Smaller homes are deals for priced-out city renters
With Manhattan rents repeatedly reaching all-time highs and mortgage rates still near record lows, now may be the perfect time to seriously consider the question that many in this city of renters never thought they would ponder: Should I take the plunge and become a homeowner?
A growing number of New Yorkers are answering "yes," as those being priced out of the haywire rental market are finding affordable buys in so-called "starter" apartments -- smaller studios and one-bedroom pads that serve as an entrée into the world of home ownership.
According to StreetEasy’s monthly market report last month, 18.5% more starter apartments went into contract than did family-size homes.
“Buyers are finding that purchasing an entry-level apartment is a better alternative to the current skyrocketing rents,” said Sofia Song, author of the StreetEasy report.
The median rent for a studio in Manhattan is $2,300 a month; for a one-bedroom, it’s $3,195. Compare that to buying: The median sale price of a studio is $417,500; $629,000 for a one-bedroom.
Real estate experts are seeing people crunching the numbers and diving into home buying in droves. Scott Walsh, director of sales and marketing at TF Cornerstone, said that he has had “more studio transactions in the past two months than all of last year combined.” And Sharon McIntosh, president of The McIntosh Company, said she has noticed “a definite uptick in the last couple of weeks of people at open houses for smaller apartments.”
But if you’re a renter and wondering if you should join the buying crowd, proceed with caution. Gary Malin, president of Citi Habitats, warned that the decision to buy a home must be made with a cool head.
“Often, people who are buying their first home act with emotion rather than intellect,” Malin explained. “Yes, this is your home, but it’s a business transaction — and a big one.”
When considering whether to buy, you have to be sure that you have “allowed yourself enough of a time horizon,” he added. “Five years is good. If you think you’ll be in the apartment less than that, it’s a bad idea, since it’s at the front end and back end of the purchase that you need to come up with most of the money.”
Of course, just being able to afford the mortgage and maintenance payments is never enough, Malin said. Ownership means expenses that renters never have to think about, such as buying appliances, redoing the floors and making repairs.
Matthew Buchalter, born and raised in the Bronx, was renting a 600-square-foot studio loft apartment on East 22nd Street for $2,300 a month when he began preparing to buy his first place by putting money away in a “down payment fund.”
“I felt like lifelong renting wasn’t a financially sound option,” said Buchalter, 34, who works as an internist. “My parents were always renters, but I wanted to have something of my own.”
In November, he began his search. Two places on the Upper West Side that he liked fell through before he found a gem just two blocks away from his 22nd Street rental: 800 square feet, completely renovated and in a doorman building with a rooftop deck — with mortgage payments roughly equal to his former rent.
“When it’s meant to be, it’s meant to be,” Buchalter said.
Crunch the numbers
Scott Raphael, senior account executive at Manhattan Mortgage Company, created a mortgage calculator to help clients determine whether to rent or buy. Raphael suggested considering these questions:
-- How much money do you have available for a down payment?
-- What would your mortgage payment be, considering the current low interest rates?
-- What would you pay in rent for a comparable apartment?
-- What would your rental cost be over a five-year period? (If your rent is $3,100 for a one-bedroom, it is likely that your five-year figure will hover around $200,000.)
-- Are you planning to live in the apartment for at least five years?