What to do. Car or Home in NYC?

[trollhattan]

Hello,

I've been lurking this site for a while and thought I'd request for some opinions on my current finance. So thank you for any input.

I'm 25 and I live in NYC.
Salary $78k
Savings/Checking acct $74K
TSP $39K
Stocks $5k

My employer just paid off all of my student loans so I now have no debt.
I live in my parents basement so no expense on rent/food.
I spend about $300~$600 monthly on various things including gas.
My car is paid off. It is over 10 years old with 150k miles and it is starting to show some problems so I would like to get a decent used car for around $20K. The dilemma is that I get a car from work so I only use my car on weekends.
So the question is, should I buy a starter house at around $450K or should buy a car and buy a house later?

[mgkimsal]

should I buy a starter house at around $450K or should buy a car and buy a house later?

This seems a false dichotomy. You could pretty easily buy a used car - *probably* something decent for less than $20k, especially since you only need it on the weekends. The question of a house is separate. You obviously would be financing the house, and with or without the car purchase, you don't have enough of a downpayment to avoid PMI on a $450k house, and you won't for at least a few months.

What's the motivation for wanting to buy a house now, and why $450k? Are you sure you want to stay in NYC?

[scfr]

Do you really need to own a car? Could you get away with doing something like renting a car one weekend a month and using public transportation or staying home the other weekends?

[trollhattan]

Do you really need to own a car? Could you get away with doing something like renting a car one weekend a month and using public transportation or staying home the other weekends?

I tend to do fairly outdoorsy activities on weekends like biking, camping, and snowboarding so having my own car is a must.

This seems a false dichotomy. You could pretty easily buy a used car - *probably* something decent for less than $20k, especially since you only need it on the weekends. The question of a house is separate. You obviously would be financing the house, and with or without the car purchase, you don't have enough of a downpayment to avoid PMI on a $450k house, and you won't for at least a few months.

What's the motivation for wanting to buy a house now, and why $450k? Are you sure you want to stay in NYC?

Sorry I guess I didn't fully explain my motive. I see myself living in NYC for at least 10 years. I would like to live on my own and with fairly low mortgage rate, I think now would be a good time to purchase a home instead of renting.
Currently the cheapest houses in the area are going for around $400~$450K. TSP allows me to borrow my own money at 1.5% so I should have 20% to avoid PMI.

[mgkimsal]

If it was me, I'd probably wait another 6 months, or a bit longer, save aggressively, and be scouting around for some deals. I don't think you need to be in too much of a rush about this. The market's not going to change dramatically in 6 months, but you'll have probably another $20k-$25k pretty easily, which should give you some more flexibility with downpayment or move-in costs, and possibly take care of your car situation as well.

[~bs]

If you can stand it, stay in your parents basement for a couple more year and build a warchest. Free rent, free food, free utilities, free car to commute to work? Pretty much a saver's dream come true. Buy a decent running car for maybe 10k now. You don't need an expensive car just for the weekend. Then buy a house later. Financially, you're not in a good enough position to buy a 400k house IMO. You'd have to burn everything in your savings, tsp, stocks, etc just to come up with a downpayment that would make your house payment affordable. Then if you run into trouble, you'd pretty much be in default territory. But wait a few years, and you can have your 100k downpayment, and still have 100k in savings.

[~bs]

If it was me, I'd probably wait another 6 months, or a bit longer, save aggressively, and be scouting around for some deals. I don't think you need to be in too much of a rush about this. The market's not going to change dramatically in 6 months, but you'll have probably another $20k-$25k pretty easily, which should give you some more flexibility with downpayment or move-in costs, and possibly take care of your car situation as well.

I think people tend to overemphasize the importance of a low interest rate. When interest rates are high, they tend to depress property value and vice versa. If you buy a property at a low interest rate, higher price, you're pretty much stuck with what you got. But a high interest rate has the option of refinancing the interest rate downwards, which is what people that bought in the last 5-20 years have been doing (note that this is generally speaking: all else equal, if interst rates were double, housing prices would be at a much lower level). If you buy at 400k at 3.5% or whatever it is, you're pretty much stuck with that for the next 30 years.

