What would it take to buy a house in our neighborhood?

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leeks
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What would it take to buy a house in our neighborhood?

Post by leeks » Mon Mar 20, 2017 1:34 pm

We are in our mid 30s and have an infant and toddler. We live in NYC (not Manhattan) and have been renting for two years in a neighborhood with all the amenities we prefer for our family. We have built a network of friends here and would not consider another part of NYC or suburbs. We intend to stay in this neighborhood unless we move to another part of the country.

Our income is about 300K. We have about 200K in tax-advantaged retirement accounts, 30K emergency fund, 100K cash. We can add at least 80K to cash savings per year.

As we consider the long term, we fantasize about purchasing a home here. We currently rent a small (~600 sq ft) 2-bedroom apartment on the first floor of a "2-family house" (what would be called a duplex elsewhere) for $2,500/month. We have less space than we want but made the trade off to get a backyard. We could probably purchase a coop apartment for about the same monthly cost as our rental, but we have no interest in living in a large apartment building and are unwilling to accept the restrictions that come with the coop ownership structure.

A small (~1000 sq ft) "1-family home" is at least $900K (annual property tax below $5,000). A "2-family home" with one unit that rents for $2,500 (600 sq ft) and one that rents for $3,000 (800 sq ft) is at least $1.2 million (annual property tax below $6,000). It is not currently a buyers market and sellers are allegedly requiring at least 25% down (not sure how they are allowed to do this but apparently they only consider offers that disclose financing and want to see large down payments to ensure quick sale).

My question is what financial circumstances would enable us to buy one of those homes? I realize it would be much more expensive than renting in the short term but we would only do it if we intended to stay in NYC long term and wanted the non-financial benefits of home ownership. How much cash do bogleheads think we would need to have available for down payment/closing/reserves? Or, if you think it would be too much on our income no matter the savings available, how much income would we need for this to be within reach?

fishmonger
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Re: What would it take to buy a house in our neighborhood?

Post by fishmonger » Mon Mar 20, 2017 1:44 pm

If you're in your mid 30s with 2 kids, how often do you see your friends? During the week? Only weekends?

Based on your email, that seems to the deciding factor of wanting to stay where you are, not work, family, etc. With your income, couldn't you move outside of the city, buy a cheaper place you can afford and still maintain your social life? Maybe not to the same degree, but debt like that would be overwhelming for me, even at your income level.

Do you have any skills in landlording/home maintenance if you're considering a 2 family?

bigred77
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Re: What would it take to buy a house in our neighborhood?

Post by bigred77 » Mon Mar 20, 2017 2:36 pm

Could probably afford a $1M property right now with 10% down and a mortgage equal to 3X your income.

The longer you can keep renting, and saving, and growing your income the better off you will be. That said, if you found the perfect property tomorrow for 900k I think you could easily pursue it.

I don't know if there is anything unique about NYC real estate but I would just go ahead and make offers at less than 25% down. Maybe they will receive better offers but the worst they can tell you is no. If I had a million dollar property and someone made me an offer of $1M with 10% down and another made a cash offer of 900k I would certainly take the offer of $1M.

PowDay
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Re: What would it take to buy a house in our neighborhood?

Post by PowDay » Mon Mar 20, 2017 2:42 pm

You have $100k in cash now, but can save $80k a year moving forward, what is causing the discrepancy, recent raise?

What is the plan for kindergarten, public/private?

RoadHouseFan
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Re: What would it take to buy a house in our neighborhood?

Post by RoadHouseFan » Mon Mar 20, 2017 2:42 pm

With your income, you could buy a very spacious and new house in a lower cost, higher quality of life part of the country.

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deanbrew
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Re: What would it take to buy a house in our neighborhood?

Post by deanbrew » Mon Mar 20, 2017 2:49 pm

Wow. Those numbers are staggering. But so is an annual income of $300k. If you look at industry standard ratios, you can easily afford to buy a $1m to $1.2m home. Having said that, however, spending $2,500 a month to rent the equivalent of a $900k home seems to indicate that the market is out of whack. You would spend nearly twice that much in mortgage payments to buy. I realize $2,500 a month is astounding (to me, anyway) for a 600 SF apartment, but that means you are spending just 10 percent of your gross income on rent.

