2019 Aug 2nd

My Dad Is An Expert in Hoboken Real Estate

Selling to young, first-time buyers is always a challenge.  Even more so when they get their parents involved.  For some reason, the parents tend to think that because they bought a home in the suburbs 30-something years ago, when the lending and sales environments were completely different than today, they are real estate experts.  They have little to no interest in seeing actual market analysis, comps or listening to what my decades of experience has taught.  They know it all – these condos are overpriced and not worth buying. They too often dissuade their children from buying when they should be encouraging and helping them!

Real estate is a long game and buying when young to build equity and grow your wealth is simply a safe and smart move.  My only regret when my parents helped me buy my first apartment (for $200k, now worth $1.2mil) is that I didn’t buy the pricier corner unit on a higher floor – or buy both.  Mom and Dad may think they have your best interest at heart but they are often dead wrong in their guidance.  Buying when you are young and just starting out in your career is one of the smartest things you can do, for multiple reasons.

Young professionals in Hoboken and the surrounding area often earn a six-figure salary.  The mortgage interest deduction is a fantastic tax write-off.  Why not put those hard-earned dollars towards your own net worth rather than give them to Uncle Sam?  Then there is the exclusion of capital gains on the sale of your primary residence.  Buy a starter home, trade up, don’t pay any tax on the gain.  Rinse and repeat.  What other investment gives you tax-free gains?  Sure, the tax code may change again but you’re still buying and holding for the long term.  Many people have become quite wealthy either through appreciation of real estate assets or by accumulating investment properties that generate a reliable income stream – especially in neighborhoods like Hoboken and Jersey City!  I read that Millennials don’t like to own or commit to anything physical.  The stream and share and rent.  While there may be freedom in not having ties to physical property it does come at a cost.  Lost opportunity is a cost.  Higher taxes are a cost.  At a minimum, make an informed decision.  Sit down and crunch some numbers.  Do the analysis and work to make smart move.  Don’t let your parents’ or your own fear control your decision making.  Buying young, often before you have to worry about supporting a family, is the smart way to invest in your future.

 

  1. Chili Agee

    And don’t forget about all the money you’d be giving to your landlord when you rent. $2000 a month rental = $24,000 a year. In 10 years you’d have spent $240,000 with nothing to show for it. No equity, no write-offs and prices on any place you would ultimately buy would have certainly gone up. Great article Lori! You always give the best advice!

  2. Steven K

    Not so fast. The market is not great right now for sellers – or agents. You simply cannot say “$2000 a month rental = $24,000” down the drain.

    What about interest? You’re not paying much of anything down on your principle in the first 10 years of home ownership.

    And if something breaks? Good luck with that $9,000 A/C replacement. Hot water heater? Appliances? And so forth.

    Oh, and then there’s the home owners association fee which can range from $300/month to well over $1,000.

    Lori, please paint the full picture here. I know times are tough but renting is a wonderful option too.

  3. Randy

    While I tend to agree with most of your posts Lori this one is very misleading. I have to agree with Steven and go a bit further.

    You are describing the benefits of buying a property that appreciates in value during good times. While recent times has been good to Hoboken that is not a guaranty. People that have bought homes in other areas such as Florida are still underwater more than 10 years later. That is, they owe more on their home then it’s worth. Back in the 70s and 80s properties in this areas tanked in value.

    While I do encourage people to buy over rent if they plan to live in a town for a number a years – nobody should be buying property with an expectation as an investment like you described. Yes, recent years have been great to buyers, but that does not mean that it will continue.

  4. JC

    I doubt Lori is making a blanket statement to own over rent. I’ll let her speak for herself, but like Randy said, buying only if you plan on staying in town for a number of years is good advice.

    Nothing wrong with renting either, if you need the flexibility, dont have the down payment, or maybe you see opportunity elsewhere for your money.

    The endless debate over “buy or rent” will never grow old!

    I will say the limit on SALT deductions and cap on mortgage interest deduction has not helped the cause, at least for the higher end market. Lori, have you had any conversation with potential buyers in the high end arena, that are now sitting on the sidelines because of this reduced deductions?

  5. Joe

    Agree with Steven Randy and JC. I felt like this was a repost from Lori’s 2004 blog. Tax law changes have completely changed the picture, as has the appreciation scale. An investor like Lori may see some returns if they keep a 2019 purchase for 30 years but the typical DINK couple with kids is unlikely to stay. The biggest problem with this town is the bottom 5% state-wide school ranking. It’s amazing people put up with the +$2k per kid daycare bill every month knowing they will move a few years later. It’s a short term thing for most people in town and the only people who truly benefit are the agents. If buyers really thought about it the decision is typically to rent. The two and even 3 bed rental isn’t so bad from a true cash flow perspective. Add in a recession with big correction, and change in tax law, an opportunity may exist in the (near) future.

  6. Eric

    I think the key here is buying a property that is WELL WITHIN your financial comfort zone. If you do that, you can weather most risks (recessions, loss of job, new expenses, etc.). Besides riding out any waves and costing you less, this also gives you a lot of flexibility in terms of future plans (selling it or renting it out).

    With this in mind, along with the tax write-offs, the (potential) value appreciation, and paying rent to your own self rather than a landlord, I don’t see how this is even debate for anyone planning on staying at least 5 years.

    My wife and I could have afforded probably 2x the mortgage we got. But we’re very financially conservative and made sure that we could cover the house on one salary. Our mortgage was probably (if I remember correctly) half or less of our POST-TAX take-home pay.

    This allowed us to grow with our salaries and expenses (kids, daycare) and never make the house feel like a burden or be pressured to move/downsize. I understand we were fortunate to have good jobs and salaries today, but I’ve applied the same financial logic to myself and my spending even when i was making 45k.

