Author Topic: Keep or Sell NYC apartment  (Read 7345 times)

Solo

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Keep or Sell NYC apartment
« on: May 12, 2013, 12:10:43 PM »
Hi everyone,

First off, I want to thank the MMM community for all of the informative and enlightening discussions I've been reading since the forums opened. Great stuff, and a very supportive group.

Now onto my situation and question. I own a second home in NYC (a studio apartment) that I purchased in 2001 for $180,000, and lived in until 2011 when I refinanced with cash out (the apartment was then appraised at $385,000) to purchase a single family home outright in one of the surrounding boroughs, which I live in with my wife and one-year-old.

After refinancing earlier this year to 3.25% on a balance of $287,000, my monthly cost is roughly $2,500 ($1,250 mortgage + $1,100 for co-op maintenance charges + $150 in utilities and insurance). I would love to rent it out, but it's a co-op and the board is against rentals in the building (/shakes fist in frustration). I'm wondering whether I should keep it or not. This apartment is my only debt, period. I take home roughly $7,600/mo. after maxing out my 401k, paying for health insurance, etc., and my non-real estate assets (i.e. savings, investments, retirement) total roughly $700,000.

Even though I can technically afford to keep it without renting it out, my gut tells me to sell the place (my last appraisal was for $560,000 back in February, though I think that's a bit high). But with the low interest rate coupled with the mortgage tax deduction (45% of the co-op maintenance charges are also tax deductible), the fact that it's Manhattan real estate with prices rising once again, that real estate can be a good hedge against inflation, that my family loves to use the place, and that my wife and I have often thought of it becoming our "old-age" home once our little guy has grown up and out (we're both in our late 30's), I have been hesitant to make any moves.

What would you do? Thanks in advance.

totoro

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Re: Keep or Sell NYC apartment
« Reply #1 on: May 12, 2013, 12:20:21 PM »
I don't know your market well so it is hard to comment but, in order to keep it, the appreciation would have to outpace current losses which include your monthly/annual expenses after tax deductions, plus lost investment returns on the equity of approx $280 000.

In my area, this would not make sense.  If you are sure you would move back to the city and would want to live here then it would only make sense if, in 17 years or so, you could not buy in for less than what you would make on the money in something else.

NY RE might be worth the gamble, but other types of investments will bring you a more secure return.

Finally, is there any way around those co-op restrictions?  In my neck of the woods you can have family stay in units that have rental restrictions.

Welmoed

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Re: Keep or Sell NYC apartment
« Reply #2 on: May 12, 2013, 12:29:48 PM »
This may not be helpful, but I wanted to share it because it helps me keep things in perspective.

I have always wanted a place in NYC. Nothing fancy; just a studio or 1-bedroom that I could use during visits. One day I asked my accountant (who lives in Queens) whether it would make any sense to buy a little place in the city. After he stopped laughing, he told me, "You could come up to New York for a week, four times a year, on the Acela first class, stay at the Plaza, show up naked and buy all your clothes at Bergdorf's, and STILL not spend as much as you would on a place in the city."

So when I come up to the city, I always remember his sage advice. And most of the time I crash on a friend's couch.

Solo

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Re: Keep or Sell NYC apartment
« Reply #3 on: May 12, 2013, 12:51:13 PM »
Quote
I don't know your market well so it is hard to comment but, in order to keep it, the appreciation would have to outpace current losses which include your monthly/annual expenses after tax deductions, plus lost investment returns on the equity of approx $280 000.

Thanks totoro. This makes sense, and I'll certainly have to do some calculations. There are obviously unknowns in the equations (i.e. the real future cost of things), but using some rough numbers should still give me an idea of what's possible.

Quote
Finally, is there any way around those co-op restrictions?  In my neck of the woods you can have family stay in units that have rental restrictions.

Yes immediate family can stay in the apartment, though I don't have any that want to stay for any real stretch of time to offset the cost.

Quote
I have always wanted a place in NYC. Nothing fancy; just a studio or 1-bedroom that I could use during visits. One day I asked my accountant (who lives in Queens) whether it would make any sense to buy a little place in the city. After he stopped laughing, he told me, "You could come up to New York for a week, four times a year, on the Acela first class, stay at the Plaza, show up naked and buy all your clothes at Bergdorf's, and STILL not spend as much as you would on a place in the city."

