The cost of rent keeps increasing, and you’ve heard the buzz that it’s currently a buyer’s market. The decision to rent vs. buy a New York City apartment or house is intensely personal. Although part of the American Dream includes homeownership, it is not the right choice for everyone. At what threshold does it make more sense financially and for your lifestyle to buy an apartment instead of renting one?
For the most part, being a renter vs. being a buyer is a personal choice. Individual circumstances often dictate the decision. The real estate market and having enough money for the down-payment as well as monthly expenses critical. How long you plan to live in an apartment also weighs heavily. There are pros and cons to both choices, and you need to factor in monthly payments, a downpayment, and the investment aspect of buying vs. flexibility of renting.
We’ve broken down each of these factors to decide the best next choice for you.
In New York City, nearly 70 percent of its residents rent vs. buy their apartments. Because of the high cost of buy vs. rent, and the long-term commitment involved with staying in one place. If you aren’t fortunate to live in a rent-stabilized apartment, chances are, you’re paying an excessive amount each month. If this is the case, buying might be an option to consider.
But rent is still costly in a city like New York, and depending on how much you could put down for a downpayment, your monthly payments could be lower if you own your apartment.
Buying and renting offer the same pros and cons in New York City as in other parts of the country. There are, however, additional 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.
Before deciding if you should rent or buy, you should ask yourself a few questions:
- How long do I want to live in New York City? How long would I want to live in this neighborhood? Consider your career, your family, etc.
- How many bedrooms would I need?
- If I were to purchase an apartment, how much can I put for a downpayment?
- Am I in any debt? Could I handle more with a mortgage?
- What features are you looking for in a home?
Table of Contents
Reasons to considerReasons to consider
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 the 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.
Economic considerationsEconomic considerations
Talking strictly about finances first; if you can afford it, buying is almost always the better long-term decision. Barring obscene interest rates, your monthly mortgage payment will come back to you in the form of capital appreciation when you eventually sell. Paying rent is essentially 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 homeownership by making most mortgage payments tax-deductible.
There are two financial downsides to homeownership. 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.
Renting does not build equity.Renting does not build equity.
Owning a New York City apartment isn’t merely about having a place to call home; it also comes with some significant financial advantages. The primary disadvantage when renting is that regardless of how long you have lived in an apartment, you do not own property or ownership when you move out; the money spent on rent is also not tax-deductible. All these are substantial benefits you would enjoy when owning your apartment.
Buying property means that the property owner isn’t wasting money on rent, and even if they 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 latter 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.
It means you’re helping build your financial future, oppose to just funding a large management company.
Tax BenefitsTax Benefits
The number one reason to consider buying a home is 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 you pay less to the IRS, and there is more money in your pocket.
Real Estate Tax benefits regarding owning a New York City 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 propertyWell 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, high-quality finishes, high-end appliances, and better amenities. Also, those who own a condo or co-op can choose to be actively involved in the building’s management.
Substantial Capital CommitmentSubstantial Capital Commitment
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. High closing costs are an additional expense as well as insurance costs and attorney’s fees.
Anyone who wants to purchase buy in New York City 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 standard 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.
Long-Term InvolvementLong-Term Involvement
Another reason while people may not be so eager to buy is the long-term commitment required. Buy vs. rent is a tremendous financial obligation that can impact 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 homeownership.
Renting is the least expensive option for short-term purposes, with no substantial down payments, mortgage, attorneys, insurance, or closing costs. There are also no monthly charges, repair fees, or property taxes when renting. The only commitment is utilities, and in some instances, a brokerage fee equals 15% of the annual rent.
Dealing with Condo and Coop boardsDealing 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 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, NYC co-ops have some of the most stringent requirements, including a board interview.
Stress-Free ProcessStress-Free Process
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, search for work, or experience residing in the Big Apple. Rent or buy offers the opportunity to live in the city; understand it better, prepare thoroughly to make the right decision when purchasing a home.
Rental buildings are often not as well maintained.Rental buildings are 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 are built to higher quality standards.
Lack of Control over Living ConditionsLack of Control over Living Conditions
Renters must accept different living conditions when it comes to various buildings. Some significant problems may include the absence of an elevator, old staircases, leaking roofs, issues with kitchens and bathrooms, electrical faults, etc. Landlords might allow renters to customize their apartments; sometimes, the costs are so prohibitive that tenants stick with whatever is available.
