Oh no. There it is again. Your landlord is raising your rent to some ungodly number just so you can have the privilege of living in a top floor walk up in a building where the amenities consist of a door. Is it time to buy?
It certainly is! Of course I always think it’s time to buy, mostly because a) New York real estate is always a good investment and b) it sucks being a tenant. So the real question now is CAN you buy? How much money do you exactly need?
Let’s imagine that you found a $500,000 apartment with $1,000 a month maintenance charges (numbers chosen for easy math, like the kind I can do without a calculator). You know you’ve got the paycheck to cover your monthly mortgage payments and maintenance charges, but that’s all in the future. How much cash do you need to have on hand now just to get approved by a co-op board and close on your $500K apartment?
Down Payment Most co-op and condo buildings in New York City require a down payment of 20% of the purchase price. There are some that require more, like 25% or even 35% (these buildings tend to be found on the Upper East Side). Occasionally you may find a condo that only requires 10% down or even an FHA approved building that only calls for 6%, but I wouldn’t plan my sales search with those numbers in mind.Let’s go with the 20%:
20% of $500,000 = $100,000
Closing Costs A lot of things are covered in the big category called closing costs: attorney fees, title fees, court recording fees, any move in fees the building may require, etc. The amounts for each of these things can vary widely, so it’s pretty much impossible to give anyone a definitive number before the closing; as you get closer to the date your attorney may be able to give you a clearer estimate, but I would feel safe if I set aside $10,000 to cover everything. That may be way too much–it could be as little as $5,000–but I’d rather overestimate than underestimate. And if you end up with extras, you can go buy some candy (or a drink, because nothing says, “I need a drink” like a few hours of handing over large checks to attorneys). So let’s say you need another $10,000
Savings to Impress the Co-op Board You’ve probably heard stories about co-op boards analyzing your reference letters for signs of character flaws, or asking difficult personal questions at interviews to find out if you will be the right kind of neighbor, but you know what they’re really interested in? How much money you have. You could have the best personality in the world and the heart of a saint, but if they don’t see that you a serious amount of liquid assets, that won’t matter one bit. Co-op boards want to be sure that if you lose your job, you’ll be able to cover your monthly maintenance fees for a year or two; The amount of years will vary from building to building. The seller’s broker should be able to give you some idea of how much the board would like to see. If it looks like you don’t have enough, someone will let you know; no one wants a buyer to go through the process of filling out a board package and waiting weeks for word on that if there’s little chance the buyer will pass financially. That would be a waste of time for both the buyer and seller. Let’s go with the two year number for our sample case:
…and Something Extra The co-op board won’t be that impressed if you only have $24,000 saved because they won’t believe that you may not do something like, oh, I don’t know, buy some furniture for that new apartment. Let’s throw in another $10,000 (and that’s probably skimping on things) just to show that you’re not going be pushed down to nothing if you have to tap into those savings.
Okay! Time to add it up:
$100,000 + $10,000 + $24,000 + $10,000 = $144,000
So yeah, to buy that $500,000 apartment, you probably should have about $144,000 easily accessible to you. Does that sound doable? Of course it does (provided you don’t work in the arts–but you knew that already). Now get ready to say goodbye to your landlord!