Is it worth it to buy a condo in NYC?
June 4, 2015 2:59 PM Subscribe
Any other part of the country and I'd jump at buying. But I feel like NYC buying is an entirely different game. What with maintenance fees and taxes and all, I wonder if it's even worth it to buy when you're living in it yourself.
First off, the maintenance fees alone in some of these buildings are like paying an entire rent on top of the mortgage. Do these common fees stay fixed as long as you stay in the building or do they go up through the years? How much of the monthly payment if any is tax deductible? I'm not sure there's much point in owning my own place if after I've paid the mortgage off I still have to pay huge common fees that have exponentially risen over the years.
First off, the maintenance fees alone in some of these buildings are like paying an entire rent on top of the mortgage. Do these common fees stay fixed as long as you stay in the building or do they go up through the years? How much of the monthly payment if any is tax deductible? I'm not sure there's much point in owning my own place if after I've paid the mortgage off I still have to pay huge common fees that have exponentially risen over the years.
Response by poster: "I believe about 50%-60% of the maintenance is tax deductible (because it is your property taxes and interest on any underlying mortgage on the building)."
Does this apply to both coops and condos? because I thought the rules for the two were different.
posted by rancher at 3:24 PM on June 4, 2015
Does this apply to both coops and condos? because I thought the rules for the two were different.
posted by rancher at 3:24 PM on June 4, 2015
I'm not sure there's much point in owning my own place if after I've paid the mortgage off I still have to pay huge common fees that have exponentially risen over the years.
Yes but at the end of the mortgage period, you have an asset you can sell, and if you look at real estate values in New York, an asset that may well have appreciated enormously.
posted by DarlingBri at 3:25 PM on June 4, 2015 [2 favorites]
Yes but at the end of the mortgage period, you have an asset you can sell, and if you look at real estate values in New York, an asset that may well have appreciated enormously.
posted by DarlingBri at 3:25 PM on June 4, 2015 [2 favorites]
Are you differentiating between coops and condos here? If you aren't familiar with the differences, it's worth checking that out (maintenance fee implies coop, common charge implies condo, generally, so your usage made me wonder). Coops are usually cheaper than condos for comparable apartments but come with house rules that you may find onerous (e.g. limits on subletting, renovations, etc).
In neither case would the maintenance/common charges stay fixed - since they cover things like the super's salary and the cost of keeping the lights on and building systems working, the costs, at a minimum, will rise with inflation over time. Plus, you may be hit with additional fees if the building needs a major repair and doesn't have money in reserve for it.
If the building you buy into is well managed, then you shouldn't be looking at exponential increases. I've heard that you should expect 3-5% increases each year, so you can use that as a rough estimate. And, even if you bought a house, you'd still have to pay property taxes, upkeep/repair costs, etc after paying off your mortgage -- the monthly fees for coops and condos cover similar things (but condo fees don't include taxes while coop fees do, so keep that in mind when comparing your monthly costs).
posted by snaw at 3:27 PM on June 4, 2015
In neither case would the maintenance/common charges stay fixed - since they cover things like the super's salary and the cost of keeping the lights on and building systems working, the costs, at a minimum, will rise with inflation over time. Plus, you may be hit with additional fees if the building needs a major repair and doesn't have money in reserve for it.
If the building you buy into is well managed, then you shouldn't be looking at exponential increases. I've heard that you should expect 3-5% increases each year, so you can use that as a rough estimate. And, even if you bought a house, you'd still have to pay property taxes, upkeep/repair costs, etc after paying off your mortgage -- the monthly fees for coops and condos cover similar things (but condo fees don't include taxes while coop fees do, so keep that in mind when comparing your monthly costs).
posted by snaw at 3:27 PM on June 4, 2015
Does this apply to both coops and condos? because I thought the rules for the two were different.
Just coops. In condos, the taxes are assessed and charged to you separately. Good luck finding a condo in NYC, particularly in Manhattan. If you find a condo you can afford in Manhattan, I would venture to say that it is ALWAYS worthwhile.
posted by deanc at 3:43 PM on June 4, 2015
Just coops. In condos, the taxes are assessed and charged to you separately. Good luck finding a condo in NYC, particularly in Manhattan. If you find a condo you can afford in Manhattan, I would venture to say that it is ALWAYS worthwhile.
posted by deanc at 3:43 PM on June 4, 2015
It's not clear to me, but what is your alternative -- renting in NYC? Because yes, co-op maintenance fees and condo common charges go up, but so does rent. So I'm not understanding your concern in that regard.