I certainly don't know your market, but it appears that renting in your current neighborhood or buying somewhere else make the most sense. My wife and I moved out of a 1,200 SF townhouse when we had kids. I can't imagine raising a child in a 600 SF apartment if I made $300k a year. It would seem like a penance. To each his own, of course, but you must REALLY like your neighborhood.

As a former college professor said, after returning home from a trip to NYC: "They have a different monetary system in New York City. Sure, they call them dollars and cents, but they have a completely different value than I'm used to. I'm still trying to figure out the exchange ratio."
Last edited by deanbrew on Mon Mar 20, 2017 2:56 pm, edited 1 time in total.
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bluebolt
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Re: What would it take to buy a house in our neighborhood?

Post by bluebolt » Mon Mar 20, 2017 2:54 pm

Going from renter->owner is more expensive generally than owner->owner purchase.

You may need to buy a lawn mower, tools, ladder, shovel, etc.
You may need to do some repairs on your new place.
You may need to replace aging systems or appliances (boiler, air handler, water heater).
You may want to buy new furniture or do some renovations.
You may want to paint the interior/exterior or refinish the floors.

Come up with a budget that includes the must-haves and the nice-to-haves and figure out a ballpark estimate, so you can set aside the funds.

I would guess I spent about $15K within the first couple months after moving into a comparably priced house, though about half of that was to fix a known structural issue. I used a rebating realtor, so almost that amount came back to me after closing, making it a little less painful.

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leeks
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Re: What would it take to buy a house in our neighborhood?

Post by leeks » Mon Mar 20, 2017 3:08 pm

fishmonger wrote:If you're in your mid 30s with 2 kids, how often do you see your friends? During the week? Only weekends?

It's true we don't see our non-parent friends very often anymore! Our friends in the neighborhood are also parents of young children so most of our socializing is as a family (and this neighborhood caters to that in terms of family-friendly restaurants/activities/parks). When our toddler started a morning preschool program (just around the corner with an educational philosophy I love), we already knew the families of half the other 2-year-olds in his class. I am currently a stay at home parent and am grateful for many easy activities within walking distance and a network of parents for occasional trades of child care, etc. We appreciate the close-knit community we have found here.

Based on your email, that seems to the deciding factor of wanting to stay where you are, not work, family, etc. With your income, couldn't you move outside of the city, buy a cheaper place you can afford and still maintain your social life? Maybe not to the same degree, but debt like that would be overwhelming for me, even at your income level.

We love not owning a car. My husband commutes by bicycle to Manhattan (when there is less snow on the road) and that option is invaluable to his health and mood. The suburbs are not for us.

Do you have any skills in landlording/home maintenance if you're considering a 2 family?

We are handy and I think we have the temperament for dealing with tenants. A 2 family is particularly appealing if some day we might be able to afford not to have a renter and just occupy the whole house (but always have the flexibility to go back to renting part of it if circumstances change).

Alto Astral
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Re: What would it take to buy a house in our neighborhood?

Post by Alto Astral » Mon Mar 20, 2017 3:16 pm

Sometimes high home cost is just a fact of where you are. Like us in Chicago suburbs. I would say that when you have close to 20% deposit + closing costs covered + 12 months living expenses (including new mortgage) you could start looking.

We have a network of friends spread out a bit. So like another poster asked, what kind of social interactions are you talking about? Weekday play-dates, meet-ups every weekend or much less frequently. This may help you decide up-to how far you could go.

In some places such as NYC, there are folks on this forum who rent permanently - one of the reasons being exorbitant costs. So you wouldn't be doing something too much out of the ordinary by deciding to rent a bit longer

freebeer
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Re: What would it take to buy a house in our neighborhood?