A great owner can make your tenancy an enjoyable one; 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.
No rent increasesNo rent increases
New York City is the second most expensive place to rent an apartment, just behind San Francisco. And prices are continuing to go up.
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. It can help you plan financially for years to come. While renting, the increase is typically 3%, but it could go higher if your apartment springs a renovation on you.
Your maintenance, however, will increase a percentage annually since building taxes and operating costs will also increase. If you’re living in a co-op, you’re considered a shareholder or owner of the building. Investing in working elevators or a new communal gym will help you sell your apartment down the line.
Potential revenue streamPotential revenue stream
Depending on the rules of your co-op or condo, you could potentially rent out your apartment. It can is a potential revenue stream for you and help pay down your mortgage.
There’s more inventory to choose fromThere’s more inventory to choose from
Depending on your needs and the time of year you start your apartment search, you’ll probably have more options to buy. 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. However, when it comes to buying, it’s a buyer’s market.
Lifestyle concernsLifestyle concerns
Take it from someone who has both studied a whole lot of economics; 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 homeownership 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. The limited size of the city in comparison to the growing population means that property values are likely to appreciate, making homeownership in the city a safer than usual investment.
If you can afford it, and you know you will be in the city for a while, homeownership is the way to go. But the best colloquialism to apply to homeownership everywhere should be stressed in New York City even more strongly. Never, ever, bite off more than you can chew.
When To Buy vs. RentWhen To Buy vs. Rent
When you’re sure, you want to stick around.When you’re sure, you want to stick around.
Renting is more expensive than a mortgage. Overall, spending less per month on a place to live is ideal. You’ll also get a tax break on the interest you pay toward your mortgage.
If you’re sure you want to stay in New York City and you’re financially ready, it may be time to switch to buying. After all, it makes sense to pay less for the same kind of property, especially when you know you want to make New York your permanent home.
Mortgages stay the same year after year when fixed. In a few years, what you’re paying for your mortgage will be “frozen in time” compared to the rising rents of properties similar.
When you can get a good ROIWhen you can get a good ROI
When your purchase gives you a decent return on your investment (ROI), buying pays off financially. Whether you’re looking for your forever home or are an investor looking for another rental, you need to make sure the property in question will profit you in the long run. To make sure you’re making the right purchase, confirm that it satisfies these qualifications:
- Is it in an area that has seen a steady increase in value?
- Is it in a location that is appealing to others? For instance, it is convenient to amenities like the subway/public transit and local shopping?
- Does it have evergreen appeal in case you plan to resell?
- Is it in good condition, or does it need a lot of TLC?
A property that is in excellent condition is generally appealing and likely to grow in value due to its location and amenities is one to snag. On the other hand, any transaction where you’re losing money isn’t one to pursue. The best way to maximize your chances of finding the right place is to get an agent to scout out your needs’ best properties.
When you want your placeWhen you want your place
If you’re not happy with renting for various reasons, whether it’s the lack of freedom to renovate or the intrusive inspections, becoming a homeowner can make you more comfortable.
Owning your home will give you a higher level of control in how you live. You also don’t have to continually renew leases and abide by specific terms (like pet restrictions, etc.). Overall, if you’d be happier being the #1 person in charge of your estate, call a realtor and see what your buying options are.
Tax deductionsTax deductions
The number one reason to consider buy vs. rent anywhere is 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.
New York City is a resilient market.New York City is a resilient 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 market 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 ratesInterest rates
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 increasesNo 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.You’ll build equity from day one.
In June of this year, The New York Post stated that rents are 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 big check to a management company or landlord every month.
The vacancy rate.The vacancy rate.
Depending on your needs and when 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.
When To Rent vs. BuyWhen To Rent vs. Buy
Are you 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.New York is a big city with many neighborhoods.
Considering the size of New York City and the unique characteristics of every borough (and even areas within), 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. At the same time, 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.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, know that you’re hopping on a flight to a quieter, more restful; 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 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.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, including 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 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.
Many city dwellers value their flexibility and freedom. Renting allows tenants to make a short-term commitment to a neighborhood and offers a particular lifestyle.
