The decision to rent vs. buy an apartment or house is intensely personal. Although part of the American Dream includes homeownership, it is not the right choice for everyone. To buy or rent we discuss comprehensively to help you decide
For the most part, being a renter vs. being a buyer is a personal choice; and often dictated by individual circumstances, such as the real estate market, the payment amount you can afford per month, and how long you plan to live in a particular place.
Table of Contents
- Should I Buy or Rent?
- Buy vs. Rent
- Economic considerations
- Lifestyle concerns
- Reasons To Buy vs. Rent
- Reasons To Rent vs. Buy
- Buy vs. Rent Considerations Expanded
- Equity Creation
- Tax Benefits
- Well Equipped and Maintained property
- Substantial Capital Commitment
- Long-Term Involvement
- Dealing with Condo and Coop boards
- Stress-Free Process
- No Long-Term Commitment
- Renting does not build equity
- Rental buildings often not as well maintained
- Lack of Control over Living Conditions
- Buy vs. Rent Calculator
- The Bottom Line
Should I Buy or Rent?
In New York City nearly 70 percent of its residents rent vs. buy various reasons; including the high cost of buying and the long-term commitment involved. If you aren’t fortunate to live in a rent-stabilized apartment, chances are, you’re paying an exorbitant amount each month. If this is the case, buying might be an option to consider.
Buying and renting offer the same pros and cons in New York City as in other parts of the country. There are however different variables involved with NYC. The most important is to have a clear understanding of the costs and benefits of each. Read on for reasons you should consider when contemplating buy vs. rent.
Buy vs. Rent
Homeownership provides potential capital appreciation and tax deductions for mortgage interest and property taxes. It also requires a down payment; closing costs, monthly mortgage payments, property taxes (which tend to rise every year), renovation costs and insurance. Renters typically pay less per month, and the savings can be invested.
To secure a lease, a renter must pay first month’s rent; security deposit and required to have renters insurance. There is also the potential for rental increases annually usually 3%. Of course, renters have the flexibility to leave quicker than owners at the expiration of the lease term. To determine whether to buy vs. rent lets first discuss the two main categories, financial considerations, and lifestyle concerns.
Talking strictly about finances first; if you can afford it; buying is almost always the better long-term decision. Barring obscene interest rates, much of your monthly mortgage payment will come back to you in the form of capital appreciation when you eventually sell. Rent payments are just throwing money out the window.
Furthermore, the federal tax structure favors homeownership; social security, and that part of the tax code are the only two last vestiges of social policies that we have left in the U.S. The federal government subsidizes a considerable part of home ownership by making most mortgage payments tax deductible.
There are two financial downsides to home ownership. First, if there is any real chance of defaulting on your debt, then you should keep in mind that doing so can ruin you financially for many years. Don’t get reckless when considering the likelihood of this possibility. Mr. Financial Superman; unforeseen events can put you in extreme financial jeopardy.
Relatedly, don’t get sold into a high-interest loan. Owning a home is a lot of work, requires financial discipline and job security.
Take it from someone who has both studied a whole lot of economics and has been worked into the ground as a teenager by two parents who owned a home that required a lot of fixing up. The real main drawbacks to home ownership aren’t financial; they are practical. While you might gain financially, you lose a lot regarding mobility.
In New York City, two main things make owning a home more desirable than elsewhere: First of all, everything involving housing in the city is costly. That means that the financial benefits of homeownership are proportionally more important. Secondly; demand for NYC real estate is expected to continue to rise for decades to come, through corrections and all. The limited size of the city in comparison to the growing population means that property values are likely to appreciate, making home ownership in the city a safer than usual investment.
If you can afford it, and you know you are going to be in the city for a while, home ownership is the way to go. But the best colloquialism to apply to home ownership everywhere should be stressed in New York City even more strongly. Never, ever, bite off more than you can chew.
Reasons To Buy vs. Rent
The number one reason to consider, buy vs. rent anywhere are the tax deductions. Any interest you pay on your mortgage loan is deductible from your gross income, as is a portion of your monthly maintenance. Your mortgage and maintenance could save you thousands of dollars in taxes per year; which means less paid to the IRS and more money in your pocket.
NYC is a bulletproof market
Even in a recession; prices hold reasonably steady in desirable areas of town. Manhattan prices might have dipped in 2009 and now, but they historically recover faster than any other real estate markets in the country. Today, NYC apartment prices are close to all-time highs, which signifies that homes in the city will remain a profitable investment over the long term.
Interest rates are hovering around four percent in the metro area, so depending on how much you pay per month in rent, you could spend less if you own. Granted; coming up with the down payment is no easy feat, but if you have a nest egg and can continue adding to it, or you’ve sold property elsewhere and made a profit, then looking into buying it might be worth your while.
No rent increases
The beauty of a fixed rate mortgage is that your monthly note will remain the same until you sell the apartment or pay it off. Your maintenance, however, will increase a percentage annually since building taxes and operating costs will also increase.
