The Real Estate Bug – Buying an NYC Apartment

Recently, my sister, who’s finishing up graduate school, came up to NYC for a job interview. The weekend after her interview, the idea of her actually moving up here planted a bug that I just can’t stop thinking about. What if my family comes together to buy an NYC apartment? The prices are ridiculously high, to be sure, but long-term, NYC real estate could be worth it. In the week after her interview, I had already drafted up a rough financial plan and made a list of eight apartments that, on paper, fit the requirements I had for an investment apartment.

She didn’t get the job. She’s three months out from graduation and still interviewing, of course, but the desire to get into real estate is strong. I’m confident she’ll eventually get an offer up here, and having an apartment means she could save a ton of money on rent. (Rent in NYC is crazy.) If I can find a place that she could squeeze in a rent-paying roommate, the deal gets even sweeter… see where I’m going with this?

On the Hunt for Real Estate

Here’s an example of the kind of listing I’m currently monitoring on StreetEasy. As I write this, the list price is $585K. The location, in the East Village, is fantastic – I wouldn’t have to stress over finding a renter at a competitive price. Other benefits: the building has an elevator. A 3rd-floor unit that doesn’t require trekking multiple flights of stairs anytime you want to do something is a huge plus. But also THAT’S A LOT OF MONEY FOR A ONE BEDROOM APARTMENT. To be honest though, out of everything I’ve looked at so far, it’s my favorite. Here are my actual search criteria:

1. I’m set on Manhattan. There are tons of great apartments in Brooklyn/Queens and also across the river in New Jersey, but now that I live in the West Village, there’s an irresistible draw to living in the middle of it all, and a markup for it, too.
2. The list price can’t be over $600K. This limits me almost exclusively to co-ops, which have lower list prices but higher maintenance fees and longer approval processes. That leads me to…
3. The monthly maintenance must be below or at least very close to $1K. A decent one-bedroom in Manhattan can easily go for $2K or more a month in rent; any rental income would need to be able to easily cover all maintenance/tax costs.
4. For co-op listings, they must allow sublets and cannot have any income restrictions.
5. It must be a true one-bedroom instead of a studio, with the potential to be restructured into a two-bedroom. A lot of NYC apartments have temporary wall constructions, so any listing must also have a co-op board that is open to having a wall installed.

These reduce my options from hundreds of active sales to under 10 at any given time and doesn’t include issues that I wouldn’t be able to find online, like specific co-op regulations.

I Can’t Do This Alone

I’m looking at active listings despite the fact that I don’t have enough savings to afford a down payment. How does that work?

Well, if I were to do this entirely on my own, I’d need to save for at least 3-4 more years to afford a 20% down payment. Instead, the proposal I offered my parents was this: if they were willing to put in a down payment, I would take on all other costs associated with buying an apartment. Yes, this option is a financial privilege, but it’s also not something my parents could easily do. Therefore, the arrangement would need to be mutually beneficial. I would be getting the opportunity to enter real estate, while my parents would also be diversifying their assets. My parents are quite risk averse, but my mother, in particular, is just as eager as me (if not more so) to invest in property.

The Math behind Financing

I had to figure out how much of a mortgage I would be able to afford after a 20% down payment. Here’s how my current paycheck is roughly allocated (yes, I share numbers on this blog):

If the right opportunity came along, I would gladly sacrifice non-retirement savings and personal investments to get my foot into real estate. That comfortably gives me 2K a month that I could put towards a mortgage. If needed, I could pull back on retirement savings to bring that 2K higher. After a recent promotion, I also want to maximize my earnings potential by getting more aggressive with my career growth while also finding side hustle opportunities. I fully expect this 2K limit to be temporary. Any additional income growth can be put towards paying off a mortgage faster – I have no intention to be shackled with a mortgage for very long.

Assessing Feasibility

A 2K monthly mortgage limit with today’s rates gives me a total mortgage of about $400K, hence the $600K price limit (although in reality, it needs to be closer to $550K). These are all approximate numbers. Also, while my parents theoretically agree with this plan, they can’t afford a down payment at this time. My younger brother just bought his first house in D.C., and they heavily assisted him there. If a wait a year or two to go through with this, how will my financial situation change? Does it make sense to get involved with something so expensive when I want to live abroad in the near future?

In retrospect, a huge part of my real estate bug may be due to watching my younger brother successfully buy and renovate a house in another expensive housing market…

What are your thoughts? Is this something I can pull off, or a total pipe dream? Am I better off starting in a cheaper housing market?