buying apartment vs renting as a PhD student?

Graduate School
1

<p>I'll be at Columbia University for the next 4-5 years, and paying rent for that long feels wasteful. I can find 1-bedroom apartments for around 600 maintenance + 1100 mortgage payment per month, and renting a studio apartment would cost around 1700 in rent per month as well. Even the studios subsidized by Columbia (if I'm able to get one) are around 1500 in rent per month. </p>

<p>The only thing I'm worried about is taking out loans. I mean phd student stipend isn't that much, and while it is enough to make mortgage payments and live reasonably on, I'm not sure how banks will look at it.</p>

<p>I'd like to hear some current students' thoughts on this. There's also tenant arrangements to consider if you're visiting another university for a long period of time. Is this whole thing worth the hassle? </p>

2

<p>Can you realistically do it? Do you have a down payment, excellent credit, and a guaranteed income? There are first-time homebuyer programs that would help you, but do you really want to use that option up for a grad apartment?</p>

<p>I would not recommend it. For the length of time you are looking at, there is high risk and minimal reward, and it is not even likely you would be able to make it happen unless you are in a lot stronger position than the average grad student.</p>

3

<p>Many CS grad students I know here at Penn have purchased apartments, so, it doesn’t seem like a very extreme option. In fact my undergraduate advisor mentioned he bought one at CMU during his phd, which was what got me actually thinking about this. Unfortunately NYC is a bit more difficult than Philadelphia or Pittsburgh. </p>

<p>The phd stipend I’m getting is enough to make mortgage payments and maintenance payments. I’ll be able to make the downpayment after this summer, which isn’t really more than what a monthly rental payment would cost.</p>

<p>Why would there be much risk involved? You’re physically buying a house; it seems like as much of a stable investment as one can make. Taking out a $230,000 mortgage at 4.75% interest, paying $600/month in maintenance fees and $1200 in mortgage payments, and selling at the same price with 12% broker fee after 5 years would cost a total of around $46000. Renting at 1500/month for 5 years would cost $90000.</p>

4

<p>

I didn’t say it was an extreme option, I said I didn’t recommend it.</p>

<p>

Banks have gotten pretty tight with mortgages in the last 5 years. More than ever, they want to be assured that you will stay there long enough to at least break even, and they want to be certain that you will have money to handle contingencies.</p>

<p>

Tell that to my neighbor, who just sold his house (after 6 years) for about 3% less than he purchased. There are two risks - the housing market, and the house itself. On the first part New York is better than most, so it is likely that a given property will appreciate enough to cover the closing costs in the time you will be there… assuming you are there at least 3-4 years, which in some programs is not certain. On the second part, it depends a lot on the property itself, because as the owner you are the one who will need to pay for repairs and maintenance, and the one who gets sued for anything that happens there. You will need to convince the bank that you understand and can handle these risks.</p>

<p>

Your calculation ignores homeowners insurance, property taxes, and mortgage insurance (assuming you have less than a 20% down payment), and also ignores the lost income from any down payment you could make. You can easily see the insurances and property taxes add up to half your mortgage payment - usually, at 5 years out you will do a little better than breaking even on your investment, but not by a whole lot.</p>

<p>If you are serious about this, talk to a mortgage broker now, get some real numbers.</p>

5

<p>Hmm, I thought the maintenance fee paid to a co-op covered things like property taxes and insurance. I guess I should call up some of these co-ops and figure out what exactly I would need to pay then. </p>

6

<p>

I did not realize you were looking specifically at co-ops. For a co-op, I believe the property taxes would be included in the fees, as they are tied to the building itself which is cooperatively owned. The mortgage insurance would almost certainly NOT be included, as that is a matter between you and your bank. Homeowners insurance could go either way.</p>

<p>And regardless, looking at your calculations more carefully, the gap is smaller than you might think. $1500/month for five years (ignoring inflation) is a total cost of $90k renting. $1800/month in mortgage and fees for the same time is $108k, and if you ignore appreciation and assume 12% commission on sale you would have $60k equity and $28k commission at the time of sale, for a net cost of $108k+$28k-$60k = $76k, which is only a $14k improvement over renting, even before you consider all the other factors that might make ownership more expensive.</p>

<p>

You should also ask what they look for in a prospective tenant. Remember that with co-ops there is a board that is heavily involved not only in the sale but in many cases the actual operation of the apartment. They may expect a higher down payment than you can afford, and may be wary of selling to someone who is 99% likely to be gone in a few years. If you have any thoughts of subletting or renting out the apartment you will need to see if that would be permitted under the co-op’s policies.</p>

7

<p>

Have you looked around to see if you can really find co-ops or condos for this price? I’m in Boston, not NYC, and it would be tough to find a condo of a reasonable size in a good neighborhood for $300,000.</p>