I'm also kind of surprised to read that "the maintenance fees alone in some of these buildings are like paying an entire rent on top of the mortgage." I don't know what buildings you're looking at, but my husband and I just bought a NYC co-op because we were tired of the rent going up and up, with no equity accumulating. Anyway, the rent we were paying, on a two-bedroom apartment that is about the same size as our two-bedroom co-op, was almost four times what we are now paying in maintenance. The maintenance and mortgage together comes to about 75% of what our rent was. (Although that is partly because we were able to do a 30% down payment. That's the one tricky part, I think -- you have to be able to handle the down payment.)
Also, as has been said, you're more likely to find co-ops, not condos, in NYC. But I have the impression you are using the terms interchangeably. Which is okay, for the big-picture question of whether it is better to own or to rent.
Again: equity. And tax deductions. If you can come up with the down payment, I think owning beats renting in NYC. As long as you intend to stay for more than a couple years.
posted by merejane at 4:24 PM on June 4, 2015
I'm also kind of surprised to read that "the maintenance fees alone in some of these buildings are like paying an entire rent on top of the mortgage." I don't know what buildings you're looking at, but my husband and I just bought a NYC co-op because we were tired of the rent going up and up, with no equity accumulating. Anyway, the rent we were paying, on a two-bedroom apartment that is about the same size as our two-bedroom co-op, was almost four times what we are now paying in maintenance. The maintenance and mortgage together comes to about 75% of what our rent was. (Although that is partly because we were able to do a 30% down payment. That's the one tricky part, I think -- you have to be able to handle the down payment.)
Also, as has been said, you're more likely to find co-ops, not condos, in NYC. But I have the impression you are using the terms interchangeably. Which is okay, for the big-picture question of whether it is better to own or to rent.
Again: equity. And tax deductions. If you can come up with the down payment, I think owning beats renting in NYC. As long as you intend to stay for more than a couple years.
posted by merejane at 4:24 PM on June 4, 2015
I spent the last several years (literally - since 2007) looking for a place to buy in NYC. Since prices have bounced back from the crash - which was more like a slight dip here - I've hardly ever seen a place for sale where the math worked out. Even at NYC's crazy rent levels, you probably won't be turning a big profit if you rent it out. And if you live there, it won't be much cheaper than renting. I don't know how both of these things can simultaneously be true, other than that the market prices itself very, very efficiently.
If you buy here as an investment, you're basically counting on appreciation for your profit. (Which many people will tell you is a slam-dunk - but that's what a lot of people would have told you in 2007, too.)
As far as condo fees go: If you're looking at new construction or conversions (particularly in the outer boroughs), be aware that many buildings have tax abatements that allow common charges to be at artificially low levels initially, and will expire in 5 or 10 years - at which point your taxes may double, triple, etc. Also, brokers routinely put last year's common charges on their listings, and more than a few newer buildings have to hike their fees after the first year or two. You'd be surprised how many new construction buildings end up suing their developers for poor construction. Ask the selling broker about lawsuits specifically, and watch them squirm.
That said - the math isn't hard to do. Come up with figures for insurance, common charges, interest on your loan. Taxes (current and previous figures) are publicly available through the DOB website. Don't forget closing costs (attorney, title search, mansion tax over $1mil) - which generally run 1-2% of your purchase price. There are calculators online that will do a rent-vs-buy comparison if you don't want to deal with Excel - but really, it's only about six numbers.
TL/DR: Is it "worth it"? In the sense of being generally a "good deal", no. The historical rule-of-thumb of 10-12x yearly rent or whatever doesn't even remotely hold here. *BUT* if you find a place you love, or you get lucky and get a deal in a gentrifying neighborhood, etc. it can be done. Basically, you have to really want it to happen.
posted by meeotch at 4:53 PM on June 4, 2015 [1 favorite]
If you buy here as an investment, you're basically counting on appreciation for your profit. (Which many people will tell you is a slam-dunk - but that's what a lot of people would have told you in 2007, too.)