Post by freebeer » Mon Mar 20, 2017 3:18 pm

fishmonger wrote:...couldn't you move outside of the city, buy a cheaper place you can afford and still maintain your social life? ...


Hahahahaha.

No. In my experience, moving to the suburbs from a major city is like moving to another continent from the perspective of the friends still in the city. Out of sight, out of mind. And to a much lesser degree the converse is true - you may still get into the city, but meeting up in a casual way on the spur of the moment... not so much. But it really is astonishing how rapidly and completely you can drop off the social grid from the perspective of those still in the middle of it.

That doesn't mean you can't build a rich social life out in the 'burbs, with new friends and perhaps some existing friends. But don't expect to "maintain" a pre-existing urban social life once you make the jump to suburbia.

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Re: What would it take to buy a house in our neighborhood?

Post by Meg77 » Mon Mar 20, 2017 3:23 pm

You guys seem to be doing quite well! I think you can certainly afford a $900K to $1M price home, although it would of course be a change for your budget. It would be better/ideal if you can save another $80K and have a 20% down payment, but I think it's OK to start looking and get familiar with the neighborhood market trends.

I would really hesitate to get a 2 family home and become landlords in NYC. The law tremendously favors tenants in your area, and it's very expensive and difficult to evict anybody - even if they aren't paying rent, are committing illegal activities, or are damaging your property. On top of that, if you'd be bound to rent pricing rules you could find yourself with a very long term tenant who is unwilling to ever leave but who is paying well below market rents (possibly the situation you are in currently). I am not an expert in the law, but a lot of landlording horror stories on real estate investing forums seem to come out of California and New York.
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leeks
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Re: What would it take to buy a house in our neighborhood?

Post by leeks » Mon Mar 20, 2017 3:29 pm

PowDay wrote:You have $100k in cash now, but can save $80k a year moving forward, what is causing the discrepancy, recent raise?

The crazy high income is new for us. My husband is at his first job after grad school, he finished his phd two years ago. My last salary was 60K. I had student loans.

What is the plan for kindergarten, public/private?

Public. The elementary schools in our neighborhood are fine, even better if you get into their specialty stuff like a bilingual or gifted program. A new middle school has been approved that will be built a few blocks away as a result of strong parent activism in this community. We are happy for our children to attend diverse city schools (many non-native English speakers for sure). I don't love NYC schools in terms of the complicated application process and confusing number of options (not to mention long commutes for select programs in other parts of the city), but I trust that we can navigate it with our children if we stay here.



fishmonger
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Re: What would it take to buy a house in our neighborhood?

Post by fishmonger » Mon Mar 20, 2017 3:32 pm

freebeer wrote:
fishmonger wrote:...couldn't you move outside of the city, buy a cheaper place you can afford and still maintain your social life? ...


Hahahahaha.

No. In my experience, moving to the suburbs from a major city is like moving to another continent from the perspective of the friends still in the city. Out of sight, out of mind. And to a much lesser degree the converse is true - you may still get into the city, but meeting up in a casual way on the spur of the moment... not so much. But it really is astonishing how rapidly and completely you can drop off the social grid from the perspective of those still in the middle of it.

That doesn't mean you can't build a rich social life out in the 'burbs, with new friends and perhaps some existing friends. But don't expect to "maintain" a pre-existing urban social life once you make the jump to suburbia.


Never said it would be the same. I moved from Boston to the northern suburbs myself.

The point is it's foolish to burden yourself with debt and stress just to "live where the cool kids live" if that is a small portion of your life. Some handle debt better than others

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leeks
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Re: What would it take to buy a house in our neighborhood?

Post by leeks » Mon Mar 20, 2017 4:06 pm

RoadHouseFan wrote:With your income, you could buy a very spacious and new house in a lower cost, higher quality of life part of the country.

