[CPApracticer]

Trying to pursue American Dream. Since most people here have good judgment and have considered buying a home before, I thought this may be a good place to ask.

House 1: 430k, built in 2015, 4 bedroom 3 bath. Single family. Construction /condition of the house is 10/10, everything is new, nice kitchen and rooms. However, it is located in a low income neighborhood. 1/3 white, 1/3 black, 1/4 Hispanic. AVG income in NY is 57k, this neighborhood is 43k. Maybe neighborhood will be better 20yrs from now and house will go up in value. Commute is 1hr 20minutes

House 2: 570k, built in 2003. Multi family home. Will live on 2nd and 3rd floor with 3 br and 3 bath. Construction/condition is 8/10. Can rent the first floor and pick up an extra 1k a month. Good neighborhood. 77% white, 10% Hispanic, 8% Asian. AVG income in NY is 57k, this neighborhood is 67k. Commute is 1hr 40 minutes. Or with express bus, commute is 1hr which cost $13 a day.

I am a 25yrs old single, working in midsize accounting firm, w/ big four experience. My parents and I have been renting our whole lives. We are pursuing our dreams of owning a home. With parents help I can take on a mortgage and pay 50% down. We have narrowed it down to two houses. First house is more affordable, and the house itself is better than 2nd house, however the neighborhood is just okay, and we are not able to rent out part of the home. Still a low crime neighborhood that is quiet. Second house is still a good house, located in a good neighborhood, and we can receive rental income from it. Both these houses are slightly above my means, but I can still pay the monthly mortgage and have some savings left over. Considering all this, which should I go for?

F: 54 (4/13) 60 (4/14) 67 (9/14) 66 (10/14) 63 (11/15) 79 (2/16) PASSED
A: 60 (5/13) 80 (4/16) PASSED
R: 60 (7/13) 61 (2/15) 70 (4/15) 77 (7/15) PASSED
B: (6/16)

[confusedcandidate]

Some thoughts:

1. Both houses put you at a commute well over 2 hours per day. If you are in public accounting and work busy season, that's going to kill you.

2. Don't count on renting that other house out. Renting is a serious PITA, people are unreliable and shady, and it's as far away from “passive income” as you can possibly get.

3. Are you going to live in nyc long term? Unless you're planning on being there 10+ years and raising kids, I wouldn't buy. That's just me personally.

Weekends are meaningless to a CPA candidate

[Biff-1955-Tannen]

I live in a middle/upper middle class neighborhood and somehow the trashiest family in MN managed to move into the house across the street. It. Is. A. Nightmare. The 20 year old kid and his idiot friends are constantly out in the driveway with their POS cars revving the engine and driving down the street. Go drive for 30 seconds, come back, let engine run, rev engine, drive for 30 seconds, come back, play dumb*** music loud… repeat. I can't imagine what it would be like in a low class neighborhood. Something to think about.

As for house 2 if it was ME, I personally wouldn't feel comfortable having my parents put down any money for my house unless they were just absolutely filthy rich and didn't care. I wouldn't feel comfortable knowing that they were losing a crap load of interest they would have otherwise been earning. Then there is always a possibility that mixing “business” with family can hurt the family relationship.

I don't know what your salary is but even you put 50% down, your mortgage payment alone would probably still be around $1,300 a month. Which depending on what your salary/lifestyle is could be a bit too much.

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[monikernc]

look in summit, nj or that area. summit has a train station and it is a wonderful town. have you considered property taxes? they are quite high. or move to NC where housing is way more affordable and the work is equally challenging and the commute is less demanding. work/life balance is important.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
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[alboreland]

Do you also work in NYC? It seems odd that a train ride would take so long. Also, how is the parking? Check it out at night and on the weekends. I live in an area with alternate side and bad parking. There are big problems parking at night.

[CPApracticer]

@confusedcandidate: i'll be in nyc for 10+ years

@Biff-1955-Tannen: my salary is 65k/yr, is that enough?

@alboreland: I work in NYC. These houses that I am considering are in staten island

F: 54 (4/13) 60 (4/14) 67 (9/14) 66 (10/14) 63 (11/15) 79 (2/16) PASSED
A: 60 (5/13) 80 (4/16) PASSED
R: 60 (7/13) 61 (2/15) 70 (4/15) 77 (7/15) PASSED
B: (6/16)

[alboreland]

I see, the commute makes sense. Someone mentioned NJ, but the taxes are really high there. The only good thing about living in NYC are the property taxes which are low compared to NJ, Westchester or Long Island.

[Biff-1955-Tannen]

Idk if anybody here can really tell you if that's enough or not. You need to just make an HONEST budget for yourself.
Figure out what your monthly NET take home is, and what all of your expenses for a month will be (mortgage, car loan, car insurance, home insurance, utilities, gas, phone bill, gym membership, groceries, student loans, repayments to parents, property tax, etc)
Then you'll have an idea of how much money you will have left to invest, save as a cash reserve for emergencies, have money for your lifestyle. If you find out that you can make all of your necessary expenses and only have a little left for the previous, then ask yourself if you're comfortable with living frugal for awhile, or if you're comfortable not putting as much as you'd like towards retirement for awhile.

It all comes down to what your lifestyle is and what you're comfortable with in the end.

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Missy]

One more thing to consider is if you could have significant life changes that would influence your decision. If your parents are older are they nearing retirement, or if one of them took ill would that affect your ability to make the mortgage payments. Also if you marry in the next 10 years, would your spouse be on board with living in neighborhood A or such close proximity to the in laws (watch a few episodes of Everybody Loves Raymond).

