I worked from home for almost 4 months since the start of the quarantine before I got a monitor for working from home. I’m a programmer. I was under the impression that we were going to be able to go back to work first in April, then May. Now the government is saying August, but I no longer trust anything the government or the media says about the reopening timeline. I’m going to assume the worst that we are going to work from home until the vaccine becomes widely available. A realistic timeline for when that will be is late 2021, early 2022. I’m making preparations for a long term social distancing, work from home situation. Buying the monitor is the first step. I’m also getting a new set of furniture and moving to a bigger apartment so I’ll have a better time staying at home for an extended period of time. COVID-19 is the catalyst for me initiating the process of purchasing a home in NY, but I’ve always planned to purchase. This is my experience buying a home in NYC in the spring / summer of 2020.

Phase 0 Deciding to Buy

Look at the opportunity, cost, and affordability of buying a home. I bought my apartment during the COVID-19 pandemic. I looked at the opportunity cost, feasibility, and benefits:

Benefits:

  • Mortgage is very low right now. Investors are turning to bonds. The fed just injected a lot of money into mortgage financing system in March.

    This article says

    The Federal Reserve took steps in March to keep money flowing through the mortgage financing system. The actions, including two rate cuts, were part of the central bank’s broader efforts to protect the economy from more damage from the COVID-19 pandemic.

  • short-term: Need a better long term space to work from home and for extended lock-down.

  • long-term: Better chance of getting a good deal now. Can take advantage of the situation - motivated sellers, fewer people looking to buy. Tours were canceled until Phase 2 re-opening (June 22). I started touring the first week NYC went into Phase 2.

Feasibility

  • I have money in the bank for a down-payment plus more.
  • I have a secure job, in a high paying profession, and I can easily find another job if I get laid off.
  • Can get approved for a very good mortgage rate: Mortgage rate at an all time low (source: FreedieMac).
    Mortgage rate during COVID-19 pandemic is at an all-time low Mortgage rate during COVID-19 pandemic is at an all-time low
  • For a 30 year mortgage for 600K, 3% range, excellent credit Score of 770. A loan amount of 480K can be easily approve with 3.25% interest rate.

Opportunity Cost

  • Buying stocks is not a good idea because there are a lot of unknown about the true economic ramifications of the COVID-19 lock-down. Buying stocks is too risky now. Investors are selling stocks and buying bonds.

My Motivation for buying

TL;DR Buying a home in NYC satisfies my short term and long term goals. It meets long term investment and retirement goals while allowing me to maintain my the current lifestyle.

Short-term benefits

I want a better work-from-home setup. A tiny closet apartment in the city is not ideal for extended stay-at-home and working from home. There’s no space to set up a proper home office area. Working on couches and beds blurs the line between life and work.

Long-term benefits

I want to live in NYC for most of my life. I definitely want to be in NY in my 20s and early 30s. I may move somewhere else if I want to start a family, and I would like to retire in NYC. Empty nesters tend to come back to the city if they can afford. A city like NY has a lot to offer in terms of recreational activities. There are community gardens and galleries you can visit for free. Many community colleges in the city offer free education to retirees. For example, Queensborough Community College:

New York City residents 60 years of age or older may enroll as non-matriculated audit only students, on a tuition-free, space-available basis. Senior citizen students do not receive grades or academic credit.

Having a home I own provides good guarantee that I’ll have a place to live after you retire. Building maintenance doesn’t go up that much. It’s hard to find people to rent apartment to you when you don’t have strong income. Rent controlled apartments are hard to come by. Buying a home is for me, a part of my retirement plan. I also have elderly parents who I can lease my apartment to. I want to take care of my parents.

Phase 1 Finding the Home

This is an exercise in the process of elimination. What I did:

  1. Go on Compass, Redfin, and StreetEasy to look at properties that are available.

  2. Reach out to a real-estate agent. You don’t pay them. They get their commission from the seller. I worked with Peter Zakian based on recommendation from a friend. He was very responsive and will hustle for you. He also has good relationship with other professional contacts like loan offers and attorney you’d need to work with down the line after you make an offer.

