Lessons Learned from a few super saviors in New York

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What I did notice while they were able to save up a down payment none of them were low wage 1st Gen immigrants. All earned a decent wage.

MossySF- Personally, I don’t know anyone who has done what you said in NYC, though anything’s possible. I will say this: the average income of NYC residents is a little above $50K per year; the average apt. costs $745K. How can anyone earning $50K per year make that kind of mortgage payment? For instance, I could live with my parents for several years and live as you described, which for me is not insane sacrifice. I could save enough for a down payment–but I still couldn’t afford to own.

(See http://www.baruch.cuny.edu/nycdata/chapter04_files/sheet012.htm for income data;

http://www.observer.com/2007/apartment-prices-citywide-report-says for apartment prices)

Now you might say this type of sacrifice is insane and how can anybody be expected to live like this. The problem is if you live in NYC or SF or other urban places with high immigrant population, your competition for homes are either super-earners or super-savers. (For immigrants, they probably saved 40% back in their home country and 60% income here is still a major leap up in lifestyle.) If you are not one or the other, embrace the renters’ life and don’t let the social pressure/stigma for homeownership affect you. Stocks beat housing long-term anyways — I’d much rather have a 1M portfolio than live in a 1M house.

As someone who grew up outside of New York city and currently lives in Iowa I can see both sides of the argument. The truth is it is a lot more expensive to live in New York, especially if you a lower income worker. And while it’s great to say that people should save more or work more, if you have children or other family obligations it may not be possible. There are issues to consider on both sides, and often it’s hard to put a price tag on them because they vary highly from person to person. For some people, closeness to family, religious, or cultural groups cause them to stay in a HCOLA. If you’ve ever had to drive over an hour just to find someone who could do your hair, or drive two towns over to attend a religious service, you may just find you’re not that interested in smaller town or rural living. And it can get worse once you have kids and they struggle with constantly explaining why they look different, or eat different foods, or celebrate different holidays and can never just be who they are.

I also think that rundown, cheap housing in some parts of the country are not the same as others. It’s one thing to live in an old house or apartment building with leaky faucets and windows. It’s something else entirely to explain to your three year-old what those popping sounds during the middle of the night were. And in some cities, that’s what a lot of the cheaper housing looks like, and the find something safe can be very expensive, if you can find it at all. However, as many have pointed out, if you’re willing to use some critical thinking skills and see if you can make it in a HCOLA by renting instead of buying then that might be the best situation for you.

What matters is the total income. A microbiologist making $120k living in Cambridge, MA and paying for a $400k home is a heck of a lot better than making $30k and paying for a $150k home in Iowa.

Even if the homeprice/salary ratios were equal, you’d have more net income in Cambridge. Same percentage, different base, so more money.

The story is quite different if you can’t get a good paying job in the city. Then moving to a cheaper environ make sense.

Lately, I’m comtemplating whether I should buy a house in a less expensive area than one in a more expensive area because houses is really a lifestyle investment and not a financial investment. It would make sense to keep more money in equities and others than the house. I’m still battling about this since it is totally not the conventional thinking.

Living cheaply. We bought in 2002 in a super hot market a 1 bedroom condo. All of our friends thought we were stupid. They were “waiting” to buy a 2 bd condo or bigger, they were not willing to live in a tiny 1 bd condo (cost $150k).

We flipped it 3 years later for almost $300k. So who laughed all the way to the bank? We did. Even now we had a choice to buy a single family home and stretch. Instead we bought a ridiculously expensive townhouse, but it wasn’t the most expensive thing we could have bought.

So how to live in a HCOLA? Well you have to be willing to live in smaller places than people who live in other areas of the country buy. What we paid for a 1 bd condo in 2002 was more than the average home in the US!

But we said sure 500 sq ft, we can make it work. We weren’t greedy and even now we’re living in smaller space because we’re moving up slowly. Our goal is to keep on moving up slowly by paying down a mortgage, appreciation, and the plan is in another 5 years we can buy a single family home pretty comfortably.

Problem is a lot of people in HCOLA expect to be like people in LCOLA. They expect to afford a $750k single family home. They expect that $500k will buy them a house (not true). It’s the “I want a house, and I want it NOW!” mentality.

Did anyone living in these HCOLA places even consider buying a super tiny 1 bd condo? Did they even consider settling for a townhouse? Probably not, at least in my experience of living in CA and Boston.

Most people our age are trying to jump directly into single family homes like elsewhere. NOT going to happen.

I guess like everything else in the world, you have to be satisfied with what you can afford and stop being jealous of everyone else.