Housing Dilemma

Gantry State Park

Last year, when our family went up to Buffalo to visit my brother-in-law, I saw a sign at the local supermarket. It was advertising some contest where you could win $250,000. It said, “Win $250,000 and buy your DREAM HOUSE!!” With $250,000 you can buy a beautiful house in a great neighborhood in Buffalo. With $250,000 in NYC where I live, you are most likely not buying a house…any house. Maybe a foreclosure or short sale in need of serious repairs in a bad part of town. With $250,000, you can put a 20% down payment on a dream house!

When I got back home, I told everybody how frustrating it was that $250,000 could buy a “dream home” upstate, but was not enough to buy anything down here. Most people said that they wouldn’t want to live in Buffalo anyway! Too cold and too much snow. That may be true, but there are many nice parts of the country where housing costs aren’t as high and the weather is a lot nicer. If I was single or if I was married but did not have children, there would definitely be more options. However, when children are added into the mix, most people who want a little more room as well as a neighborhood with good schools.

Reading various blogs, there are a few methods I see related to dealing with high housing costs. I think they are great methods, but they may not necessarily work in high cost of living areas. Here are a few suggestions I’ve heard to reduce housing costs and my explanation why it might not work in an expensive city:

House Hacking

House hacking is basically buying a multifamily house, living in one unit and renting out the other unit to cover all or most of your mortgage and expenses. Looking at multifamily houses in areas where I would consider living, which consists of a safe neighborhood, good school district, and decent transportation options, I’d be looking at around $1,000,000. With prices in that range, I’m not sure house hacking is a viable choice for most people in reducing their housing costs. The closest “hacking” I’ve seen in NYC is perhaps “rent hacking” when young and single New Yorkers share a 3 bedroom apartment which rents for $3000, paying $1000 each. This reduces their housing costs as it would cost about $1500 for a one bedroom in a similar location. Rent hacking is less ideal when you have a family.

Note: The numbers I’m using are rental and housing costs in and around my neighborhood. I live in Queens and not in Manhattan or a “hip” part of Brooklyn. It’s not a hip part of Queens either, but it has great schools, it’s very safe, and has great transportation options.


Buy a fixer-upper/Stay in your starter home

Another common suggestion to people who struggle with housing costs is to tell them to buy a fixer-upper. You can buy a house for cheap and slowly update the house as you live there. Some homeowners have the urge to upgrade to a bigger or nicer home when it makes more financial sense to just stay in their current starter home. I did a quick search in my neighborhood and surrounding neighborhoods where I’d consider buying. I saw a small 3 bedroom 1 bathroom starter house which is a short sale. Even being a distressed property, it is going for $649,000.

Move farther away from downtown

Those living in New York City have the longest commute compared to other big cities. Most people already live farther away from Manhattan where the majority of the them work. The data shows that NYC dwellers have the longest commute which is about 35 minutes, but many people I know have commutes of at least an hour or more. Some people move EVEN FARTHER away from their jobs to find a house they can afford by going to the suburbs of New Jersey, Westchester, and Long Island. Some even farther away! Three percent of the NYC workforce are “super-commuters” who travel at least 90 minutes or 90 miles each way to get to work. While living farther away might reduce your housing costs, you definitely wastes a large portion of your day commuting. Plus, you increase your transportation costs and many of the suburbs surrounding NYC have onerous property taxes which you better take into account when looking at the lower housing prices. In Long Island, many houses have annual property taxes of over $10,000.

Rent instead of Buy

Too expensive to buy? Just rent! Problem solved right? If the choice was to buy a $700,000 property versus rent for $1000 a month, the choice would be a no brainer. But what if the choice was between buying a $700,000 property or renting for $3000 a month? The decision becomes a little harder. In NYC and in a few other cities, there is a housing option known as a co-op. When you purchase a co-op, you do not technically own the apartment unit, but you own shares of a co-op corporation that owns the building. There is a monthly maintenance fees that covers expenses such as heat, hot water, property taxes and staff salaries. For many in NYC, co-ops are their best bet to own property (though technically they’re not property owners but shareholders). Co-ops are more attainable compared to a house, but they aren’t that affordable either. In my neighborhood, a three bedroom co-op would cost over $500,000 and have a monthly maintenance fee of at least $1100.

As I mentioned earlier, if I were single or married with kids, there would be many more options available. However, with two kids, I would love to find a place with a little more room in a neighborhood with good schools and decent transportation options. We live in a co-op that is about 800 square feet which is a converted 2 bedroom. The second room is very small but since my kids are small we can put them in bunk beds for a little while. So we have a few more years to figure it all out.