  3. Compile a list of all possible apartments then prune that list based on your acceptance criteria and affordability of each apartment. My hard acceptance criteria are:

    • No basements
    • Location: Shall be in the area of the city bounded by 14th street to the north, 6th Street to the west, Avenue A to the East, and Grand street to the South.
    • No walkups more than the 3rd floor.
    • Monthly mortgage+maintenance payment shall not exceed $2,500.

    It’s better to come up with as many hard acceptance criteria as possible to minimize regret, create better filters for the search, and help you make swift decisions when it comes to making offer.

    I also came up with a list of nice-to-haves. These are not required but will make a difference when I need to decide between multiple properties that meet all my hard acceptance criteria:

    • South facing window, good natural light
    • elevator, laundry, and bike storage in the building
    • Good ISP in the building - Fios
    • No remodeling or renovation required. Move in ready.
    • Good layout, Availability of outlets
    • lease options (e.g., sublet after 2 years)
    • tax benefits (how much maintenance is tax deductible)
    • Not in a high risk flood zone (see a map of flood prone areas in NYC)
  4. I created this online calculator to help me figure out the post-closing reserve for all the potential apartments. Confirm that you have enough reserve (or you have a way to have enough reserve, e.g., lower price, increase liquid asset, gift from parents, increase down-payment) before you tour the property. You want to have between 6-24 months of money in the reserve (liquid asset, retirement accounts don’t count) that you can use to pay monthly mortgage plus maintenance fee or similar. This is very important when you are buying a coop in NYC. The Coop board looks for 6-24 months of reserve and will disqualify buyers who don’t meet their reserve requirement. Coop board approval is one of the last steps of buying a home. Even if you can get the financing, have money for down payment, and seller agrees to the offer, you cannot buy the property if you fail to get coop board approval and you will end up losing a lot of money from closing fees, application fees, attorney fees, etc and wasting a lot of people’s time.

    • Pro-tip: Talk to a loan officer before to get pre-qualification for a loan. You don’t have to pay anything. This is simply to give you an idea of what you qualify for. I worked with Jennifer Adams from GuardHill. I picked her over the other loan officer I had reached out to because she responded to my emails right away and we had a call the same day, whereas the other person did not respond until 3 days later. She asked me about my current liquid asset (cash, etc), salary, and debt. Within 10 minutes on the phone, she told me I could expect to qualify for a 3.25% loan for a $600K property with a 80% financing.
  5. The most important of my soft acceptance criteria (nice-to-haves) is subletting. Flexibility is very important to me in life. I want the option to be able to easily move to another city or country without selling my home. Many coop buildings have a sublet policy of a max of 2 year sublet, unless with special permission from the coop board. These apartment features improves my chances of finding a qualified tenant:

    • Close to college campuses (e.g., NYU) - college students don’t tend to stay in NYC for a really long time and many have wealthy parents
    • In a good neighborhood with a lot of dining and entertainment options
    • Walking distance to subway stations
    • Laundry and elevator in the building

    To research the subletting opportunities of each apartment, I went on StreetEasy and other similar sites to look up the rental history of similar apartments in the same building in recent years. I look for what prices they go for and compare those numbers with the monthly cost of owning to make sure that if I do decide to rent it out, I’d be able to make enough to cover the mortgage payment, maintenance, and other fees, and be able to earn profit on top of that.

    Another thing I researched is the similar apartments in the same area in other buildings. I looked for features of the apartments that make the rental price higher. Location, of course, is a key driver of rental price but I also noticed that apartments with nice building amenities like elevator and laundry tend to go a lot higher than those without.

  6. Eliminate all the apartments you cannot afford or fails your hard acceptance criteria. Out of sight, out of mind.

  7. Tour the apartments that remain on your list after the pruning process.

  8. When new properties are listed, add to the master list and then prune the list. Tour the apartments. Rinse and repeat until you are ready to make an offer.