You’ll build equity from day one
In June of this year, The New York Post stated that rents are at their highest; Manhattanites pay an average of $4,081 a month. Rather than throwing thousands of dollars out the window every year, when you own a slice of real estate (no matter how small), you start building equity immediately. That’s a pretty good feeling when you realize that you’ve made a sound investment, and you’re not writing a fat check to a management company or landlord every month.
The vacancy rate can be low
Depending on your needs and the time you start your apartment search, you’ll probably have more for sale options to choose from then you will find rental opportunities. New York’s vacancy rate stays unbelievably low. Currently, it’s at about one percent, which means scoring a great rental in your preferred area of town might be next to impossible.
Reasons To Rent vs. Buy
Moving to New York soon? You might want to rent vs. buy first. Writing a check each month but showing nothing for it –– other than a depleted bank account at the end of your tenure – may seem like a losing proposition. But while this holds in most cities, the real estate minutia in New York City is a different animal. Renting an apartment for at least a year or two, possibly longer, maybe a wiser idea than you think, and here’s why.
New York is a big city with many neighborhoods
Considering the size of the city and the unique characteristics of every borough (and even areas in each borough), you’ll need to figure out where you want to eat, sleep, and socialize, particularly if you’re new to New York. Take Brooklyn, for instance. The industrial vibe in Red Hook remains far removed from the stroller-filled, tree-lined streets of Park Slope.
Likewise; downtown Manhattan enclaves like the West Village and the Lower East Side offer topnotch restaurants and sizzling nightlife while the Upper West Side promises uninterrupted acres of green space in Central Park. For this reason, uptowners travel to the south of 23rd Street when looking to try a hot, new eatery, or even savor a meal from an old, reliable standby.
Meanwhile, downtowners head north for things like outdoor concerts, long training runs, and relaxing lounges on the Great Lawn.
New York might not be for you
As glamorous as it sounds, living in New York City isn’t always easy, and daily life here is nothing like visiting for a few days or even subletting for a few weeks. Although returning home to your apartment will most likely be more comfortable than staying at a bustling hotel, on the flip side, after a few days in this chaotic city, often refreshing to know that you’re hopping on a flight to a quieter, more restful, and probably less expensive place.
Even if you love New York, you’ll know if you can accept the city and survive here over the long haul only if you’ve lived in it day after day. And trust me, this is one of the reasons that the city is transient. Thousands come each year only to leave months later because they have discovered that New York is more hardened to hack than they had thought.
Renting is quicker and less involved
Although rent vs. buy is far from painless, buying real estate in the Big Apple is a long; grueling process; which includes visiting dozens of open houses, scouting apartment buildings, submitting financials and interviewing with co-op boards, and more. You’ll probably have a long list of things to worry about during your long-distance move, and buying a home could be more than you need to tackle at the time, especially if you’re moving from an international location.
Live in New York as a renter, and get acquainted with the city first before buying real estate. If you’ve called NYC home in the past and knew the neighborhoods well, or you’ve owned previously and found yourself content in a particular area of town, you may be an exception. Then, by all means, invest in New York’s almost bulletproof real estate market and start building equity from day one.
Buy vs. Rent Considerations Expanded
Rent vs. buy a New York City apartment should be dependent on some factors. Consider your particular lifestyle, your finances and any other additional features you might want in your home. Enjoying privacy and comfort in your own home
The decision to purchase New York City real estate requires a significant and long-term financial commitment; so it is essential that it is thought of while considering all. Some choose to move to New York for reasons related to their employment, others because of family and there are many other reasons for moving which may require a change in lifestyle. Someone who has purchased their home will usually be eager to settle down.
The primary concern for the homeowner has to deal with their privacy and comfort. The new owner will also want to think of ways that they can personalize their new home, and this might mean some renovation or modifications to the existing floor plan. However, most people usually stick with upgrading kitchen appliances and bathroom remodeling.
Owning a New York City apartment isn’t merely about having a place to call home; it also comes with some significant financial advantages. Buying property means that the property owner isn’t wasting money on rent and even if they do decide to move homes, the property can always be rented and become a source of income.
The many benefits of property ownership are why it is an important option. People who bought five figure homes in the ’70s were delighted to sell the same houses for seven figures and more in the later part of the ’90s. This tremendous growth isn’t always guaranteed, but it does not make owning New York City real estate any less rewarding.
Tax benefits regarding owning an NYC apartment, come from the ability to deduct mortgage interest and property taxes from your income statements. People who choose to rent do not have such benefits. A substantial amount of money can be saved and reinvested from such gains and can also lead to a sizeable reduction regarding expenses incurred monthly. If you require additional information about tax benefits that accrue from purchasing property, contact an accountant or another relevant professional.
Well Equipped and Maintained property
People who demand a higher standard of living should note that condo and co-op buildings tend to be better structures than their rental counterparts. They typically feature larger living spaces; better finishes, high-end appliances, and better amenities. Also, those that own a condo or co-op can choose to be actively involved in the management of the building.
