Anna's Homeowner Interview by Live with Plum
In January, I did an interview about being a first-time homebuyer with Live With Plum. I have so much to say about my home ownership and real estate investing experience, but it's taking time and effort to put my thoughts together. Until then, I'm sharing my interview and some additional insight in green!
When looking at any investment, I like to consider all the possible scenarios and data points. For real estate, this means looking at cash flow and investment returns (quick math in Excel), cap rates, price per square foot, location and even apartment layout. I probably do a lot more than most normal home buyers, but I'm a busybody and an investor by profession. I also recommend building negotiation skills and asking every homeowner around you – real estate practices vary by region!
Plum Homeowner: Anna (New York, NY)
Anna bought her first home in NYC in her mid 20s and chose one that used to be a daycare center! Read her story below.
Anna @youngmoneyplans, a twentysomething in professional investing, and I live in New York City.
Describe your home
1 BR in lower Manhattan, shared with my longtime boyfriend who pays rent. The previous owner converted it into a 1 BR + den, which we use for guests and storage.
You at time of purchase
I was in my mid 20s with a high post-grad income, no school debt and ~70% savings rate. While I invested in the public stock market, I wanted to diversify and build more steady rental income.
Why did you choose to purchase when you did?
I had been passively following real estate / interest rates and found the perfect apartment (a gut-reno in my favorite neighborhood). The trigger point was the apartment, which I felt was a good deal for the space. I also wanted to take advantage of low interest rates – at the time in 2018, everyone thought interest rates would increase soon!
I also want to add that I put nearly all of my savings on the down payment. It motivated me to cut my spending even more and negotiate a higher salary at my next job.
Editor’s note: Keeping abreast of interest rates is a good way to save money over the longer term, be it with your initial mortgage or refinancing.
Describe your home buying process
Overall, my process took much longer than most with ~2 months of passively searching, 2 months of negotiations and then 4 months to close. I didn't use an agent but spoke to several very helpful agents before deciding to try at it myself.
I had peeked at nicer apartments but then saw a listing with no photos or description and an attractive price. The apartment was unconventionally used as a daycare prior, and my counter parties (the broker / seller / contractor) did not speak English. This created plenty of delays before we closed as my mortgage provider needed many forms and questions answered. I was in no rush to start paying interest and luckily had other places to stay, so it worked out.
At the time, I worked at a US bank that handled my mortgage and corporate perks included free closing legal services.
What would you have done differently?
I truly enjoyed my process and am happy with the result. I did everything from modeling returns and negotiating prices to designing a kitchen. I bought all the materials myself, down to the light dimmers. I've always been a mix of analytical / creative and would love to buy another total fixer-upper in the next downturn.
Next time, I'll shop around all the banks for mortgage rates. I care first and foremost about the interest rate.
Note: I've been rethinking this. Even though I enjoyed my crazy learning process, I wouldn't recommend it for most people. Every step of the way took time that not everyone is willing to give up. I love the deal I got on my apartment but I bought a little too soon since I had some cash flow stress during the renovation. I even overdrew my bank account once (got the fee refunded). My contractor was luckily okay with me paying towards the end of the work. My salary was back-weighted with a fairly predictable year-end bonus, so I knew I would be fine in a few months.
What returns were you modeling?
I created a model based off my financial investing background so it was a mix of both rental and appreciation potential. I wanted to buy as my permanent residence because (1) I wanted to live there but also (2) primary residence mortgage rates are cheaper. I rented out the office room for a few months as side income, but would love to move to a cheaper location and rent this apartment out once I am less committed to work. I also may Airbnb in 2020 on my breaks from NYC. Cap rate is ~6%, not bad for Manhattan!
Live With Plum’s note: cap return is commonly used in real estate investing as a measure of the potential return of an investment property is. Learn more about different real estate terms on our Glossary page.
Any other advice for our readers?
Ask for advice from trusted, experienced individuals – your friends, family or even coworkers. Read about real estate in the news. Also don't get caught up in the niceties (furniture, excessive renovation) if you are buying as an investment.
What news sources do you recommend?
Start with local real estate / community news from the area you want to buy. I followed Curbed NY, Brick Underground and my local downtown newspapers / newsletters to understand local changes. The Balance, Nerdwallet and Investopedia have great beginner content. For fun, I read Remodelista and Architectural Digest. Beyond that, I have shared subscriptions to WSJ, NYT and Bloomberg so I read the Real Estate sections regularly to understand market trends.