8

<p>Yes, there’s quite a few on streeteasy. e.g. here’s a 1BR apartment which is really nice location-wise <a href=“https://streeteasy.com/building/3115-broadway-new_york/55”>https://streeteasy.com/building/3115-broadway-new_york/55&lt;/a&gt;
I’m not looking for condos; I’d imagine it’s much harder to find one of those. </p>

9

<p>The place you noted is listed at $295k, with an expected $59k down payment. You have that?</p>

10

<p>Not quite; my parents will let me borrow the rest and pay them back whatever % I need of what the house sells for later on. </p>

11

<p>Ah, sorry. Not as many co-ops in Boston, I think.</p>

12

<p>

Ah - this is an important part of the equation that you left out! Having someone else assume some of the risk and reward skews things a bit.</p>

<p>Let’s assume the above $295,000 co-op, that you are covering a 10% down payment yourself while your parents are covering another 10%, the rest is mortgaged for 30 years at 4.75%, and that you have $477/month in co-op fees. Let us also assume that all amounts are fixed during those five years.</p>

<p>At the end of five years you would have spent $29,500 in down payment, $70,860 in mortgage payments and $28,620 in co-op fees, for a minimum of $128,980 out of pocket. If you sell at the same $295,000 then you will pay $29,500 back to your parents (who made nothing on their investment!), $231,374 to the bank, and (at 6%) $17,700 in sales commission, meaning you get $16,426 back. $128,980 - $16,426 is a final cost of $112,554, which is $22,554 MORE than you would have paid renting.</p>

<p>I think if you want to do this you really need to find some numbers that actually work for you.</p>

13

<p>I’m actually a doctoral student at Columbia, and I honestly wouldn’t recommend buying an apartment unless you were planning to stay here longer term or you were entering a PhD program that routinely takes longer than 6 years.</p>

<p>First of all, I’ve commonly heard it recommended that purchasing is only a better deal than buying if you are in a place for longer than 5 years. Second of all, it takes a LOT of time to buy a place in New York. I have a couple of friends who have purchased apartments once they decided to live here long-term. New York is a ridiculously tough market, and the ones I know who have bought places hired a realtor and spent a LOT of time looking at places. One took 6 months to find a suitable place and she had a large down payment gifted to her by her parents. She said that she’d looked at between 50 and 100 apartments by the time it was all said and done. You don’t want that kind of stress as you are beginning a PhD in the city. Also, she lives in a co-op and you have to be approved by the co-op to buy in the place. She works full-time so didn’t have issues, but I had another friend and her partner who tried to rent in a co-op and had so many issues they gave up and moved elsewhere.</p>

<p>More importantly, it is VERY unlikely that you will get approved for a mortgage to buy…basically anything…in New York on a PhD stipend. Renting something beyond the 1/3 of your income threshold is far easier to do than buying something beyond that threshold. CNN Money estimates that the most house you can afford, even with an aggressive banker, is around $130,000 (assuming a $31,000 stipend, $20,000 down payment and no monthly debt). There’s basically nothing in New York you can buy for that much. What bank is going to approve you for a $295,000 mortgage on a stipend of $31,000?</p>

<p>Although I will say if you have $300,000 to spend, you could get a bigger space than a 500 square foot apartment if you are willing to look elsewhere. Matter of fact, that building is basically in West Harlem - I know they say it’s Morningside Heights, but it’s literally on the edge. I live a few blocks away from there. It’s close to Columbia but that’s like the only selling point of that location (well, I guess it’s close to Riverside Park too - which is really nice.) It’s right near the train tracks and across the street from a housing project. I have a friend who bought a 1,000 sqft, 3-bedroom apartment in a co-op in Central Harlem and paid ~$250,000 for it. Elevator building, stainless steel appliances, exposed brick, nice-sized bedrooms - way better than that teeny box. He works at Columbia. I also have a friend who owns a studio in Inwood and I’d be willing to bet good money she didn’t pay $300,000 for it, and it’s a pretty big and very nice studio.</p>

<p>Not only that, but if anything goes wrong you need to have the money to fix it yourself. There’s no maintenance company to come and fix your appliances. Even if you sell the house for the same price, you still might be more in the hole if something major breaks and you have to fix it. And lastly, you’ll have to unload the place after you finish. You can do one of two things. You can sell it - but selling an apartment takes time and you’ll have to try to manage the process while you are moving into your new city, setting up a new job. You may have to pay two mortgages for a while. You’re also assuming that you can sell it for the same price after 5 years, and that that would be easy, and that broker fees for sales are the same as broker fees for renting. Or you can keep it and rent it out - which would generate some income, but likely you’ll have to hire someone in-town to manage the property for you, to meet potential tenants and sign leases, to deal with landlord issues like fixing broken ovens and fridges and preparing it between tenants.</p>

