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]
3:11
People who can afford to live at Hudson Tea, instead of the west side walk-ups, can afford to take the ferry. It departs from pier 1 block away from the front door of the building.
I neglected to mention that the unit described comes with deeded parking included in the price. Parking is only a problem in Hoboken if you are too cheap to pay for it.
“Bed Stuy is GREAT if you’re not white.”
But Dave is white.
The assumptions I posted were meant to assume that housing prices are way too high with those assumptions. I believe the current income portion equates to roughly a 6.5% capitalization rate. The big question which I am unsure of is what is the required rate of return on an unleveraged basis. Since real estate is not as correlated with the market, it would suggest a required ROA of something half way between the risk free rate and the market rate.
Regarding the post from daveinbedstuy, I think it is not appropriate to compare the down payment with the risk free rate. On an unleveraged basis, there can be major swings in value. The equivalent risk adjusted return for your downpayment would probably take the Return on Equity of a basket of residential REITS and that have 80% leverage. The required rate of return on an investment of equal risk to the down payment should probably of a return of 20+%
3:11
If you can afford to live at Hudson Tea you can afford to take the Ferry – it really is 10 minutes.
The Hudson Tea unit includes deeded parking.
Get your facts straight.
3:11,
I use to live in Hoboken. Now I live in Park Slope.
Hoboken is a nice place. The first time I saw Park Slope I remember thinking “this is what Hoboken wants to be when it grows up”.
The better neighborhoods of Brooklyn are better than Hoboken, but I’m not sure how much longer Brooklyn can support prices too much higher than Hoboken.
However, 10 minutes to Manhattan is the usual realtor misinformation.
Once the PATH train leaves the station you will be at Christopher or World Trade in 10-15 minutes if there are no delays.
If the place you are living has a shuttle to PATH, I assume it is 1/2 mile or so away, so add 10 minutes for the shuttle.
And then ~5 minutes for a train during rush hour and 15-45 minutes for a train off peak hours.
So that’s, 25-70 minutes to Manhattan.
Oh, and parking is worse than Park Slope. Believe it or not…
“1.23 – the point was its irresponsible of you to live there – theres plenty of safe nabes that aren’t park slope.”
Except the definition of “safe” for you elitists is whether the neighborhood is black or white. That’s all it takes for you. You could easily call the precinct somewhere about a particular street you’re considering and find out if there is actually crime there. But no, why do that when you can make vast generalizations? I actually question YOUR parenting. You way overpay for real estate leaving you house poor so you can’t afford to give your child the extras in life like international travel or paying for college years from now so they don’t have to take out a student loan.
People have an inflated view of what their cash will earn if its not used as a downpayment. Average long term return of the stock market is ~7%. 10 year treasuries are at 4.05% and 30 Yr treasuries are at 4.7%. I’m not sure a lot of people understand reinvestment risk either.
Assumptions above the 7% can not be supported over the long term. And, are much more volatile over the short ter…both up and down
Hoboken is a great choice – $700K gets you:
The Hudson Tea condo
13 foot ceilings.
1200 Sq Ft.
2 bedroom
2 bath
granite counters
stainless steel appliances,
wainescoating in bedroom
parking
24 hour doorman
community room
free, 2700 sq ft. state of the art gym
one block to the ferry
private shuttle to the PATH
bus to Port Authority at corner
Restaurants and bars at your doorstep
Some units have amazing NYC views
10 minutes to Manhattan
vibrant, urban living with a small town feel
Who on earth would you choose Lodi over Hoboken?
Mrspock: your assumption of 1% above inflation for appreciation is above the historic averages. More importantly, given the appreciation of recent years, it is unreasonable to expect the next period to come close to the historic norms — a significant drop is far more likely.
Accordingly, your purchase projections are too optimistic and your rental equivalent should be higher. Buying is not nearly as good a deal as you suggest.
On the other hand, you are requiring a 15% return on your downpayment, which seems a bit rich — or maybe that is to reflect the risk that you won’t earn your 4% return.