Gea Elika's Blog, page 159

Mystery Solved: New York City Property Taxes Uncovered

To paraphrase Benjamin Franklin, there is nothing assured in life, except death and taxes. In New York City, property taxes represented 42% of all taxes collected for fiscal 2015, which ended June 30, 2015. The majority, 29.5% of all city taxes were for uniform agencies (police, sanitation, corrections), with 27.5% for education, 24% for other agencies (e.g. transportation, housing, parks), and 19% for health and welfare.

It might be little consolation that the city’s property taxes are generally lower than the surrounding suburbs, which are relied on primarily to fund education. However, at least we can illuminate the process

 

Image by Kristie Tuthill / Flickr

 

Assessments

The city’s Department of Finance values, or assesses, your property annually. Each January, the department mails a Notice of Property Value, outlining the property’s market and assessed value. The property tax rate is applied to your assessed value in order to calculate the year’s property taxes. As a homeowner, if you disagree with your assessed value, you can challenge it by appealing to the NYC Tax Commission.

 

FY 2017 Final Assessment Roll by NYC.gov

 

There are two classes of residential property for property tax purposes. Class 1 covers between a one and three family homes, while Class 2 is for co-ops, condos, and rental units with more than four units.

The property taxes for a Class 1 property is comprised of four steps. The city will determine the market value by comparing prices of similar properties that sold in your neighborhood over the past three years. Assessed value is determined by taking the market value and multiplying it by the level of assessment (currently 6%). Exemptions, or reductions, are subtracted from this figure to figure the taxable value. There are a number of exemptions, such as those based on income, age, and disability. Your property tax bill is the taxable value times the tax rate (currently 19.554%), minus any abatements.

For a Class 2 property, it is a bit more complex, with five steps. The first one is to determine the market value, which is generally based on income earnings potential. Next, an assessed value is obtained by multiplying the market value by 45.63%. Step three applies only for properties with 11 units or more and the next step are for exemptions, which are reductions in the assessed value. This taxable value is multiplied by the tax rate (12.883%), subtracting any abatements (reductions to the tax), to determine your property tax.

Property taxes have been rising annually due to higher assessments. Generally, the rate of increase has been in the mid-to-high single digit range.

Process for payment

 

 

There are two ways to pay your property tax bill. If you have a mortgage, you can pay your taxes with your monthly payment, along with principal and interest on your loan. The other way is to pay the amount due on your own. If your property’s assessed value is less than $250,000, bills are mailed quarterly and due January 1st, April 1st, July 1st, and October 1st, while it is semi-annually if the amount is greater than $250,000.

Final thoughts

The news about property taxes is not all glum. If your itemized deductions are high enough to offset the standard deduction, the payment can be deducted from your federal income taxes. This lowers the amount you actually pay, with the benefit generally increasing for those in higher tax brackets.

[ Department of Finance ]

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Mystery Resolved: New York City Property Taxes Uncovered

To paraphrase Benjamin Franklin, there is nothing assured in life, except death and taxes. In New York City, property taxes represented 42% of all taxes collected for fiscal 2015, which ended June 30, 2015. The majority, 29.5% of all city taxes were for uniform agencies (police, sanitation, corrections), with 27.5% for education, 24% for other agencies (e.g. transportation, housing, parks), and 19% for health and welfare.

It might be little consolation that the city’s property taxes are generally lower than the surrounding suburbs, which are relied on primarily to fund education. However, at least we can illuminate the process

 

Image by Kristie Tuthill / Flickr

 

Assessments

The city’s Department of Finance values, or assesses, your property annually. Each January, the department mails a Notice of Property Value, outlining the property’s market and assessed value. The property tax rate is applied to your assessed value in order to calculate the year’s property taxes. As a homeowner, if you disagree with your assessed value, you can challenge it by appealing to the NYC Tax Commission.

 

FY 2017 Final Assessment Roll by NYC.gov

 

There are two classes of residential property for property tax purposes. Class 1 covers between a one and three family homes, while Class 2 is for co-ops, condos, and rental units with more than four units.

The property taxes for a Class 1 property is comprised of four steps. The city will determine the market value by comparing prices of similar properties that sold in your neighborhood over the past three years. Assessed value is determined by taking the market value and multiplying it by the level of assessment (currently 6%). Exemptions, or reductions, are subtracted from this figure to figure the taxable value. There are a number of exemptions, such as those based on income, age, and disability. Your property tax bill is the taxable value times the tax rate (currently 19.554%), minus any abatements.