What do you do to reduce your housing costs?

36 thoughts on “Housing Dilemma

    1. livingrichcheaply@gmail.com Post author

      It’s definitely worth it. In your area, if rent is $2500 and a similar house would cost $300k, it seems to make sense to buy. I have read a few blogs where the writer says that if you rent, you can greatly reduce your costs. That blogger said her friends were buying $700k houses whereas she rented an apartment for $800. It’s not always that easy.

      Reply
  1. Matt @ Optimize Your Life

    I am also in a very expensive city and have struggled with this. Right now, we have chosen to rent. The hot markets are for buying near subway stops and for renting luxury apartments, so older apartments are relatively under-priced. I would love to buy or to have some more space, but it just doesn’t make sense in the current market. We love our neighborhood, but houses range from $600,000 to $1,100,000, which is a much much higher monthly rate than what we are paying in rent.
    Matt @ Optimize Your Life recently posted…You Always Have a ChoiceMy Profile

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    1. livingrichcheaply@gmail.com Post author

      We rented for five years before we decided to buy a co-op. The market is way too hot, but even when there was a real estate down turn, I don’t NYC was really that negatively affected, especially the nice neighborhoods close to public transportation. There was a correction but it wasn’t a crash like in some other parts of the world.

      Reply
  2. Amanda @ centsiblyrich

    I can see the dilemma. It would be a difficult choice, for sure. I guess if you are certain that you are going to stay put for years and years to come, maybe (big maybe?) it might be worth it to buy. But those prices are overwhelming – overwhelming enough that I would probably rent.

    We are fortunate to live in a fairly low cost of living area (Iowa), so you actually could have a really nice house (around 1600 sq feet) for $250,000. We built the house we currently live in and have a 7 year tax abatement, so we’re living cheaper than we could rent (though that’s not factoring the other costs of homeownership).
    Amanda @ centsiblyrich recently posted…Debt Free Story: Change your hobby and kill your debtMy Profile

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    1. livingrichcheaply@gmail.com Post author

      Yes, just looking at those numbers is overwhelming! Pretty awesome that you have a tax abatement too!

      Reply
  3. Done by Forty

    As you noted, Andrew, it’s a different game when you’re in a very HCL area. When we were in San Diego, Mrs. Done by Forty and I (while dating at the time) rented a single room in a house with roommates. With our golden retriever. And it was still pretty pricey, but we made it work. Still, with kids…

    When we bought our first house, we rented out a room, even though we were married and could afford the mortgage without it. But the rent from one room covered more than half the mortgage (on a 15 year loan) so we thought it was worth it. We’d probably still consider it if we had kids, and could get a good renter.

    Reply
    1. livingrichcheaply@gmail.com Post author

      Yea I remember you talking about having a roommate. It’s definitely nice to have someone paying you rent, though I’m sure there was some sacrifice in privacy since you were married. I wouldn’t mind if the house had a separate unit. I’m not sure I would want to share space with someone else once I’m married with kids.

      Reply
  4. Anita

    Sometimes a friend of mine jangles my nerves when she moans that she can’t afford a house like mine where she lives.
    Perhaps it is because I’m not living in a fancy city but in the boring, old Kassel, while she lives in a more fancy city. I couldn’t afford a house there, too.
    She wants everything and yammers that she can’t have everything.
    She just sees what she doesn’t have and.
    I bit the bullet and moved to Kassel, but now I always hear how lucky I am and that she doesn’t have this luck. But she would never leave her shiny metropolis.
    I can’t stand when people think, life didn’t treat them right, just because they don’t want to see what others do for their benefits.
    (Kassel is really, really boring)

    Reply
    1. livingrichcheaply@gmail.com Post author

      You’re right Anita, sometimes I probably come off as whining about the high cost of housing in NYC and I do mention that houses in other cities are so much more affordable. But I understand that it is my choice to live here and I have to deal with it. There are tradeoffs in life and this is the downside of living in a high cost area. There are a lot of benefits as well! I definitely don’t think that “life didn’t treat” me right…if your friend wanted an affordable house, then she, too, could move to a lower cost area.

      Reply
  5. Tim Kim @ Tub of Cash

    We live in an HCOL area (Los Angeles / Orange County). Median is around $700-800K, and new constructions are $900K. Did it the old fashioned way. Saved up for a 20% down payment. It wasn’t easy, as a millennial couple early into our careers. Didn’t do any “house hacking” of any sort.

