Home Buying in New York>Question Details

rssraj, Home Buyer in 11375

MIllion dollar home

Asked by rssraj, 11375 Mon Oct 24, 2011

Guys

I've been looking for homes in Forest hills and originally had a budget of about $800k. Since I haven't found a decent home to my liking, I've upped my budget to $1m where I can afford the down-payment and can also afford the monthlies. I just seem to have a mental block towards buying a $1m home as I never thought I'll be in that category. I don't consider myself rich

Which leads to my questions

1) who are the typical million dollar buyers in outer-boroughs like queens and what does their average household income look like?
2) Are they typically business owners or are we also seeing middle and upper middle class households buy into $1m homes in this down market?



Thanks

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Answers

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BEST ANSWER
Hi RSSRAJ:
The below is correct, but the current dynamic is interesting and important for you to know. The clients tend to have all their ducks in a row and substantial down payments if they are entrepreneurs or very clean financials if they are W-2'd. I have folks making about 180k combined income (W-2'd) and at least 20% to put down to those with trust funds who will be putting down 70-80%. This is important to know because even at the price range you are in there is competition, and in fact at around 1MM vs slightly higher because they all want to buy under the $1mm mark to avoid mansion taxes. We were recently outbid on a 3 family in Astoria (a $950k deal), despite really clean financials because the competition was an all cash deal that could close in 4 weeks (all cash always wins in single/multi-family and condos). So the lesson is to understand that you are not alone, and as folks save a little more money and take advantage of the interest rates there will be more competition. Get an agent who can ensure that your offer is the cleanest looking in town, is serious, professional, and presents you well to ensure to ensure you get rid of the competition.
Kelly Killian
Bond New York
Manhattan, Queens, Brooklyn
954-675-9915
0 votes Thank Flag Link Tue Oct 25, 2011
Hi again RSSRAJ:

Knowing the area well, I actually own probably a slightly smaller house than you would like to purchase (plus I have been a landlord for over 10 years on 3 other single family homes that I renovated and rented so I am well versed in the trials and tribulations of owning property...ha, and why I quit my day job to become a real estate agent). Let me give you an idea of what I am spending for a 2100 sf attached on both sides (this makes a difference in costs, particularly heat) brick home in Queens.
Insurance = 100/month - yours may be cheaper as it is a single family
Oil Heat = 110/month - note that I spent a lot of time insulating my home and dropped the bills from the previous owner from $250/month to the 110/month I pay. You might considering doubling this if the homes that you are thinking of aren't attached at all.
Electric = 130/month for my section of the home (not my tenants)
Water = 30/month with 3 people in the building (it is a 2 family)
Snow and lawn - I do my own.
Repairs - 130/month This is for supplies, as I do most of my own work. Note that there is always an annual project on a house. So you need to be prepared for that. Also, this is just general stuff and doesn't include the new roof, new oil tank, paint, roof insulation that cost about 7500/36 months. Plus you should put away about $100 or more per month in a savings account to cover future repairs.

Additionally, when you buy a home, please don't think the inspector that you use prior to purchase will find everything. They don't. So, you should be prepared at purchase to have say 10k available in case there are items the homeowner will not neogitate on or items that crop up with in the first couple years you own the home. I have bought 2 year old homes to 70 year old homes and there is always something.
Feel free to give me a call. I currently own a number of houses (both single and multi-family), so I am more than happy to talk about real estate in Forest Hills and if you want, can regale you on the trials and tribulations of being a homeowner! Good luck!
Kelly Killian
954-675-9915
Bond New york
Manhattan, Queens and Brooklyn
1 vote Thank Flag Link Wed Oct 26, 2011
Hi rssraj,

Unfortunately a million dollars is not what it used to be. In 1989 NY Governor Mario Cuomo (father of current Gov) instituted a "mansion tax" of 1% on all home purchases of $1 million and above. At the time $1million really bought a mansion and it was considered a surcharge for the wealthy. It is still imposed today but $1 million may not buy a "mansion" it is now it is a surcharge for middle and upper middle class.

Forest Hills is quite lovely. I suggest working with a good local agent that knows all the nuances of Forest Hills. http://www.trulia.com/profile/jhastings/

Good Luck!