For a Class 2 property, it is a bit more complex, with five steps. The first one is to determine the market value, which is generally based on income earnings potential. Next, an assessed value is obtained by multiplying the market value by 45.63%. Step three applies only for properties with 11 units or more and the next step are for exemptions, which are reductions in the assessed value. This taxable value is multiplied by the tax rate (12.883%), subtracting any abatements (reductions to the tax), to determine your property tax.

Property taxes have been rising annually due to higher assessments. Generally, the rate of increase has been in the mid-to-high single digit range.

Process for payment

 

 

There are two ways to pay your property tax bill. If you have a mortgage, you can pay your taxes with your monthly payment, along with principal and interest on your loan. The other way is to pay the amount due on your own. If your property’s assessed value is less than $250,000, bills are mailed quarterly and due January 1st, April 1st, July 1st, and October 1st, while it is semi-annually if the amount is greater than $250,000.

Final thoughts

The news about property taxes is not all glum. If your itemized deductions are high enough to offset the standard deduction, the payment can be deducted from your federal income taxes. This lowers the amount you actually pay, with the benefit generally increasing for those in higher tax brackets.

[ Department of Finance ]

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8 Questions to Ponder Before Buying Your Dream Apartment

When you start looking at apartments in New York, it’s easy to think you’re getting ripped off. After all, you don’t know if there are thousands of dollars of repairs lurking right below the surface!

Well, fear no more! Here are eight things to ask yourself when you’re finding your perfect apartment.

1. Does the apartment have something that sets it apart from all the others?

This is going to be your home! There should be something that sets this one apart from all the others. Particular details I love to see include:

– High ceilings
– Large windows
– Pre-war details
– Open floorplans
– Positive flow

It’s not just personal taste, though. These sorts of timeless, structural details enhance your capital appreciation faster beyond expectations, which means your investment pays off faster.

 

Image by Halstead Property / Flickr

 

The same goes for other benefits that can’t be removed, like an apartment with an open view assuming there is no garage across the road that can be developed or lots of sunlight. These sorts of ‘tried and true benefits’ are always going to add value, so as the market gets stronger, so too will your property value at an accelerated rate.

2. Is the apartment renovated to your taste?

Do you love the apartment, or do you love it for what it could be? Either is fine, but if it’s not move-in ready, then it’s worth getting a quote for how much it’s going to cost to make it your dream pad.

Be wary, though – renovating an apartment you love is one thing, but bear in mind that your apartment is an asset you might one day want to sell. It’s important to renovate in a way that’s going to appreciate over time and hold resale value as well as appeal to someone else’s style down the line.

3. Are the rooms generously sized?

Are the rooms the right size, or are they going to drive you crazy in about two weeks? In particular, are the bathroom and the kitchen suited to your lifestyle? Generally speaking, a kitchen or bathroom will make or break your apartment, so you need to be happy with the dimensions from the get go (or plan on expanding them. If so, get a quote before you sign anything).

 

Image by Halstead Property / Flickr

 

A bedroom that’s a bit too snug or a living space you wish was just a bit larger can be managed, but again, it’s important to consider resale. If a bedroom is too small, it’ll impact the value of your apartment unless it can be enlarged.

4. Are the appliances new?

If the appliances are new, then you’re pretty much all set. Make sure that they’re still under warranty and if not, then just make sure they all work.

If they’re not new, check to see if they work as well as you want. If not, or if you simply want to replace them anyway, double check what the replacement cost is going to be. If you love the place it’s not a big deal; it’s just worth remembering it’s an extra couple thousand you’ll likely spend right away.

5. Does the apartment have hardwood floors?

If it does, make sure they’re real. Second, do they need to be refinished? Again, this is a relatively small cost, but it’s something that’s easier to do before all your stuff is there, so it’s a cost you’ll probably want to pay right away.

 

 

As for imitation wood, steer clear – it looks gorgeous, but it wears terribly and is indicative of cheap construction that might be present throughout the apartment and building.

