Should You Buy a Starter Co op Apartment in NYC?

Buying an apartment in NYC in your 20s can make a great deal of sense under certain circumstances. Prices almost always go up over the long term, and there are many advantages to owning as opposed to renting. But is buying a 'starter' co-op apartment in NYC really a good idea?

We’ll discuss this topic in the following video. I’m Nick at Hauseit, based here in New York City. Check out our website https://www.hauseit.com to learn how to save money if you’re buying or selling real estate. So let’s get started!

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However, the truth is that buying an apartment in NYC is a very bad investment if you don’t hold onto the property for long enough. This is because combined buyer and seller closing costs can add up to anywhere from 10% to 12%. This effectively means that your apartment needs to appreciate by more than 10% before you break even on your investment.

One of the biggest mistakes made by New Yorkers in their 20s is buying a ‘starter’ co-op apartment. This is almost always a bad idea. Why? Well, because most buyers end up outgrowing the apartment much faster than they anticipate, and in some cases, after just one, two or three years, they want to move out.

Think about it. You might get married, have a kid, simply want a larger apartment, want to move neighborhoods, or your career might take you to another city for an extended period of time, or perhaps permanently.

So in most cases, buying a starter co-op apartment in NYC is a terrible idea. You might not own the property long enough for the appreciation to exceed combined buyer and seller closing costs.

Plus, there are so many other headaches associated with home ownership, not to mention the value of your time and opportunity cost when thinking about all the cash you tied up in your apartment purchase.

If you buy a starter condo on the other hand (not a co-op), it might be okay if you outgrow the apartment after just a few years and sooner than you anticipated. This is because you can still hold onto the condo as a rental property after you rent or buy a larger apartment (assuming you don’t need the sale proceeds to fund a new purchase).

But most NYC home buyers in their 20s end up buying a co-op since they’re more affordable than condos. After all, condos can be anywhere from 10% to 40% more expensive than co-ops in New York City.

The problem with co-op buildings is that they typically prohibit extended subletting. Therefore, the buyer of a ‘starter’ co-op apartment is essentially required to sell within a few years of moving out, even if they’re ready, willing and able to hold onto the apartment as an investment property.

The end result for most buyers of starter co-op apartments is that it would most likely have been more financially prudent to rent instead of buy, and this doesn’t even factor in other considerations such as opportunity cost, headaches of home ownership.

With that said, there’s nothing wrong with buying a starter co-op apartment if you plan on holding onto the property for at least 3 years, and ideally, 5 or more years. It might actually be a very good idea.

Check out our website, hauseit.com for in depth guides to buying in NYC, buying vs. renting, closing costs and more.

So there you have it! We hope you enjoyed this video, and if you did, please like, subscribe and leave us a comment. We’d greatly appreciate it. And if you’re looking to buy or sell, check out https://hauseit.com to learn how to save money. I’m Nick at Hauseit, and we’ll seen you on the next video!
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Hauseit LLC, Licensed Real Estate Broker
Tel: (888) 494-8258 | https://www.hauseit.com
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