time.  No big deal.  I'm just trying to optimize my living expenses without moving out of NYC, because I like it here.

bb11

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I'd be pretty surprised if prices dropped significantly. They might not increase by as much as we've seen in the past, but an actual decrease would probably take some fairly extreme events. Are there many major American cities that have seen price decreases in the past 40-50 years?

Cities like SF and NYC are just not building enough housing to meet demand. There's no open land, and zoning restricts development so much. I'd like to buy here too (thinking Jersey possibly for the decreased costs), but it's tough for those of us making it on our own.