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Buying a place in New York

The Moving to New York thread got me thinking. I also plan to make the move next year, once my current contract ends. From what I saw at some of the real estate agents it would be possible to buy a 1 BR or studio for 250k – 300k in Manhattan.

Since I actually might have that money available, I thought about going that route. Any suggestions or comments? I quite fancy the idea of owning my own place right away.
Permalink TS 
August 25th, 2005
you have the whole amount in capital? nice... keep it where it is if you think its currently earning more than rent - (mortgage + owning expenses) + return on real estate...
Permalink Kenny 
August 25th, 2005
Investment professionals generally recommend against paying cash upfront for real estate property. Sure a mortgage might cost 1-2% more than you'd earn on by investing the cash, but it protects your net wealth from being tied up in one basket. This is especially true for condos, where management issues can sometimes cause instability in the property value. (And it's unthinkable for coops... same issue but even worse.) After you've lived there for a while, when you're certain that you want to stay and you have a good feel for the building's fundamentals, then you are safer to consider paying it off.

So if you're looking at the condo as a place to live, I would still obtain a mortgage, at least for the first few years. It will diversify your risk.
Permalink Ryan 
August 25th, 2005
Why not use it as the down payment for multiple houses and rent them out?
Permalink Aaron F Stanton 
August 25th, 2005
Ryan, I might be missing something here but how does a mortgage versus paying in cash protect you from a drop in property value? Whether I owe the bank $500K or I paid $500K in cash for the property, if the property value drops by $100K am I not out that $100K regardless?
Permalink Gerald 
August 25th, 2005
Gerald, think of it this way:

you have 500K.

A) its in a condo, it goes down in value 100K, you're out 100K.

B) 100K in condo, 400K in other investments. house goes down 100K, so you're out 100K. but let's say your other investments are up 10K so you're down 90K overall.
Permalink Kenny 
August 25th, 2005
Look up "diversification," also known as "not putting all your eggs in one basket"

Philo
Permalink Philo 
August 25th, 2005
Thanks Kenny, kind of a duh on my part.
Permalink Gerald 
August 25th, 2005
If the $500k condo went down $100k, the $100k condo would only go down $20k.
Permalink MarkTAW 
August 25th, 2005
Yes, but your $400k mortgage would be under water to the tune of $80k, so either way the loss adds up to $100k. The condo is still going to cost $500k to buy however you finance the purchase.
Permalink Ian Boys 
August 25th, 2005
> let's say your other investments are up 10K so you're down 90K overall

In this scenario, you *also* owe the interest payments on your 400K mortgage.

It seems to me that it isn't enough for your other investments to do better (e.g. to be anywhere in the black, or at least less in the red) than the housing market (than the change in value of the house you bought) ... instead, for your suggestion to be sensible, your investment actually needs to get a higher rate of return than whatever interest rate you'd pay on the mortgage that you need to borrow if you don't invest your own capital in the home ... effectively, you're borrowing (from the bank) the money that you invest elsewhere instead of in the home ... and do you think that you can beat the bank?
Permalink Christopher Wells 
August 25th, 2005
Oh, sorry, I guess I wasn't following that closely. I thought he was recommending buying a $100k condo instead of a $400k one.
Permalink MarkTAW 
August 25th, 2005
Thanks for the recommendations. I am just a little concerned that getting a mortgage might be a problem for a micro ISV and part time consultant. Although I am making good money, if in unsteady intervals.
Permalink TS 
August 26th, 2005
$250-300K sounds way low for a 1BR in Manhattan. A small studio in some neighborhoods perhaps. Be sure to consider the co-op/condo fees, too, as they can add a lot to your monthly costs.

Here's some hard data:
http://www.halstead.com/halsteadmedia/pdf/marketreports/2Q05Report.pdf

If you don't want to bother with the PDF, the takeaway is that in 2Q05 the average 1BR sold for $734K (condo) or $562K (coop), and the average studio sold for $412K (condo) or $315K (coop). They have some neighborhood-by-neighborhood data that might be helpful.

I've never tried to buy in Manhattan, only rent, but I'd be a little bit wary of real-estate agents there. Brokers, at least, are notorious for pulling bait-and-switch tricks and worse.

Of course, things will be available for less in outer boroughs.
Permalink John C. 
August 28th, 2005
Oh, I noticed that PDF refers to both "average" and "median" prices, so maybe it's not quite as bad as it looks if those numbers I quoted were means rather than medians (it's a little hard to tell).
Permalink John C. 
August 28th, 2005

This topic was orginally posted to the off-topic forum of the
Joel on Software discussion board.

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