Mitchell Hall, Associate Broker
The Corcoran Group
Web Reference: http://nycblogestate.com
1 vote Thank Flag Link Tue Oct 25, 2011
Mitchell Hall, Real Estate Pro in New York, NY
MVP'08
Contact
Good afternoon Raj,

I understand your questions are not related to HO insurance. I was only adding feedback based on the current insurance premium figure you used as a measuring stick to estimate costs for a new property.

As for your insurance comments and question:

-Do not confuse market value with replacement cost. An insurance policy cares about how much it would cost to replace/rebuild your home using "like kind and quality" materials. A home can have a sale value of $500,000 or $1 million depending on market conditions, but the cost to replace it will not change. Actually, the cost will steadily INCREASE (even in down markets) due to the rising costs of labor and materials (maybe 2%-4% per year). That's why HO policies have inflation guard endorsements you can purchase, which protects you from these rising costs. Otherwise, you could easily be under-insured only a couple of years after you took out the policy

-There's no way to guess what the premium will be. Too many underwriting factors to consider. Plus, when you start dealing with high valued home insurance companies, you get much more elaborate coverage (e.g. waiver of deductible with $50K+ claims, total loss cash settlement options, etc.) but the premiums are higher for those type of policies as compared to standard policies from State Farm, Travelers, The Hartford, etc. As you can see, you can really pick and choose the policy options depending on your needs, to say nothing of the costs based on your risk factors alone. In short, not all policies are created equally

-You can call the current homeowner to see how much they are currently paying for insurance, but I wouldn't put much stake into that number. We have no idea what their policy looks like to make an accurate comparison

When you have targeted a home and begin the closing process, give me a call if you'd like. We can then thoroughly investigate your coverage options by getting your case in front of a good underwriter.

Richard
0 votes Thank Flag Link Tue Nov 29, 2011
Richard - thanks for that. We are talking about a $1m home today but if the market improves, this home was valued at $1.5 just few years ago. Since I don't own the home currently, it'll be hard for me to get estimates but what is the higher cap that I should note down for my calculations? Like $2500/year? The area isn't in any kind of flood area and rather it's on a slight slope where water trickles down to other blocks
0 votes Thank Flag Link Tue Nov 29, 2011
Raj,

Do not compare your current homeowners insurance rate of $75 per month with the property type you are thinking about purchasing.

For starters, once you enter the $1 million + replacement cost range (very different from market value), you now become a risk type for "premier" insurance companies. Many of the standard carriers (e.g. Allstate, State Farm, Travelers) do not write policies for these dwelling values and the ones that do will rate your cost per square foot much lower than what it would actually cost to replace your home. Meaning, you would be grossly under-insured more than likely.

Thus, any property with a replacement cost of greater than $1 million is going to draw much more than $900 a year in premium if you want to properly insure your home. Of course, there's no way to get an exact price for HO insurance until you get your case in front of a good underwriter.

Your best bet here is to contact an insurance broker that deals with high valued homes for a quote once you have begun the closing process.
0 votes Thank Flag Link Tue Nov 29, 2011
Thanks kelly and others as well
that's a great answer. kelly - for similarly-insulated homes and using modern technologies, does a fully detached home still command about 2x the heating costs of a semi-detached? I know it's hard to characterize as every home is different but wanted to know if I can keep that approximate guideline in mind

Also, apart from heating costs, are there any other advantages with an attached home? I primarily don't enjoy attached homes as most of them have poor sunlight - there have been some exceptions though. Also usually if you have a backyard/patio, it's way too close to your neighbor's
0 votes Thank Flag Link Thu Oct 27, 2011
Raj,

Let me try to help you get out of your "mental block".

Stop concentrating on the price tag of the home, and instead concentrate on monthly payments.
Keep in mind that you are buying into your future monthly payments. I know people with smaller incomes who have $2M in liquid cash but they can't afford a $1500 maintenance, and I also know people who make $300,000K a year and have $10,000 liquid cash in their bank accounts.

Let me know what your thoughts are on this point of view.

Regards,
0 votes Thank Flag Link Wed Oct 26, 2011
Hello Rssraj. I've read the responses below. I do agree on the general annual income that Mr. Rosario mentioned. Now on to property. I know Forest Hills very well and have closed many deals there. It is a fantastic area with many boutique style shops, plenty of restaurants, great schools and excellent proximity to public transportation as well as the GCP, LIE and Van Wyck.

