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Also, you have to bank on serious rent increases to justify the price to rent ratio. Both cities are priced at aggressive rent increases so you don’t really have a margin of safety on real estate in either
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I will give you the advice my dad gave me in the 90s and still holds true. By a house that you can live in but also have an area to rent (I.e two family or three family home ). Spend some years there having someone else pay your mortgage and then when you are ready to leave , keep the house and also rent out the portion you were occupying . This property will then pay for your new mortgage on the Pkace you ultimately want to live in
Are you familiar with the rules of buying in NYC which vary by co-op or condo building? Many buildings want significantly more than a 20% cash down payment, and they want you to have 1 year worth of mortgage in savings. I also would like to buy in NYC, with the 2nd pandemic breakout around the corner, I assume real estate will drop in NYC in the next 1-2 years. It could be a good time to buy and great investment as over time NYC will increase in value again. I would buy and later in life rent out the place. The only drawback for me is the monthly maintenance fees that are anywhere between 1-4K a month on top of your mortgage, so you have to research bldgs with decent fees. Start meeting with agents to learn more about the process, areas, and compare current prices to future.
Don't buy in NYC unless it will be your primary residence for 5-7years. Coop buildings often have strict subletting rules and take a cut of the sublet fee. If rents drop you're still on the hook for your original payment commitments so it's possible to lose money on the deal.
Condos have more flexibility but there are far fewer and they tend to sell quickly regardless of market.
You might be better off buying an investment property in a town with college + medical facilities to increase potential rental pool. Tourist areas will likely be slower to rebound from this.
Two questions:
a. With the down payment you put down, will the monthly charges (mortgage, property tax, maintenance, etc.) be comfortably covered by your expected rental income? (if you decide to rent today, or eventually)
b. What is the opportunity cost of the down payment? (e.g., investment return) — and will you need this money to make the down payment for your ‘eventual’ home purchase?
In NYC area, there is a reason why people don't buy in the city. No matter how successful they are, they have to start at the suburbs. If you can handle that commute, go for it.
Another trick is multifamily units: think townhouse with tenant upstairs, with a separate entrance... or be roommates with your tenant. If you're travelling a lot, being roommates might not be a bad idea.
Thanks all ! This is super helpful. In terms of ROI here’s how I’ve thought through it vs dumping it in low cost index funds. Let’s say a family home costs 800k or so (this is what the neighborhood I grew up in San Diego prices at). I have the 20% to pay down today, on a 15 year mortgage the monthly payment would be sub 4K. In general homes here are almost always rented out and right around covers the mortgage per month. That being said in case it’s empty for some time my savings + income can comfortably cover the mortgage monthly payments assuming a 3-4% interest rate. This to me seems like a pretty ideal situation - in 15 years the house almost pays for itself and in a sense my 160k appreciates to 800k (plus any gains on the property value in that time). Seems like a safe bet at par with throwing it in a fund like voo or vti? Calculated out that 160k growing at 11% each year as a return in the markets would yield 765k or so. Should also mention my parents would be managing it (they’re retired and have a multi family unit they manage for their passive income already), so I’d save a bit on that front. Curious as to what people think, are there any big costs or jumps in logic here that I missed ?