Renting vs. Buying in Manhattan

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bh239768
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Renting vs. Buying in Manhattan

Post by bh239768 » Sun Jan 12, 2020 7:32 am

Good morning all,

This is my first post ever. I have been reading and learning from al the posts the last few months when I first discovered this site. Thank you all - you are all very helpful!!!

My daughter is going to graduate from college and start working in New York soon and will need to live in Manhattan (Living elsewhere is not an option due to long hours and needing to keep the commute short). I expect she will be there for several years at least. As you all know, it is a VHCOL area and apartment prices and rents are very high. My question is - does it make sense to buy a small apartment or condo (and take on the mortgage, common charges, property taxes etc.) vs. just renting a small apartment for the next several years? Will buying a small apartment help with taxes and maybe she can eventually rent it out if/when she is financially more comfortable and able to afford something better? Or will all the property taxes and fees etc. make it not worthwhile and is it better to just rent? If buying is better, any suggestions on what / where to look for a reasonable place?

She is willing to rent/buy along with one of her friends but obviously has no savings right now so most of it will have to go on the mortgage.

Thanks

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RickBoglehead
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Re: Renting vs. Buying in Manhattan

Post by RickBoglehead » Sun Jan 12, 2020 7:42 am

How would someone with no income history and no savings qualify for a mortgage and afford a down payment?

And since she has no experience with this employer, what if in 6 months she wants to leave and move elsewhere?

Renting is the only option.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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bh239768
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Re: Renting vs. Buying in Manhattan

Post by bh239768 » Sun Jan 12, 2020 7:52 am

We would probably have to co-sign the mortgage and help with the down payment.

Regarding the employer, yes that is a real risk. But she is fairly certain she wants to stay in the area, and would just move to a different position.

student
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Re: Renting vs. Buying in Manhattan

Post by student » Sun Jan 12, 2020 8:20 am

You are going to help with the down payment and cosigning. My first reaction is how rich are you? If you are worth 10m, then yes go ahead and do whatever it is best for your daughter; if you are worth 1m, then one needs to look at it more carefully. Does your daughter have a job that is high paying, recession proof with good job security (such as medical doctor with specialization)? If yes, then use a rent vs buy calculator to see whether it is better to buy by inputing all the info. https://www.nytimes.com/interactive/201 ... lator.html I expect for most, it is better to rent when starting out.

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anon_investor
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Re: Renting vs. Buying in Manhattan

Post by anon_investor » Sun Jan 12, 2020 8:28 am

The assumption your daughter needs to live in Manhattan may be faulty. Depending where her job is, parts of Manhattan may have longer commute times than places in Queens and Brooklyn. Having worked very long hours in Manhattan as an attorney when I was younger, I can say living in Manhattan is nice but not a prerequisite. Also, depending on her job the company may pay for car rides home which would shorten the commute home vs subway.

If she cannot afford or obtain a mortgage on her own then she should rent. If you need to cosign and help with the down payment then you are really the one buying. If you think buying a condo may be a good investment, that is a different discussion. What kind of price range are you looking for? I am a little out of date on prices but I think you still need at least $400k to get a studio coop in any decent area in Manhattan, it may be a lot more now.

Also even with a new job but little employment history, some rentals in NYC may need you to cosign the lease with your daughter.

Isabelle77
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Re: Renting vs. Buying in Manhattan

Post by Isabelle77 » Sun Jan 12, 2020 8:33 am

Well...I don't want to tell you how to parent your daughter but I lived in (gasp!) Brooklyn when I graduated from college. I had roommates. It was loads of fun and I look back at it as a great time in my life.

I worked long hours and that 20 minute commute on the subway was not a big deal at all. Personally, I might help out a little with rent if necessary but I wouldn't buy (or rent) my kids an apartment in manhattan right out of college. Let her grow up a little.