Phase 2 Making an Offer

Make an offer after you tour. I made an offer for an apartment after viewing only 3 properties in 2 days. Why I did that:

  • It checks all my boxes
  • I can comfortably afford it and not be house broke after closing
  • The wow factor - it exceeded my expectations. It just feels right. It feels like a place where I want to spend a lot of time and will be happy having people over.

The last one is important because logic can tell you that it’s a good purchase but if you don’t feel happy living there, then you’ll feel regret.

Additionally, I expect to aggressively tackle my debt after I purchase to lower the lifetime interest of the loan in the first few years.

I want to set myself up for success for paying back my loan early by not having to go out that much and not have my social life suffer. A friend of mine purchased an apartment in Brooklyn and I rarely see him anymore as coming from Brooklyn to Manhattan is a rather long commute.

Being a young person in my 20s living in NYC, I want to take full advantage of what the city has to offer and I also like to socialize with other young people in the city. Most of my friends cannot have people over because they have roommates so we’d always go out to restaurants and bars to socialize, which could be extremely expensive if you do that on a regular basis!

I picked this apartment because it has a big kitchen, in a really good location walking distance to where my friends live and where we generally hang out in the city, and it’s my own place so I don’t have to deal with getting roommates’ agreement to host social gatherings.

Once you are ready to make an offer, here’s what comes next:

  1. Get Pre-approval letter: Talk to the loan officer to get a loan pre-approval letter. This requires running a credit check, which lowered my credit score by 6 points and also cost me $55, which I charged to my credit card. This should take between 1-3 days.

  2. Negotiate the Price Down: Have your agent negotiate with the seller’s agent to get your price down as low as possible. You should have two numbers you care about when you negotiate:

    • Price A: The price that if it goes any lower, it would not be worth it for the seller.
    • Price B: The price that if it goes any higher, you will not be able to afford the down payment, or monthly payments, or lose too much of your reserve that you’d be house broke (or at a high risk of not getting approved by the coop board).

    When you negotiate, make your first offer Price A. The seller is going to come back with a number between the listing price and Price A. Then you tell the seller your final offer is just below Price B. Take it or leave it. If the seller is motivated, he may simply accept Price B or counter with a number slightly higher than your final offer price, which should be close to Price B. If that happens, you accept immediately and get the ball rolling to sign the contract. If the seller refuses, walk away. It's critically important to walk away from a property you cannot afford.

    • Sometimes, the price could be unreasonably high because the seller believes incorrectly the property is worth more than it is actually is and/or is not motivated enough to sell right away. It’s not impossible to still get that dream home you can’t afford if you walk away now. Chances are that property could stay on the market for long enough that the price naturally goes down. At that point, you can approach the seller again with your offer.
  3. Make the verbal offer:

    • The verbal offer consists of an email and phone calls that we do until we have an official accepted offer. This includes a deal sheet that mentions the final price and all the parties involved in the transaction.
    • Make sure you find a attorney before you start this step. The lawyer’s name needs to be listed in the deal sheet and the lawyer will be involved in closing the contract.
  4. Make the official offer:

    • The seller’s attorney wil send the contract to your attorney for you to sign. You need to have a deposit ready (generally 10% of the down payment) when you sign the contract. Then the seller’s attorney will you sign it with the deposit then your attorney send it back to the seller’s attorney so the seller signs the contract and we have a fully executed contract. Then the seller’s agent will update the listing to “in contract”.
  5. Get the money ready:

    • If you need gift money from your parents to afford the down-payment or bump up the post-closing reserve, do that right now. Even if you don’t need the money for the down-payment, get the gift anyway to increase your post-closing refund, which will strengthen your coop board approval application.
    • There will be a form to fill out for the gift giver during the underwriting process later on but there’s no special process to transfer the gift money to your bank account right away. Make sure to double check if the gift will incur a gifting tax.