Newliyish married, but the new reality is partner finished law school so going back to the DINK lifestyle. We live in NYC and are lucky to be in a rent regulated apartment. On one hand we realize it's cheaper to stay there forever, but it's not the most well maintained building the the amenities aren't the best... Anyways, we want to aggressively start saving for a downpayment, but have some question.
And before folks say leave NYC, no, that is not the plan and not what we want. We like the lifestyle, car less, near a park, etc. So really want to understand what the planning is for that.
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Based on all the "how much house can you afford" calculators we can afford like 3-4X monthly housing payments than we currently have. That seems insane, but how should we be thinking about the fixed cost of a mortgage over time that is also equity as opposed to rent? When buying a house, is it kind of expected that it is more "painful" earlier in the lifecycle of a mortage, but naturally gets easier as inflation kicks in and salaries go up?
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I've been maxing out stock purchasing plans and what not to save while partner was in laws school, but kind of saving less because I was the single income currently have about 1/3rd of downpayment in securities (maybe 50% if my employers stock ever bounces back to 2021 valuations). I'm thinking for the next 2 years we should try to devote what we anticipate our mortgage (and other fees like taxes, co-op, etc). would be to buy. That would allow us to save and see how that change impacts quality of life and other factors. Is that a good strategy? This would be in addition to normal saving practices. Our parents would probably assist too with the downpayment, but haven't broached that until we are closer to doing this for real.
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When it comes to saving for a down payment, is it better for psychological and newly married folks to use that as a way to get used to joint finances in a dual income (nearly equal salaried) partnership? If so, what type of account should we open. High yield savings? Short term CD's?
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For NYC specifically, what are the differences to consider between buying buildings, co ops, or condos when it comes to finances? 2/3 family homes in some ways look good on paper, but how do you factor in being a landlord and costs and risks for doing that? Co ops and Condos seems more attractive on paper for being much more simple in terms of ownership and responsibility of the entire property.
Any other advice is welcome. Thanks!
One thing you should consider is total value of investing vs buying a property. Stocks should return something like 7% after inflation, so you'd need to estimate:
It could very well turn out that renting is the better financial decision, and that dumping money into stocks can help fight the increase in rent prices. I know NYC real estate is messed up, and that includes both buying and renting properties. So while you're saving up the down payment, I recommend running numbers to compare buying vs not buying and continuing to save. Basically, estimate your net worth after 30 years or whatever if you buy a house vs invest. Then decide what lifestyle you'd like, and how that fits with the numbers.
In my case, we wanted a house and we found a good deal, so buying made a ton of sense. Then again, I live in the suburbs in a semi-rural area that's growing quickly, which is a very different situation vs NYC. If I were to move to NYC, I'd run those numbers before assuming buying is going to be the better choice long term.
That's the thing, our rent stabilized place is has location and size, but the amenities and maintenance of the building are lacking. We have actually been curious about doing some renovation ourselves because it'd be cheaper to spend 10 to 20k on renovation and keep the rent stabilized rates than get a similar apartment at market value and pay that rate for 2 years. So that is why we kind of look at the saving strategy as a test of lifestyle. The thing about the market though is all conventional wisdom says don't put that down payment in the market if you want to buy in the next 5 years.
Well, to me it doesn't sound like you're sold on buying in 5 years. If you're definitely going to buy in 5 years, then be a bit more conservative with it. But perhaps you can work something out with the landlord to maybe split the cost of a renovation if that's what you'd prefer.
On the one hand, 10 or $20k is certainly a non-trivial sum.
On the other hand, there are probably several much cheaper things you could do to make your apartment much more livable/acceptable for you, nevermind the possibility of executing the renovations incrimentally. Then, if a better opportunity arrises, no sunk-cost fallacy to hold you back.
I will say, I hope you are saving for retirement, as well as saving for a down-payment!
Totally am. Not maxing out my 401k, but employer does 100 match of 6 percent which gets me close to the same sum compared to folks that max out with less generous matching. I am also doing the planning on how to back door roth ira next year and just converted my old tIRAs.