Substantial Capital Commitment
The main reason people decide not to buy vs. rent is a significant amount of money required for the down payment. A one bedroom apartment costs $700,000 on average in New York City, and at least 20% is expected as a down payment to buy it. Expensive closing costs are an additional expense as well as insurance costs and attorney’s fees.
Anyone who wants to purchase a New York City apartment should have no less than $100,000 in their bank accounts as well as a cash reserve of up to six months for mortgage payments and common charges. There will also be requirements you need to fulfill the purchase, such as a credit check, rental and owner history, and approval by a condo association or a coop board.
Another reason while people may not be so eager to purchase a New York City apartment is the long-term commitment required. Buy vs. rent is a tremendous financial obligation that can impact on a buyer’s lifestyle with the loan financed the needs be paid off over an extended period. Buyers’ will be legally responsible for every aspect that comes with home ownership.
Dealing with Condo and Coop boards
People who wish to move into a condo or a co-op apartment will first require approval from the management company overseeing the building. In the case of condo boards; the rules are not as strict as co-ops, and most people don’t experience too many difficulties. People applying for co-ops may find that things tend to get more complicated. When it comes to approval requirements for co-operative buildings, New York City co-ops have the most stringent requirements including an interview.
If you have neither the money nor time to buy a home; renting one can be a quicker and cheaper way of living in New York City. The legal and financial commitments are less complicated than buying a property, and faster. Many people who come to New York City choose to rent whether they come to work, to search for work or to experience residing in the Big Apple. Rent vs. buy offers the opportunity to live in the city; understand it better and prepare thoroughly to make the right decision when purchasing a home.
No Long-Term Commitment
Renting an apartment is the least expensive option for short-term purposes; with no substantial down payments, mortgage, attorneys, insurance or closing costs. There is also no monthly charges, repair fees or property taxes when renting. The only commitment is utilities, and in some instances, a brokerage fee equals up to 15% of the annual rent.
Renting does not build equity
The primary disadvantage when renting is that regardless of how long you have lived in an apartment, you do not own property or equity when you move out and the money spent on rent is also not tax deductible. All these are substantial benefits you would enjoy when owning your apartment.
Rental buildings often not as well maintained
Rental buildings are rarely the same quality as coops or condos. There are a few exceptions. However; most co-ops and condos built to higher quality standards.
Lack of Control over Living Conditions
Renters must accept different living conditions when it comes to various buildings. Some significant problems may include the lack of an elevator; old staircases, leaking roofs, issues with kitchens and bathrooms, electrical faults, etc. Landlords might allow renters to customize their apartments, but sometimes the costs are so prohibitive that tenants stick with whatever is available.
The most critical aspect of any tenants’ position. A great owner can make your stay an enjoyable one, and a terrible landlord can make you regret ever signing the lease. The best thing to do is have a meeting with the owner first and assess the person’s demeanor and understand what they desire from their tenants and what they can provide in return.
Buy vs. Rent Calculator
The New York Times buy vs. rent calculator is great and helps you determine how long it would take to own your home before it makes financial sense. Earlier this year; the median for New York City was 4.9 years, with it at 7.4 years in Manhattan, 4.4 years in Brooklyn, and three years in Queens. There are also wide variations from the differing neighborhoods. It is a complicated calculation, with assumptions including investment rates of return and home price appreciation. If you are not mathematically inclined and find all of that too complicated, there is a more straightforward approach.
If you plan on being in the city for only a short period, renting is almost certainly the better option due to the flexibility and closing costs. But; if you plan on staying in the same place for several years, then it would be wise to do a back of the envelope calculation. Factors to consider the home price, how long you plan on staying, and the interest rate on your mortgage.
Buy vs. Rent Math
As a simple example, if the purchase price is $1.5 million, and you are placing a 20% deposit, your mortgage is $1.2 million, your monthly payment (principal and interest) is about $5,400, assuming a 3.5% interest rate. If this is a co-op or condo; there are maintenance/common charges along with utilities. If these come to $2,500; your monthly cost is $7,900. This likely far outweighs an average rent in the city. However; a portion of your monthly mortgage is applied to principal, and the interest is tax-deductible.
In the early years, the payment will be primarily paying down interest. This may bring your monthly cost down to $6,000. This is still a higher price to pay than renting, but you may choose ownership for the potential price appreciation along with the pride that comes from staking your claim. Of course, if you can invest that $300,000 down payment at a high enough return, you will be better off with the renting option.
The Bottom Line
If you already live in New York City and are happy with the apartment you are renting; you may be wondering what you will prosper going through the often challenging process of finding a home to buy. The simple answer is if you’re in a financial position to buy a home, buy vs. rent is cheaper over the long term. While you can save over time by owning a home instead of renting one; it’s important to be aware of the additional cost of purchasing a piece of New York City.
Once you are a homeowner, you will be responsible for paying New York City property taxes (which are some of the highest in the US) and homeowners insurance. Maintenance fees or common charges are also very common expenses that NYC homeowners are responsible for paying. If you have decided to either buy or rent we have included a helpful guide for each below to get you started.