Property Grunt

Sunday, July 29, 2007

It can be done

We did it and so can you.

No, you can't always get what you want
You can't always get what you want
You can't always get what you want
And if you try sometime you find
You get what you need

- The Rolling Stones

New York City, particularly Manhattan is notorious for being the most expensive place on the planet. We all have heard stories of people who come in with what they think is a lot of money and see it disappear into the ether once they step foot onto the island.

In the area of real estate, the media has carpet bombed the public with stories of exorbitant prices for apartments and the chosen few who can live in New York City due to their hefty salaries or enormous bonuses. Unfortunately, these stories reflect a prevailing reality that only those who live in a certain tax bracket can survive in New York City.

Which is why I am really glad that Christine Haughney has done a story on the people who are not armed with the salary or bonuses nor do have the family resources to purchase a home. In affect, they pulled their own bootstraps.

July 29, 2007
Every Penny Counts

WHEN Janey Lee and Pablo Agüero were struggling freelance Web designers, buying an apartment in Manhattan seemed like a dream, one clouded by credit-card debt, student loans that had to be repaid and the bills for their wedding.
But now, five years later, they are about to move into a $445,000 two-bedroom condo in Hamilton Heights, in Upper Manhattan, with their 5-month-old daughter, Matilda. Their combined salaries of just over $100,000 qualified them for a mortgage, but it took a lot more for them to come up with the down payment.
In a city synonymous with luxury and spending, Ms. Lee, 30, and Mr. Agüero, 35, decided to do without.
They gave up smoking to cut costs, they stopped meeting friends after work for beers, they didn’t buy new clothes, and they stashed away tax refunds and as much of their earnings as possible. Whenever they wanted to buy drinks, gadgets or cookware, they asked each other: “Do I want an iPod or a house? Do I want a latte or a house?”

It is a war between wants and needs and deciding which dominates the other. It is classic B.F Skinner with the use of negative and positive reinforcement.

“It would be absurd for me to buy things when I wanted a place rather than a frying pan,” Ms. Lee said as she fed Matilda a post-nap bottle.

More impressive, perhaps, than their willpower was that they were able to save $90,000.

Still, Ms. Lee and Mr. Agüero are part of the shrinking pool of New Yorkers who have been able to buy apartments for less than $450,000, and the even smaller group who have done so without help from their parents or a Wall Street bonus.
“Most people that I’m working with are getting some kind of familial assistance,” said Tracie Hamersley, the Citi Habitats broker who helped Ms. Lee and Mr. Agüero find their apartment. “They were unusual in that they were doing this on their own.”
Mr. Agüero described it as “a mind-set,” adding, “If you want to own a place, you have to do everything to own a place and everything else comes second.”

This is why this couple was able to save $90,000. They kept their eyes on the prize. I strongly also believe another motivator was their child. Home ownership plays a key role in family finances because of the tax benefits. Also in my opinion, that once children enter the picture it is best to own a home for their development.

Today, $450,000 is nearly the average price of a Manhattan studio, according to the Miller Samuel appraisal company. The number of Manhattan apartments that sold for less than that has shrunk drastically in the last five years, to 13 percent of total sales in the second quarter of 2007, down from 44 percent in the second quarter of 2002.

About 15 percent of the Manhattan apartments currently listed by the Corcoran Group and Citi Habitats, and about 30 percent of those in Brooklyn, are less than $450,000. In the Bronx, 38 percent of the listings are under $450,000, according to the Bronx-Manhattan North Association of Realtors; on Staten Island, the figure is 43 percent, according to the local Board of Realtors; and in Queens, 17 percent, according to the Multiple Listing Service of Long Island.

Janey Lee and Pablo Agüero
Mr. Agüero and Ms. Lee say that losing their jobs in the dot-com collapse of 2001 gave them the motivation to save. Ms. Lee quickly found a new job but then was laid off again. Mr. Agüero said he spent a full year freelancing and living on $1,000 a month.