6. Does the apartment have a washer dryer in the apartment?

If it does, great! If not, is it on the floor, in the building, or down the street at a laundromat? I’d recommend going to for in-unit if possible but if not, aim for in the building. Far more convenient than lugging your clothes around all the time, especially in the January snow!

7. Is the building well maintained, and have a clean basement?

A well-maintained building and clean basement indicate that the building is well cared for, and that problem will be addressed quickly and effectively. First, this means that there are likely fewer problems beneath the surface and is a good indicator of quality. Second, it means that any problems that do crop up are likely to be dealt with quickly, which is the absolute best way to keep costs down.

8. Does the apartment have space saving central HVAC?

Central HVAC is by far the cheapest and most effective way to control the temperature of your house. Plus, it takes up the least space! Make sure you ask how your new apartment is heated and cooled, and aim to get central HVAC.

Wrap up

There’s a lot of pressure when you’re buying an apartment. For many, it’s one of the biggest investments they’ll ever make, so potential buyers are understandably concerned about what lies beneath the surface of the fresh coat of paint and that it’s the right home for them.

These eight questions should help you make sure you’re getting your money’s worth as well as ensure that you love your apartment in 10 years just as much as you love it today.

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Millennials Moving in on the Real Estate Market

The millennial generation, or simply millennials, are defined as those born between 1982 and 2000. The U.S. Census Bureau estimates there are 83.1 million millennials as of 2015, or more than 25% of nation’s population. This exceeds the 75.4 million baby boomers. It is a more diverse group than previous generations, with 44.2% being part of a minority race or ethnic group.

A large number of people in this generation makes it influential on the economy, including real estate.

Entering their prime

The oldest Millennials are in their mid-30s, while the youngest are still teenagers. Traditionally, peak home buying years are between the ages of 25 and 45 years old, meaning many are in their prime buying years or approaching it.

 

Image by State Farm / Flickr

 

There was talk several years ago that many millennials were eschewing home ownership. The generation witnessed turbulent economic times, including the dot.com and housing bubble bursting, and the Great Recession. Nonetheless, many do want to own a home. According to a 2015 survey by Chose Home Warranty, 30% of Millennials plan to buy a home within the next five years. Millennials also comprised 32% of the U.S. housing market in 2014, up from 28% in 2012.

Impediments

Millennials are well-educated, with over 47% of those between the ages of 25 and 34 having a postsecondary education degree, compared to about 30% in 1992. However, this has also come at a price, with students taking on more debt. The average 2016 graduate has over $37,000 in student loans, up 6% in the last year. There is a staggering $1.3 trillion in student loan debt among 44 million borrowers. Some have taken to move back home to save money and pay down debt. While this is a short-term hindrance education and income are positively correlated. Therefore, this should translate into higher earnings down the road, helping housing prices.

The employment market has been challenging for millennials. Along with higher student loan debt, many entered a workforce that was challenging, to put it mildly. The good news is that it is improving, albeit slowly. However, the unemployment rate among those 18 to 29 years old was about 8%, more than the national figure of about 5%, and the broader U-6 measure was 12.7% in September. A previous study in 2011 showed the underemployment rate in the 18 – 24 age group was 28.6%, the highest in the various age brackets.

 

Image by Scott Lewis / Flickr

 

Where do millennials want to live?

It has been well-documented that millennials enjoy the city life, particularly large metropolitan areas such as New York and San Francisco. This is backed up the data, with a recent survey by apartment search site Abode showing one in five millennials stating New York is their ideal city. San Francisco, Seattle, Portland, and Los Angeles are the next four on the list. Out of the top 20 qualities important to the group, New York City has 90% (Philadelphia has 95%).

Summary

Millennials will no doubt create future demand for housing, although the impact has been delayed by factors such as student loan debt and a sluggish job market. Many have put off getting married, and the dream of kids and a yard are not currently a priority. The flip side is many neighborhoods, such as Red Hook and Williamsburg, are being revitalized.

These factors create a desirable place for many millennials, making New York primed to experience increased demand in the coming years.

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First-Time Homebuyers First Step: Looking Through the Lens of Lenders

Obtaining a mortgage can be a confusing and very stressful process, particularly for first-time homebuyers. Lenders seem to hold the power of whether your dream will come to fruition, determining how much you can borrow and what your interest rate will be. However, by shedding knowledge on the process, we hope to ease your mind and put the decision-making power back in your hands.