    Reply
    1. livingrichcheaply@gmail.com Post author

      Yea, I think we could eventually save up enough money to buy. But is it worth it? I’m not sure.

      Reply
  6. Ms. Frugal Asian Finance

    I live in DC, so I understand the housing dilemma in an expensive city. Many areas in New York are much more expensive than DC, so I feel your pain.

    I think that house-hacking works best when you don’t have kids. Many people I know buy a house with a finished basement and rent it out to someone who doesn’t cook much. But I know it’s more difficult when you have kids. I myself worry about the safety of my child. But one thing you can do is check their credit history and criminal background or rent a spare space to someone you know well (i.e. a female student).

    Other than that, I’d say stick with the coop and save up aggressively to buy a bigger house in the future with some space to rent out. =)

    Reply
    1. livingrichcheaply@gmail.com Post author

      Exactly, I wouldn’t mind house-hacking if I didn’t have kids. I’m not sure a renter would want to deal with my screaming kids and the mess of toys either! In NYC, some people rent out a basement but for the most part, it is not legal. It might be if there are 2 entry ways and depends on the size of the windows I think (fire hazard reasons).

      Reply
  7. Laurie @thefrugalfarmer

    Wow – those housing prices are crazy!!! Are there options like Queens or somewhere like that? I have no idea – only what I see on TV. :-) We are lucky to live in a reasonable cost of living area. Probably more expensive than some, but definitely nowhere near NYC prices. Personally I’d move further out, but you know I’m loving the country life and probably am not an objective advisor. :-)

    Reply
    1. livingrichcheaply@gmail.com Post author

      Actually I live in Queens already! The prices in Manhattan and parts of Brooklyn are even MORE crazy than the ones I mentioned!! Maybe if I retire early, I’ll move out closer to the country =)

      Reply
  8. Brian

    It’s a tough one. I know many people who have super long commutes 2-3 hours a day to try and offset housing cost in the Long Island – NY area. I’m just not sure about the long term effects on work/life balance. I think the best option would be to get out of town before the kids get too old and settled. Moving to a lower cost area. We wanted to do this for years, but our plan was to move to CA, and it would not improve the housing cost at all.
    Brian recently posted…Finding Harmony When Dumping DebtMy Profile

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    1. livingrichcheaply@gmail.com Post author

      I often dream about moving to a lower cost area but all our family and friends are here so that would be difficult. Our jobs are also here so that makes it difficult too.

      Reply
  9. DC @ Young Adult Money

    You’re in a tough situation. We went the house hacking route and have a basement apartment built into our house. It works out great as we get ~50% of the mortgage paid for by renting out the space, which has been huge for paying down student loans. NYC is really tough as well because as you pointed out super commuters have to travel so far and pay property taxes that make it less attractive. Here you could be a “super” commuter who travels less than an hour but gets a big boost from cheap real estate. NYC is a whole different world!
    DC @ Young Adult Money recently posted…5 Ways Millennials Can Build Their Personal BrandMy Profile

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    1. livingrichcheaply@gmail.com Post author

      That’s awesome that your tenant is paying half of your mortgage. NYC is indeed a different world!

      Reply
  10. Dividend Diplomats

    Yeah this isn’t an easy decision at all. I live in Cleveland, which is comparable to Buffalo. We just bought a house and am very fortunate that the $260,000 house we just purchased can become our first and last home that we buy for our family. We had a great rent deal, but were happy to begin the process of owning. I do not know how people in larger cities do it because of how insane the housing prices are. If I had to guess, I would opt for initially owning a duplex of some sort until I could save to buy the larger homes of my dreams. Build equity while saving for the future.

    Bert, One of the Dividend Diplomats

    Reply
    1. livingrichcheaply@gmail.com Post author

      I invest out-of-state in Kansas City, but considered Cleveland at one point. I did see some really great prices for real estate in decent areas! In some places, it does make more sense to buy versus to rent. Buying a duplex is a good idea in lower cost areas…pretty difficult to do in NYC.