Thanks Welmoed. Actually this is a discussion I've had with my wife, and it's probably another bit of calculating I should tackle (i.e. home cost vs. "visiting" cost), though I'm pretty sure it'll align with your accountant's advice. :-)

sheepstache

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Re: Keep or Sell NYC apartment
« Reply #4 on: May 12, 2013, 04:09:00 PM »
As somebody who used to sublet in a co-op, are you sure you can't get away with it? It seems like plenty of people do it.  Of course, if you are a by-the-rules type this will strike you as wrong.  But if you are a spirit-of-the-rules type, you might examine why the rule is in place.  My impression is that co-ops don't want absentee landlord types or a regularly changing set of tenants.  Owner responsibility and building stability is the advantage of co-ops, after all.  So carefully screening tenants would be key.  Don't charge too much and really work to find someone polite and long-term.  A lot of co-ops allow sublets for up to two years provided it is then owner-occupied for the next three years.  Or something like that.  But at the end of two years, either nobody notices a subletter is still there or it doesn't bother them enough to bring action.  Even if the co-op is displeased with you, it shouldn't economically effect your position and would buy you some time.

jamccain

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Re: Keep or Sell NYC apartment
« Reply #5 on: May 12, 2013, 05:20:43 PM »
Another option is using it as a vacation rental. 

Not sure if the co-op would prevent this, but it's a huge growth sector right now and would give you several advantages.

1. Keeps your inflation hedge
2. Keeps a leveraged asset
3. Keeps it available for your families use
4. Captures future appreciation
5. Gets a return

I am sure there a management companies in NYC who could handle the logistics for you. 
 

totoro

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Re: Keep or Sell NYC apartment
« Reply #6 on: May 12, 2013, 06:23:38 PM »
Vacation rentals (I own one) are usually harder to get authorization for.  I would suspect the coop would not permit this.... and may be illegal under city bylaws as well.

smedleyb

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Re: Keep or Sell NYC apartment
« Reply #7 on: May 12, 2013, 08:43:45 PM »
If you can't rent it, then you absolutely must sell it.  I mean, the numbers speak for themselves.  Follow your gut, dump it, an reinvest the money in a REIT or a property you can actually rent out. 

Having a paid off residence in NYC and a nearly 7 figure liquid portfolio definitely puts you within the ballpark of FIRE (depending on your level of badassity).

lhamo

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Re: Keep or Sell NYC apartment
« Reply #8 on: May 12, 2013, 09:59:07 PM »
I would sell.  That's what we did.  We bought our place (a 2+ br in Jackson Heights) for just under 120k in 2000.  We relocated to China in February 2002.  It sat empty for almost a year, while we evaluated whether our overseas move would be permanent or not.  We put it on the market in January 2003 and immediately got an offer (that we accepted) for 280k.  Two years later, the people who bought it from us sold for $560k.  Did we regret not getting that second doubling in the value?  Yes, but two years after they sold the market tanked and prices went down to the 300-400k range.  And we would have been paying $1200/month in mortgage and maint. that we coudln't get back. For us selling was the right thing to do.  YMMV.

KingCoin

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Re: Keep or Sell NYC apartment
« Reply #9 on: May 13, 2013, 08:18:49 AM »
This strikes me as an obvious sell.

You could plow the $250,000+ in equity into a couple ho-hum turn-key properties elsewhere and conservatively net $1350/mo after expenses. So you'd go from losing $2500/mo to making $1350/mo, a reversal of over $46k/yr. That buys you a lot of hotel room nights.

Manhattan real-estate is punchy right now, but I think co-op studios have less upside than say, 2-bedrooms on a percentage basis. We're approaching a pricing level that is going to get the new construction machine humming again (which we're already seeing). Additionally, if NYC real estate stays bullish, there's probably even more money to be made with the equity elsewhere.

Solo

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Re: Keep or Sell NYC apartment
« Reply #10 on: May 16, 2013, 07:09:19 PM »
Thanks everyone. All of the feedback is truly appreciated. I have to say it has been weighing on me, and it's great to hear others say what I've been thinking for a while now. Frankly, if I got rid of it, I'd even be able to work part-time and be able to spend more time doing what I want. Seems like a no brainer at this point. Thanks again!

smedleyb

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Re: Keep or Sell NYC apartment
« Reply #11 on: May 17, 2013, 08:27:31 AM »
Good luck Solo.

capital

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Re: Keep or Sell NYC apartment
« Reply #12 on: May 17, 2013, 11:46:21 PM »
Manhattan real-estate is punchy right now, but I think co-op studios have less upside than say, 2-bedrooms on a percentage basis. We're approaching a pricing level that is going to get the new construction machine humming again (which we're already seeing). Additionally, if NYC real estate stays bullish, there's probably even more money to be made with the equity elsewhere.
I moved to NYC in late 2011 and there were stalled construction sites and vacant lots everywhere. There aren't really any stalled construction sites anymore.

aj_yooper

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Re: Keep or Sell NYC apartment
« Reply #13 on: May 18, 2013, 12:26:17 AM »
Wow on your stash! 

