You Have $140K Down, Where Do You Buy?
Competition is heating up amongst developers as all the new towers started during the boom years are beginning to come on the market. Unfortunately for developers, an inconvenient thing happened with the mortgage industry — it crashed. The time when buyers could put as little as nothing down on their mortgage is over; now they…
Competition is heating up amongst developers as all the new towers started during the boom years are beginning to come on the market. Unfortunately for developers, an inconvenient thing happened with the mortgage industry — it crashed. The time when buyers could put as little as nothing down on their mortgage is over; now they are expected to come up with 20 percent. “Developers better have a good product if they want to sell,” commented Halstead Director Bill Ross. First-time home buyers, without the equity from the sale of their previous property, will have the toughest time meeting the new requirements, he said. In some places, prices will have to drop. We decided to play a game of comparison shopping for two bedrooms, and a few other options with more space, all priced between $600K and $700K. Pretend you’ve got $140,000 burning a hole in your savings account. Scores of new condos are on the market all vying for your attention; the borough is your oyster. Which one do you choose…
The first choice is a four-room condo at The Crest in Park Slope along burgeoning Fourth Avenue, quick walking distance from transportation and two of the borough’s best retail and restaurant strips. This sprawling duplex in Bushwick (er, East Williamsburg) has two floors, a private garden and a working fireplace. Or you could give up some space to live in the real Williamsburg and have everything you could possibly want at your doorstep. This even smaller condo in Downtown Brooklyn’s BridgeView Tower is literally right next to the bridges into Manhattan, saving you money on cab fare, has SubZero appliances and a “cascading waterfall” in the lobby. Or you could snag an extra bedroom at the lofty Washington Condos in Prospect Heights, an up-and-coming neighborhood and right near Atlantic Yards. And then there’s always the fuhgeddabout-Brooklyn option, this two-family home with an above-ground pool and double curb cut in Lodi, New Jersey. Which one is it?
David Leonhardt of The New York Times advised in a column Monday that you answer none of the above. While he chose to finally buy a place in Washington, he said New Yorkers should invest their down payment for now until the rent ratio (see link, it involves math) decreases. His philosophy as “an evangelist for renting” has been that once you add in the closing costs, repairs, property taxes, mortgage principal, mortgage interest, and other monthly bills if you own a condo or co-op, you might be earning more on your $140,000 down payment if it were invested in something besides real estate.
As Home Prices Drop, Committed Renter Buys (in Washington) [NY Times]
12:16, Because in 30 years you will be done paying for the house.
You must then factor in the remaining years of your life that you will be renting…
I will have my house paid off at age 59. Will you want to be renting at that age, approaching retirement and on a fixed income??
You are a whimp 12:04. Patchen is in Ocean Hill
Can someone review these assumptions and explain to me whether they seem to be correct? If they are, how can anyone justify buying an apartment based on where rents are?
Assumptions
Square Feet 750
Purchase Price 750,000
Price / Sq Foot $1,000
Maintainence 1,200
% Maintainence Deductable 33.0%
Mortgage Rate 7.00%
Effective Tax Rate 35%
Expected Inflation 3.0%
Expected Premium to Inflation 1.0%
__________
Expected Annual Appreciation 4.0%
Leveraged Appreciation 20.0%
Add: Required Cash ROI 15.0%
__________
Total Annual Return on Equity 35.0%
Total Return on Asset (unleveraged)7.0%
“Real” Purchase Cost
Cost of Apartment 750,000
Add: Capitalized Mo. Maint 212,044
__________
Total Cost 962,044
“Real” Cost / Square Foot $1,283
Equivalent Rental Cost
% Down Payment 20%
Down Payment 150,000
Monthly After Tax Mortgage Payments (Interest Only) 2,275
Add: After Tax Maintainence Costs 804
__________
Total Monthly Payments 3,079
Add: Required Cash ROI (equity down) 1,875
__________
Expected Monthly Rental 4,954
11:49: This is why I don’t live in Bed Stuy:
^^^^^
Suspect Shot by Police Officer in Brooklyn
NEW YORK (1010 WINS) — A 28-year-old man was shot by police in Brooklyn Thursday afternoon after he allegedly opened fire from a minivan and shot a woman in the leg.
1010 WINS AUDIO: Al Jones Reports
The incident happened in front of 175 Patchen Avenue near Macon Street in Bedford Stuyvesant around 4:30 p.m.
Police say the suspect was in a red minivan with North Carolina plates when he opened fire and hit a 32-year-old woman in the leg before speeding away.
Police officers followed the suspect as he drove south on Patchen Avenue. The suspect crashed the van on Macon Street and then pulled out a .45-caliber Starfire semi-automatic firearm and exchanged fire with the police, officials said.
The suspect was shot once in the hip, police said.
Both the suspect and the woman were taken to Kings County Hospital in stable condition.
None of the officers were injured.
I would go to Bedford Stuyvesant or Crown Heights. I want a nice brownstone but I can not afford even with 140K to live in Park Slope or Ft. Greene. I can handle the crime I lived in Ft Greene back in the early 90s. Bedford Stuyvesant seems to have the same architecture as Park Slope but the homes are like 800K and well perserved.
Wait 6-12 months or until you hear some good news about the market.
I read that article yesterday and have to agree with the logic (although he doesn’t quite explain how to add “maintenance” in — I assume you add annual costs to the price).
So, since I can rent a 2 bedroom in park slope for $34,000 per year (~2800/mo), I’ll be looking to buy when I can get a 2 bedroom somewhere I want to live for ~15x that (500-550K).
To pay 700K, I’d need my rent to go up to $46500 a year ($3875/mo).
I wouldn’t buy any of these, that’s for sure. The Crest? Man, just go south 15 blocks and you’ll see much better product on quieter streets, including some late model resale condos that have the advantage of already being established.
What about south slope, greenwood/sunset park and WT/kensington? Definitely better deals to be had there, in nicer neighborhoods.
10:25#1, nice shout out to Concord Village, PS8 and the Shake Shack. I don’t live in Concord Village and am not crazy about the look of the complex and location, but know a couple of families who live there and like it a lot.
10:25#2, I get your point, but you can hardly equate the once in the history of mankind tech bubble to the history of real estate prices. Real estate investing has a pretty solid long term history. Further, one can’t live in an AOL share or a Euro (or an ice cream cone or a pair of $500 Manolo Blahniks, as we learned the other day). So even if one overpays (however that might be determined) for a home today and housing prices fall in the near term, as long as the home was purchased as a primary residence and not a short term speculative investment, one will always obtain value from it.