As far as condo fees go: If you're looking at new construction or conversions (particularly in the outer boroughs), be aware that many buildings have tax abatements that allow common charges to be at artificially low levels initially, and will expire in 5 or 10 years - at which point your taxes may double, triple, etc. Also, brokers routinely put last year's common charges on their listings, and more than a few newer buildings have to hike their fees after the first year or two. You'd be surprised how many new construction buildings end up suing their developers for poor construction. Ask the selling broker about lawsuits specifically, and watch them squirm.
That said - the math isn't hard to do. Come up with figures for insurance, common charges, interest on your loan. Taxes (current and previous figures) are publicly available through the DOB website. Don't forget closing costs (attorney, title search, mansion tax over $1mil) - which generally run 1-2% of your purchase price. There are calculators online that will do a rent-vs-buy comparison if you don't want to deal with Excel - but really, it's only about six numbers.
TL/DR: Is it "worth it"? In the sense of being generally a "good deal", no. The historical rule-of-thumb of 10-12x yearly rent or whatever doesn't even remotely hold here. *BUT* if you find a place you love, or you get lucky and get a deal in a gentrifying neighborhood, etc. it can be done. Basically, you have to really want it to happen.
posted by meeotch at 4:53 PM on June 4, 2015 [1 favorite]
As a pure unlevered investment, on average, housing barely beats inflation, if at all. Of course it's not true in every market and time period, but saying "housing prices in New York always go up" is pure hindsight bias and cherry-picking. How would you have known in 1960 to buy in New York and not, say, Detroit?
There are some key advantages though: it's an inflation hedge, a kind of forced savings over the long term (though a very inefficient one), there's the tax break, and (this one's often neglected) it's the safest way to get high leverage as an individual investor. And disadvantages, starting with concentration risk; would you ever put that down payment into a single stock, however good its track record?
There are lots of buy-vs-rent calculators that include maintenance and so on, and capture some but not all of the above -- here's one good one.
Anyway, for most people the most compelling reasons to own versus rent are intangible and hard to quantify, but still very real: the feeling of being settled, being able to renovate and customize your space more, being guaranteed of staying in the same neighborhood regardless of rents, being able to live in a good school district where there are very few rentals, etc etc. If you're not feeling any of those pressures and the only reason to do it would be financial, then I'd say you're better off renting.
posted by neat graffitist at 5:05 PM on June 4, 2015 [5 favorites]
There are some key advantages though: it's an inflation hedge, a kind of forced savings over the long term (though a very inefficient one), there's the tax break, and (this one's often neglected) it's the safest way to get high leverage as an individual investor. And disadvantages, starting with concentration risk; would you ever put that down payment into a single stock, however good its track record?
There are lots of buy-vs-rent calculators that include maintenance and so on, and capture some but not all of the above -- here's one good one.
Anyway, for most people the most compelling reasons to own versus rent are intangible and hard to quantify, but still very real: the feeling of being settled, being able to renovate and customize your space more, being guaranteed of staying in the same neighborhood regardless of rents, being able to live in a good school district where there are very few rentals, etc etc. If you're not feeling any of those pressures and the only reason to do it would be financial, then I'd say you're better off renting.
posted by neat graffitist at 5:05 PM on June 4, 2015 [5 favorites]
I bought and for me the peace of mind has been worth it. In fact, part of the reason I moved back from SF was I hated knowing my apartment could go poof. My fees are low but I bough the smallest unit in a nice building in Bushwick, before Bushwick was cool. My neighbors are ow selling their places for almost twice what they paid. So I think it can be worth it — for the right place.
posted by dame at 4:32 AM on June 5, 2015 [1 favorite]
posted by dame at 4:32 AM on June 5, 2015 [1 favorite]
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My mortgage + maintenance is about what I would pay on rent for an equivalent unit, so I am comfortable with the decision. Maintenance fees will go up over time, but so will taxes and insurance. So will rent.
There's no universal answer to "is it worth it to buy a condo (or coop) in NYC?" There are specific circumstances in which it is worthwhile, and some where it is not. In my case I found a situation where the math worked out.
posted by deanc at 3:11 PM on June 4, 2015