Isabelle77
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Re: Renting vs. Buying in Manhattan

Post by Isabelle77 » Sun Jan 12, 2020 8:35 am

I should also add that a lot of college graduates move to NYC and only last a year or two. My husband and I were there for 5 and were some of the last of our college friends that were still there.

dcw213
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Re: Renting vs. Buying in Manhattan

Post by dcw213 » Sun Jan 12, 2020 8:49 am

I'm from the NYC metro area and like the city a lot. Many don't, it is not for everyone and gets under everyone's skin at some point. Many grow tired of the city quickly and leave.

I know many people who worked on wall street right after college. Many didnt last more than a year due to voluntary or involuntary reasons. I would strongly suggest renting.

Then again, a friend asked me the same question in 2009 when we were only 3 years into our careers and I strongly urged him to keep renting when he outlined the costs. He bought a 1BR in Manhattan and has made a fortune on the appreciation over the last decade. Oops.

At the end of the day, do what you want, but MAKE SURE you would be comfortable winding up with this property as an investment at some point, and that an adverse housing market would not materially impact you.
Last edited by dcw213 on Sun Jan 12, 2020 8:51 am, edited 1 time in total.

MStrambolo
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Re: Renting vs. Buying in Manhattan

Post by MStrambolo » Sun Jan 12, 2020 8:51 am

Two thoughts:
You mention buying an apartment now which your daughter could sublet out in the future. Coops have restrictions on subletting - often permitting a sublet for only 2 out of 5 years, and subletters must pass a board review. Condos also, according to a realtor I know, are increasingly adopting some of the restrictions that coops impose. If you buy, check the rules thoroughly on this one.
Condos that have been built in the last few year often come with a real estate tax abatement that phases out over some period of time. The listed real estate tax looks great at first, but the tax costs can increase exponentially as the actual tax rate kicks in. Be sure to check for the presence and status of any abatements.

stan1
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Re: Renting vs. Buying in Manhattan

Post by stan1 » Sun Jan 12, 2020 8:52 am

Even if she rents you may need to "help" unless she has a high paying job. NYC landlords can demand pretty strict adherence to income requirements (e.g. 40 times monthly rent).

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Rob5TCP
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Re: Renting vs. Buying in Manhattan

Post by Rob5TCP » Sun Jan 12, 2020 9:36 am

Why not have her rent for one year and then decide if she will stay for a lengthy time?
Currently there is a ton of construction and far more units that can be absorbed in the next 5 years
(with even more starting - though that is finally starting to slow down a bit).
In the 1-5mil price range there is considerable supply (buyer's market). In "affordable housing" there is a severe
shortage.

According to the StreetEasy report, there have been some 16,242 new condos constructed in the city in the past six years. Of those, more than 25 percent are still sitting on the market—including around 40 percent of the condos for sale on Billionaires’ Row, according to an analysis of data conducted for the New York Times by data guru Jonathan Miller.

From Curbed (a r.e. industry publication) here is the income required to live in various neighberhoods
https://ny.curbed.com/2019/8/1/20748814 ... eens-bronx

Here is an article (again from an industry group) about how long you should live in an area where buying becomes cheaper than renting:
https://ny.curbed.com/2017/6/22/1585101 ... uy-vs-rent

https://ny.curbed.com/2019/1/16/1817726 ... ent-or-buy

jsprag
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Re: Renting vs. Buying in Manhattan

Post by jsprag » Sun Jan 12, 2020 9:57 am

bh239768 wrote:
Sun Jan 12, 2020 7:32 am
She is willing to rent/buy along with one of her friends but obviously has no savings right now so most of it will have to go on the mortgage.
"Buy a first home with a friend" is one of the classic blunders1

Rent for a year. This allows her to:
  • Build capital
  • Become familiar with city and preferred neighborhoods
  • Verify current assumptions about geographic stability
  • Discover her career and lifestyle needs & desires


1. Others include "Go into business with family", "Buy the latest hot stock", and, of course, "Never get involved with a land war in Asia" and "Never go in against a Sicilian when death is on the line"

