What should he do???

This morning, when I got into my office I always check my email and in my box sits an email that asks for my advice.  The emailer wants me to publicly display his dilemma, because he would like to hear your comments or thoughts, as well as mine (here is where I hope I have a good amount of readership). 

"Dear Christine,

"I am 29 years old, I live with my mother right now in an apartment that we rent.  The apartment is small, smelly and in an area that I  don't want to live in.  I am working as an intern and I just started this past September, I just finished college (med school) and I have alot of bills.  I am making good money right now, well better than what I was making so I think I can afford a mortgage.  I read your blog about the co-ops and I want to buy something.  At this point I am unsure what or when to buy and I was hoping you can help me.  Should I buy a co-op, condo or a house?  I have $50,000 right now that I can use as a down payment.  I want to stay in the areas of Whitestone or Bayside.  Flushing North is OK too.  Where do I start or how do I start?  Ohh and by the way, I need a two bedrooms because my mother will be coming with me."

OK - So I will go first..

Dear Emailer -

Thanks first of all for contacting me, I appreciate that you read my blog and you decided to entrust me with your dilemma.  I promise to help you to the best of my ability. 

Let me start off by saying that by what you described to me in your leads me to believe that you should not be thinking of buying a co-op.  That will be step one.  Here are the reasons why -

Co-op boards scrutinize your "books".  They want to know everything from - who, what, when, what is your blood type and so on.  It would be difficult for you to get approved by the board because you don't have one full year of income.  Secondly, You also may not have enough money for the required down payment.  You never did say the amount of your salary - so I am assuming that you might not even fall within the required income.  The co-op boards have requirements and if you don't fall within the requirements - they will deny you.   

If you were my son, just starting out in life and trying to buy something, I would highly recommend as a first investment would be a Condo or even a good starter home, priced under the $500,000 mark.  You and I need to sit down and discuss some major factors in your ability to buy and pay for this investment.  I am unsure if your mother is looking to help you with the monthly nut or not, you also did not go into detail of where or how you have this down payment and is that all you have?  I ask this because we need to know how your closing costs will be paid?    We could then speak to my in house mortgage broker and she can give you a more concise idea of what your monthly nut will be, based on your credit and how your debt -t0-income ratio is.  There are major factors  that I need to know. 

I now turn the floor over to anyone who wants to offer some advice to my emailer.  Anything that I missed?  Should I have directed him in a different route?  What do you think?

Comments

[Edith Karoline Jasser Active Rain's Chicago Connection]

I would like to comment to the young man's "dilemma"..... First of all it is not a dilemma.... Although for a first time homebuyer it all seems so complicated you do have the right thought.... invest your money in a real estate property in an area you like!

In order to not make any major mistake, you need to work with an area Realtor, an experienced Realtor who has been in the business for several years and who will work in close cooperation with a lender you both trust!!!!!

And yes do not buy a coop, go for townhouse or a starter single family home and let your Realtor explain to you the monthly assessments and associations versus taking care of a single family home .....

And then do not rush things!
Take your time - once you know the financial back drop - then your Realtor will be you best support system to find you
the best place, at the best price in an area that you like.

Good luck and do not look at it as a Dilemma, it is the very first step to homeownership and that is a great thing.

With your first property, if bought in the right area at the right price you will create equity for a few years to then proceed to the next bigger property.

Enjoy the ride every step of the way ...

And if you every move to the Chicagoland area or anyone you know does, make sure they contact me
edith@TheRealEstateExpert.com
Take care.
Edith

[geno petro]

Hey Christine, Happy '07. Co-ops are pretty rare here and Condos are the dwellings of choice for first time buyers. And I know for a fact (cause I was there for ten minutes one day, remember?) that houses are pretty pricey as well up there in your neck of the country. The Condominiums Solution solves a multitude of problems for the first time home-buyer...Pricepoint, Maintenance, and Financing to name just a few. Anyway, good luck with your search...sounds interesting.