The Loan Estimate

When applying for a mortgage, the first step is to request a Loan Estimate, a form that went into effect in October 2015. It is three pages and the lender must provide it to you within three business days of receiving your application. The form contains important information, such as the estimated interest rate, monthly payment, and closing costs. In the wake of the housing crisis, the document is designed to be written in clear English in order to be understood.

 

Image by Jeremy Brooks / Flickr

 

There are six key pieces of information that are required in order to receive a Loan Estimate: name, income, social security number (to complete a credit check), address of the home you plan to purchase, an estimate of the home’s value, and the amount you intend to borrow.

Official documents are not required to obtain a Loan Estimate, although the Consumer Financial Protection Bureau (CFPB) recommends you do so in order to obtain the most accurate estimate possible. You should also request a loan estimate from several lenders. This will give you different options to compare in order to choose the best loan.

Assuming you are happy with the loan terms from one of lenders, you need to inform one of them that you are ready to go forward with a loan application. This is typically done within 10 business days. Otherwise, the lender can alter the Loan Estimate or start the process again. You may be asked to provide additional documentation to verify the information you have submitted. The lender will make a decision on whether to approve or deny your loan application.

Documents

Typically, lenders will ask for several documents. These can be broken down into income and assets/liabilities. It will behoove you to have these on hand prior to your loan application. On the income side, the list includes two years worth of W-2s and/or income statements/1099 forms for self-employment income, recent pay stubs, and at least your last federal income tax return. To verify your debts, lenders will ask for a list of all loans, such as credit cards, student loans, car loans, and personal loans. To prove your assets, statements from your bank, mutual fund, brokerage, and retirement accounts (e.g. 401k and IRA) should be made available upon request.

Important ratios

There are two important ratios lenders use to determine how much to approve for a loan, at least on a preliminary basis. One is the ratio of monthly housing costs to monthly income and the second is debt to income.

In the first ratio, lenders will typically limit housing costs to 28% of your monthly income. For debt to income, your monthly debt serving costs should not exceed 35% of your income.

Check your credit

While it is wise to check your credit regularly for blemishes, this is particularly pertinent if you are applying for a mortgage. You should check your credit report with all 3 credit agencies, giving yourself ample time to correct any discrepancies.

Final thoughts

The mortgage process does not have to be a daunting process. Armed with some basic information, and being well prepared with your paperwork, you will likely find the process much smoother than you expect.

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A Step-By-Step Timeline for Purchasing a NYC Condo or Coop

Once you have found a reputable buyer’s agent, real estate attorney and figured out the financing, you’ve taken the first steps on a long, complicated and rewarding journey. Here’s what you can expect on your quest for homeownership:

 

1. Mortgage Pre-approval

(Estimated timeframe: 3-7 days)

You can’t start shopping until you know what you can afford. Keep in mind that your final mortgage approval is contingent on having the requisite down payment. Condo apartments typically require 10 percent down, while co-op apartments require at least 20 percent or more. In Manhattan, approximately 20 percent of the buildings are condominiums, and the other 80 percent are cooperatives. Although Condominiums allow for 90% financing since the financial crisis, most lenders require that the buyer put down 20%.

 

2. Finding a Property

(Estimated timeframe: 1-6 months)

The average buyer sees between 15 and 20 properties before making an offer on one. Your search length will depend on how many requirements you have for your next home.

Image by Cristinel Anghelus / Flickr

 

3. Negotiation

(Estimated timeframe: 24 hours to 2 weeks)

Everything is negotiable in a sales contract, from price, assessments, appliances to floors and fixtures. Expect a lot of back-and-forths during this phase. Negotiating the Sales price requires finesse and a strong argument best supported with a CMA (comparable market analysis).

 

4. Contract Signing

(Estimated timeframe: 1-2 weeks)

The seller’s attorney draws up the contract of sale, and the buyer’s attorney does due diligence, reviewing minutes, financial statements of the building, etc. Once approved, the buyer signs the contract and forwards it to the seller’s attorney with a 10 percent deposit. At this point, the seller executes the contract, and it becomes binding on both parties. Possible contingencies include financing, approval by any co-op or condo board, closing dates.

