Mortgage right after college?

Hi all,

I've always felt super guilty wasting money on rent, instead of investing in an appreciating asset. So what I never understood was why more recent grads making decent money don't invest in their own studio apartments or something for ~$200k-450k?

I'm moving to Manhattan in the summer and am considering biting the bullet and mortgaging a studio. Obviously there's the fun social benefit of living with friends post-grad, but why else wouldn't young professionals with the means invest in their own places? Personally, I probably won't stay in NYC forever, but it would definitely be ideal to eventually lease out the spot and build my net worth.

Would love to hear everyone's thoughts -- cheers.

Comments (21)

  • Intern in IB - Gen
Jan 10, 2020 - 12:06am

Probs the combination of not having cash for a down payment + lack of credit history to approved for a decent mortgage...getting a mortgage isn't as simple as opening a credit card.

Also, do you feel like you have adequate knowledge of NYC neighborhoods and the broader real estate market to make this sort of investment/decision having never lived in the city?

Jan 10, 2020 - 12:13am

Good point. Idk, guess I'm assuming that a lot of the more privileged young people would have the means to, but I'm still surprised that they don't. I didn't consider credit history aspect though. I need to work on that lol.

In terms of understanding broader real estate market, both my parents are pretty active in the industry, so I'm not too concerned about that. But finding which specific property to invest in would definitely require more homework + some time viewing in person. I lived in Manhattan for ~3 months last summer + have a general idea of each neighborhood's vibe/reputation, but could definitely learn more. Any tips?

  • Intern in IB - Gen
Jan 10, 2020 - 12:33am

Well, privileged people that I know generally fall into one of three categories:

1) Grew up in the city so they just live at home and pay nothing
2) Parents already have an investment property in the city (or get one when their kid goes full-time) and they live there. So kid doesn't have to be involved in any of the financing aspects.
3) The financial value doesn't outweigh the social value of living with friends

Think you're underestimating the number of people that fall into the third category. Many people just don't care (or think) about maximizing financial value early in life. I mean is bottle service in NYC clubs good use of personal FCF? No, but you'll find analysts there every weekend.

No tips to offer other than do extensive research as things change block to block and building to building in the same neighborhood. And know the rights of subleasing in the building you're looking for - some building prohibit it (even if you own your unit). And since you want to eventually lease the spot out, I'd look into tenant rights in NYC as it's really different than any other cities.

Jan 10, 2020 - 12:18pm

They're just dumb. House hacking will change your life. Cop a new one every year if you wanna. Try it with a quad-plex if you can. Soon enough, you can just buy a bigass SFR in the burbs and all those rentals pay your mortgage. If you're in Chicago, I'll sell you one and manage it for you.


Look at all these wannabe richies hating on an expensive salad.
Jan 10, 2020 - 12:28pm


Err where in Manhattan are you going to get studio apts for 200k - 450k? Also you need to factor in a downpayment, higher interest rates (no credit history) and the fact that you may move out within 2-3 years.

Downpayment - Save down money. Quit binge drinking and put your fucking shekels in a money market. You can get in owner-occupied for as low as 1-3% down. FHA is 3.5%. Conventional 3-5% is common.

Rates - Are low as fuck and are staying low. If you have bad credit, that is your own fault. You should have been paying off packs of gum your whole college career. Even mediocre credit is low rates these days. Go buy a crib in the '80s if you wanna whine and moan.

Move out - Cool now you own more property what's the issue


Look at all these wannabe richies hating on an expensive salad.
Jan 11, 2020 - 12:19am

Tbf you can probably swing it - it just seems like such a hassle during IB. Also I've never heard of studios going for less than 700/800k in areas where I'd want to live, and commuting longer and living in a shitty area while working 100hrs/week sounds terrible. Also 1-3% down for studios? Never heard of that (thought it applied to SFRs), but then again I'm not a RE expert by any means.

This strategy may work in lower COL areas, but NY/SF I'd just rent with roomates for the first couple of years.

Most Helpful
Jan 10, 2020 - 10:36pm

You will not want to live in most apartments in Manhattan that costs $200-450k (I would say none at $200k).

There are the standard pros and cons as other real estate markets (pros being the deductions on your taxes, building equity and cons being around the upfront costs/fees). Keep in mind that nyc has a few other expenses/rules to watch out for:

1) mortgage recording tax - if you buy a condo and take out a mortgage you will have to pay a 1.8% fee on the mortgage amount (below $500k, more if above that)

2) mansion tax - won't apply to your purchase price but nyc has a mansion tax that kicks in at $1 million. This gets higher once you hit $2 million and keeps going up

3) HOA fees - these can be pretty steep in nyc, so you need to factor that into your costs. When I was looking to buy an apartment I saw HOA fees from $1,500-$11,000 (all on similarly priced units, although I was at a higher price point).