[Frustrated]

Another problem is the very limited amount of decent homes fewer than 500K in the area he wants to live.

I have been looking for over 2 years now and have not been able to find anything in that price range that I would even consider buying.

People want you to buy their overpriced handy-mans specials so you can fund there retirement or children’s college education.

Below is a great link to an article "Americans struggle to afford housing" that was published yesterday about the dilemma of the overpriced housing market.

The article quotes “In the New York metropolitan area, a $500,000 median-priced home required a $171,000 annual salary. The median-priced home in San Francisco, the most expensive U.S. market, was $759,000, requiring income of $260,000. In less-expensive Chicago, the median-priced home cost $254,000, requiring an $87,000 salary.”

$171,000 annual salary to afford a $500K priced home, I do not think the gentleman who needs help is making that kind of salary.

Christine, what do you think? It just seems like things are crazy and unaffordable.

http://money.cnn.com/2007/01/10/real_estate/bc.housing.affordability.reut/index.htm?postversion=2007011010

[Christine]

Edith - Great Comment. Thank you for your insight. You are right, it may not be a dilemma for him wanting to buy, but being able to buy, might be his "speed bump". Thank you!

Genooooooooo - NY will never be the same without ya..

Frustrated - Well, I am sure that you know that you are not in that boat - alone. There are more people in your position than you might think. I can totally agree with the article about the housing affordability - with the exception of their solution. The article suggests to build more affordable housing - like townhouses. These are the homes that are available under the $500,000 mark right now in my area. It seems to me that people do not want to buy that type of home. Which I find amazing. Everyone needs to start somewhere and it is perfectly fine to buy a home as a starter home. It may not be your "dream home" but it is YOURS. If a person decides not to buy and thinks that renting is a better option then all the renter is left with after the term of the lease is nothing. But buying a smaller starter home and utilizing it as your home for 2-5 years - you can walk away with some money to upgrade. I feel that our generation is only up for instant gratification and if they can not have it now - then they will shun it. Most buyers that I know that have been looking for 2,3 or 4 years are just that - looking. They want the sprawling home on a 60x100 lot with all the major upgrades. NOW.
I do not disagree with you that in today's day in age it is difficult. That is a fact. But, what my point is - I would rather struggle and pay for something that is MINE than struggle and pay for something that is not. I would rather have my blood and sweat go into my home and not a rental home that I have to give back.
Frustrated - everyone says "the housing market is so outrageous" TRUE - but let me ask you this - Did your parents or would your parents EVER buy you a pair of sneakers for $100.00 or an IPod for $300 - how about Wii for $500? I know my parents would have whacked me over the head. But - Just keep in mind - if you are looking to buy a home to LIVE in - then never fear that you are making the wrong choice. If you are looking at Real Estate to make money out of - then keep looking. You have to look at real estate as not a money maker but as a home. Good luck with your search and thank you for your comment!!

[Frustrated]

Hi Christine,

Thanks for your response..., I have no problem with buying a starter home and I have no expectations of moving right into a McMansion.

I am not a flipper either or looking to make money, I just want an affordable place to live.

My problem is that in a lot of cases with real estate, you are paying Cadillac prices for a Hyundai.

With the crazy run up in prices, sellers have this expectation that their home is the Taj Mahal and worth a certain amount of money.

My parents taught me to be a smart consumer. I will pay a price for a product that is of similar value.

I am just not seeing that value in the present real estate market

When you walk into a house that is a handy-mans special (needs to be completely redone) and the seller wants 500K+ for it, that is a problem.

I know that there is answer to everything, but there has to be some give and take.

It seems that in this area the sellers are not willing to give yet and follow this ever declining market.

I hope that as a realtor you see what happening in this market and inform your seller appropriately.

[Christine]

"My problem is that in a lot of cases with real estate, you are paying Cadillac prices for a Hyundai.