 

5. Mortgage Application

(Estimated Timeframe: 45-60 days)

Mortgage applications cannot be processed before the contract is executed. Once the application is complete, your lender will release a commitment letter. This letter is required to complete your board package/condo application if you are financing an apartment.

 

6. Condominium and Cooperative Application or Board Package

(Estimated Timeframe: 2-3 weeks)

Once your purchase contract is executed, your condo board will give you an application to complete. This application must be completed and approved before closing takes place. If there is no mortgage involved, it takes about 2-3 weeks to gather all the information needed for the application.

Co-ops, however, demand an exhaustive list of documents and information. Most co-ops require the following in a board package: Complete financial disclosure with supporting documentation, detailed employment history, current salary, personal and business references, two years of tax returns, and a comprehensive credit history.

 

7. Submit Condo Application and Board Package for Review

(Estimated Timeframe: 1-4 weeks)

Once EA completes your board package, we forward it to the building’s management agent, who reviews it for completeness. Then it’s forwarded to the condo’s board of directors, and they decide if they will meet the potential buyer.

 

8. Co-Op Board Interview and Decision

(Estimated Timeframe: 30-60 minutes)

Most co-op boards meet just once a month, and many do not meet in August. Frequently, meetings are in the evening on a weeknight. Keep in mind that an interview does not guarantee approval. The board will reach a decision up to a few days after the meeting.

 

9. Closing

(Estimated Timeframe: 1-2 weeks after approval by the board)

Once the board has approved you, the attorneys will schedule a closing as quickly as possible.

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Home Prices Up, Down or Sideways – Should you buy?

Now is the time to buy if you are a first time home buyer due to seasonality and potentially slightly higher rates soon to come. In general, the market remains at elevated levels, and one should proceed with caution – so if you are going to buy a home, you’re best to do it before the end of the winter quite period. Conversely if looking for investment property now is the time to tread carefully. As always choosing the right property and buying it for the right price is critical.

What’s driving prices up

The Manhattan real estate market continues to outperform due to the health of the local economy, incoming skilled labor force, stock market stability and continued interest from the foreign buyers. International interest remains despite the strong dollar, and subdued capital flows from the countries such as the UK and some EU countries.

The outperformance continues because of:

• – Economic headwinds in Europe

• – Brexit (and the revelation of a ‘hard Brexit’ in early October)

• – Reduced attraction of other traditional foreign investment property markets due to higher valuations

Add to increased international interest, local interest from first time home buyers is also contributing to above-average prices. Many baby boomers and empty nesters are moving back to the city and downsizing by selling their larger homes in the suburbs. Also Millennials, a significant market segment are also contributing to the overall strength and should continue to be monitored as an indicator of market health.

 

Images by mattharvey1 / Flickr

 

The result is that activity remains well above long-term averages, and in September 2016, 40% of transactions were at full asking price or above.

What’s driving prices down

Continued low-interest rates have fueled aggressive construction spending and now due to over-supply in some neighborhoods prices are correcting in particular for luxury new developments. The price reductions for luxury properties $5 million and above will likely last 6-12 months approx.

New developments hold a keen interest, and as New Yorker’s continue to upgrade, resale housing prices showed modest increases while the market share of bidding wars slowed from last year’s record to more sustainable conditions making it easier for new buyers to step in.

How’s it’s looking compared to last year

Compared to last year, the market has continued to hold high overall however some segments are underperforming and some outperforming.

According to Miller Samuel, the median sales price of a Manhattan apartment was up 7.6% year over year to $1.73 million making it the fourth quarter with a median price over $1 million.

However, the resale market (87.7% of sales) was more reflective of current market conditions, with a median price of existing homes only up 2.6% year on year to $950,000. This increase is in line with other market indicators like listing discount (the percentage difference between the list price at the time of sale and the selling price) which increased from 2.2% in Q3 to 2.9% Q3 this year.

Reflective of these small gains in sale value, it took houses six days longer to sell on average, increasing to 79 days on the market.

 

Image by Peter Miller / Flickr

 

What’s coming in the next 6-12 months

I believe the growing inventory of new construction will be absorbed over the next 12 months and more buyers will enter the market once the Presidential Election has passed and the typical New York “bonus” season begins in the first quarter of 2017. Combined with price adjustments and continued unstable international markets, New York City property is likely to become more competitive starting early next year, despite luxury new construction headwinds.

