The decision to buy vs. rent a New York City apartment 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 are critical. How long you plan to live in an apartment also weighs heavily. There are pros and cons to both. Factor in monthly payments, a downpayment, the investment aspect of buying, and the flexibility and mobility of renting.
In New York City, nearly 70 percent of its residents rent vs. buy their apartments. Because of the high cost of buying and the long-term commitment involved with staying in one place. If you are not living in a rent-stabilized apartment, chances are, you’re paying an excessive amount in rent each month. If this is the case, buying might be an option to consider.
Should I Rent vs. Buy in New York City?Should I Rent vs. Buy in New York City?
Buying and renting offer the same pros and cons in New York City as in other cities. There are, however, additional variables involved with NYC. The most important is to have a clear understanding of the costs and benefits of each.
We’ve broken down each of these factors to help you decide the best option for you.
Before deciding, ask yourself a few questions:Before deciding, 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?
When Buying is BetterWhen Buying is Better
When you’re sure you want to stick around.When you’re sure you want to stick around.
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. Long-term renting is more expensive than a mortgage. You’ll also get a tax break on the interest you pay toward your mortgage. Overall, spending less per month on a place to live is ideal. 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 similar properties.
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, is it 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?
Property 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 own placeWhen you want your own 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 over 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 buying vs. renting 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.
A resilient marketA 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.
Building equity from day one.Building 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 your building equity immediately (no matter how small). That’s a pretty good feeling when you realize 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 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 Renting is BetterWhen Renting is Better
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, may be a wiser idea than you think, and here’s why.
A big city with many neighborhoods.A big city with many neighborhoods.
Considering the size of New York City and the unique characteristics of every borough and neighborhoods, you’ll need to figure out where you want to eat, sleep, and socialize, particularly if you’re new to New York City. 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 top-notch 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 City might not be for you.New York City 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 than buying.Renting is quicker than buying.
Although rent vs. buy is far from painless, purchasing real estate in the Big Apple is a long, grueling process, including visiting dozens of open houses, scouting apartment buildings, submitting financials, 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. If you’ve called NYC home in the past and know 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 market and start building equity.
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 as 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 that includes visiting dozens of open houses, scouting apartment buildings, submitting and interviewing with co-op boards, home inspections, and more.
If you need a place too 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 on upkeep.You don’t need to spend money on upkeep.
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.
Is it Better to Buy vs. Rent?Is it Better to Buy vs. Rent?
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 selling. 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, 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 know you will be in the city for a while.
The Buying vs. Renting Bottom LineThe Buying vs. Renting Bottom Line
If you’re living in New York City and happy with renting, you may be wondering when you will prosper from owning your own. Many people feel the desire to call their home truly their own. Also, the investment aspect of owning an apartment is appealing. The simple answer is if you’re in a financial position to buy a home, buy vs. rent is cheaper over the longer term and the smarter investment. At the same time, you can save over time by buying vs. renting; essential to be aware of the additional costs 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, which New York City homeowners are responsible for paying.