Also having a tenant is a HUGE responsibility. You're at their beckon call 24/7, fingers crossed that their rent is always on time, have to basically renovate the entire unit every time someone moves out or in, and if they have children you are responsible to be sure there is no lead paint, the hot water heater has a safety on it not to go over a certain temperature, etc

Don't forget about the additional expenses even though you think you'll have the ability to save even a brand new house has unexpected expenses (my parents built and said the expenses are no different than in their previous house.) Landscaping, plowing, water and sewer……hell I can drop a couple of paychecks just on MULCH every summer LOL.

The implications go far beyond the financial considerations.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[RE2PECT]

Having tenants in your home can be a nightmare like others have stated. NY's laws are so biased towards the renter it's comical. It took one of my coworkers almost 9 months to get his tenants out of his house after several court dates and thousands in legal fees. To add insult to injury he had to put all their stuff in storage and pay for it out of his pocket! Something to take into consideration if you're thinking about purchasing a multi-family home. They can be a great investment, but there's always the chance you get stuck with a horrible tenant.

FAR: 75 Roger & Ninja (notes/flashcards/audio/MCQ)
AUD: 73, 81
BEC: 71, retake 8/29
REG:

[alboreland]

For renting, you're best bet is to get a renter that is a friend of someone you know. It might take a while, but it is better to rent from someone that you know through someone else than some stranger that has potential to be a big problem. Its also easier to keep it off the books.

Just watch Pacific Heights.

[Anonymous]

Please tell me we don't have an accounting forum recommending keeping rent off the books… >.< Don't, don't, don't keep the rent off the books. Pay taxes like a good CPA.

I would not recommend a $1300/mo mortgage payment on a $67k salary, but it may work for some. Have a very honest budget going into it, for sure. And make sure that with either option you can afford the mortgage – plus some extra – without counting on any rental income. Rental income is a very fickle thing, as others have pointed out. You could get it this month and not get it next month. If you can rent it out, then put that towards savings or towards extra mortgage payments or something, but don't ever count on it for your budget or for paying your mortgage.

If it was me, I'd go with the cheaper house with the shorter commute. You said the neighborhood is a bit lower-income, but it doesn't sound like it's low-income, just lower. Also you said the cheaper house is still a low-crime neighborhood etc. If the real difference is just that it's more diverse and has a slightly lower income, I wouldn't let that be a deterrent. If the people are shady, that's different, but 75% of average income doesn't sound too low to me.

[alboreland]

Anyone from NYC can tell you that $1300 a month is a good rent and someone can expect to pay that no matter what they make. You can find lower, but it is alot easier to find something higher. And this is a house not a small apartment. As you make more money, the mortgage will be the same as opposed to rising rent.

My point is NYC and the surrounding area is a very difficult market that is tough to explain because everything is so expensive.

[Jay]

There's something called the Rule of 40 in Real Estate. If your Monthly “Rent” is 1,300. Multiply that by 40 and you need to be making at least that much in salary. 52,000. By that sense, yes, you can afford it. But since you're buying, you need to include all utilities and taxes associated with the house and let's not forget about the constant maintenance expense. You would know better than anyone if you can afford the house or not. Hope this helped.

REG 82 (08/08/15)

[MaLoTu]

Is that a standard commute for most of that area?

I live in the SF Bay Area of CA and I would say that 45 minutes-1 hour is a standard commute. I have no idea if 1.5-2 hours is standard for those who work in NYC. There are a faction of people who live over an hour and a half away, in the central valley, to afford a house and commute to the bay for work. Yes, the house is cheaper, but they pay more for gas, more for car insurance, more for utilities (because it is hotter and colder there). So, what I am getting at is is it really cheaper for you to be that far away when you consider all the other expenses that come along with it?

Assuming that you have considered all the variables at play and you have determined that these two are the best fit for you (because you only really know), I would go with the first one … shorter commute and more affordable. I feel that it would be a big sacrifice of privacy and personal space to have a tenant that lives with you and others have mentioned that rent payments are not guaranteed.

[CPApracticer]

My current commute is an hour to work on the train. I am currently living in a two bedroom condo in Brooklyn with my parents and brother for $1300 a month. Starting in 2016, the rent will be $1450. The price is still pretty good since we live on the same block as the train station, just on the other end so that we do not hear the sound. And also for a 2 br in NYC, it is way better than the price of Manhattan. One of the room is big enough for my brother and I to share. The place is about 900sq ft and is just big enough for all of us. And its a block away from many of the supermarkets we would go to for groceries. So where we currently live is extremely convenient. However, ever since the rent increase, my parents are deciding that we should invest our rent payments in a mortgage and just get a house instead. Plus, the landlords parents live in a room next to a garage and they cook in the basement and they talk pretty loud. I really like my current neighborhood, however the condo that I am currently living in would cost 600k to buy. A single family home in my neighborhood is atleast a million dollars, while the houses in staten island are half the price and are so much better and newer, just that the commute is longer and there is much less to do, and is very quiet. The prices of houses in Brooklyn have gone up dramatically in the past decade.

F: 54 (4/13) 60 (4/14) 67 (9/14) 66 (10/14) 63 (11/15) 79 (2/16) PASSED
A: 60 (5/13) 80 (4/16) PASSED
R: 60 (7/13) 61 (2/15) 70 (4/15) 77 (7/15) PASSED
B: (6/16)

[Author]

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