4) co-op Vs condo regulations - some co-ops are pretty strict on who they allow into their building (less so at that price) and how much financing they allow. Someone mentioned 1-3% down loans, those are normally only for single family residences, rarely available on condos and almost never on co-ops.

5) land lease (rare) - while not common you have to be careful if you buy a co-op that is on a land lease. You might get hit with a huge assessment. In general you need to be cautious about building finances to make sure you don't end up having a large bill.

6) rental regulations - buildings have all sorts of rules, if you think you'll rent if you move, etc you need to be mindful of these.

Anyway, all of this to say that nyc has some interesting real estate rules/fees/etc. and prices are very high. As someone with a good income but without a lot saved for a down payment you'll probably enjoy renting for a bit in the city.

Jan 11, 2020 - 12:41am

Thanks for all the feedback, everyone. Loving the discussion.

You're right, ~$200k studio in Manhattan might be pushing it. But I've definitely seen a handful of ~500 sq ft studios in UES for sale at ~$350k-$450k that are in pretty decent condition in good spots.

Will definitely be looking further into the points that were mentioned -- thanks again, everyone.

Jan 11, 2020 - 8:16am

Just take a closer look at some of these. A few examples:

303 E 57th - land lease, 50% down payment required
320 E 57th - co-op, 25% down payment required
315 E 69th - co-op, 20% down payment required
305 E72nd - co-op, 25% down payment required

You get the point, almost everything at this price point will be a co-op, almost all (99%+) will require 20% or more down plus reserve funds (6-12m of HOA usually paid upfront). Co-ops play by their own rules, so just because a bank will lend with 5% down (they won't on condos/co-op) the co-op doesn't have to accept it. So if you assume you find something at $400k and you factor in down payment (minimum $80k), HOA reserves ($10-15k), attorney ($5k), and other closing costs ($5-10k) you are looking at needing at least $100k in cash which most new grads don't have.

Jan 11, 2020 - 11:53am

OP if you're not afraid of the ghetto there are areas (harlem, parts of brooklyn) that you can buy in and rent out or live in as they gentrify.

I'm making an offer this week on a 400k 1 br condo with a tax abatement (200ish mo total fees) this week so it can be done in the other boroughs ~20-40 min to most parts of manhattan. Kind of in the ghetto but rapidly gentrifying.

You can get an HDFC (low income unit), however you can't really rent them out. However you can get one for sub 400k quite easily in manhattan if you want a place to live for yourself. I have my RE license, you can shoot me a pm if you want to figure out creative ways to make it happen.

Jan 11, 2020 - 1:17pm

I'm sure you know this since you work in RE, but hdfc isn't exactly easy to find and the requirements are usually too restrictive.

Usually the income requirements are relatively low (mostly around $100k although I've seen ~$80-120k), then the down payment is hit or miss (some require all cash), and even if they don't have co-op rules regarding down payments, having an income at the $100k level usually requires a relatively large down payment to qualify for the mortgage.

Then as you said they have rental restrictions, and you have the headache of trying to sell when you are leaving (while price is low you still need to find someone who qualifies and wants the unit). But can be good for the right person.

Jan 11, 2020 - 2:56pm

Good points. I've seen up to 180k. You are right on 50% or 100% cash.

With these what works well is parents gifting or people with large cash balances. If you are self employed one way is to have a total earnings (after deductions) be below the max req as it is based off the previous years tax return. . If mommy or daddy will act as creditor you can take money from them and then pay them, plus interest if its money that they don't want to give to you for free.

Another option if you are highly commission/bonus based is to work with your firm to push it to the next taxable year. However most, if not all, require you to give 30% of any appreciation at sale back to the coop board.

If you're making 200k+ I would recommend other routes anyways as you limit the potential upside. But if you are in the income range these are a great idea if you want something in manhattan in a good location to live in at the cost of upside.

Jan 15, 2020 - 12:43pm

Actually, the instant you buy a place you are 6.5% poorer (actually, if you put down 20%, you have an immediate negative return of more than 30% thanks to leverage), which is about what it costs to sell your unit. So you need about 2 years of pretty good appreciation just to break even on your "investment." So you'd better be darn sure you have a 3+ year desire to live in a particular area at a particular place. I lived in a hot neighborhood from 2015 to 2018 (3 full years), and after paying selling costs, fixing paint, replacing my W/D and water heater, I just broke even when I sold.

Jan 15, 2020 - 5:45pm
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