If you’re new to the city, it can be hard to understand that a second-floor apartment in Hell’s Kitchen does not offer the same serene feeling like a 20th floor Upper East Side apartment.
If you’re unsure which neighborhood you want to live in, or how long you’ll be in New York, renting is the way to go.
It also applies to your family — or lack thereof — situation. If you’re single, but wish you weren’t, buying a studio might not be the best long term investment. If you’re newly married and trying for kids, you might be looking to upgrade to that 2-bedroom or even move to the suburbs soon.
In short, if you’re not looking to stay in the same place for at least two to three years, renting is the better choice versus buying.
You can rent an apartment quickly.You can rent an apartment quickly.
Although renting still requires a lot of paperwork, buying real estate in New York can take months.
Buying is a grueling process, which includes visiting dozens of open houses, scouting apartment buildings, submitting financials, and interviewing with co-op boards, inspections, and more.
If you need a place to live, quickly, renting an apartment can be done in a couple of days if you’re willing to compromise.
You don’t need to spend money upkeeping the apartment.You don’t need to spend money upkeeping the apartment.
When you buy an apartment, the upkeep is your responsibility. It means, when a paint job is necessary, you’re buying the paint. If the toilet floods the downstairs apartment, it’s on you to pay for the repairs.
When you rent an apartment, these responsibilities ultimately fall on your landlord and management company.
The Cost of Owning vs. RentingThe Cost of Owning vs. Renting
By owning your home, you have the potential for capital appreciation and tax deductions for mortgage interest and property taxes. In simpler terms, you can get some money back or even make money off of your apartment.
But buying an apartment requires a down payment, and you’ll have to pay closing costs, monthly mortgage payments, property taxes (which tend to rise every year), possible renovation costs, and insurance.
Renters typically pay less per month, and the savings can be; invested. To sign a lease renter must pay; first month’s rent, security deposit and usually are required to have renters insurance. There is also the potential for rental increases annually, which is generally about 3%.
Buy vs. Rent, Do The MathBuy vs. Rent, Do The Math
The New York Times buy vs. rent calculator is great and helps you determine how long it would take to own your home before making financial sense. 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, 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 MathBuy vs. Rent Math
A simple example, with a $1.5 million purchase price, placing a 20% deposit, the mortgage is $1.2 million, and the monthly payment (principal and interest) is about $5,400 and assuming a 3.5% interest rate.
If this is a co-op or condo, there are maintenance/standard common charges, along with utilities. If these come to $2,500, your monthly cost is $7,900.
Likely far outweighs the average rent in the city. However, a portion of your monthly mortgage payment is applied to the principal, and the interest is tax-deductible.
In the early years, the payment will be primarily paying down interest. The payment amount may bring your monthly cost down to $6,000.
With this considered, it is still a higher price to pay than renting; 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 higher enough return, perhaps your better off with the renting option for a period. Instead of considering or renting or buying, it turns into an analysis of homeownership vs. opportunity cost.
Is it Better to Rent or Buy?Is it Better to Rent or Buy?
If you can afford it, buying is almost always a better long-term decision. Your monthly mortgage payment will likely come back to you in the form of capital appreciation when you eventually do sell your place. You’ll also receive more tax benefits from owning your home. The federal government subsidizes a considerable part of homeownership by making most mortgage payments tax-deductible.
In New York, there will always be a demand for real estate, making your new home a strong investment piece for you as well.
Rent payments are just a monthly expense that does nothing to build your wealth.
But be careful before jumping into homeownership. First, if there is any real chance of defaulting on your debt, like your job is unstable, then you should keep in mind that doing so can ruin you financially for many years. A good rule of thumb is don’t have your debt to income ratio surpass 25%.
But if you can afford it, and you know you will be in the city for a while, homeownership is the way to go.
The Bottom LineThe Bottom Line
If you’re living in New York City, happy with the apartment you are renting, wondering what you will prosper going through the often challenging process of finding a home to buy.
Many people feel the desire to call their home truly their own. And the investment aspect of owning an apartment is appealing.
The simple answer is if you’re in a financial position to buy a home, buying vs. renting is cheaper over the long term and the smarter investment. While you can save over time by owning a home instead of renting one; essential 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 (some of the highest in the U.S.) and homeowners’ insurance. Maintenance fees or standard common charges are widespread, expenses that New York City homeowners are responsible for paying.