<p>The other thing is - what if you don’t finish the program? What if you decide 2 years in that PhD work is not for you, and you want to leave? What if your advisor dies or moves to another program and you want to go with him? What if you find a partner and the two of you want to move to Partner’s hometown during your ABD years? Then you’re stuck with an apartment you have to unload.</p>

<p>Buying is not universally better than renting. Renting isn’t a waste of money - you’re paying for a roof over your head. No, you don’t have equity after the 5 years are up, but there are other benefits to renting (like flexibility and maintenance costs) that you don’t get from buying. You have to choose carefully. I’m not against buying at all, but I think PhD students need flexibility. Out of all of my PhD student friends in New York, only ONE of them bought an apartment in New York - the one who owns that studio in Inwood. The other friends I have who own property here bought it when they got full-time jobs and decided to settle in the city, and that was AFTER they had been here for a few years, scouted out the neighborhoods, decided where they wanted to settle and used a realtor to find great places.</p>

<p>Personally, if I were going to purchase property here in NYC I wouldn’t go for where you are buying - I’d want to wait until I had the resources to purchase a really nice unit in a decent neighborhood in case I had to rent it out. With the unit you’re scoping I guess you have a constant stream of income from Columbia/TC and MSM students who need a place to live, but you will also have to do careful management because renting to grad students means high turnover. Personally I’d only want to buy in a neighborhood that could attract longer-term - and frankly, more financially stable - tenants.</p>

14

<p>Hi Juillet, thanks a lot for the info!</p>

<p>Regarding getting approved for mortgages - for those students did buy apartments, how were they able to secure the mortgages? Do the student federal credit unions at Columbia offer mortgages? Actually, is there even one? I wasn’t able to find a website. I know Penn and MIT have these, and the MIT one does offer mortgage loans which presumably should be easier to get approved for as a PhD student. </p>

<p>Regarding the time to find a house, I actually live in NJ and will be commuting to Columbia to start working with my advisor over the summer, so, I’ll have time to go around the city and look at housing before graduate school officially starts. I’ll definitely want to check out the locations in person whether I’m renting or buying anyway, so, this isn’t much of a problem.</p>

<p>One of the reasons I wanted to buy close to Columbia is that it would be easy to sublet to Columbia students for short periods of time, say if I were to spend a summer at Microsoft Research or a semester at another university. If the place was much further, finding someone to sublet to would be much more of a hassle. I haven’t considered much about renting afterwards. Also, I’ve heard that one should stay south of 125th st and close to the river, at least west of Amsterdam. </p>

<p>Regarding maintenance, and this is something I should probably ask the realtor myself when I look at the place, but I believe the co-op maintenance fee covers basic utilities like heat/hot water. In that case, if a water pipe burst or something, would I be responsible for fixing it? It is called a “maintenance” fee, and these utilities are also pretty centralized.</p>

15

<p>

You might be surprised on that one - they know all to well how many grad students leave or suffer financial difficulty due to variable funding. Remember that the university credit unions also service the faculty and staff, and it is likely that THEY can get decent mortgages through the unions.</p>

<p>

You would have to check with the co-op. I would personally suspect that the fee covers the maintenance and insurance for the building, which can be evenly parsed to the tenants, but NOT the usage of heat and water, as those will be highly variable. Regardless, it will not cover things like your appliances, which will be up to you to fix or replace, and may not cover certain issues inside your apartment, especially if you (or the previous tenant) had any work done.</p>

16

<p>

Yeah, my recent experience through the Harvard credit union has not been one that makes me think it would have been easy to get a mortgage approved as a graduate student.</p>

<p>I’m a postdoc now, so I make (marginally) more money, and my husband has a real-person job, but it wasn’t trivial for us to get approved. In particular, this was because Harvard does not consider stipends to be salary, so I was unable to provide W2 forms for the last several years when I was in graduate school. This inability to prove income has been troublesome for me and for a few of my friends who have applied for mortgages in the past few years.</p>

17

<p>Columbia doesn’t yet have a federal credit union; they’re trying to start one now (they sent around a survey to determine interest). If your department hires you as a GRA, you may want to check out MCU (Municipal Credit Union). I agree, though, that credit unions are usually set up primarily for the benefit of faculty/staff and full-time workers. They’re not going to lend you money if you’re not creditworthy, and I just don’t see any responsible bank or credit union loaning a doctoral student on a $30K stipend $300,000.</p>

