How do I know if I am ready to buy a house now?
First time home buyer
Ideal location: NYC — Brooklyn or Manhattan
I’m single and financially stable, tired of moving every year and paying rents to other people! So, I’ve been thinking about buying a house in NYC and becoming a little more stable.
I’ve been asking myself whether:
Now is a good time to buy my first house? Is NYC the right place for me? Although my current job is in Manhattan I’m not sure if I’ll be living here in the next 5 or 10 years. Should I still focus in NYC or other states where I can get better deals with the same amount of money?
At the moment I can afford a 10% down payment for what I’m looking for in NYC — a reasonable 1 or 2br condo in a good neighborhood.
How did you know it’s time for you to buy a house? Please share your thoughts from your personal experiences! — Thank you.
#mortgage #housing #NYC#nyc
comments
Forget about living in the property you are considering purchasing, and instead think about it like this: you can either borrow money to buy a house and rent it out to a tenant, or you can invest your money in the stock market (and optionally borrow money to lever up that investment, too). Do a cashflow analysis to determine what kind of appreciation on the property you would need and how long you should own it to break even with the stock market. There are a lot of fees, commissions, and taxes to be mindful of when thinking about this problem, which will increase the holding period necessary to break even. I think if you do this analysis right, you’ll find that owning property in NYC might not be a great financial decision.
Living in the house you purchase is basically the same thing as you being your own tenant/landlord. The money you are “giving away” to your landlord when you pay rent is the same money you are “giving away” when you are not renting out the house you own and live in!
The 3 metrics an investor should look at for an investment property are:
* rent ratio: monthly rent as a percentage of purchase price. Should be minimum of 2%, this guarantees positive cash flow nearly anywhere in the country.
* capitalization rate: net income to asset value. Gross annual - operating expenses / purchase price. 10% should be the goal on an investment property. Below 6-7% and the property is considered a bad investment.
* cash on cash return: pre-tax cash flow / equity invested in property. 10% is the sweet spot.
I am also considering buying in Manhattan after having lived here for a few years but there’s a good chance I’ll just keep renting.