What it means for buyers

The market consolidation presents an excellent opportunity for potential buyers given the increased ability to negotiate. As the holidays approach, sales volume slows down providing a window of opportunity for new buyers.

Despite luxury oversupply market desirable, affordable apartments and homes remain in short supply thus it is prudent to act when finding the right home which meets or exceeds at least 80% of your wish list and is fairly priced or course.

If you want to buy your first home now is the time to do it.

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Neighborhood Spotlight: Upper East Side

One of Manhattan’s most celebrated neighborhoods, the Upper East Side is brimming with quaint homes and tree-lined streets. The rich history and residential feel make it a desirable area for the city’s inhabitants, while the cultural attractions, a variety of restaurants and upscale shopping make it a popular destination for both locals and visitors alike.

This classic New York neighborhood is known for being home to the city’s elite. The coveted Central Park views along Fifth Avenue, and the grand mansions and townhouses/brownstones draw celebrities and actors who are often seen in the area, along with some of the city’s wealthiest residents.

 

Images by angela n. / Flickr

 

The neighborhood:

Neighbored by East Harlem to the north and Midtown to the south, the Upper East Side spans the entire east side of Manhattan from the East River to Central Park from 60th to 96th Street.

The affluent neighborhood is mostly residential, featuring a mix of single-family brownstones, luxury condominiums, and pre-war walk-up buildings. It is home to more than 200,000 residents, making it one of the densest neighborhoods in the city.

Known for its lovely brownstones and carriage houses, the Upper East Side is made up of many smaller areas including Yorkville, Carnegie Hill, and Lenox Hill.

New York City’s affluent residents began flocking to this area after a railroad was established running up modern-day Park Avenue in the early 1900s. The wealthy residents developed land along the scenic Fifth Avenue, overlooking Central Park, and erected vast mansions. Some prominent residents included Andrew Carnegie, who was later joined by other prominent American families including the Rockefellers, the Kennedys, and the Whitneys all of whom established homes in the area.

In modern day,  luxury hotels, elite shopping, and cultural attractions draw residents to this area while trendy restaurants and cocktail dens attract droves of New Yorkers and visitors alike, making the Upper East Side one of the city’s most popular neighborhoods.

Things to do:

One of the main attractions of the Upper East Side is it’s proximity to Central Park. Running paths like the Jackie Onassis Reservoir and the Park Drive loop draw active residents while the Boathouse, Sheep Meadow, and the Great Lawn are popular destinations for visitors and New Yorkers alike.

 

Images by MARCOS VASCONCELOS / Flickr

 

Situated along Central Park is Museum Mile, a world renown stretch of museums including The Metropolitan Museum of Art, the Guggenheim, the Cooper-Hewitt Design Museum and the Jewish Museum. This few block selection of Fifth Avenue is a very popular cultural destination as well.

Also on the Upper East Side is the idyllic Carl Schurz Park, a park featuring plentiful green space and quiet paths that overlook the East Rivet.  It is also home to Gracie Mansion, the official residence of the Mayor of New York.

The Upper East Side is also filled with five-star restaurants that are known around the globe, like Daniel Boulud’s Daniel and the iconic J.G. Melon. Among other famous hotspots on the Upper East Side are Loeb Boathouse in Central Park, 2nd Avenue Deli and Bemelmans Bar in the Carlyle Hotel.

Transportation:

The 456 is the only subway route that spans the entire length of the Upper East Side. With five local stops along Lexington Avenue throughout the neighborhood, this train is the main mode of public transportation for most residents.

The M15 bus runs south along Second Avenue and north up First Avenue, providing reliable service east of the subway. There are also crosstown buses at 66th, 72nd, 86th and 96th Street that provide transportation across the park to the west side of Manhattan.

What it costs: 

 

Images by Vernaccia / Flickr

 

In this affluent neighborhood, the closer to the Central Park, the higher the cost to purchase or to rent– the 10021 zip code, covering the entire width of 68th through 77th Street, is one of the country’s most expensive zip codes. The upper and lower fringes of the neighborhood run a lesser price, though the average price per square foot falls at $1,362

Though there are multi-million dollar homes available, there are also more affordable apartments, with 2-bedrooms available for around $3,000 on the neighborhood’s eastern and northern edges.