  7. Eric

    …and Lori, I totally relate to the “my dad” topic. My dad was especially befuddled about why we’d want to buy a “box” for so much money (in 2012) when we could have a house and a yard. He even found an RE agent for us in the suburbs and insisted on visiting a few houses.

    He has given credit to us in retrospect for our foresight and boldness, given how the Hoboken market has performed compared to central Jersey.

    I think that’s the last part of the equation… besides all the financial variables i mentioned before, you still need to make the right analysis to find a good or at least proper value. And it’s important to see big picture things like commutes, proximity, population trends and demand to find a place that has the opportunity to appreciate.

  8. Lori

    I’m not talking about Florida. I’m talking about Hoboken. I don’t care about the tax law changes because most property taxes are still deductible under the new law as is your mortgage interest. That is a HUGE deduction. Also, even at the most expensive buildings in town (Toll, the Shipyard) maintenance does not come anywhere near $1,000! Don’t know where Steven K is getting those numbers but not from Hoboken condos. Closer to $300 to $350 is about right. How often do HVAC’s need to be replaced? Do your due diligence and don’t buy a piece of garbage. Regular maintenance is needed but it is minimal in a condo. Get an appliance warranty if you’re that worried or bought something older. PSE&G has some great plans.

    If you are young, I stick by my advice. Buy and hold. My husband retired at 50 to that strategy. I work because I enjoy what I do. The rental market in this part of the world is and has been rock solid for decades. It’s New York city, people! I stick by my convictions – buy young, take your profits, trade up, build your equity and look back in 30 years and laugh.

  9. Jack Smith

    Thought I’d throw my actual lived experience in here since most people are just discussing the theoretical.

    When I lived in Manhattan in my 20’s I traded out of an expensive rental building and bought a studio in Midtown.

    Eventually, when that studio became too small I moved to Hoboken and bought a 2 bedroom on the uptown waterfront. I kept my studio in Manhattan and have rented it out easily.

    I lived in our Hoboken 2 bedroom for 5 years and loved it. Then you know what came next – I got married and had two kids. We didn’t want to leave Hoboken – so we bought a large 3 bedroom. We kept our 2 bed and rented it out easily.

    In less than 15 years all those properties will be fully paid off and I did so for marginal more costs than renting – I agree with Lori that this is how you build true wealth. Now my older properties are paying off the newer ones.

    And as someone who lives in Hoboken now, I can say, without a doubt, that so many families are staying. Sure lots of people “go to the burbs” but lots and lots of people stay. I would argue most would want to stay but brownstones and 3 bedroom+ condos are too pricey.

    We may eventually move to the suburbs, but I can tell you living in Hoboken has such high quality of life while maintaining close proximity to Manhattan.

    Also, maintenance may be the most misunderstood concept of all time. A great chunk of maintenance goes to reserves to apply towards the replacement of things in the building (every thing has a useful life actuarial amount). That still exists in a home, you just deal with them in one lump sum each time it occurs. I would much rather pay a routine maintenance and have nothing to do then not have an outlay some months and then deal with new windows all once.

    Also, on Hoboken schools – we have a free pre-k program and the charter schools are great. It really only gets dicey after 8th grade. It’s not as if there’s a mass migration once kids enter elementary school. Walk around uptown Hoboken, it’s baby and kid-ville.

    Hoboken is a dynamic place, a lot of the concepts here are really nuanced and throwing out the same discussion points in 2019 that you would’ve in 2009 is silly. In short – Hoboken has a much more mature group of people moving in – think young families and empty nesters. Schools are actually good except older ages. Everyone values walkability and no one wants mcmansions. Hoboken offers a lot that other places can’t and won’t be able to match.

  10. Lori Turoff

    Well said, Jack. Thank you.

  11. Eric

    Amazing post from Jack. Totally agree, and I hope by the time I’m ready to retire I have several properties paid off and generating more income than most salaries.

    And to add to Jack’s breakdown of maintenance, as far as all the expenses that comes from owning (mortgage interest, maintenance, replacing HVACs, taxes, etc.) … that’s all rolled into RENTAL prices anyway… PLUS some extra margin of profit to the landlord.

    So using taxes/maintenance/expenses as an argument against owning doesn’t even make sense. When you rent, you’re paying all those things on behalf of the landlord anyway, PLUS their profit. So all you’re doing is paying off THEIR mortgage.

    Obviously renting is fine for many people and use cases. But there really isn’t a debate between the 2 assuming having enough for a down payment, at least 5 years of ownership and conservative financial planning.

  12. Lori Turoff

    Has there ever been a 30 year period when real estate prices in the NYC area declined?

  13. JC

    Lori wrote: “real estate is a long game” and I couldn’t agree more. So many folks who lived through the 2002 – 2006 and 2011 – 2017 may feel the rising prices during those time frames are expected, while its very much not.

    So, we need to all be on same page here. Real estate is a long game and dont forget your mortgage payment (P&I) will stay steady during duration of mortgage while value of that money will erode. Yet another hedge from inflation.

    This is New York City (area) and as long as this crazy city continues to thrive, we are good buying here. All about location, as played as that saying goes.

  14. daniele

    “Has there ever been a 30 year period when real estate prices in the NYC area declined?” Well, real estate prices have not moved for 100+ years until government started to intervene in the 90’s (by mandating banks and Freddie & Fannie to expand housing credit). So perhaps those parents advising again buying “expensive boxes” have a memory longer than 30 years?

    NYC metro area apartments are up 50% in the last 7 years. Has the average home buyer’s income grown at the same rate? Can we at least allow for the possibility that it might not be the best time to buy? 🙂

  15. Lori

    Real estate prices have not moved for 100+ years …? Any support for that statement, Daniele? By the way, my memory is that of one of their parents – bought my first place in 1979 – 40 years ago.

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