My husband could not make his current income level outside of NYC unless we went to the west coast and I don't want the kids to live that far from their grandparents. He never wants to leave NYC but my preference would be a city in VA or NC (close to our parents). My husband could make 80-120K in a place like Durham which is still more than enough to have a comfortable lifestyle (but he is not convinced there would be a job that interests him). We could take a few more years of NYC savings and buy a house there with 50-100% down and preserve the option of living off just my income in the future (something that would be hard in NYC). We could find a walkable/bikeable neighborhood in other cities but would probably need a car for some purposes, which is a lower quality of life from our perspective.

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Re: What would it take to buy a house in our neighborhood?

Post by PowDay » Mon Mar 20, 2017 4:09 pm

leeks wrote:
PowDay wrote:You have $100k in cash now, but can save $80k a year moving forward, what is causing the discrepancy, recent raise?

The crazy high income is new for us. My husband is at his first job after grad school, he finished his phd two years ago. My last salary was 60K. I had student loans.

What is the plan for kindergarten, public/private?

Public. The elementary schools in our neighborhood are fine, even better if you get into their specialty stuff like a bilingual or gifted program. A new middle school has been approved that will be built a few blocks away as a result of strong parent activism in this community. We are happy for our children to attend diverse city schools (many non-native English speakers for sure). I don't love NYC schools in terms of the complicated application process and confusing number of options (not to mention long commutes for select programs in other parts of the city), but I trust that we can navigate it with our children if we stay here.




Lots of recent change, I would wait three years, if all goes to plan, you will have $340k in cash, and will almost be done with the daycare years opening up even more cash flow. With an easy 25% down, and cash in the bank for updates, your housing options will really open up, vs now were it will be a stretch if you can even get an offer excepted with such a small down payment.

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Re: What would it take to buy a house in our neighborhood?

Post by deanbrew » Mon Mar 20, 2017 4:12 pm

leeks wrote:He never wants to leave NYC but my preference would be a city in VA or NC (close to our parents). My husband could make 80-120K in a place like Durham which is still more than enough to have a comfortable lifestyle (but he is not convinced there would be a job that interests him). We could take a few more years of NYC savings and buy a house there with 50-100% down and preserve the option of living off just my income in the future (something that would be hard in NYC).


I never recommend buying if you are not pretty darn certain you will live in a house for at least 6 to 8 years. It sounds like there is some question (at least in your mind) about that? My vote (which means nothing, of course) would be to keep renting and save money, allowing more future options in, near and away from NYC.
"The course of history shows that as the government grows, liberty decreases." Thomas Jefferson

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leeks
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Re: What would it take to buy a house in our neighborhood?

Post by leeks » Mon Mar 20, 2017 4:40 pm

fishmonger wrote:...couldn't you move outside of the city, buy a cheaper place you can afford and still maintain your social life? ...


fishmonger wrote: The point is it's foolish to burden yourself with debt and stress just to "live where the cool kids live" if that is a small portion of your life. Some handle debt better than others


I'm really laughing now because I certainly didn't mean to give the impression that my husband and I have a "cool" social life. We pretty much don't go out after 8pm. Sometimes friends from before parenthood come over for dinner and stay for drinks with us after the kids go to bed, but that is maybe once a month. My youngest is 9 months old and she hasn't even had a real babysitter yet, just a few evenings with grandmas when they were in town. It is precisely because having a social life feels so hard with little kids that we value living in a place where we like many of the other parents we have met, have become very close with a subset of them, and can easily hang out because they all live within a few blocks walk. If we stay here, these are the lifelong friends our children will grow up with (I know some may move but we have good friends that are already owners, having inherited places or purchased 5-10 years ago before real estate spiked in this neighborhood).
Last edited by leeks on Mon Mar 20, 2017 4:54 pm, edited 1 time in total.

EHEngineer
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Re: What would it take to buy a house in our neighborhood?

Post by EHEngineer » Mon Mar 20, 2017 4:45 pm

leeks wrote:
PowDay wrote:What is the plan for kindergarten, public/private?

