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 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?