First-time Homebuyers in NYC

October 30, 2019

Prices to purchase real estate in New York City have been falling and interest rates remain low, according to Bankrate interest rates today range from 3.8%-4.13% based on the size of the loan. These low rates make it an ideal time to buy, especially for first-time homebuyers.

The effect of interest rates on your purchasing power is significant. Every $100,000 at 3.92% interest costs $473; if interest rates were to increase to 11%, your monthly cost would more than double, to $952, yet the amount of the loan has remained the same. The difference in monthly costs would be paid directly to the bank. Additionally, if we were to see interest rates fall further, at 2% the monthly cost would drop to $370 for that same $100,000 mortgage.

While the market’s fluctuation may make some nervous about making the investment, the long term trends of buying real estate in New York City not only make it a wise financial decision, but one that could set purchasers on a strong financial path for years to come, and with interest rates as low as they are, could end up saving you over $10,000 in interest on a 30 year purchase if rates move up just 50 basis points.

That doesn’t mean that you should just go out and buy just any piece of real estate because rates are low and prices are down. You still need to find the right deal. We encourage buyers to try and meet at least two of the three requirements below when purchasing a property.

  1. If you needed to rent your home for any reason, would you have positive cash flow above your monthly mortgage payments, assuming you were to finance your property with 70%-80% financing? This is a good and easy question to ask to make sure your property produces a high yield. For most residential properties in New York City, the average cap rate (net rental income as a percentage of purchase price) is below 2 percent, making it very hard to answer yes to the question above. 

  2. If you sold the property 6 months after purchasing it, could you turn a profit or at least break even? This is a hard question, but we encourage people to renovate apartments, be very aggressive when submitting offers, and try to find properties that are overlooked for some reason or another. Sometimes buyers hate an apartment or home because of an old kitchen, ugly color paint, or old carpeting. All these things are an easy fix and once you do you can unlock that additional value. 

  3. Are you planning to live in the home for at least 5 years, or are you willing to own the home for at least 5 years? Many people want to buy an apartment for 1-2 years and don’t have a plan for after other than selling it or renting it.  Closing costs are very high in New York City. They can be as much as 10% once you are done buying and selling. So while yes, the New York City market long term has performed extremely well, you have to be willing to hold your property through any downturn. 

As long as you can answer yes to two of the three questions above, you should be all set. If you’re able to yes to all three above means that you’ve found an even better deal!

Barbara Corcoran, founder of The Corcoran Group and now featured on ABC’s Shark Tank has referenced her decision to purchase a studio in a recent CNBC article, stating that, 

“Buying real estate has made me rich — mostly through necessity, not by design. I bought my first itty-bitty studio after scraping together a few bucks because I needed to live somewhere anyway.

A few years later, the studio doubled in value, giving me enough cash to plunk down 50% on a one-bedroom apartment. That soon rolled into a two-bedroom, then a three-bedroom, and finally landed me in my 10-room penthouse on Fifth Avenue in New York City.

Buying that tiny studio was the most important decision I made because it got me in the game.”

Buying a multi-family property should follow the same logic above. Make sure you check two of the three rules before moving forward. Buying a multi-family is another choice for first-time homebuyers to experience the market and gives them the ability to mitigate their monthly expenses by having tenants live in part of the building. 

Many multi-families are still financially accessible in areas like Queens and the Bronx or even parts of Brooklyn. And with financing rates where they are and collecting income from your tenants, you may be able to afford a higher purchase price than you are even aware. 

As an example, a $1,955,000 3-family home in Astoria would cost $8,416/month to carry. Typical rents for a two-bedroom apartment could be as much as $3,000/month in some areas. If you live in one unit and collect $6,000/month in rent from the other apartments, your total monthly cost would be $2,416/month as opposed to $4,933/month if you purchased an $800,000 condo.

Buyers interested in multi-family homes should seek out real estate brokers who know the intricacies of this niche, as there are other considerations to take into account like maintenance, management, landmarks, zoning restrictions, and many more issues. Building a relationship with the broker who helps with the purchase is a smart move, as they could then be retained to help lease the space to trusted tenants and also give you accurate projections on what your rental income will be.

One aspect that many buyers overlook is that interest rates have one of the most dramatic effects on the end cost of what they can buy. A 0.5% shift in rates can mean the difference between feeling comfortable with the monthly payment or that it is just too far out of reach as discussed above. This is one of the reasons that we encourage clients who are considering a purchase to get their deal done.

If you’re in the market to buy, our agents at Oxford are ready to help. Navigating the New York City real estate market can be overwhelming, but with a trusted guide you’ll be able to make the right investment for yourself.

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At Oxford, we realized that we could empower our agents by providing them the best resources and access to everything they need to do business quickly and efficiently without having to worry about massive company overhead. As a result, we were able to draw in over 600 of the top agents in New York.

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