With the crazy run up in prices, sellers have this expectation that their home is the Taj Mahal and worth a certain amount of money." I do agree with you on this - how right you are. But - I also see buyers coming into a home that is asking 600,000 and giving a low ball offer of $500,000. Buyers are under some what of the impression that the market has crashed. it has not. I do agree with you 100% that the prices are high - but, I do notice that serious sellers are coming down in price. So there are homes that are selling. Its the motivation of both the seller and the buyer that will make the deal.

"It seems that in this area the sellers are not willing to give yet and follow this ever declining market"

Frustrated - I see both the sellers as well as the buyers are both pig headed and will walk away from the deal when either party don't get their way.

[Mitchell Hall]

Hey Christine,

I posted a comment on your AR blog.

Frustrated, you will be in good hands with Christine as your REALTOR. Christine is right about buying a condo instead of a coop. A condo is a better investment and easier to buy. In Manhattan the problem for many buyers is that condos are more expensive 15% more than a similar coop. You are right about give and take. You seem very level headed and I think Christine will find you something that you will like. Many buildings even some coops would be happy to have a young Doctor in their building

[Frustrated]

You make some very goods points on both accounts.

It should be interesting to see how the market progresses. I do not think that the market has crashed either, but I think it is coming.

With the abundance of million dollar+ McMansions for sale in the Beechurst, Whitestone, North Flushing and none selling, it is coming.

Once these houses drop below a million dollars everything should follow suit.

You even mentioned in your “My house is up for sale.. where are the offers?” blog the abundance of these homes

Quote:

“To go into the high $700,000+ range - you will be blown away, are you sitting? There are over 106 available homes over the $750,000 range with an average days on the market well over 120 days. Out of the 106 "high end" homes almost half of them (47) are new construction. “

Just look at the two McMansions across the street from Bowne Park. Those homes have been for sale for way over a year and the asking prices are still the same from a year ago 1.3 and 1.4 million.

On top of that, the houses to the left and to the right of the McMansions are also for sale listed a 950,000+ and 1,000,000+

So you have four houses in a row, all prices at close to a million or over a million, and none of them selling.

If that does not say there is an unrealistic pricing problem in this area, than what would?

[Ines Hegedus-Garcia]

Having $50,000 down to buy a new property is definitely not a dilemma - it's a really good thing. I agree about the coop and although I don't work your market Christine, here in Miami, you can get so much more for your money buying a condo than a single family home. I also agree about going to a mortgage professional to get all the details and to know where you will be able to go. You are in great hands with Christine!
Ines

[Christine]

Frustrated - I can totally understand your thoughts on this. But 2 of the 4 homes that you are mentioning have been in negotiations as far as I know, how far or if any offers have been accepted - that I don't know yet.

You are correct in quoting that I said there are alot of homes that are over the $700,000 mark. That is still true. But, take into consideration that almost half of these homes are new construction and they are in the most desired areas. There is no way that any of those homes can be sold for any less than a few dollars under asking. Also, realize that there are MORE people shopping within your price range than the over million range. So the inventory will always be higher on the high end. With that said - I can absolutely understand your frustration. Listen, the best advice that I can give you is this..
The market has gone up at a quick rate - we all know this, but I can't think or possibly imagine that any home within our area - Whitestone, Flushing, Beechhurst and surrounding areas will ever ever go to the 1980 pricing of $200,000 for a cape on a 50x100 lot. Those days are too far gone. Here is the thing - do I think that the market will burst - no. I think that people who took "creative" loans will be in a quandary - and if foreclosure do come up - we wont see them for under $500,000 plus back taxes and damages.
I feel bad for the people who want to buy but have been so priced out of the market - So my best goes out to you and if you need any help with anything - please feel free to let me know. - Christine

[Frustrated]

Christine,

Thanks for your advice and offer of help; I will definitely keep it in mind.

[Mr. Condo]

Greetings. Being a native New Yorker, I agree completely that a co-op is not attractive as an option for the emailer. The board scrutiny and lack of ability to rent out the unit are amongst the most obvious reasons.

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Warm regards,

James Haft
Co-Founder
US Condo Exchange