The decision to buy a house or apartment is intensely personal. Although part of the American Dream includes homeownership, it is not the right choice for everyone.
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.
Buying vs. Renting
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 homeowners 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.
Let’s 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.
Now, let’s talk lifestyle concerns
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 New York City 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 for Whether You Should Buy vs. Rent
Renting or Buying your 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 70’s were delighted to sell the same houses for seven figures and more in the later part of the 90’s. 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 built better 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 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. Buying real estate 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 Associations 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.
Renting 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 are often not as well equipped and maintained as condos and co-ops
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.
Should I Buy or Rent?
The NYTimes has calculators to help 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 simpler 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 include the home price, how long you plan on staying, and the interest rate on your mortgage.
Buying vs. Renting 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 a typical 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.
If you already live in New York City and are happy with the apartment you’re 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, it’s cheaper over the long term than renting.
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’re 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.
How to Rent an Apartment in NYC?
Finding a rental apartment in The City That Never Sleeps doesn’t have to be a headache, as long as you are prepared for the hunt. With all the borough and price options out there, doing a little research ahead of time can save you a lot of legwork in the long run. When it comes to searching for the perfect Big Apple apartment, here are five things you should consider.
Get Your Bearings Straight
The first step in finding the ideal rental is deciding which part of New York City you want to live in. Before your start borough hopping, you need to get your bearings straight, so you know how each location relates to the next regarding distance and access to the things you want in and around your neighborhood.
Whether you choose the hustle and bustle of Manhattan, the progressive culture of Brooklyn, the diversity of The Bronx and Queens, or the suburban feel of Staten Island, exploring the boroughs by foot is a great way to get to know them. Make sure you’re equipped with a map app.
Figure Out Your Budget Ahead of Time and Stick to It
If you’re already on the apartment hunt, but you haven’t figured out your budget yet, then you are wasting your time. With rental prices in New York City running the gamut from insanely expensive to surprisingly affordable, having a well-thought-out budget in mind is half the battle.
With that said, it’s important to stick to your budget once you do come up with one. Again, there is a range of rental prices in New York City, so don’t feel pressured to rent an apartment that’s not in line with your budget. Although there is significant competition when searching for a rental, more and more rentals pop up every day.
Let a Rental Agent Help
Going apartment hunting in New York City without the help of a rental agent is like going on a cross-country journey without a compass. Whether you are a rental veteran or a first-time renter, rental agents have access to thousands of resources in the city. Rental agents can help you through every step of the process, and they charge reasonable fees for their services. Average brokerage fees range from 1 month to 15 percent of the first year’s rent. There are also no-fee rentals, depending on the area. Keep in mind that no-fee apartments will probably come at a higher cost than rentals with fees.
Have One or Two or Three Backups
As mentioned before, the rental market in the five boroughs is a competitive one, so it’s important to be proactive in your search. Don’t put all your rental eggs in one basket because you might lose to another renter. Instead, submit as many applications as possible, so you always have an apartment or two to fall back on.
Read the Lease Thoroughly
Once the hunt is over and you’re ready to sign a lease, make sure you thoroughly read the lease agreement, so there is no confusion on the move-in or move-out day. From the lease terms and dates to the renter’s responsibilities, knowing your lease is all part of the renting experience.
By keeping in mind the rental pointers above, your move-in day will be a hassle-free one
How to Buy an Apartment in NYC?
Although many people assume that they’re going to purchase a resale, there are quite a few advantages to buying new. Some of those advantages include energy efficient appliances, green buildings, fire-retardant floor covering, high-tech friendly, lower replacement costs and custom financing options.
Questions You Need to Answer Before Committing to Buy
Based on our extensive experience working with a wide range of homebuyers, we’ve come up with a list of five questions we believe everyone should ask themselves before getting serious about buying a piece of New York City. The five questions are:
- Are you prepared to maintain and repair an apartment or home?
- Are you willing to stay in the same apartment or home for at least five to ten years?
- Do you have a realistic idea of the type of apartment or home and amount of space you’ll need for the next five to ten years?
- Are you relatively sure your financial situation will remain stable or improve over the next several years?
- Are you a disciplined saver who can build up an account for emergency repairs or costs?
Since these are questions you should think about detail, we encourage you to ponder them for a few days.
How to Buy When You Only Know How to Rent
Buying your first apartment is something you will never forget. For some, it is a stressful experience full of buyer’s remorse and pressure; however, that doesn’t have to be indicative of your experience. First-time home buyers have a lot of information to consider. It’s a task that can seem overwhelming, but with the proper advice and information, this could be one of the best experiences of your life.
