My Brownstone (TWNH) in Bed-Stuy

It's been a while since I posted about my decision to take my $200K and use it to buy a $750K two family townhouse in Bedford Stuyvesant, Brooklyn instead of an approximately 640 sq ft new development condo in Manhattan.

Side note: Many people use the word "brownstone" as a generic category to describe all rowhouses or townhouses. The term "brownstone" refers to a brown sandstone which was a popular building material in the late 1800s and early 1900s. In the same vein, limestones are made up of... Limestone. Rowhouses that are not made of brownstone or limestone are generally referred to as townhouses. I bought a townhouse.

After the New York Magazine article yesterday cited Bedford Stuyvesant & Crown Heights as the highest risk areas to purchase in NYC, a reader asked how I was feeling about my purchase. I'm still feeling good about my purchase. I was able to get in before rates went crazy, so I got a 6.125% 5 year interest only ARM instead of the 6.5% I *might* be able to get today (I question whether I would have been able to get a jumbo mortgage on this purchase right now. I own another property and my *net* income as a real estate agent doesn't look all that great on my tax returns. So I probably wouldn't qualify for this mortgage right now).

My payments for a 5 year interest only ARM at a 6.125% loan are $3,646. At a 6.5% rate, they would be $3,742, which would decrease my cash flow as well as my purchasing power. So even if I could buy the same house right now for $20K less, it's probably a wash.

I've been keeping my eye on the market to see if I missed out & could have gotten something nicer. 585 Macon looks promising. It's larger than my house and has original details, and could probably be had for the same price. I like the location of my house better, it's a closer to the subway. But I could have received higher rental income by having the extra floor. I'm not sure I would have been able to afford the higher taxes and 4 floors to renovate instead of 3. I will save my "contractor" stories for another post.

When I saw 576 Monroe listed, I had a moment of panic... The blocks between Stuyvesant and Lewis are gorgeous and depending on the exact location, are in the Stuyvesant Heights Historic District, which has some "cache" to it (although then owners have to abide by the landmarks rules, which can be a pain when renovating). It turns out that the house doesn't have any fireplaces and most of the original details have been removed. So I wouldn't have been interested in this property, despite the attractive price. When you buy a Brooklyn townhouse/brownstone, you want all the glorious pre-war details: fireplaces, mouldings, original light fixtures, the works!

The New York Magazine article cited a lot of recent price reductions in Bed-Stuy/Crown Heights. The price reductions in the type of property I purchased are almost all on Hart and Halsey streets, or on other blocks really far from the A trains at Nostrand and Utica (most of them are near the G train which goes practically nowhere), or they are on blocks that aren't as nice. The price reductions are $10K - $15K price reductions on $685K - $850K properties, which doesn't exactly indicate to me that the sky is falling. Even still, keep your eyes open, because there will probably be more good deals to come! If a lot of people did get into risky ARMs a few years back, the foreclosures predicted could really happen. The buyers of the potential foreclosures could bring some new blood with more money into the neighborhood, though.

The block where my house is, MacDonough Street & Malcolm X, is mostly families. There aren't any young people hanging out on their stoops playing loud music, which is a misconception a lot of people have about Bed Stuy. Bed Stuy is VERY location specific. Everyone on my block meticulously manicures their front lawns with shrubbery and flowers. I'm actually a bit nervous because I don't have a green thumb at all - the one plant in my apartment has been half dead for months - and I'm not sure I will be able to keep up with the Jones'! There is no indication (at least not yet) of people foreclosing on their properties. Frequently when there are impending foreclosures you start seeing poorly maintained houses, broken windows that haven't been repaired, lots of trash, etc. If I start noticing a change, I will let you know, but my block two streets over (MacDonough between Stuyvesant and Lewis) was recently voted the "Greenest Block in Brooklyn," so I am really not worried. And the 2006 commercial winner was also just a few blocks from my house, where my favorite coffee place, Bread Stuy, is.

The other thing to consider in the New York Magazine article is that it is looking only to 2010, which is only 2 - 3 years away! I bought this house as a ten year investment, and I am hoping to keep it forever. Although I can't be certain until the work is done, I will probably live in the top floor apartment & rent out the owner's duplex. Then at some point in the future, when I need a larger space, I will move into the owner's duplex and rent out the 3rd floor rental.

When you look at the "frightening" numbers in the NY Magazine article, it looks like there is a worst case scenario chance of a 25% decline in prices in the next 3 years. What would that mean for me? Pretty much nothing because I'm keeping the place for 10 years and who knows where the market will be in 10 years. My rental projections indicate a small loss for the first 2 years as I pay down the home equity line, a break even for the next year, and I will be cash flow positive for the next 7 years or however long I keep it.

I never recommend that my customers go into buying an apartment with a 3 year timeframe. I always recommend that they plan to buy and hold for at least 5 years. The entry and exit costs of buying a condo or townhouse (closing costs of 3-6% when you buy and then costs of hiring a broker, etc. when you sell) are too high to plan on keeping something for only 3 years.

My grandfather's stock strategy when he worked at General Electric Company was to invest the same amount every quarter, no matter what the market was doing. With 18 years of $10,000 gifts of stock to each grandkid, he paid for four grandkids' college tuition and my sister and I had enough money left over for a down payment on our first homes. It's great that GE did so well & I am SO lucky that my grandfather was so consistent about saving. But it kills me a bit that my parents could have bought a BUILDING on 9th street and Avenue A for $10,000 thirty years ago when they lived there! But they didn't. Can you imagine what that would be worth in value and cash flow today? The people with a "buy and hold" strategy who select their purchases with a careful eye towards value, cash flow, and their own needs & personal financial situation will do well no matter what. This is New York Friikin City and people will pay to live here. Did I take a risk by buying in an "up and coming" neighborhood? Absolutely. I'm only 30 years old and if I am going to take a risk, the time is now. Everything in life is "risk vs. reward," right? Would purchasing that 638 sq ft one bedroom at Gramercy by Starck have been a good 10 year investment? Of course! But now I have two rental units instead of one. And I wouldn't be learning this much about townhouses, construction, and emerging neighborhoods. Only time will tell whether my investment strategy pays off, but I feel as if my life is so much more interesting by having taken the road less traveled by.

So here are photos of some of the parts of my house that made me choose this one over others on the market:

And these parts need some work (I'm renovating both of the kitchens):

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