He survived each day on a $2.95 chicken special from a local restaurant; a 99-cent Coke; and a pack of cigarettes, before he finally just gave them up.
They both wanted a safety net.

“That was the initial thing that motivated us,” Ms. Lee said. “There is no job security.”
After they opened their own Web design business, they tried not to return to their old spending habits. The couple found that they spent the most money when going out in a group for drinks. So they would suggest meeting their friends for brunch or heading to Chinatown, where they could buy meals for less than $15 each. They also found that they could save by cooking at home for their friends even when their Fresh Direct deliveries cost $100 a week.

They slowly built up a nest egg. In 2002, they saved their $3,000 tax return and another $5,000 between them. They said that it was hardest not to spend in the beginning: in one case they missed shopping so much that Mr. Agüero splurged on a pair of $300 Prada shoes. After wearing them a few times, he realized they didn’t really fit, so he sent them to his brother in Spain.

Those shoes became a symbol of the perils of impulse shopping. Over the next two years, they each saved $15,000.

By 2005, they thought about using their accumulated $38,000 in savings for a down payment. When they realized that they couldn’t afford anything, Mr. Agüero got a job at a bank and saved his entire annual take-home income of about $40,000. They lived off Ms. Lee’s salary. That drove their savings up to $78,000.

By 2006, they had saved another $20,000, which pushed their savings up to $98,000. They started to search in their neighborhood, Washington Heights. They found the apartment in Hamilton Heights in November and put down $90,000. They hope to move in by the end of the year.

They are happy to be the first people they know to have reached their goal of buying an apartment. “We actually don’t have friends who own,” Ms. Lee said. “We’re really kind of taking that leap, which is different from everybody else that we know.”

They had no job security, so they created their own security; not only by creating their own business but also by becoming frugal and reducing their spending to the necessities.

Amy Wegenaar

Amy Wegenaar, 31, wanted her own place. But she found it hard to save because the rent on her Lower East Side apartment had crept up to $1,550 a month.
Ms. Wegenaar is an art director for the Publicis Groupe and her main client is Garnier beauty products. She worried that on her annual salary of about $85,000, she couldn’t buy anything for more than $250,000. She also wanted an apartment large enough to fit her lunchbox collection, her Spiderman collection and her collection of Jack Skellington dolls in coffins from “The Nightmare Before Christmas.”
She felt discouraged as her married friends bought apartments for more than double what she could afford, and as a single friend bought with help from her parents.
“I would look,” Ms. Wegenaar said. “I would print out the info, and then I would start to cry. I would say, ‘This is never going to happen as a single person.’ ”
In 2004, she started to save $400 a month from her paychecks, adding to that amount with raises and bonuses. By late 2005, she had saved nearly $10,000 and found a $160,000 apartment in Ditmas Park, Brooklyn. She had discovered Ditmas Park by searching listings in her price range on Craigslist. When she visited the area with her parents, she found out that her father had grown up nearby, and that made the area more appealing. But she still didn’t have enough money.

So she went into savings overdrive: she went grocery shopping only with a list and cut out luxuries like expensive juices. When she went out with friends, she ordered the happy-hour drink specials and often chose Mexican food so they could munch on free chips and split a cheap entree. She shopped the sales racks at Urban Outfitters and sewed dresses from discounted fabric she bought on the Lower East Side.

I am quite impressed with Ms. Wegenaar because in her particular field being part of the bar and club scene is a perquisite. The fact that is able to navigate the social with these obstacles shows how determined she was to make this happen.