Public. The elementary schools in our neighborhood are fine, even better if you get into their specialty stuff like a bilingual or gifted program. A new middle school has been approved that will be built a few blocks away as a result of strong parent activism in this community. We are happy for our children to attend diverse city schools (many non-native English speakers for sure). I don't love NYC schools in terms of the complicated application process and confusing number of options (not to mention long commutes for select programs in other parts of the city), but I trust that we can navigate it with our children if we stay here.

I lived downtown Chicago when my kids were little. Absolutely loved it. But when we needed great schools, 4 bedrooms and a yard, we moved to the burbs. Incidentally, the ethnic diversity in the burbs was greater, but the economic diversity was less. Specifically, lots of international business people from everywhere (who also wanted good schools), but not many low income people.

If you really do plan to stay in the city long term, I think you need another 2 years of savings, total cash at $290k (versus $130 currently). Buy a $1M house with 20% down and have a decent cushion remaining.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

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Watty
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Re: What would it take to buy a house in our neighborhood?

Post by Watty » Mon Mar 20, 2017 5:01 pm

Something I have not seen mentioned is the option of renting a more desirable place in that same neighborhood. That might cure your itch to buy something and be a better financial choice. I'm not sure how the numbers would work but you can check them here.

https://www.nytimes.com/interactive/201 ... lator.html

leeks wrote: ...sellers are allegedly requiring at least 25% down (not sure how they are allowed to do this but apparently they only consider offers that disclose financing and want to see large down payments to ensure quick sale).


It is just a wild guess but I would suspect that appraisals may have been coming in below the contract price so they want to make sure that buyers have enough cash to pay extra money to still have a 20% down payment.

leeks wrote:My question is what financial circumstances would enable us to buy one of those homes?


Something seems funny about your numbers so you may need to take a hard look at your other spending.

You rent for $2,500 a month, $30,000 a year, and didn't mention any other large expenses. With $300K income that leaves $270K a year in other income. You likely pay a lot in taxes but from what you said you only have a net worth of about $330K and I would think that your net worth should be a lot higher than that.

Unless you recently paid off a lot of debt, had big expenses, or recently had a large increase in income then it sounds like your other expenses are very high.

If you have been spending a lot then it could be that you will not be able able to have a large enough down payment to buy a house until you save a few more years.

One thing I did not see in your numbers was any college savings for your kids so it would be good to plan for what you want to do for that. It sounds like your oldest is only about 14 years from college and the time goes quick.

leeks wrote:My husband could not make his current income level outside of NYC unless we went to the west coast and I don't want the kids to live that far from their grandparents. He never wants to leave NYC but my preference would be a city in VA or NC (close to our parents). My husband could make 80-120K in a place like Durham which is still more than enough to have a comfortable lifestyle (but he is not convinced there would be a job that interests him).


One concern would be just how secure your husband's job is and how easy it would be for him to find a similar job with the same income. Even if he is doing a great job there could be a merger or downturn and he could find himself out of a job. Finding a new high paying job in some fields can be very difficult when you are older, especially in a recession.

I know of several VPs that lost their job during mergers that never found similar jobs and could not even find lower paying staff jobs in their field since people would not hire ex-VPs for jobs like that. The last I heard of one guys he was an Uber driver.

One option would be to keep renting and then move to a low cost of living area if he loses his job or if you save a lot you might be able to semi-retire in a low cost of living area in about ten years.

delamer
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Re: What would it take to buy a house in our neighborhood?

Post by delamer » Mon Mar 20, 2017 5:07 pm

Are you planning to go back to work once your kids are in school? If so, I'd be inclined to defer buying a home until then given the increase in income.

If you are happy in your neighborhood, then stay. But be aware that the other families you are friendly with now may decide to move on for financial or other reasons. So the potential lifelong friends may be gone.

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unclescrooge
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Re: What would it take to buy a house in our neighborhood?

Post by unclescrooge » Mon Mar 20, 2017 7:26 pm

If you have confidence in the stability of your spouse's job, then consider the duplex.

If your income/cashflow improves, you can always remodel and repurpose the extra living space from the rental unit.

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