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Buying vs renting an apartment (New York City)?
October 10, 2011 8:59 AM   Subscribe

Buying vs renting an apartment (New York City)?

22 year old college grad living at home in Manhattan. Credit score is around 743; have about $25k in student loans and credit card debt that should be eliminated in about 2 months.

I've got a stable $40k a year job and make about $9000 a year with various side hustles, bringing me to just shy of $49000 a year in total. The jobs are ones with serious opportunity for growth/raises.

I've been living at home all my life, and do plan to move out relatively soon. Renting seemed like the obvious choice, but I am fiddling with the idea of purchasing an apartment.

I have no idea where to even begin looking, but from what I understand there are some great apartments going at cheaper rates because of ongoing gentrification or construction.

Can anyone offer me some guidance on this? How do I know what I can afford and what I can't? Am I better off waiting till I can make some more money? This isn't something I'm looking to do immediately; probably won't until about the late winter/early spring.
posted by inTikiwetrust to Work & Money (17 answers total) 2 users marked this as a favorite
 
Not to be too abrupt, but unless you've got a substantial amount of money for a downpayment, you're not going to find a place to buy in a neighborhood you want to live within an hour's drive of manhattan.
posted by Oktober at 9:05 AM on October 10, 2011 [4 favorites]


Seconding Oktober. This town is expensive to live in, to say the least, and especially because you've been living at home your whole life, you will probably soon realize that you are spending a whole lot more money than you would ever expect to.

Just as a datapoint, I'm making a reasonably larger amount than you and do not have any credit card nor college debt at this point, but still do not feel in my situation that the balance tips to buying yet. Past the initial seemingly insurmountable down payment and mortgage payments, there are also the monthly condo/coop fees as well as property taxes to worry about.

I would highly recommend renting for a period of time (at least six months) to establish what an acceptable living budget for you is, and see your savings rate, and then go from there. During that time, do check out what would be out there in terms of condos and coops, but make sure you don't end up overbuying for your income.
posted by jangie at 9:13 AM on October 10, 2011


It probably goes with the same rules for buying a house. You have to look at the cost of the mortgage, what you can afford as a down payment, whether you'll be able to afford the monthly mortgage payment, property taxes, upkeep, repairs, condo fees (if applicable), and utilities.

Plus, how likely are you to be able to afford a place you would want to live for an extended period of time, right now? What if you move in and find out there's something you really don't like? I'm in my first out-of-the-house apartment, and one of the things I really like is the feeling of non-permanence and lack of responsibility. Like, sure, I've got a place to stay as long as I want and I have rent. But if the roof is leaking, not my issue. If the sink breaks, not my issue. If I decide at the end of the year that I want to move ten blocks away because it's closer to my favorite coffee shop (or whatever), I can. You're young -- enjoy the freedom of being young while you can.

Financially, it's probably a better idea to save up until you've put away a sizable amount as down payment and "emergency" money. Even if you've got a secure job situation, Americans buy on credit WAY too much. It's much smarter to buy when you can really afford it, not when you can just barely scrape by.
posted by DoubleLune at 9:15 AM on October 10, 2011


At your income you're on the roommate/living paycheck-to-paycheck in a distant Queens apartment side of NYC real estate. I would not consider purchasing until your income increases significantly.

Do your parents discuss the household finances with you? If I were you, I'd sit down with them and ask them to break down how much your current home costs in rent, utilities, etc. That'll help you get a better sense of apartment renting/ownership. Also consider that when you own, you're responsible for anything that goes wrong in your apartment--not your landlord.
posted by litnerd at 9:16 AM on October 10, 2011


How can you eliminate $25,000 in student debt in two months on a salary of $49,000? Assuming no-one else is buying out your debt, and that you pay no taxes, and absolutely no other expenses, it would take a bit over 6 months to pay that off. How did you make the calculation?
posted by Yowser at 9:17 AM on October 10, 2011 [3 favorites]


I agree with everyone here. You're looking at renting for the next decade or so.
posted by roomthreeseventeen at 9:20 AM on October 10, 2011


As a rule, if you're really not sure whether to rent or buy, rent. A lease lasts a year; a mortage lasts - well, not forever, but close enough.

Also, New York in particular is staggeringly more expensive to buy in than rent in - and even renting is staggeringly pricier than just about anywhere else. if you lived in most of the country, a stable $49K a year would be a fine place to start thinking about buying something modest; New York is not most of the country.

Two more points, that pale in comparison to "oh god don't buy:"

1) Buying before you have familiarity with basic household management via renting is, itself, ill-advised. Walk before you run.

2) You're talking about taking out a loan for hundreds of thousands of dollars on a single asset in one of the most brutal markets in the world for real estate; even if you were in a great position to undertake it, your timeline is not quite right. "Late winter/early spring" is "immediately."
posted by Tomorrowful at 9:21 AM on October 10, 2011 [1 favorite]


Can anyone offer me some guidance on this? How do I know what I can afford and what I can't? .

The guideline is that you should only mortgage 3x your yearly income. Given that $9k of that income is not assured, even a $150k mortgage is a bit risky for you (though an acceptable risk). So, given that you live in NYC, what on earth are you expecting to buy for $150k?

