Owning a home involves more than just monthly mortgage payments. So what are some of the other hidden costs involved? How do you keep them down?
1. Property Taxes
Property taxes are often overlooked by first time homebuyers. According to the Tax Foundation the average Long Island property tax bill as of 2010 in Nassau County was $9,289, and $7,768 in Suffolk County. That’s an average of $774 per month on top of your mortgage payment if you live in Nassau County. As with most items on this list this is a housing expense that keeps going up year after year too. You’ve got to know how much the property taxes are before you make an offer on a property. The good news is that around half of all Long Island property tax bills have been overinflated. That means a good property tax adjuster can help you get those numbers down, and make the home a little more affordable.
2. Association Assessments
Those that buy homes, condos, or co-ops governed by associations have to account for the potential for special assessments, in addition to regular monthly or quarterly dues. Special assessments can be applied to make up for shortfalls in the budget, rising expenses, and unexpected major damages such as from fires or hurricanes. Be careful to choose an association which has good financials. These should be reviewed within 3 days of getting an offer accepted, if not before.
If you are taking out a mortgage to finance your property you will be required to have insurance. Some associations include some types of insurance in their dues. At a minimum general homeowners’ insurance will be required. Additional insurances may include flood, wind-storm, and interior insurance for condos. Make sure you know all the coverages you will be expected to have in advance, and get quotes. Shop around for better deals, and ask what may entitle you to discounts i.e. having a security system.
4. Fighting Fraud
As sad as it may be, home buyers are smart to keep a reserve fund to fight off fraud. Real estate and mortgage fraud is still rampant today. Some of the worst and most widespread has been perpetrated by major banks, lenders, and loan servicers. Some of it has been routine. This can involve falsified documents transferring ownership, foreclosure, forced placed insurance, refusing to release insurance proceeds, and more. It’s hard to fight back if you don’t have money for a lawyer. Having a couple thousand dollars in a ‘rainy day’ fund can make all the difference in saving your home.
5. Property Maintenance
Property maintenance is mandatory, yet many home buyers don’t budget for it. Maintaining the exterior of a home is monitored by code enforcement and the building department. They can fine you big for items as small as letting the grass grow too long. Interior maintenance items will eventually come up too. Think plumbing, appliances, etc. Some of these expenses can be offset and minimized by obtaining a home warranty service plan.
When calculating how much home you can afford make sure you include utility bills. Today that may include electric, heat, water-sewer, phone, and internet connection. These will likely go up over time too. Look for ways to minimize these expenses, especially electricity. Look for energy efficient appliances, windows, light fixtures, and insulation.
7. Capital Gains Taxes
One of the great things about owning NY real estate is the growing equity in your property. Just keep in mind that when you sell that property you may owe a substantial chunk of change in capital gains taxes. For some that can stretch into tens and hundreds of thousands of dollars. Minimize this by understanding what tax breaks are available in advance. If you stay for a certain amount of time, and the proceeds don’t exceed certain thresholds you may be exempt. In the case of investment properties tools such as 1031 exchanges and self-directed IRAs may be used to defer or enjoy tax free gains.