Don’t be Afraid to Shop Around
A lot of first-time home buyers fall into the pattern of limiting their options. Just because you liked the first place you saw, that doesn’t mean it’s the only one you should consider. Whether it’s price, location or upgrades, decide what is most important to you and your way of life.
When buying a home, the price is a significant factor for most people, but remember it is not the only thing to keep in mind. As the economy changes, you may find that the kind of home you’re looking for is closer to your price range than you thought. Check the price range of similar apartments or houses in the area you’re considering.
Consider the Mortgage
You should shop around not only for the house or apartments but the mortgage as well. We recommend getting a mortgage pre-approval even before buying. Before you find the perfect home, it’s essential to have your finances in order. Most people pay a mortgage when purchasing real estate. It seems logical to find the place you’re interested in and then find the mortgage to match, but this is where many first-time buyers encounter issues.
Having the mortgage sorted out beforehand will help you understand how much you can spend. The lender will look at your credit and other factors to tell you how much you are “pre-approved” for. Once you have your price range laid out, you can look for a home that’s priced well below your budget. You may be surprised how much you could afford.
Finding the mortgage before finding the home will make you a serious buyer when you pursue an offer on a property.
Include Taxes and Insurance
When you’re buying your own home, you are responsible for every dime that goes into it. This includes insurance and (the more overlooked) taxes. For a condo or co-op, there are also common charges and maintenance fees that many buyers don’t think about enough during the search.
If you’re considering buying a home, you will need to figure out your monthly housing costs after you add taxes and insurance. The down-payment, closing costs, and taxes are sometimes afterthoughts for new home buyers, but they can increase your total payment to nearly twice the amount. If you’re not sure of your full price range in this area, using an affordability calculator will help.
When buying a co-op or condo, you must consider some extra fees. You will be responsible for paying a share of costs for running the entire building — this is a maintenance fee or common charges. It is a small percentage of your overall payment, but it can raise the total substantially. It is essential to consider these fees when narrowing down your apartment search.
If you keep your options open and remember the whole cost, you will not only find the place of your dreams but the most practical one. Buying the first house is a beautiful journey. Enjoy the experience because you only get one shot at your first time.
Learn More About Buying a Home in NYC
As you can see from all the information we covered above, there’s a lot that goes into making a real estate purchase in New York City. If you want to learn even more about the ins and outs of the NYC real estate market, we encourage you to visit our comprehensive buyers guide to New York City Real Estate.
Buying VS Renting Infographic
We have pulled statistics and survey data together into this infographic to merely show what homeowners and renters say about buying VS renting. See what number of homeowners feel that the purchase of a home was the best investment they ever made.
The pros and cons breakdown shows all the advantages and disadvantages of buying or renting, and data on what homeowners feel are the top three reasons their home was a significant investment. Learn what percent of renters are planning on buying a home in the next two years and how that number has changed since 2011.
They have also provided year over year data on the current state of the real estate market in the following four areas:
- Asking prices on homes for sale
- Construction starts
- Existing Home Sales
- Delinquency and foreclosures
See how mortgage rates have trended from 1986 to 2013 and where to find free resources on mortgage rates, mortgage requirements, and a mortgage calculator. Elika provides a comprehensive “First Time Home Buyers Guide” free PDF download to help resolve questions and concerns for potential home buyers.
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- 1 Buying vs. Renting
- 2 Financial considerations
- 3 Now, let’s talk lifestyle concerns
- 4 Reasons for Whether You Should Buy vs. Rent
- 5 Enjoying privacy and comfort in your own home
- 6 Equity Creation
- 7 Tax Benefits
- 8 Well Equipped and Maintained property
- 9 Substantial Capital Commitment
- 10 Long-Term Involvement
- 11 Dealing with Condo Associations and Coop boards
- 12 Stress-Free Process
- 13 No Long-Term Commitment
- 14 Renting does not build equity
- 15 Rental buildings are often not as well equipped and maintained as condos and co-ops
- 16 Lack of Control over Living Conditions
- 17 Landlords
- 18 Should I Buy or Rent?
- 19 Buying vs. Renting Math
- 20 Buying vs. Renting – The Bottom Line
- 21 How to Rent an Apartment in NYC?
- 22 Get Your Bearings Straight
- 23 Figure Out Your Budget Ahead of Time and Stick to It
- 24 Let a Rental Agent Help
- 25 Have One or Two or Three Backups
- 26 Read the Lease Thoroughly
- 27 How to Buy an Apartment in NYC?
- 28 Questions You Need to Answer Before Committing to Buy
- 29 How to Buy When You Only Know How to Rent
- 30 Don’t be Afraid to Shop Around
- 31 Consider the Mortgage
- 32 Include Taxes and Insurance
- 33 Learn More About Buying a Home in NYC
- 34 Buying VS Renting Infographic