C.W., a reader from Brooklyn, e-mailed to ask my advice on, as she put it, “what/if to buy right now.”
So here’s my advice. But please, take it with a keg of salt. We’re dealing in opinion here, not fact.
C.W. wrote: “My fiance and I rent a pleasant 2BR in Boerum Hill for $2,500. Our lease ends in September, and we could certainly renew. I have a job that pays $84K, perfect credit, and $100,000 cash to put toward a home purchase.
I’m torn between wanting to buy the best apartment we can afford in Fort Greene/Boerum Hill/Park Slope/Windsor Terrace, OR a one- or two-family somewhere in upstate New York, the North Fork, or PA that I can rent out, at least for part of the year, to generate income.
Ideally, I’d like to do both, of course, but I suspect that NYC prices haven’t fallen as far as they may, whereas we might find a bargain out of the city.”
That’s the prologue. Here are C.W.’s questions and my answers:
- Would it be wisest to put all our eggs in one property, or try to save enough for two down payments? My gut reaction: buy the best place you can afford as your primary residence, and never mind the second home right now. You didn’t say anything about your fiance’s contribution, but from the sound of things, you don’t absolutely need that rental income. You can always rent something on Long Island, upstate, or elsewhere for the few weeks a year you’d be using your second home, and have the fun of exploring different areas for a possible purchase down the line. You have a good rent deal in Brooklyn, but you could be putting that $2,500/month toward a mortgage payment, with all its tax advantages. NYC prices may fall further, but it can take literally years to find the right primary, permanent home. I think you should get cracking on that right away. Prices may go down as you look.
- What’s your sense of where the best deals are now to be had? Setting aside the question of where you actually want to live and work, and just focusing on “the best deals,” I’d have to say, NOT in Brooklyn or Long Island. If you want a world-class, artistic, cultured, hip, historic, and quite beautiful city where you can get in on the ground floor, real-estate-wise, consider Philadelphia. The architecture is similar to Brooklyn: 19th century 3- and 4-story row houses, but the prices are about one-fifth as much (I should add, the rents are also lower by about 50%). There are so many awesome neighborhoods. I love Queen Village and Fitler Square; I’ve heard good things about the Art Museum area, but I’m not as familiar with it. People are buying in Philly; the brokers there are not singing the blues. As for the East End of Long Island, it seems to be a bit of a rip, though the brokers say sellers are becoming more flexible. The Hudson Valley is beautiful, accessible, historic, and under-priced; a house there is roughly half the cost of a similar property on the North Fork.
- Do you use a broker to rent out your Philly properties and pay a
super to keep an eye on them, or do you find new tenants and manage the houses yourself? No, I don’t use a broker to rent my Philly apartments because, unlike in NYC, the landlord pays the broker’s fee, not the tenant. I use Craigslist and try to gang up showings to minimize the number of trips I have to make. Though those trips are not as frequent as I’d actually like. This past year, I went down a few times between March and May and then had no reason to go again until October. I missed it! I don’t have a super or management company; I don’t want to pay for them. I do it myself, and all it requires is a telephone. I have good phone relationships with plumbers, roofers, an HVAC company, etc. I even have a guy in Philly who shovels snow.
- If you buy a house to rent out in another city, how can you pick an area where you can be relatively sure rental prices will remain stable? I love Hudson, N.Y., but I’m wondering about the local economy. That’s one reason I’m so bullish on Philadelphia; it’s a big city with a lot of jobs, opportunity, and prospective tenants. I love Hudson, too, but, like you, I wonder about the local economy. It’s built on the antiques business and not much else. I’ve looked at property for sale there and given it some thought; it seems like a great place to live, or have a second home, but I’d worry about investment or rental property.
- I’m also weighing condo vs. co-op apartments. I’m thinking of buying around D.C., since I know that area well and the Federal government will probably be the last to fail! I’ve never remotely considered buying a condo or co-op. I have an aversion to meetings, committees, and maintenance costs beyond my direct control. I don’t know D.C.; I’ve only been there as a tourist a few times. But since one of the first rules of real estate investing is ‘Buy where you know,’ D.C. makes sense for you. Re the Federal government’s stability, all I can say is: from your lips to God’s ears.
Thanks for sharing this! I’m sure your readers will find it helpful.
“I’ve never remotely considered buying a condo or co-op. I have an aversion to meetings, committees, and maintenace costs beyond my direct control. ”
Cara, thank you for the advice. I think that for about $500 or $600K max, though, I’d have to go for a Brooklyn condo or co-op and endure the meetings!
Or maybe keep an eye out for a house bargain in Bay Ridge?
I have read articles arguing that prices in NYC will have to fall very far before purchasing here is a better investment than just putting your money in a CD and continuing to rent.
My interest in buying a house in upstate NY or PA or DC would be more to generate rental income…but Hudson does sound iffy for that. Maybe I should look for an investment partner to pool my spare $$ after a primary purchase.
In the end, CW, the most important thing is where you really want to live –where you’d feel most happy and most comfortable. Once you’ve narrowed that down, I’m sure you’ll find a way to work out the finances!