By October 2006, she had saved $17,000. When she found a $220,000 one-bedroom co-op in Ditmas Park that required only a 10 percent deposit, she wrote a $6,500 credit-card check to cover the shortfall for the down payment and closing costs.
“I can’t let $6,000 stand in the way between me and a home,” she said. Her mother, sister and married friends who owned their apartments encouraged her to take the leap. Makeba Lloyd, a broker at the Developers Group in Brooklyn, sold her on the deal. Ms. Lloyd had moved into the same building in Ditmas Park several months before and talked about how happy she had been moving from Manhattan.
“She actually showed me her apartment, and she showed me what you could do with it,” Ms. Wegenaar said. “It felt so right.”

I think Mr.Onyejekwe's experience reflects what the consequences are to one's social life when they embark on this journey.

Obi Onyejekwe
It can be harder to find what feels right for buyers who don’t want to stray far from Manhattan’s most central neighborhoods. When Obi Onyejekwe moved from Atlanta in 2003 to work as an art director, producing commercials for SpikeTV, he thought he would quickly be able to buy an apartment with the $50,000 he had saved.
Mr. Onyejekwe (pronounced on-yeh-JECK-weh) had been saving and investing in a 401(k) since his first $7 an hour job at J. C. Penney. After college, he saved more than half of his salary from his early jobs by living at his mother’s home in Atlanta.
So when he arrived in Manhattan, he was determined to save and buy even while making less than $100,000 a year. He rented an $800-a-month apartment in Harlem and limited nights out to once a week. He spent less than $6 a day for lunch in SpikeTV’s cafeteria. While he never entirely stopped dating — an expense he calculated could cost him $400 a month — he said that he kept his eye on the larger goal of homeownership.
“It’s great to date, go out and have fun,” said Mr. Onyejekwe, 30. “But you have to be established first.”

That is a great attitude to have.

He soon found it was harder to save in Manhattan than in Atlanta, especially as he made friends. In 2004, he moved to a $1,350-a-month one-bedroom apartment in Hell’s Kitchen to be closer to his friends. He also found himself going out three or four nights a week. He considered moving to Brooklyn, where he could afford to buy, but he wanted to hold out for something centrally located in Manhattan. Karen Fornash, his sales agent at the Corcoran Group, helped him narrow his search.

He finally saved enough by making friends with people at work who shared his obsession of buying their own apartments. They chose to eat out at places with entrees that never cost more than $15 and went to events like the Warm Up dance parties at P.S. 1, where the only thing they bought was beer. They also became regulars at a bar near Times Square where they could get five drinks for the price of four.

In February, Mr. Onyejekwe closed on a one-bedroom on East 24th Street in Gramercy Park for $420,000. He put down $84,000, and he showed the co-op that he had an additional $84,000 in investments. His eight co-workers also bought apartments in Manhattan and Brooklyn that cost $320,000 to $550,000.

“A lot of pressure to spend and splurge wasn’t around because everybody was saving to buy real estate,” he said.

Recently a very controversial report was issued how obesity can be socially contagious. I have to concur with the report, let’s face it if your friends have a tendency to gorge themselves on pizza, beer and tacos, you are very likely to indulge in the same type of behavior. Mind you, I am not saying it is the only thing that causes obesity, but it plays a key role.

That concept can also be applied to real estate and in finances because there is a social aspect in buying your first home. As Mr. Onyejekwe has stated, he was going out 3 to 4 nights a week. One day he looked at his bank account and realized there was no way in hell he was going to buy at that rate. So he began to cut down on his spending.

What is most telling was this quote.

“A lot of pressure to spend and splurge wasn’t around because everybody was saving to buy real estate,” he said.

What I suspect what happened was that he realize there was no way he could keep up with his current circle of friends who had no concept or desire to save for the future. I also suspect that there was some tension between the group and his lifestyle. In fact I would fact I wouldn’t be surprised if his friends accused him of being cheap and were probably jealous of his goal.

It reminds me of an episode of King of Queens titled Home Cheapo

Carrie is upset when she learns that Deacon and Kelly were able to afford buying a second home. She is convinced that the reason they can afford it and she and Doug can't is because she and Doug pay for everything when they do things as a group. Meanwhile, Arthur helps Spence get to apply for a new job.