$800K can indeed buy a nice home but since you mentioned you've not seen anything to your liking, the question becomes what are you looking for? If we are talking the Gardens, then your budget is certainly well below the price of home in that part of FH. If you have some level of flexibility, you'll find more options but again, we do need to know what you are looking for.

I would be glad to talk with you to get a better idea of your criteria. I also would like to thank Mr. Mitchell Hall for his referral. Please feel free to contact me anytime.

Joseph Hastings
917-579-1502
Prudential Douglas Elliman Real Estate
0 votes Thank Flag Link Tue Oct 25, 2011
Your homeowners' insurance is low, the P&I is 4173 for a rate of 4.750% and your utilties seem high.
0 votes Thank Flag Link Tue Oct 25, 2011
Guys

This was quite useful and am happy I posted here. Our household income is definitely in range with what's being said over here by most folks. Another pointer I'd like to throw in here is that I have no kids and it'll be just 2 adults staying here waiting to get married in the near future. Hence, the house won't really be used anywhere close to its capacity

The way I justify that and look at it holistically is:
- There's always risk with investments and probably lesser risk at this point with housing in areas such as FH given we are at record low mortgages and record low prices
- It's not necessarily a bad thing putting down all your savings (taking from cash, equity stock, etc) and putting for a large 20% down-payment, of course as long as you have decent 6 month reserves to fall back onto which I do

In 2016, worse-case I see is the property will be down by another 10%. Best case I see is it would be up by 20% perhaps

I also ran some monthly numbers - can someone do a sanity check to see if I'm missing anything major? I'm taking conservative numbers and very possibly would try to reduce by taking on tasks myself instead of hiring others to do it

30-year Jumbo Loan 800k Mortgage (790 credit) - $4,356.00
property taxes - $550
home insurance - $75
utilities - heat, electric, water - $750
Snow & Lawn - $100
Home repairs - $200
Total - $6031

Thank you!
0 votes Thank Flag Link Tue Oct 25, 2011
Hi Raj

I've done loans in the outerboroughs for both self-employed and wage-earners, you're typical million dollar borrowers will have usually a combined income of roughly 200K with minimal credit obligations. They're typically W-2 wage earners but some self employed def can qualify for financing. However dissecting the tax returns of a self employed borrower is a lot more stringent these days as quidelines have become more restrictive. If you have any questions please reach out to me and i'll try to answer anyting else you need.

good luck!
0 votes Thank Flag Link Tue Oct 25, 2011
If you are not comfortable with the idea of spending one million, consider expanding your search a bit; for neigborhood statistics, check out the census figures; if you need additional assistance feel free to contact me directly.
http://quickfacts.census.gov/qfd/index.html
http://www.census.gov/regions/new_york/
http://www.located-in.com/Forest%20Hills/NY/11375/data/
0 votes Thank Flag Link Tue Oct 25, 2011
rssaj,
I think the most important thing is to find something you like and can afford. You are right that there is something about that $1 MM thresshold that makes us feel we are in a different category. Think of it this way - anyone who also wants the things you want in a house in Forest Hills will also have to pay the same price, and they are most likely people just like you. I don't know that there are statistics on income or professions of buyers in any given neighborhood.
Are you working with an agent? I can recommend a really good agent who covers that area. Fee free to contact me offline for a referrral to him.

Best,
Jenet Levy
Halstead Property, LLC
jlevy@halstead.com
212 381-4268
http://jenetlevy.halstead.com
0 votes Thank Flag Link Tue Oct 25, 2011
If a person puts down 20% then the amount financed is $1 million. Assume a 5% 30 year fixed Loan. This number will c
Monthly expenses in my area would be:
PI:7,195
Tax:2,875
Ins: 500
Total:10,570
In order for the buyer to spend no more than 28% of their income on housing they would have to make $410K. If they were willing to spend 33% they would need to make $348K.All of these factors will have an effect on Median income without any effect on home values.
Fajardo Delacruz
Licensed Real Estate Agent
Century Homes Realty Group llc
Direct Line: 347-932-0609
0 votes Thank Flag Link Tue Oct 25, 2011
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