Brooklyn homeownership is not "worth it" as a financial investment. After accounting for renovation costs, high transaction fees, and the opportunity cost of not investing in the stock market, my profitable-on-paper sale was actually a financial loss. The true costs were the non-financial headaches: months of living in construction dust, battling city bureaucracy over permits, and fixing bank errors over property liens. I conclude that you buy a home not for the return, but for the control and satisfaction of making a space your own.
The stories I've read about apartment ownership were either crude financial analysis or clean NYT real estate fluff. My story is neither. In reality, no matter how nice and clean your apartment is, buying and selling an apartment is MESSY.
I bought an apartment in Park Slope for $700K, renovated it, and sold it for $815K three years later. With $175K down, I made a 60% return. But, including the renovation costs, lawyers, permits, and agent fees, was it 'worth it'?
How did the renovation go?
I don't want to detail the whole renovation process, but it was both stressful and satisfying. Before on the left; after on the right.
Home ownership and sale costs (rounded)
If you are curious about the various costs that come into play, below is a summary of the major expenses for buying, owning, and selling an apartment.
Rent vs. buy calculation
Below you can see that renting was $38,000 more expensive than buying. However, if I had invested my down payment and renovation money in the stock market, renting would have been $100K cheaper!
Owning property has tax benefits, but they are complex. You can deduct mortgage interest from your federal taxes. If your existing deductions already push you into using the itemized deduction, this can be beneficial on your federal tax return. However, if you have few deductions and use the standard deduction, the mortgage deduction is less beneficial since the standard deduction is already quite high. You can technically also deduct property taxes, but if you can afford property in NYC, you probably can't deduct property taxes in NY. If you are curious about tax savings, consult with a CPA.
In my case, I received about $20K of tax savings from owning property.
The price of money
The S&P returned 56% over the term of my mortgage. That would have turned my $175,000 down payment into $273,000. After 20% capital gains tax, I would have made $78,000. That profit would have covered renting an apartment twice the price of a comparable rental.
When people discuss why home ownership may not be the best investment, they refer to the 'opportunity cost of capital.' In this instance, while buying was about $38,000 cheaper than renting a comparable apartment, I missed out on significant stock market gains. The opportunity cost only increases when you incorporate other upfront costs like the cash required for renovations or place some value on your time.
As you can see in the real estate agent fees and the flip tax above, the transaction costs for selling an apartment are high. In addition to those fees, selling takes time. The current estimate is 5 months from listing to closing and receiving funds from the sale.
Unfortunately, the opportunity cost was not the only expense I incurred.
Non-financial costs: Dust
For at least 6 months out of the 3 years, I was living in a construction site.
There were three major projects: initial renovation, replacing the stairs, and replacing the heater cover.
With each project, there was preparation for construction, the actual construction, and then attempting to remove as much dust as possible. You live with construction for much longer than the construction actually takes. In a large house, you might have an extra room or outdoor space for using power tools. In NYC, if you can afford an extra unused room, you can probably afford to live somewhere else while the construction is ongoing.
Since we were not able to do much ourselves, we saved costs by doing the finishing work (sanding, painting, and staining).
It is difficult to quantify the cost of being surrounded by dust and construction for 6 months, but it is an inconvenience that would be unusual in a rental.
Non-financial costs: Permit me not
When I moved in, there was an electrical box in the apartment from 1986. Today, it is considered a fire hazard, so I hired an electrician to replace it. They replaced the box for $2,200 and permitted the job with the DOB (Department of Buildings)... but then they passed away (very sad) before closing the permit. Importantly, I could not sell my apartment with an open permit.
Thus began an epic quest to close the permit!
I'll spare you all the details, but I went from contacting an 'expeditor' (a great job title!), navigating the "DOB: Now" and "DOB: Now Inspections" websites, to finally going into the belly of the DOB to obtain a piece of paper with an email address that I used to schedule an inspection. Unfortunately, I didn't pass the inspection and had to pay an electrician another couple thousand dollars to replace the electrical box (again), issue a permit (again), and be present for another inspection.
Original work: $2,200
Fixes: $900
2nd permit: $1,500
Total cost: $4,600 (and a full day navigating the DOB) to replace an electrical box—a job that takes an electrician less than 2 hours.
Non-financial costs: Lien on me
One particularly challenging issue that increased costs was discovering I had two liens on the apartment. In my mind, a 'lien' was a beverage I had heard about and would probably sip in moderation if the opportunity presented itself. In banking terms, having two liens means I owed my apartment to two banks simultaneously.
If I were planning financial disruption, promising my apartment to as many banks as possible and then having them fight over it would be an effective strategy for destabilizing an industry. Unfortunately, my modest $500K mortgage was not enough to destabilize the trillion-dollar banking industry.
For a timeline of events: I obtained a mortgage through Bank of America in 2017. During the subsequent years of low mortgage rates, I unsuccessfully tried to get them to lower my rate. Instead, in November 2020, I paid approximately $5,000 to refinance and reduce my rate from 3.75% to 2.8%, which lowered my monthly payment by $500. The second bank then sold my mortgage to a third bank after just one month.
During the weeks before closing on the sale of my apartment, my lawyer conducted a 'lien search' and discovered I had two liens on the apartment. One was from Bank of America and was made out to two people—Brennan Moore and Brennan Harold Moore. I later had to prove these were the same person in a rather bizarre conversation with the bank. The second lien was to the bank I refinanced with, not the bank the mortgage was later transferred to (and to whom I made monthly payments). My lawyer was understandably confused.
Unfortunately, I bore the consequences of this confusion, as it takes FORTY-FIVE DAYS to close a lien. This delayed the closing by a month.
My favorite moment was when a BofA customer service representative asked if I had a fax machine. Not thinking of e-fax services, I said 'no.' They responded, "Oh... well, in that case, we will have to email you the documents. The email takes 3 days to arrive."
Takeaways
Be extremely cautious about permitting anything.
Conduct regular permit searches for your apartment.
Perform a lien search after refinancing to ensure the process completed correctly.
The real estate industry needs more efficient property transfer processes.
So... was it worth it?
I really feel it is disingenuous to call home ownership a good investment for most people.
A home is illiquid (selling took 5 months!) and does not provide returns comparable to the stock market at any risk tolerance. While I owned my apartment for only 3 years, my parents purchased their home for approximately $90K in the late 80s and, after significant renovations, sold it for approximately $150K in 2018. While the value of their home grew 60%, $90K invested in the S&P in 1988 would be worth over $1.8 million today. Even a much lower-risk portfolio would have more than paid for a fantastic rental.
In buying a home, you are purchasing control and forcing yourself to save. The renovations I completed were dramatic. As an owner, you can undertake large renovations to accommodate working from home or fix those small annoying issues present in every rental.
Overall, I'm satisfied with my three-year ownership experience. I learned a great deal and was able, with helpful advice from many friends and loved ones, to create a space I was truly proud of.
Yesterday, I was venting to my girlfriend about yet another fee and declared I would never own again. She stopped me and said, "You enjoy tinkering and fixing things. Don't kid yourself that you want to rent someone else's apartment forever. You are an owner at heart."
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