What Should I Know Before Buying a House In New York City?
Whether you are a foreign investor who is moving to New York, a family moving across the country, or you simply want to purchase New York City real estate for investment, this guide provides you with the key information you should know before you start the process of searching for properties on sites like Trulia, Zillow or Streeteasy.
The Modern Agent’s Guide to Buying Real Estate in New York: Understanding Costs
In this section, we’ll answer key questions related to the costs of moving to New York or buying NYC real estate for investment:
How much can you afford?
A good rule of thumb to determine what you can afford is to follow the 28/36 rule. This formula, often used by lenders, simply means that your monthly household expenses—e.g. mortgage, insurance—shouldn’t exceed 28% of your gross monthly income, and your total monthly debt owed shouldn’t exceed 36% of your gross monthly income.
How much do homes cost in NYC?
New York has some of the priciest real estate in the country, though cost varies significantly between boroughs and neighborhoods. Citywide, the median price of listed homes is $790,000 as of early 2019, according to Zillow.
In Manhattan, however, home prices are on a downswing but still over $1.1 million, according to Feb. 2019 Streeteasy data. In Queens, prices are less than half the cost of Manhattan.
“The local NYC market is currently in a slump, with softening prices and motivated sellers. However, this will not last indefinitely. Now is a great time to be a buyer,” says Mukul Lalchandi, founder of The Modern Agent.
What’s the difference between common charges, real estate taxes and maintenance fees?
In addition to the listing price of a home, those considering moving to New York or investing in NYC real estate also need to consider other expenses associated with owning a home. However, some of these fees such as common charges and real estate taxes can be confusing to track and vary based on your purchase.
For example, as Streeteasy explains, common charges are billed to condo residents for shared services such as management fees and sometimes include other expenses such as utilities, gym upkeep, trash removal, and more. In co-ops, these costs can be rolled up with property taxes into what’s known as a maintenance fee.
“If you’re moving to New York into a condo or co-op building, be sure to look into the specifics of these fees before purchasing, which can vary greatly from building to building,” says Mukul.
Who pays New York State property taxes?
New York taxes can be complex, such as with a New York City income tax that’s paid by residents in addition to a state income tax. However, with New York real estate, local governments handle their own taxes, so buyers of New York real estate pay city property taxes instead of New York state property taxes.
While New York City property taxes tend to add up in terms of total dollar amount because of the high cost of homes, percentage-wise, the average effective property tax citywide is only 0.8%, compared to the average of 1.65% for New York State property taxes, according to SmartAsset.
As explained later in this guide, property taxes differ a bit between co-ops and condos. In a condo, owners pay New York property taxes directly. In a co-op, the corporation owes the taxes and passes them on to individual owners, such as through the maintenance fee.
Do you have to pay a broker’s fee? If so, how much?
Fortunately, buyers typically do not pay any broker’s fees in New York. Even if using the services of a buying agent, New York real estate commission for sales is typically paid for by the seller. The average New York real estate commission is around 6%, which the seller pays to their own agent, who can then split the fee with the buyer’s agent.
“Having an experienced buying agent advocate and steer you through the complex process of buying real estate in New York City can be very beneficial and comes at no direct cost to a buyer,” says Mukul.
How much downpayment will you need?
Downpayments differ based on factors such as the property you’re purchasing, credit history, income and more. While in some particular cases you can purchase a home with a small downpayment of around 10-15% of the purchase price, count on putting down 20%.
How much are closing costs?
The closing costs for buying a home in NYC can be between 1-5% of the purchase price, depending on the type of property and whether you’re financing the home or making an all-cash offer. Some closing costs include attorney fees, the transfer/flip tax, the mansion tax for $1m+ purchases, title costs and miscellaneous processing fees. If financing, closing costs also include bank fees.
When is the best time to buy?
The spring and fall tend to be the best times to buy in New York City, both because of higher inventory and potential price cuts. Winter tends to be the slowest season, followed by summer.