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Phineas J. Whoopee
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Re: Renting vs. Buying in Manhattan

Post by Phineas J. Whoopee » Sun Jan 12, 2020 3:43 pm

Is her expectation that she will meet her living expenses out of her income based on her preferences, or that you will do it for her?
PJW

MarkerFM
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Re: Renting vs. Buying in Manhattan

Post by MarkerFM » Sun Jan 12, 2020 4:14 pm

I have a daughter who moved to NY after college to work. Sometime during her second year, she decided she hated New York and wanted to move elsewhere. After a few weeks in the new city, she decided she hated it and loved New York. So now she's moving back. We have the money to buy a place and sublet it to her, but wouldn't do that for many reasons already mentioned in this thread.

You might end up having to guarantee her lease if she rents, depending upon her income and apartment cost. It's very common there.

Another thing to keep in mind. She wants to be in Manhattan. Great. The problem is young people seldom figure out which neighborhood they like best the first time. Many of them move every year as their interests change and based on location of friends, as well as increase in income.

retire2022
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Re: Renting vs. Buying in Manhattan

Post by retire2022 » Sun Jan 12, 2020 4:16 pm

bh239768 wrote:
Sun Jan 12, 2020 7:32 am
Good morning all,

This is my first post ever. I have been reading and learning from al the posts the last few months when I first discovered this site. Thank you all - you are all very helpful!!!

My daughter is going to graduate from college and start working in New York soon and will need to live in Manhattan (Living elsewhere is not an option due to long hours and needing to keep the commute short). I expect she will be there for several years at least. As you all know, it is a VHCOL area and apartment prices and rents are very high. My question is - does it make sense to buy a small apartment or condo (and take on the mortgage, common charges, property taxes etc.) vs. just renting a small apartment for the next several years? Will buying a small apartment help with taxes and maybe she can eventually rent it out if/when she is financially more comfortable and able to afford something better? Or will all the property taxes and fees etc. make it not worthwhile and is it better to just rent? If buying is better, any suggestions on what / where to look for a reasonable place?

She is willing to rent/buy along with one of her friends but obviously has no savings right now so most of it will have to go on the mortgage.

Thanks
Op it does work if you and your daughter are able to carry a mortgage $300,000-$700,000 and it will make a good return on investment. Some coops would require 20% down and you could be the guarantor as someone esle mentioned. I knew a neighbor who was from California and did exactly this, lived here for a few years until the son (neighbor) decided to return to west coast.

Here are some listings:

https://www.lohorealty.com/

ohai
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Re: Renting vs. Buying in Manhattan

Post by ohai » Sun Jan 12, 2020 4:19 pm

Hello, OP. As a NYC resident, I would strongly advise against buying in Manhattan at the moment. NYC is/was a wealth storage locker for global investors. A lot of people just bought apartments here and drove up prices without considering economics vs. renting. Cap rates for residential real estate are close to 2.5 in most of Manhattan. Price appreciation is non existent in the past 2 years (and before that, might have been artificial); 6000 newly constructed apartments are not listed as developers are freaking out about oversupply. Over 80% of units in the city are rentals. It's not that people don't have money - I know people who make $1 million a year and rent. Their money is just better off invested elsewhere. Owning is often a vanity/luxury/lifestyle decision, rather than a rational economic decision.

You have probably heard of "breakeven years" analysis when considering to buy housing. This link shows the latest in depth study I've seen. Take a look and make your own conclusion about the value of rent vs buy in today's market. I'd also add 1-2 years to these numbers to take into account the value of moving freedom. Locking yourself into an apartment you bought has negative, not neutral value.

https://ny.curbed.com/2017/6/22/1585101 ... uy-vs-rent

Plus, your daughter's life will be dramatically different from now in the next 5 years - financial situation and where she wants to live are not going to be the same as they are today. She is not ready for the commitment of buying real estate approaching 7 figure prices, nor does she have the financial capital to do so, especially in a market with such off putting lack of value.
Last edited by ohai on Sun Jan 12, 2020 4:26 pm, edited 2 times in total.

manatee2005
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Re: Renting vs. Buying in Manhattan

Post by manatee2005 » Sun Jan 12, 2020 4:21 pm

Do you live in NYC metro now? How familiar is she with NYC?

