How to buy NYC real estate with no money down and become a millionaire in a year (or not)
Warning: long post alert
While New York City is no longer one of the top ten most expensive cities on the planet, it is still the most expensive city in the US. Salaries are not commensurately higher (cost of living is 94% higher, while salaries are only 17% higher, on average), making it a particularly challenging place to scrape by. Housing costs are by far the biggest contributor to this predicament. Finding something affordable, even if you are willing to live in an apartment the size of a walk-in closet in other US cities, is a huge challenge. This is why New Yorkers are almost universally obsessed with real estate (evidence: popular blogs like Brownstoner and Curbed).
A friend of mine (let’s call him Hans) recently related to me the story of how he and his girlfriend not only managed to find a really nice apartment (a 3 bedroom penthouse unit with a large terrace in a new building in Harlem), but how they managed to buy it on their relatively modest salaries with no money down, no PMI, and an interest rate one percent below market. This is not a scam. There are some catches, and I’m convinced it would be impossible to replicate some of their dumb luck, but if your salary is safely south of six figures and you want to buy a piece of this city, you might consider taking their approach.
Hans’ insight was to combine two programs designed to help low- to moderate-income households to purchase a home: NACA and NYC’s HPD city-sponsored housing lotteries.
NACA (the Neighborhood Assistance Corporation of America) is an incredibly interesting organization I’m surprised I had never heard of. Essentially, they exist to walk low- and moderate-income people through the home ownership process and to fight predatory lending. They work with all their clients to teach them about money management, help them clean up their credit, navigate the home-buying process by providing a broker, a lawyer and other needed resources for as long as necessary and at no cost. They also cover closing costs, arrange for “no down payment” mortgages, and provide an interest rate one percent below the market rate. There are no income restrictions to participate, however if you do exceed a certain level of income, you are restricted to purchasing within “priority areas.” However, all five boroughs of the city are “priority areas” so if you want to buy in the city there is effectively no income limitation. The other big catch with NACA is there is a cap on how much you’re allowed to spend. To buy a single family home, the cap is $362,790. There isn’t much on the market in that range, but there are a fair helping of decent studios and one bedrooms and, if your salary only has five digits, you’re probably not going to be able to afford much more than that anyway. (Other potentially important catches are you must live in the property you purchase and you can’t own interest in other real estate. More on NACA NYC eligibility.)
So how did Hans and his girlfriend (let’s call her Rose) manage to find a three bedroom penthouse with a terrace in a new building in Harlem in their price range, you ask? This is where HPD’s city-sponsored housing lotteries come in. Back when they were house hunting, city-sponsored developments were being listed “every thirty seconds” (according to Hans; this may be an exaggeration). They applied to nearly every single one, eventually were accepted into one of the developments and, through luck of the draw, drew the option to buy the penthouse at a crazy low price. Even luckier, somehow the unit they purchased doesn’t come with the typical HPD requirement that purchasers must live in the property for six years (that’s HPD’s catch other than having to be selected in the lottery in the first place). After about a year, Hans and Rose estimate their apartment is worth more than three times what they paid for it.
Right now, the city isn’t listing many developments. There is a single listing for some townhomes and condos in Sugar Hill/Hamilton Heights that is technically closed, some Habitat for Humanity homes in the Bronx, and a new development way the hell out by the ocean in Queens. Hans tells me he’s heard that the next blast of city-sponsored developments will be in the South Bronx (SoBro by those pumping it as the next “it” neighborhood).
December 15th, 2006 at 1:27 pm
Thank you for this info and I can attest that it works. I attended the NACA workshop in March, bid on the 2nd 1 bedroom co op that I liked and closed in late August. The process as a whole was not pretty but definetly worth it. Andy