There might be some areas in the outer boroughs where it may work out for you, but you should wait until you have a decent amount of capital saved up and are familiar with the neighborhood and the mechanics of household management and personal money management before you think about this.
posted by deanc at 9:24 AM on October 10, 2011 [4 favorites]


Even if you could easily afford it, to be honest, moving into a place you BOUGHT directly from your parents' house seems like a bad, bad move. You don't even really know how to live on your own, and trust me, that is a huge project all by itself. I mean, I'm just barely getting the hang of running my own household and I've been living on my own for 5 years now. If I had to deal with maintaining the actual apartment itself on top of cleaning, laundry, cooking, etc etc, I'd lose my mind. Really, REALLY just try living on your own first.
posted by showbiz_liz at 9:25 AM on October 10, 2011


I should have clarified - I meant I could clear the credit card debt in about two months.
posted by inTikiwetrust at 9:25 AM on October 10, 2011


Are you thinking of buying an apartment? I am under the impression that you *might* be able to buy a studio for 150k. But you have to take into account common charges or maintenance fees. Also consider staff tips, which can run into the thousands every year.
posted by Ad hominem at 9:31 AM on October 10, 2011


Aside from financial and household management, it is difficult to know what you are looking for in a house unless you have lived on your own (and in New York, that means renting) first.

For example, I didn't know a kitchen with lots of counter space was important to me until I moved into my first apartment and was irritated with the small kitchen within a week. But this would have never occurred to me as a problem, even though (or maybe because) I grew up in a house with a decently spacious kitchen, and it never occurred to me.

I also didn't really have a sense of how to assess the layout of a home until I lived in an apartment for the first time and started appreciating how some rooms linked to the others, while getting annoyed at useless hallways (and while it may be relatively easy to add more counters or cabinets, you're not going to be reconfiguring a condo anytime soon.) Especially in New York where you often have to make compromises on location vs. space/layout vs. price, it's difficult to know what your personal preference for a home layout is -- and what your dealbreakers are -- until you've lived on your own.

People across the country do buy without living on their own all the time, of course. But as posters have said above, New York isn't the rest of the country -- it's unquestionably the most competitive real estate market in the US by leaps and bounds. And especially in the city there's much less homogeneity than in other markets, which would soften some of these concerns.
posted by andrewesque at 10:08 AM on October 10, 2011 [1 favorite]


Honestly, I don't think there's a lender out there who would give you a mortgage in this climate.

andrewesque: "Aside from financial and household management, it is difficult to know what you are looking for in a house unless you have lived on your own (and in New York, that means renting) first."

This is an excellent point.

For a bit of practical advice, I think the oft-quoted-here Suze Orman plan is a good first step for you. When you rent an apartment, set aside an amount each month equal to your rent, because that will (conservatively) be what it will be like for you to pay a mortgage/taxes/upkeep/etc. If you can't afford to live like that, you can't afford to buy. If you can find a way to make it work, you'll save quite a bit over the course of a year toward your down payment.
posted by mkultra at 10:14 AM on October 10, 2011


Everyone's advice is very strong. Honestly, you don't make much money for Manhattan and you should definitely try living on your own before taking on a huge mortgage.

That said, the weird NYC market may give you some options...

A friend of mine purchased an apartment in a very nice Brooklyn neighborhood for about $25K under a special low income situation. I know two other people who have done similar purchases in areas of Brooklyn and the northern part of Manhattan.

Depending upon how you report your income to the IRS you may be considered low income by NYC HUD (limit of "low income" in NYC was 44,350 for a single person in 2010). There are also some programs that may have higher limits if they are not associated with HUD.

A google search for "low income NYC co-ops" came up with the Mitchell Lama program - I think that's it:

http://www.nyc.gov/html/hpd/html/apartment/mitchell-lama.shtml

Co-ops are more restrictive than condos, but there is no way you can afford a true condo in NYC (and very few people do that anyway). You may not be able to sublet your apartment, etc. Make sure you investigate all of these rules and are comfortable with them.
posted by rainydayfilms at 10:43 AM on October 10, 2011 [1 favorite]


I'm going to suggest renting for two reasons:

1) After renting for awhile and meeting/hanging out with friends in various other living situations, you'll get a better idea of what the real estate market looks like and you'll be in a much better position to know where you want to live and in what sort of place/situation.. you may even have the opportunity to rent in a number of different neighbourhoods before you buy, which will give you that much more confidence when you finally do buy.

2) Even if you can afford to buy, renting is much "safer" from financially. You aren't stuck paying it (other than a limited lease).. not in a 30-year mortgage way, anyway. You are also likely to pay less in rent than you would in mortgage/taxes/etc - even if you get money back due to tax and mortgage interest deductions, etc, it will make your budget tighter during the year. That's dangerous - especially when you are young with few assets and are lower on the pay scale.
posted by mbatch at 10:49 AM on October 10, 2011


mbatch: "You aren't stuck paying it (other than a limited lease)."

This isn't quite true- you are obligated to the terms of whatever lease you signed. Granted, it's shorter term, but also bear in mind that prices in NYC almost always trend upward (the past couple of years notwithstanding). Assuming we don't hit a period of deflation (*knock on wood*), a fixed-rate mortgage essentially locks in your monthly "living expense", which should benefit you in the long run.
posted by mkultra at 6:32 PM on October 10, 2011


Would this be the first time you've lived away from your folks? If so, please rent. If not, I think the flexibility offered by renting is still a big plus (especially given the current economic situation). Rent for a year and spend time researching buying a co-op/condo.
posted by screamingnotlaughing at 10:48 AM on October 11, 2011


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