I don’t mean to spoil the ending but it turns out that Doug and Carrie are completely wrong. Deacon and Kelly had scrimped and saved for their second home and although this is just a tv show, people do get strange when it comes to money. Especially if someone close to them has more than they do.

What did Mr. Onyejekwe do about his social life? He got new friends who had same the goals and needs. These friends were understanding of his efforts because they were doing the exact same thing.

Carina Katigbak and Michael Lenton
Sometimes, buying an apartment for less than $450,000 is simply a dream deferred, like Carina Katigbak and Michael Lenton’s plans for an expensive wedding with 130 guests. When the newly engaged couple moved into Ms. Katigbak’s 400-square-foot basement studio in Gramercy Park last December, they quickly realized they both needed more space.

Their rent, $1,600 a month, was rising rapidly, and they were battling leaks and mice. Ms. Katigbak, 27, still held out the hope that they could put the $45,000 they had in savings toward their wedding. But she realized that if they didn’t use it to buy an apartment, they would spend their newlywed years in a shoebox. Mr. Lenton, a 33-year-old nurse, needed to sleep after shifts, and Ms. Katigbak needed room to study for her Ph.D.

“We talked about ‘Do you want to have a fancy wedding, or do you want a place to live in,’ ” she said.

They put their wedding plans on hold. They budgeted for a $300,000 apartment on their combined annual income of about $100,000. They saved money by walking instead of taking the subway, by eating dinner at home and attending free events like Shakespeare in the Park. They also tried to talk each other out of anything over $50.
“We wanted a bedroom with a door and sunlight,” Mr. Lenton said. “We were willing to compromise on everything else.”

They quickly learned that $300,000 apartments sold fast after they lost three of them to other bidders. Their broker, Maggie Leigh of the Corcoran Group, suggested that they keep their standards simple. They considered sixth-floor walk-ups, not doorman buildings. In June, they found a $365,000 one-bedroom condo on St. Johns Place in Prospect Heights, Brooklyn. They plan to move in September.

They would still like a scaled-back version of their dream wedding. They’re saving for a reception in the Toronto suburbs, near where their families live, with a much smaller guest list. But they have become more flexible about purchases they once obsessed over.

“They’re passing fancies that you need at the moment,” Ms. Katigbak said. “Then you find something else to fulfill what you want.”

This reminds me of two very funny stories about weddings.

When it comes to weddings, the bride often goes insane and dominates the entire wedding process while the groom stays in the background so he doesn’t get his head ripped off. In the process they blow more money than Lindsay and Brittany do on rehab.

I knew of this one couple that had gotten engaged and were in the process of figuring out their wedding plans. This particular bride wanted to have a house, but she realized the wedding would make that very difficult to achieve. So they eloped.

A dear friend of mine had what I thought was one of the most frugal weddings I had ever been to in my life, yet it was quite tastefully done and everyone, including myself, had a great time. The two things that allowed her to pull that off was she had the wedding in a city that had a lower cost of living than New York City and that her husband was lock step in her objectives.

Now mind you, these two had the resources to have a Celine Dion class wedding but instead they chose to restrain themselves and save their money for a new home.
As the cliché goes, when there is a will there is a way. If you are willing to scale back on your spending and make an effort to save, you can achieve what these people have done.

I am not saying it is easy. In fact it sucks. You are going to need to subjugate your spending to the point of night sweats and that is particularly difficult in a country where consumerism and consumption are laws of the land. However, take comfort in these words.

“They’re passing fancies that you need at the moment,” Ms. Katigbak said. “Then you find something else to fulfill what you want.”

You will probably lose some of or all of your friends in your quest. That’s okay. It sounds harsh but that is life. You need to make a decision to live for yourself or other people.

If you decide to live for yourself and your friends are not with the program, they will be cast aside. Just remember, there will be others to take their place.