With rising interest rates and a likely looming recession, conventional wisdom may tell you that this is a very bad time to buy your first home. The Federal Reserve Bank has raised interest rates several times so far in 2022 and we know more rate hikes are still coming, adding hundreds of dollars to monthly mortgage payments, all while rampant inflation is pushing up the costs of everyday items such as gas and groceries leaving little breathing room for a mortgage payment and the insurance and maintenance that comes with property ownership.
Contrary to conventional wisdom though, there are some excellent options for first time home buyers, even in this difficult economic environment. Now may be the perfect time to purchase your own Brownstone in New York City. Rents are only getting more expensive, and a Brownstone may be the perfect property for you at this time.
Inflation Hits Renters the Hardest
We know from history that rents are one of the hardest expenses to get hit during times of high inflation like we are in now. Every year your lease renews, your rent will only keep going up, becoming less and less affordable.
Once you become a property owner, your housing payment stays the same until the loan is paid off, then it disappears forever. It may be a bit higher now, but there are several programs and other ways to knock down the monthly payment or increase your cash flow elsewhere.
Buy With an Interest Only Loan
You may be able qualify for an interest only loan on your investment property. Typically, these loans only go for a few years (up to 10) when they must be converted to a conventional investment property mortgage, but the lower payment in the early years allows you to get in the property, increase your income, and more than likely get other units in the building rented out, which can then be used to pay down the conventional mortgage. Even with rates a bit higher, a monthly mortgage payment per $1,000,000 at 4.5% interest rate is roughly $3,750, which is very affordable for a multi-unit building.
Most Brownstones Have Positive Cash Flow
A typical NYC Brownstone has two to four units. If you purchase the property with an interest only loan, and rent out the other units, it’s possible you will have an investment property that spins off a positive monthly cash flow after all expenses are paid, just from your tenants’ rents.
Investment property owners enjoy tax benefits as well that makes living expenses even more affordable. Insurance, mortgage interest and repairs and maintenance are all tax-deductible expenses on rental properties making them even more attractive for investors.
Many people find success in purchasing their Brownstone through Co-Ownership. All this means is that you can purchase the building with another party, each of you owning half. The most common way to do it is with what is called Tenancy in Common, which is just a way of saying both parties are listed on the deed.
When you purchase with another party, you each have one half the payment, making it extremely affordable, and yet each is still building equity, and in a four-unit building, each party can be practically living for free.
There are many ways to get into your own property, building equity and escaping the month-to-month rat race of renting. Sometimes it takes some creative financing or an agent who knows just the right property to suit your specific needs.
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Authored by: Stanley Montfort
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