[bruceingram1958]

Identify first your priorities. I think it is a case-by-case basis as some people need a car more than they should buy a house. Try to ask yourself first, can you work conveniently without a car? As you stated, you will only use it during weekends. Determine first what you need the most.

[scfr]

I tend to do fairly outdoorsy activities on weekends like biking, camping, and snowboarding so having my own car is a must.

Hmm ... I understand why access to a car could be very high on your list. But do you really have to OWN one? Do you do the outdoorsy activities with a certain group of people? If so, is carpooling an option? What about car sharing? Do you really need to take on the financial responsibility of a car 24/7 when you would only use it occasionally?

[Jerry91]

You have mentioned that you get a car pick up for your office. In such a situation, I feel that the car shouldn’t be your priority. It will be better if you look out for a house. Mortgage rates and property prices are low. If you meet all the required criteria of the lender, you will be able to get qualified for a mortgage easily.

[Esozh]

Why do you need a house? What's wrong with your current set up? It makes no sense to me. You can save $40K a year after taxes and expenses without breaking a sweat. In all honesty, I think $20K for a used car is far too much. I understand you're in NYC, so dealers charge more. Go on ebay, or shop online for a low COLA area, and if you need to, take a flight out one weekend to go buy a nice car for $7K-$10K. It can be done very easily in low COLA areas, and the cost of the flight is nothing compared to the return in savings. Then just have it shipped back to NYC if you don't want to drive it.

Buying a house? For why? If you do, I would suggest looking into properties that would conveniently allow for a room mate, or something of that situation. 90K down, at 1.5%, if you can secure that rate, you're looking at $1,242 a month without insurance or property taxes... If the 78K is your gross, your net in NYC is something close to $4K a month. Half of your net income is going to be eaten by a mortgage payment, then include repairs/maintenance, utilities, etc.... You're looking at 75% of your net going to costs of home ownership. I would argue that the money you could POSSIBLY make from the market going up over the next 10 years is not as much as you WILL save and see in ROI if you save and invest correctly.

[johntomba]

This seems a false dichotomy. You could pretty easily buy a used car - *probably* something decent for less than $20k, especially since you only need it on the weekends. The question of a house is separate. You obviously would be financing the house, and with or without the car purchase, you don't have enough of a downpayment to avoid PMI on a $450k house, and you won't for at least a few months.

What's the motivation for wanting to buy a house now, and why $450k? Are you sure you want to stay in NYC?

Agree, with this. Do not blow your money on a fancy new car. Do that when you DO have money to blow. Right now you need to grow your money. You are young. Can you buy a place and get roomates to help pay the mortgage?

[Frugal Guru Jenny]

Keep the car.

Normally, I'd say save a reasonable amount for a downpayment on a house. But with interest rates at an incredible low and housing prices beginning to go up, instead, I say---eat Ramen for a year and save every single penny and get into a house ASAP, because you are NOT likely to see these housing prices in NYC with these interest rates again for then next 20 years!

Get roommates to make it a reasonable cost for now. Since you are young, your pay will go up over time, and with a fixed mortgage, you'll be golden.

[Frugal Guru Jenny]

I think people tend to overemphasize the importance of a low interest rate. When interest rates are high, they tend to depress property value and vice versa. If you buy a property at a low interest rate, higher price, you're pretty much stuck with what you got. But a high interest rate has the option of refinancing the interest rate downwards, which is what people that bought in the last 5-20 years have been doing (note that this is generally speaking: all else equal, if interst rates were double, housing prices would be at a much lower level). If you buy at 400k at 3.5% or whatever it is, you're pretty much stuck with that for the next 30 years.

Normally, perhaps, but interest rates are being kept artificially low to try to stimulate the economy right now. We're not likely to see similar interest rates again in decades. The prime rate is BELOW inflation.

And housing rates were much higher with interest rates higher, as well.