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To Rent or Buy? That is the question

The decision to buy a home or apartment is intensely personal. Although part of the American Dream seems to include home ownership, it is not the right choice for everyone. If you are on the fence about buying or renting, here are some basic guidelines that can help you make the decision, from a financial perspective.

Cost/benefit analysis

It is worth comparing the costs and benefits of home ownership to renting. Home ownership provides potential price appreciation and tax deductions for mortgage interest and property taxes. It also requires a monthly mortgage payment, property taxes (which tend to rise every year), closing costs, renovations (unless it is a co-op), and homeowners insurance.

 

Image Maëlick / Flickr

 

Renters typically pay less per month, and the savings can be invested. Aside from the monthly rent, a deposit will typically be required upfront, and many opt for rental insurance. There is also the potential for rental hikes down the road. Of course, renters have the flexibility to leave quicker than those that own the property, either at the expiration of the lease or the end of the month if there is no agreement.

What should you do?

StreetEasy has a calculator that is used to determine how long it would take to own your home before it makes financial sense. Earlier this year, the median for New York City was 4.9 years, with it at 7.4 years for Manhattan, 4.4 years in Brooklyn, and 3 years in Queens. There are also wide variations from the differing neighborhoods. It is a complicated calculation, with assumptions including investment rates of return and home price appreciation.

If you are not mathematically inclined, and find all of that too complicated, there is a simpler approach. If you plan on being in the city for only a short period of time, renting is almost certainly the better option due to the flexibility and closing costs. But, if you plan on staying in the same place for several years, then it would be wise to do a back of the envelope calculation. Factors to consider include the home price, how long you plan on staying, and the interest rate on your mortgage.

As a simple example, if the purchase price is $1.5 million, and you are placing a 20% deposit, your mortgage is $1.2 million, your monthly payment (principal and interest) is about $5,400, assuming a 3.5% interest rate. If this is a co-op or condo, there are maintenance/common charges along with utilities. If these come to $2,500, your monthly cost is $7,900. This likely far outweighs a typical rent in the city. However, a portion of your monthly mortgage is applied to principal, and the interest is tax-deductible. In the early years, the payment will be primarily interest. This may bring your monthly cost down to $6,000. This is still a greater price to pay than renting, but you may choose ownership for the potential price appreciation along with the pride that comes from staking your claim.

Of course, if you can invest that $300,000 down payment at a high enough return, you will be better off with the renting option.

Final thoughts

We have only covered the decision from a financial perspective. There are emotional aspects, such as the feeling of creating your own space. Repairs and perhaps replacing appliances are also costs of home ownership.

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Planning for the Future When You Purchase a Home

Buying an apartment or house makes sense if you intend to live in it at least five to ten years; any less, and you may wind up losing money in the transaction. The seller in a real estate transaction can easily expect to pay up to 10 percent of the sales price of the home in closing costs, allowances, commissions, necessary repairs, and other negotiated expenses. Also, sellers rarely get the full asking price for their apartment or home, unless the housing market has a shortage of inventory. It’s also possible to get full asking price if a home has been well-renovated, is in a great location, or if it features distinctive and appealing architectural detail.

 

Image by TRA Studio Architecture / Flickr

 

What does that mean for the first-time apartment or homebuyer? It means trying to predict the future.

In the next seven years or longer, do you plan to start or grow your family?
Is there a possibility your employer will transfer you to a location in another part of the country?
Do you have an ailing or aging parent who may need to move in with you?

 

Predicting the future also means buying only as much apartment or house as you think you’ll need, but not much more. In the past, the trend in first-time apartment or home buying was to purchase a smaller, more affordable “starter apartment or home,” and then sell it in a couple of years when the family (and the household income) grew. Given the variables in the real estate market, that no longer seems like the best strategy.

 

Image by Dee / Flickr

 

Today, you’re better off buying the apartment or home you think you’ll need for your family for the next ten years. Apartments and homes with multipurpose rooms, like a dining room that can be converted to an office, or an attic that can be transformed into a bedroom, make sense as you try to arrange your home to meet your family’s changing needs.

Resist the temptation to buy too much house. The additional taxes, utility payments and maintenance and repair costs restrict your ability to save for other family necessities. As the saying goes, no matter how big your apartment or house is, you can only sit in one chair at a time.

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