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NYC real estate question

Bogleheads • View forum - Personal Finance (Not Investing) - www.bogleheads.org
Hi Bogleheads! I am new to this forum and so far loving it! You guys give such great advice.

I'm hoping to ask for your opinion on whether we should go through with a real estate purchase. No contracts have been signed yet so we can back out anytime. The apartment is a co-op in Manhattan, an area with very stable real estate prices. It's a 2 bedroom in estate condition, priced at 1.4M with about 300k worth of renovations. Once renovations are priced in, the apartment is at about fair market value, maybe slightly less to compensate for the burden of renovations.

Our financial situation is: 5M in liquid net worth (cash, stocks, bonds) in a non-tax-advantaged brokerage. (We are looking into creating a tax-advantaged account but just got started with our tax advisor so we're still learning the ropes). My husband and I are in our early 30's with good earning potential. Our combined annual income is 700k before taxes. We have 2 incomes and no kids right now, with plans of having kids in our late 30's. We try to be pretty frugal, but it's a HCOL area obviously and we travel a lot, so I'd estimate our annual expenses at 200k after tax.

We will be paying cash on the property, and we're currently paying 3500 in rent. The maintenance is pretty low so we'd be saving about 2500 in after-tax income monthly. Though I see this as somewhat of a risk-free annuity, something doesn't sit right with me about the purchase, and I'm not sure what. It unnerves me to have 1/3 of our net worth in a highly illiquid, albeit stable, asset. The opportunity cost of stock/bond returns from a tax-advantaged portfolio seems very big to me. I feel like we could get a 1BR for ~1M with similar maintenance, the only downside being a worse quality of life. Also there's a chance we would move away from NYC at some point, probably not in the next 5-7 years though.

We both grew up very poor and therefore naturally paranoid, and we certainly don't have a rich uncle or whomever to give us financial advice. Any perspective would help.

Thanks in advance!


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