Buying a condo in NYC with parent support - worth it?
My parents who live abroad (where real estate can't be relied upon as a safe source of income) are suggesting that I purchase a condo in NYC. They want a steady stream of cash flow (aka rent) and want to take advantage of the NYC market while I'm here. They also think paying off mortgage is better off than paying rent to a random landlord (which I agree)
I know renting vs. owning is a heated debate with consensus slightly towards renting, but assuming I get ~$500k downpayment support from them, would it be worth it then? I don't plan on staying in the states forever (would like to go back home in ~7 yrs) and even with the support, can't figure out if it's a good decision to purchase given tax, HOA fee, closing costs, high mortgage rates etc.
I'll give my $0.02 since I'd also want to do this in a few years. Disclaimer: I'm still a student and have taken one real estate finance course lol
Anyways, we learned about this idea of annual Cost of Ownership, where in theory, Rent = Price * User Cost.
The model pretty much shows you how much rent you would charge yourself to live in your home and if there's a disparity between the price and rent than you would see which one is more "worth it". Transfer taxes, title insurance, appraisal fees, mortgage preparation, moving costs, and realtor fees aren't included in the model but you might be able to amortize these over expected stay. Also HOA and other stuff too. This formula will give you your net yearly cost, but then you divide by 12 to find your net monthly cost.
UC = P * [(1-t)LTVr^m + (1-t)(1-LTV)r^1 + (1-t)t^p + 8 + y - g^e]
1. P: Price
2. +(1-t)LTVr^m: after tax interest paid
3. +(1-t)(1-LTV)r^1: after tax interest you could have earned on your downpayment (or later years, your equity position)
4. +(1-t)t^p: after tax property taxes
5. +8: maintenance and depreciation
6. +y: risk premium
7. -g^e: expected capital gains
Essentially:
+ After tax payments of 1st yr interest payments & property taxes
+ Alternative investments: P*(1-LTV)*discount rate
+ Maintenance & depreciation: (usually a percent * Price)
+ Risk premium: (Rp * Price)
- Appreciation: (P * Appreciate)
**In class we calculated 1styr interest payments as r*balance but if I were doing this myself I would probably set up an amort table so you can get a more accurate number.
*edited to include second half
You can always refinance mortgages. Only look at condos and not co-ops which require board permission (some random salty old people & home wives) to do anything from renovating to rent/selling. More important than closing costs, which exist in all RE transactions and constant, is carry cost related to the building itself. Are building finances managed properly, common charges, potential tax abatements etc.
NYC price per sq ft is actually cheap relative to many major global cities.
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