I bought an apartment in Park Slope for 700k, renovated it and sold if for 815k 3 years later. With 175k down, in theory I made an 60% return. Including the renovation costs, lawyers, permits and agent fees, was it 'worth it'?
The stories I've read about apartment ownership were either crude financial analysis or clean NYT real estate fluff. My story is neither. In reality, no matter how nice and clean your apartment is, buying and selling an apartment is MESSY and hard to put a price on.
How did the renovation go? Before and after…
I don't want to detail the whole renovation process, but it was very stressful. That said, the output is pretty satisfying. Before on the left; after on the right.
Home ownership costs (rounded for anonymity)
|Title||Costs over 3 years||Type|
Heater cover replacement
Electrical box replacement
Real estate agents
Rent vs buy calculation
|Title||Rent||Buy||Rent + Invest|
RE Agent fees (15%)
S&P return on down payment
S&P return on renovations
The price of money
Had I rented a $6,000/month apartment and put my down payment in the stock market, I would have ended up in a similar place financially.
The S&P returned 56% over the term of my mortgage. That would turn my $175,000 in to $273,000. After 20% capital gains, I would have made $78,000 which would cover years of rent.
When people talk about why home ownership is a bad idea, they refer to the 'opportunity cost of capital'. In this instance, while buying was about $25,000 cheaper than renting a comparable apartment, I lost out on significant stock market gains. The opportunity cost only increases if you incorporate other upfront costs like the cash required to do renovations.
Unfortunately…the opportunity cost was not the only cost I paid.
Non-financial costs: Dust
For at least 6 months out of the 3 years, I was living in a construction site.
There were three major projects: initial renovation, replacing the stairs and replacing the heater cover.
With each project, there was some prep for construction, the doing of the construction and then trying to remove as much dust as possible. You live with construction for much longer than the construction actually takes. In a large house, you might have an extra room or outdoor space for using power tools. In NYC, if you can afford an extra non-used room, you can probably afford to live somewhere else while the construction is going on.
Since we were not able to do much ourselves, we saved cost by doing the finishing (sanding, painting and staining).
It is hard to put a dollar cost to being surrounded by dust and construction for 6 months but it is definitely an inconvenience that would not be normal when renting.
Non-financial costs: Permit me not
When I moved in, there was an electrical box in the apartment from 1986. It is considered a fire hazard and so I hired an electrician to replace it. They replaced the box for $2,200 and permitted the job with the DOB…but then they passed away (very sad) before closing the permit. Interestingly, I cannot sell my apartment with an open permit.
Thus begins an epic fetch quest to close the permit!
I'll spare you all the details but I went from contacting a ‘expediator’ (a great job title!), braving the "DOB: Now" and "DOB: Now Inspections" websites, then going into the belly of the DOBeast to finally get a piece of paper with an email on it that I used to schedule an inspection. I then… didn't pass the inspection and had to pay an electrician another couple thousand dollars to replace the electrical box (again), issue a permit (again) and be there for an inspection (again). Original work: $2,200 Fixes: $900 2nd permit: $1,500
Total cost: $4,600 (and days of work) to replace an electrical box…a job that takes an electrician less than 2 hours.
Non-financial costs: Lien on me
One kinda odd thing that increased the cost was that I had two liens on the apartment. In my brain ‘lien’ is beverage I have heard about and would probably sip in moderation if the opportunity presented itself. In bank land, having two lien means I owe my apartment to two banks at the same time. One of these is less fun than the other.
If I were an imperialist, promising my apartment to as many banks as possible and then having them fight each other over my apartment would be a great strategy for destabilizing an industry. Unfortunately, my meager 500k mortgage was not enough to destabilize the trillion dollar banks.
For a rough timeline of events, I got a mortgage through Bank of America in 2017. During the past few years of low mortgage rates I unsuccessfully tried to get them to lower my rate. Instead, in November 2020, I paid about $5000 to refinance and drop my rate from 3.75 to 2.8 which dropped my monthly payment by $500. The second bank then sold my mortgage to a third bank after a month (I have no idea why).
During the weeks before the closing, my lawyer decided to do a ‘lien search’ and found that I had a 2 liens on the apartment. One was for two people - Brennan Moore and Brennan Harold Moore. I later had to prove that they were one person in a really bizarre phone conversation with the bank. The second lien was to the bank I refinanced to but not the bank the mortgage was later transferred to (and who I pay each month). My lawyer was… confused.
Unfortunately, the person who got hurt in the confusion was me since it takes FOURTY FIVE DAYS to close a lien. This delayed the closing a month.
- Don’t permit anything ever
- Do regular permit searches for your apartment (?)
- Do a lien search after refinancing (?)