As Streeteasy notes, buyers are 20% more likely to find price cuts in September and October as sellers look to clear inventory before the holidays. Price cuts are also 10-20% more likely in April through June, which are also the months that tend to have the highest inventory levels, so buyers have more options.
The Modern Agent’s Guide to Buying Real Estate in New York: Choosing the Right Home
New York is an incredible city with so many different areas and types of homes to choose from. In Manhattan, given the density, homes tend to be condos or co-ops in apartment buildings rather than standalone units. In the other boroughs, however, both individual houses and apartment complexes are prevalent.
In this section, we’ll explore the difference between housing types and choosing the right location.
What’s the difference between a Condominium and Cooperative?
While condos and co-ops might seem like interchangeable terms for apartments within buildings, there are key differences.
When buying a co-op, you’re actually purchasing part of a corporation that owns all the units within the co-op. With a condo, you’re buying the apartment itself. That’s why paying New York property taxes differs slightly by home type; if you buy a co-op, you’re indirectly responsible for property taxes since the corporation is the owner of the real estate, as opposed to a condo owner who directly owns the real estate.
Both co-ops and condos have boards (a group comprised of building residents selected by the building’s community to represent their best interests) that approve purchasers, but co-ops tend to be more restrictive in a number of ways, explains Streeteasy. For example, some co-ops do not allow investors or those who only want to use the apartment occasionally. They also might be more restrictive by requiring a larger down payment.
However, co-ops comprise about half of New York’s real estate inventory, and due to their prevalence and more restrictive nature than condos, they tend to be less expensive.
What should I look for in a location?
From the charming brownstones and tree-lined streets of Carroll Gardens to the trendiness of TriBeCa, likely anyone moving to New York can find something to their taste. In addition to the appeal of local shops, restaurants, parks, schools, etc., think about other factors such as accessibility to other key areas in New York.
For example, even if you work from home and plan on taking ride-hailing services like Uber wherever you go, as an investment opportunity or when considering the resale value, think about how other buyers might value proximity to public transportation, including subways, buses, ferries, and Citi Bike. Also, think about proximity to offices and how different neighborhoods have different scenes. For example, Wall Street is not the only financial hub in New York, as Midtown Manhattan also plays an important role in this regard. Other areas like the Flatiron District have a tech startup scene and Red Hook is growing as a neighborhood for artists.
In addition to the neighborhood, don’t forget to pay attention to the location within a building. Seemingly small differences like the direction the apartment’s windows face or the floor the apartment is on can make a big difference in areas such as noise and sunlight, two key factors that affect the enjoyability of the home and the resale value.
The Modern Agent’s Guide to Buying Real Estate in New York: What Else Should I Know?
In addition to the answers around cost and location, we also have a few other items for you to consider before moving to New York or buying an investment property in NYC:
The average NYC home is held for 7 years: Be prepared to hold on for that long to make your purchase more affordable.
You will almost certainly need your own lawyer: While not legally required, it’s a good idea as a buyer to have your own lawyer to draw up your real estate contract. As Streeteasy notes, you could technically do so yourself or have the seller’s attorney do so, but to get the best terms, it’s wise to have your own attorney.
If you are buying a resale unit, you will likely have to get board approval: Given the high number of co-ops and condos in New York City, you’ll likely have to go through the process of getting approved by a board. Each one has their own intricacies, so it’s important to note the criteria they’re looking for and include all requested materials in a timely fashion to keep the process moving along.
Be prepared to wait up to two months to close: New York moves fast in many areas, but closing real estate transactions is not one of them. Particularly if you’re financing your purchase and/or need board approval, the time from preparing a contract to closing could last several weeks.
By following this guide, you can make the process of moving to New York or buying an investment property in the city more manageable. Now, whether you start your search for specific properties on sites like Trulia, Zillow and Streeteasy, or whether you work with someone like The Modern Agent to find the right home, you’ll be able to understand more of the intricacies of buying a home in New York City.