Buying a home is one of the biggest financial decisions you’ll ever make, and if you can do it in New York City, it could also be your best financial decision. Friends and clients often ask me whether they should consider buying. I always tell them the same thing; if you can afford to buy, buy in New York.
As long as you have sufficient funds for the down payment, it is almost always net effectively cheaper to buy than it is to rent in New York, not to mention the return you can expect on your investment. Over the last ten years, the average price for a home in Manhattan has appreciated over 40%, and in the last year alone, the average price has appreciated 6%. The average price for a Manhattan apartment is now $1.8M, and the average price per square foot is $1370. This New York Times calculator is a great tool to help you determine whether you are financially ready to buy an apartment.
Once you decide to move forward, there are some decisions to think about, such as what type of home you should purchase.
In Manhattan, cooperatives comprise two thirds of all apartments available for purchase and are owned by an apartment corporation. When you purchase an apartment in a co-op building, you are buying shares of the corporation that entitle you as a shareholder to a “proprietary lease.” Typically the larger your apartment, the more shares of the corporation you own. As the owner of a co-op, you will pay monthly maintenance fees for building expenses such as heat and staff salaries. Subletting your co-op could prove challenging, but every co-op has its own rules so this is not always the case. In order to purchase in a co-op, you often have to put down over 20%, submit a board package, and conduct an interview with the board. They are not required to explain the reason for your approval or rejection.
Purchasing a condo differs from purchasing a co-op in that you actually purchase the property itself, as well as a small percentage of the common elements of the building such as the halls and stairwells. Every condo has a separate tax bill from the city. As the owner of a condo, you will pay monthly maintenance fees for building expenses such as building repairs and maintenance, however the fees are lower in condos than they are in co-ops since there is no underlying mortgage for a condo building. In some cases you can finance up to 90% of the purchase price of a condo and there are no restrictions on subletting. Many of my foreign buyers, investors, and parents purchasing for their children choose condos for these reasons.
Owning a townhouse provides the owner with a “fee simple” ownership of real property. There are single-family and multi-family townhouses which can be lived in or rented out at will. In either case, the owner is responsible for payment of all real estate taxes, maintenance and repairs of the property. The sale of the property may be conveyed to any party without prior approval by anyone other than the homeowner.
A cond-op is a residential cooperative where the ground floor (typically commercial units) is converted into a separate condominium that’s either owned by an outside investor or the original building sponsor. So while the residential units are a co-op, the commercial units are owned as a condominium by an entity other than the co-op. The co-op does not receive the benefit of the income from these units. People often refer to cooperatives that operate under condominium rules as cond-ops, though this is inaccurate.
Steps for your NYC Home Search
There are many nuances in the application process for buying a New York City home, however I have put together a very basic and simplified overview of the steps involved in purchasing an apartment. You will find that some of the items on the below list often happen in tandem.
- Because New York City is such a competitive market, the first step in the home buying process is to get pre-qualified for a mortgage (which is obviously not necessary if you buy your home all cash). Based on the information you provide during your initial conversation with a mortgage broker (I know several mortgage brokers that I highly recommend) you are potentially qualified for a loan, assuming full and accurate disclosure.
- With your pre-qualification, you are ready to start looking for your home while you…
- Apply for pre-approval. To get pre-approved, you will need to provide your mortgage broker with information for a detailed background and financial check (including tax returns, credit check, and income history). You’ll then get a letter from the lender stating the amount the lending institution would loan you. This commitment is valid for about 60 days.
- Identify a home you want and make an offer. I will show you the best of what is available all over NYC.
- Negotiate and get an accepted offer.
- Your attorney will do due diligence on the contract and building (I have some great recommendations for attorneys as well). Once there is a meeting of the minds, sign contracts and put down a 10% deposit in escrow.
- Work on the board package or condo application while you…
- Get a commitment letter from the bank (loan application and appraisal).
- Once approved by the board, a waiver is provided and the attorneys will prep the closing.
If you are considering purchasing your first or next New York City home, take a look at the Town Residential Q2 Aggregate Report for a sense of Manhattan prices by neighborhood. If looking for an up and coming neighborhood where you can get more space for your dollar, some places getting a lot of attention for affordability and architecture include Sunnyside, Ridgewood, Ocean Hill, Sunset Park, Crown Heights, Jackson Heights, and Bay Ridge. Let me know if I can help you in your search.