Title says it all. Looking to live in one of the units of a brownstone and rent the others. We have ~500k and looking to put down ~15%.
Example: https://www.zillow.com/homedetails/168-N-6th-St-B…?
Questions:
Bad to take out a mortgage at this time given rates? Intuitively, I think since rates are up there is less competition from other buyers so would be able to negotiated a better price -> not sure how to weigh the pros and cons here
We have 95% of our $ in equities (QQQM, SPYG, FNILX, etc.) and worried about having to sell when down however real estate performs well (guess) in an inflationary environment -> better to cut our losses now and switch or hold out the tide until next year when (hopefully) equities are in a better spot
Would be great to talk to someone about this, specifically those familiar with NYC
Not going to comment on if a good idea or not, as many assumptions go into that (what you get in rent, etc). I will say 15% down is low for nyc and many times will be rejected by a seller, especially if they have competing offers. I haven’t seen the nyc market slow down (very early in these rates rising, etc), but know that at the higher levels a lot of people come in cash heavy.
Does it happen even with pre approval? Curious on difference in certainty (assuming that’s why they prefer cash) between the two
Pre approval buys you very little. It has to do with 1) speed at which something can close and 2) certainty around the deal. Pre approval gives the seller some confidence, but in nyc each property is different and there is always the chance a bank doesn’t officially approve you (although easier with home than condo, and co-ops are the hardest).
An option is to remove the mortgage contingency when submitting an offer (normally you have the ability to back out of the deal if your bank doesn’t approve you) but the risk is if you don’t get approved you lose your 10% deposit.
I'm not sure on the resi side, but can you get a mortgage with 15% down. I talked to Wells and looks like minimum is 20%, but I was looking at beach houses, not townhosue in nyc.
To your point that 15% is low and may be rejected by sellers... I thought the seller receives 100% upfront (15% from the buyer and 85% from the bank). Then the mortgage is paid to the bank and the house is used as collateral. Am I mistaken somewhere?
You aren’t mistaken. In terms of getting the money, a seller doesn’t care, but as I stated they care because: 1) all cash allows for a much quicker closing, 2) a bank can always reject a candidate for a loan (so more down, or financially stable candidates are more likely to go through with the purchase) and 3) co-ops can have restrictions on what they require as down payments. Banks aren’t fans of giving loans with low down payments (on large sums of money) so if a seller accepts an offer, takes the home off the market, and then the loan doesn’t come through they just lost time, momentum, and potentially other offers.
Pre Approval means nothing in the SBL and small MF props right now that stay out of Agency. Banks and prop managers are getting into SFHL and paying cash, then refinancing after to take the equity out. 15% you most likely won't win a bid.
Thoughts on how much we'd need to have - doubt we would wait long enough to buy all cash but there are options under 2mm that we can put down 20% now or we could wait till our next round of bonuses.
So I wouldn’t put 100% of your cash/investments into a property, but that’s a personal choice (and realize you aren’t asking for advice on savings etc)
As for how much you need, absolute minimum is 20%. Then, as others have mentioned, if you buy a co-op or even condo, there could be more restrictions (co-ops being the strictest). There are restrictions on minimum down and on cash reserves (banks will normally ask for 1-2 year of HOA fees in reserve after you pay closing costs and down payment).
Also, you should know closing costs in nyc are high. Mortgage recording tax is ~1.9% and mansion tax is 1.25-1.5% (somewhere around there). So make sure to budget for that.
I'm reading all these comments and can't keep one thought out of my head: why do people with this much money put up with this BS? if you have $2-3M, you can live for the rest of your life in a tropical paradise getting full body massages every day, banging beautiful chicks, enjoying fresh fruits and sea food. instead, people choose to live in NYC, in a small shoebox that costs $2-3M, and they have to waste their life kissing ass of some disgusting arrogant bosses just to keep paying mortgage+taxes+insurance+etc.
Other commenter was correct that 15% is likely too low in NYC. Most co-ops, for example, will require 20 or even 30%+ down to consider approving you. Also, on a personal level, if I'm understanding you correctly, you have about $500k in equities that you would liquidate to make this down payment. Why do you want to put more than 100% of your net worth (when considering mortgage debt) into a property? If I were you, I would keep renting at this stage or buy something more affordable (which I understand is not that exciting in NYC given where prices are).
This feels like you are stretching. Congrats on saving $500k for your first place. But depending on renting the other units to cover your costs and using 95% of your wealth (not sure if a rainy day fund was excluded? Feels like the environment is about to get unfriendly). Its already tough to buy real estate in NYC, but it sounds like you'd also need to be landlord too in order to cover the costs? Seems like a risky profile and like you are trying to do too much at once. Just my two cents.
as long as it is in his personal name and 4 units and under, looks like the new potential rent laws will miss this part of the market. Although, doesn't mean it won't get hit later.
Appreciate all the comments - looks like I’ll need to eat the increase in rent for a couple more years or do something not as prime in Brooklyn.
Can’t wrap my head around people buying condos, coops - rather wait to generate cash flow
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Does the property cash flow right away? Is it being sold occupied/vacant? Can you cover the mortgage without the income. If you can cover the mortgage and taxes without tenants, then yes go ahead and buy. If you can't and it is occupied then you need to see how much the building cash flows, assuming not much. But you should bank some of the first year's net income into a reserve account and always have 6 months of cash reserves on hand.
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