      Reply
  11. Matt Kuhn @ Profitable Matters

    My wife and I currently rent an apartment for a little over $1300, but this was the cheapest we could find after months of search. The average is probably about $1600 a month, and housing is pretty crazy as well. I haven’t really looked into house hacking, but since we’re planning on having kids soon, we’re just saving about 60% of my income to put a 20% down-payment on a house in about 2-3 years. Hopefully all goes according to plan!
    Matt Kuhn @ Profitable Matters recently posted…Financial Independence: 8 Great Ways to Reach FI SoonerMy Profile

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    1. livingrichcheaply@gmail.com Post author

      That’s pretty good that you found an apartment that is a few hundred dollars cheaper than the average price. And also great that you guys are saving 60% of your income. Good luck on the home purchase in the future.

      Reply
  12. Mustard Seed Money

    I definitely think renting or moving to another part of the country after you have established yourself is probably the best plans. The housing prices are insane in certain high cost of living markets and I definitely don’t think I could get in today if I hadn’t jumped in early on. Crazy how everyone is getting priced out. Eventually there has to be another pull back, right?
    Mustard Seed Money recently posted…A Comprehensive Guide to Your Insurance NeedsMy Profile

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    1. livingrichcheaply@gmail.com Post author

      Even with the real estate crash back in 2007, I think it was more of a small correction in the parts of NYC which are desirable.

      Reply
  13. EL @ moneywatch101

    IT takes some luck and effort to successfully find a good deal in this area. NJ has the space and easy commute, but the taxes take a big bite out of any savings. I think the best thing to do is stay modest in housing until you can find the right deal or save a lot for a down payment to reduce housing costs down the line. That’s my advice and I’ll be moving after reaching FI is probably the best way to reduce housing in the future.
    EL @ moneywatch101 recently posted…The 3 Rules of Money ManagementMy Profile

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    1. livingrichcheaply@gmail.com Post author

      Right, I’m not that familiar with NJ but hear the property taxes are pretty high. There was a couple on a BiggerPockets podcast from Jersey that “house hacked” but it didn’t seem like it was that great of a neighborhood. Didn’t know you planned on moving after FI? If you don’t mind me asking…where do you think you’ll go?

      Reply
  14. Adriana @MoneyJourney

    We decided to downsize to reduce living costs and now live in a very small apartment. We got really lucky to pay low rent (ours is less than $500, while somewhat bigger apartments in the same neighborhood go for at least $1,200 – $1,500!), but we do have problems finding a parking spot, we have very limited space (no basement or any other storage rooms) and our bedroom window faces one of the main squares where most (loud) events are held.
    However, we prefer having reduced housing costs because it allows us to save. This way, when we decide where we want to settle down, we’ll hopefully have enough saved to reduce mortgage costs as much as possible.
    Adriana @MoneyJourney recently posted…Practical tips to save money on vacationMy Profile

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    1. livingrichcheaply@gmail.com Post author

      Awesome that your rent is so low. We have similar problems such as limited space as we have an co-op apartment which is about 850 square feet. Parking is tough but I drive to work and usually I can find a spot when I get home because there are meters which end when I get home. They start when I leave for work so it works out. We live near a busy street but fortunately on the other side of the building so luckily it is very peaceful.

      Reply
    2. Anita

      What about an other way of transport? If you need your car primary for going to work you might switch to a motor scooter. My husband uses an electro-scooter for his way to work as long it doesn’t snow and it is so much cheaper than the car per kilometer.

      Reply
  15. Owen @ PlanEasy

    We “house hack” in a way. We chose to live small. We’re two adults and two children in a 1,000 sqft bungalow. It’s well laid out with smaller bedrooms and larger living spaces but its easily 1,000-2,000 sqft smaller than other “family homes” in our area.

    We figure this saves us about $15,000 per year in housing expenses. There are so many expenses tied to the size of your home. Living small is a great way to reduce housing costs. Just check out our electricity bill! I just wrote a post about that this week.
    Owen @ PlanEasy recently posted…How To Save Electricity At Home – Our 200kwh Electricity BillMy Profile

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    1. Anita

      Going small is always a frugal decision. Less wallpaper, less floor cover, less heating, less furniture, less decoration, …

      Reply
    2. livingrichcheaply@gmail.com Post author

      Yep, we’re two adults and two kids in an 850 square ft co-op apartment. The kids are both very young so it still works and once the younger is out of his crib and our room, they can have bunk beds. The 2nd bedroom (which was converted) is tiny though so it will get tougher as they get older. Will check out your post.

      Reply
      1. Anita

        When we lived in Heslach we lived in a house where an old man lived there since his both children were young in the same 45 square meter 2-room (one bedroom) flat. He was a carpenter and he build built-ins. Once his children were adults and moved on he lived there with his wife till his death.

        Reply
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