Buying a brownstone in New York City is a dream that many harbor. However, brownstones, in any neighborhood, have become prized status symbols with price tags to match. They became even more coveted during the pandemic when their space allowed people to live far more separately than residents in high-rise apartment buildings, sharing elevators and amenities.
The Brooklyn Heights brownstone on Montague Terrace is the most expensive home ever sold in Brooklyn.
Brooklyn brownstones (we'll focus on NYC’s most populous borough for the purposes of this piece) generally range anywhere from $1.5 million in Bed-Stuy or Crown Heights, for buildings that need a lot of work to upwards of $10 million and more in Park Slope and an astounding $25 million in Brooklyn Heights. However, if you’re wondering how to purchase a “cheaper” brownstone, around the $2 million mark but don’t know how, here are some strategies…
1. Team Up
If a four-story brownstone costs $2M and you combine a down payment and earned income with four good friends or family members for an equal percentage, you are in essence each qualifying for $500,000. That’s the price of a small one-bedroom Brooklyn condo. Brownstones generally tend to appreciate much faster than condos and don’t come with monthly maintenance fees. If you are not buying a multi-family brownstone it will mean sharing a kitchen and possibly bathrooms. This is where a daily trip to the gym comes in useful.
2. House-hack using an FHA mortgage
If you can come up with around $100,000 for a down payment and closing costs on a $2M 3-4 unit brownstone, you could qualify for an FHA mortgage to purchase it. Of course, then you would have the headache of paying the monthly mortgage payment which could be as high as $13,000 including taxes and insurance. Assuming you can rent each floor out for $3,000/month, three floors would generate $9,000 a month in revenue leaving you on the line for a more manageable $4,000/month for the floor you occupy. Renovate the cellar and use the ground and you've got a duplex, part of which (not the beneath ground cellar) you could rent to Airbnb guests, lowering your expenses even more.
3. Airbnb/Short Term Rentals
Before you say, “Wait, I thought short-term rentals weren’t allowed in NYC?” that’s true for condos and co-ops. However, if you are living in the same building as your guests, Airbnb’s are permitted. A quick online search shows dozens of people renting out entire floors in their owner-occupied brownstones. There are several advantages to being able to rent out a brownstone floor to an Airbnb guest over a regular long-term tenant. These are:
Airbnb guests pay more. According to The Balance, when all expenses are considered, it’s possible to make around 30-40% more from renting to a short-term rental guest than it is a conventional long-term tenant with a yearly lease.
Short-term rental guests do not require kitchens. If you stay in a hotel, you don’t expect a kitchen. Similarly, if you own a single-family brownstone with only one kitchen you can still make money from short-term rental guests as kitchens don’t have to be part of the deal.
No evictions! This is one of the aspects New Yorkers love about having short-term guests. They don’t have to worry about late rent or no rent payments and that means no evictions. The rent is always paid as short-term guests pay their money upfront at the time of booking.
4. Buy A Home That Needs Work
This would have held more clout before the pandemic and subsequent supply chain issues with building materials. However, if you are handy and can do a lot of the work yourself, you still might be able to get a lower-priced brownstone which you could fix up over time, thus raising the rents of prospective tenants or Airbnb guests and gaining a big chunk of equity in the process. It’s a long-term strategy but has proven a tried and true method for wealth building.
Summary
In a seller's market with multiple offers and bidding wars, nabbing a Brooklyn brownstone has never been more difficult. However, if you are lucky enough to have your offer accepted, implement some of these strategies to help pay your mortgage and over time you could find yourself in a great financial situation.