It's never a good idea to buy a house right as you start a job. Let her rent and learn how to save money. You can help her with downpayment in 2-3 years if she decides she wants to stay. I changed 4 areas where I lived in the first 4 years of my career. If my dad bought me a million dollar condo I would have felt trapped in the first area and first job.

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TomatoTomahto
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Re: Renting vs. Buying in Manhattan

Post by TomatoTomahto » Sun Jan 12, 2020 5:48 pm

OP, welcome to the forum. It would be helpful to know where your daughter will work, but if you’re not familiar with NYC, there are some counterintuitive commutes in NYC. For example, some Financial District commutes are much quicker from NJ than from various parts of Manhattan.

Disclosure: I am not in favor of most young people in “business” owning real estate, feeling that at a time where their human capital so far exceeds their financial capital, they should not underestimate the value of geographical liquidity. That view holds especially for those beginning careers that are as likely to have them in London next year as staying in NYC. Putting his money where my mouth is 🤣, my son lives in NYC, a 3 minute walk from his office, and has no intention of buying.
Okay, I get it; I won't be political or controversial. The Earth is flat.

zero sum guy
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Re: Renting vs. Buying in Manhattan

Post by zero sum guy » Sun Jan 12, 2020 6:24 pm

I am a 68 year old born and bred New Yorker and have to laugh a bit when someone states that they must live in Manhattan.
I currently live in the neighborhood of Astoria, a part of Queens, NY which is a part of New York City.
I live in a large two bedroom apartment that is two blocks from a N subway train station. The train runs 24 hours a day, seven days a week, and can get me into midtown Manhattan in 25 minutes. There is also another subway line 8 blocks away-ditto in getting into midtown in 25 minutes.
I pay 2400 dollars a month which may be a lot for other parts of the US, but certainly cheaper than a similar apartment in Manhattan, which would be at least 1,000 bucks more per month. Supermarkets, restaurants, Dollar Tree store, bars,Wine store, and pharmacies are two to three blocks away.
I say rent in my neighborhood, and then buy later if you wish. It is quite safe.
It is a lot easier breaking a rental lease than selling a coop or condo, and I understand losses in selling a property is not tax deductible.
Last edited by zero sum guy on Sun Jan 12, 2020 7:24 pm, edited 1 time in total.

123
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Re: Renting vs. Buying in Manhattan

Post by 123 » Sun Jan 12, 2020 6:50 pm

bh239768 wrote:
Sun Jan 12, 2020 7:52 am
We would probably have to co-sign the mortgage and help with the down payment...
It's time to let her live her own life and figure things out herself. Yes, you might not hear from her as often but that is part of growing up (for both of you).
The closest helping hand is at the end of your own arm.

aristotelian
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Re: Renting vs. Buying in Manhattan

Post by aristotelian » Sun Jan 12, 2020 7:17 pm

Echoing others, New York City has a fantastic subway system. She should make use of it.

As a new grad, she should not buy due to uncertainty of career and future family life. She should rent until she is certain she will be there for 10+ years. Rents are high in NYC so I am sure you can help her if you wish.

Cosigning a loan for a new grad is a terrible idea unless you are OK with assuming 100% of the responsibility.

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bh239768
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Re: Renting vs. Buying in Manhattan

Post by bh239768 » Sun Jan 12, 2020 8:57 pm

Thanks all of you! You have given me a lot to think about. To clarify, I am not independently wealthy. And my daughter is not asking for help from us and wishes to be independent. The reason for my asking the question was to figure out what would make more financial sense for us as a family. At this point, I am leaning in favor of letting her rent for a year or two and then deciding what she wants to do. Thanks again!

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