<p>To molliebatmit’s point, I also will point out that Columbia also does not consider our stipends to be salaries and thus does not give us W-2s for our stipends - or even 1099s. Instead they send us a letter every year telling us that it’s our own responsibility to track our earnings and report them the IRS accurately. (They don’t want to pay payroll taxes.) So you will have a difficult time proving what you make to a bank. You could use an offer letter for a landlord, but I don’t think banks will accept those. (This is one of the reasons I chose the postdoc I did, because I’ll be hired as a employee of the university and eligible for all the benefits - including the university credit union!)</p>

<p>I only know one student who bought an apartment. She had worked for several years before she went to graduate school and had savings as well as financial assistance from her parents, plus she bought a studio way up in Inwood where the prices were cheaper. I don’t know any other students who bought apartments - all of my other friends who own work full-time.</p>

<p>New York is a BIG summer intern city, and you won’t have a problem finding a summer sublet regardless of where you live in the city. I used to live in Washington Heights uptown at 172nd St and I got tons of people who wanted to sublet my place. The person I eventually ended up subletting to interned in midtown. If you have an affordable place in Manhattan, you don’t have to worry about subletting. Besides, Columbia undergrads usually don’t need to sublet over the summer because their residence halls offer them summer housing if they are interning or whatnot.</p>

<p>I’m not sure who told you to stay south of 125th, but I wouldn’t agree with that advice. I used to live at 172nd St (which is nearby the medical center campus) and I have tons of friends who live in the 140s and 130s (Harlem) and in Washington Heights (160s-180s). You just have to visit the area ahead of time. Some of those places are really nice - a friend rented a brownstone apartment that was really sweet and much less expensive than it would be in the UWS. And I loved Washington Heights and never felt unsafe there; it was a nice family-oriented neighborhood and I lived down the block from a park with a dog run and within a few blocks of several grocery stores. Actually, most of the Columbia students I know who don’t live in either Columbia housing or the outer boroughs live above 125th St. Otherwise, it’s just too expensive.</p>

<p>The advice to stay close to the river/Broadway and west of Amsterdam is closer to true wrt safety and niceness, but there are nice places to be had in Central Harlem if you know where to look, and they’re not unsafe. (I personally wouldn’t move east of St. Nicholas or Amsterdam above the 140s though.)</p>

<p>As for the part about utilities, I think that depends on the co-op.</p>

18

<p>So I noticed Columbia has an apartment complex, The Arbor in Riverdale, for grad students and faculty, and they offer a shuttle service from that area to the main campus which runs from 7am till midnight. The apartments in that area (Spuyten Duyvil) seem much more affordable. e.g. <a href=“https://streeteasy.com/building/640-west-231-street-bronx/5j”>https://streeteasy.com/building/640-west-231-street-bronx/5j&lt;/a&gt; runs for $130k total. So I’d only have to borrow around $100k, which seems more reasonable?</p>

<p>Does the stipend vs salary thing really make a difference? It seems like just a triviality.</p>

19

<p>It’s not a triviality, not to the university and not to banks. At the university, a stipend is provided on the basis of student status; you’re not hired and you’re not taxed as an employee. This means they don’t have to pay payroll taxes on you, but it also means you have no tax documents or anything to prove your income. Stipend support is also paid out differently depending on the department - some of my friends on stipends got paid in a lump sum at the beginning of each semester. (I did too, but I was on external funding.) To a bank, stipend support may seem shaky or unreliable, especially if you don’t have a W-2 or 1099 proving what you receive and guaranteeing it for some amount of time.</p>

<p>Salary, on the other hand, means that you are hired, get a paycheck monthly or semi-monthly, and have tax documents to show the bank for a loan. (The irony is that a salary may be just as time-limited or unstable as a stipend, depending on how long your funding lasts, but at least you have a paper trail).</p>

<p>The difference between them was made clear to me when I was on a training grant my first two years at Columbia (salary support) by the professor running the grant. I then switched to a stipend in years 3-5 (stipend). To me personally it didn’t make a huge difference because I wasn’t trying to buy anything; the biggest difference was the taxes.</p>

<p>That is a gorgeous apartment! Riverdale is also a nice area - residential, family-oriented. Lots of historic landmarks and nice parks. Spuyten Duyvil is close enough that you can probably take advantage of that (Inwood, the neighborhood to the south, is also a nice residential neighborhood with lots of parks and landmarks; it just happens to be more Dominican than Jewish and Russian.) And yea, you can probably hop the shuttle. You could also get the 1 train to campus, and it would probably take 30-40 minutes. That’s also a really sought-after neighborhood - well, Riverdale is, and that apartment is pretty close to Riverdale - so you may not have a tough time trying to sell it. And yes, getting a mortgage for $100,000 (and a downpayment of $24,000) is far more reasonable on the stipend.</p>

<ul>
<li>Oh, btw, I’ve seen co-ops where the maintenance is about equal to the monthly mortgage. So I’d check that out. StreetEasy lists the maintenance for co-op buildings.</li>
</ul>