Buying in the Big Apple

We all go to a friend’s place and get hit with apartment envy. We all have friends in other parts of the country who are buying homes, talking about mortgages and escrow, lines of credit and tax deductions.

All of which can prompt a scrolling of StreetEasy, as we fantasize about no longer renting, but buying our own fabulous New York City apartment, as we drool over lofts in TriBeCa, townhouses in Brooklyn, or the crown moldings and wainscoting of the Upper West Side. We convince ourselves that with the ever-increasing cost of living in Gotham, buying right now is the smart move.

So, in turn, we read every article in The New York Times and The New Yorker regarding the, “hot, up-and-coming neighborhoods”, so we can be convinced we’re getting in on the ground floor in some neighborhood that will soon be the next Williamsburg or South Harlem.

But, much like the impulse aisles at Target, does apartment envy lead to buyer’s remorse? Is buying an apartment in New York City really a smart investment, or are you better of buying a vacation home elsewhere?

The Big Five

First, let’s just state the obvious and get it out of the way: New York City is comprised of five boroughs, and is much larger than just the island of Manhattan. So, unless you are afraid of bridges and tunnels, don’t forget about all of the new development that is currently underway in Brooklyn, Queens and the Bronx.

Generally, you will be able to get more bang for your buck, finding larger apartments for less money than you will in the much-sought-after Manhattan. Current projections are anticipating 45,000 new single-family homes and 70,000 new apartments in Queens, 40,000 new homes and 110,000 new apartments in Brooklyn, and 60,000 new apartments in Queens.

While that certainly sounds like a lot of new construction for those who are open to not buying in the already-saturated Manhattan market, don’t allow those numbers to foster complacency. New York City has long had an, “if you build it, they will come” mentality, especially given the rapid increase in healthcare jobs in both Brooklyn and Queens.

Healthcare is growing twice as fast as finance, at a rate of 5% per year. More jobs equals more people with a steady income, who may want to own a piece of the Big Apple, particularly in the borough in which they work. One of the biggest things that Manhattan still has going for it, however, is convenience; while the populations of Queens, Brooklyn and the Bronx have been growing, that growth has not yet necessarily been met with more stores and restaurants.

The Real Cost of Doing Business

When it comes to buying a home, everyone thinks of the down payment and what they will pay each month for the mortgage. However, there are additional costs to be considered, including closing costs and monthly maintenance fee.

Ideally, you should have, on-hand, 21-25% of the total purchase cost: 20% for the down payment and 1-5% for the closing costs. So, if you are purchasing a $500,000 apartment, you should have approximately $125,000 in liquid assets for the closing costs.

Speaking of liquid assets, New York City remains a very wealthy city, as well as a haven for wealthy foreign businessmen looking for investment properties. As such, “money talks” as they say, and you may find yourself competing for apartments with people who are willing and able to pay in cash, in full and upfront.

Condo and Co-Op boards tend to like that, as then their only concern is the assurance that the individual can pay the monthly maintenance fee. Which brings us to another cost to consider when trying to find your dream apartment in New York City…

Maintenance fees

The average monthly maintenance fee (or, often referred to “common fees” in condos) in New York City is $1,500, and remember: this is in addition to whatever your monthly mortgage payment is. Luxury buildings are going to come with a heftier price tag, so that’s something to keep in mind before you fall head over heels in love with that building on Central Park South.

“What am I paying for?”, you may ask. Generally, the maintenance fees cover the costs of any shared amenities, such as pool, gym or rooftop deck, and the salaries of doormen and superintendents. Oh, don’t forget, you will also be expected to tip the aforementioned employees come the holiday season, so you may want to factor that into your housing allowance, too.

While you are paying a monthly maintenance fee and your building presumably has a superintendent, you will find that you are financially responsible for a lot more than you were as a renter. Pipes, that are shared by multiple units, burst? Well, that is on the condo or co-op board to resolve.

Your ancient oven finally go to the big kitchen in the sky? That one is going to be on you? Need new carpeting? Fresh coat of paint, after a few years of wear and tear? While all things that are often the responsibility of the landlord, when you were renting, are now going to be your responsibility, both physical and financial, once you purchase your new apartment. While it may feel like you are just throwing money away every time you write that monthly rent check, there are some benefits to doing so, as well.

What is Your 5 Year Plan

Have a job that may transfer you to another part of the country some day? Thinking about settling down and starting a family, and you envision teaching your kids to ride their bikes in the cul-de-sac?

Then, you may not want to pull the trigger on buying that apartment with the eat-in kitchen and walk-in closet. General rule of thumb is to only purchase a place if you plan on staying there for a minimum of five years. While New York City can be a good place in which to invest in real estate, it is prone to the same dips in the market, just as any other place.

So, you will want to make sure your investment is safe and you are not having to sell in a bad housing market. If you are still itching to buy, even if you are uncertain of your long-term plans, try to lean towards buying a condo, rather than a co-op; co-ops are generally a lot more stringent when it comes to allowing owners to rent out their units.

The real estate market in New York City is really no better or worse than it is anywhere else or in any other major city. But, as it’s a fairly transient city, being honest about where you see yourself years from now is something to consider, as are all of the additional costs that we often overlook.

Convinced that buying in the Big Apple is an investment you are ready to make? Then, it will really boil down to what you are looking for: if you would like a spacious apartment in a quiet area, then Queens, or parts of Brooklyn will probably be where you call home.

If you are expecting to have a Trader Joe’s, a bank, a deli and a great restaurant for brunch, all on your block, then Manhattan is probably the place for you.

Photo by Zach Miles on Unsplash