So you have a leveraged, currently appreciating asset that requires high octane monthly feeding, but you and your family occasionally enjoy it.  It's not much of a tax shelter; you and your wife enjoy reminiscing about the fun times there in the city and maybe in the way future...  Did I miss something? 

It hasn't been a vital part of your real life for years.  You have spent at least $60k on this project.

Take some pictures of your old friend and officially move on.  You already have.



OzzieandHarriet

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Re: Keep or Sell NYC apartment
« Reply #14 on: May 30, 2013, 04:42:05 PM »
We are in a similar situation. We have a studio in Manhattan that we bought in 2005. The money for it came from selling a house that we had been renting out; when the market in our area picked up around that time, we decided to sell it, and had some misguided, starry-eyed idea that we would be able to use the apartment in NY as a second home at some indeterminate point in the future. It is in a co-op, and at the time we bought sublets were allowed, so we have been renting it out at a small profit since then. BUT, the co-op rules were changed, so we will have to boot our tenant out at the end of this year. At one time we were thinking we'd just keep it, but as you have seen, it's not financially worthwhile. So we are sadly planning to sell it, having never used it ourselves except for sleeping in it for one night. :( At least we won't have lost TOO much $$ on it.

ep114

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Re: Keep or Sell NYC apartment
« Reply #15 on: June 09, 2013, 03:47:26 AM »

Lord, if it were me, I'd sublet it.   Probably something informal without a lease. Do you have any co-workers, interns, etc in the market for a studio?  You could rent it to a young woman, and if anyone on the board complains, say it's your girlfriend and she's not renting, she's just staying there waiting for your weekly trysts.   (or your wife with a young guy, or you whatever combination of sexes seems like the most fun)  or couldn't you say it's your cousin....they can come in all races/nationalities, etc. mostly anyone can look like your cousin.   (although I have to say I admire your respect for the rules. you might be the only one in NY who follows them...)

Solo

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Re: Keep or Sell NYC apartment
« Reply #16 on: June 09, 2013, 05:17:39 PM »
I'm sure I could easily find someone who wants to sublet it, good people who won't tear the place apart, but the board is definitely strict and unbending. Everyone has to go through a background check, even family members (I had my sister stay at the place for a couple months, and had to pay a couple hundred bucks for the whole process). Couple that with the fact that the doormen know everyone who lives there, and simply won't let anyone in that they don't know, it's just not possible. Believe me, I wish there was a way.

There are a lot of crazy things with coops. You can find a buyer for your place, and if the board doesn't like them, can block the entire process. As I understand it, legally, they don't even have to say why.

RedMaple

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Re: Keep or Sell NYC apartment
« Reply #17 on: June 09, 2013, 05:25:35 PM »
Wow the $1,100 co-op maintenance charges are high, would you say this is the average amount in NYC? 

Solo

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Re: Keep or Sell NYC apartment
« Reply #18 on: June 09, 2013, 06:54:54 PM »
Roughly speaking, because there are many reasons for high or low charges, maintenance costs range from $1.25 to $2.00 per square foot. They could be much higher for some posh buildings with lots of amenities. For a studio, my maintenance is a smidgen on the high side (it's about 650 sq/ft), but it's not out of the norm.

tryan

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Re: Keep or Sell NYC apartment
« Reply #19 on: June 13, 2013, 06:30:25 AM »
I would rent it.  Have an agreement with the tenant to say he's family - if asked.

"That's our story and we're sticking to it".   It's a play on future appreciation without any cost out of pocket.

On a side note, have the HOA rules ever been challenged in court.  Seems a little heavy handed.  My guess is they are all bark and no bite.  And you're not even there to get the "dirty looks".

emilylivingstonee

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Re: Keep or Sell NYC apartment
« Reply #20 on: October 06, 2015, 04:24:51 AM »
I don't know your market well so it is hard to comment but, in order to keep it, the appreciation would have to outpace current losses which include your monthly/annual expenses after tax deductions, plus lost investment returns on the equity of approx $280 000.

In my area, this would not make sense.  If you are sure you would move back to the city and would want to live here then it would only make sense if, in 17 years or so, you could not buy in for less than what you would make on the money in something else.

NY RE might be worth the gamble, but other types of investments will bring you a more secure return.

Finally, is there any way around those co-op restrictions?  In my neck of the woods you can have family stay in units that have rental restrictions.

You sound like a real estate investor. However I do not know about your field. I was just searching for a rental apartment in NYC when came across your thread. I recently booked a rental apartment via instratany