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- Rent or Buy in NYC – Reasons on Whether You Should - March 23, 2018
Buying and renting offer the same pros and cons in New York City as in the rest of the country. There are a few different variables involved with NYC – and we will get into them a little bit later – but the most important is to understand the costs and benefits of each housing strategy in a clear, easily categorizable way. That way, the right decision becomes a straightforward matter of weighing two sets of several different factors against each other, and then ask yourself which approach is best for you.
Let’s first divide the pros and cons into 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 investment. 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 it. Rent payments, as most of us get to feel deep down in the gut once a month, 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 a civilized country’s 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 you defaulting on your debt, then you should keep in mind that doing so can ruin you financially for a good chunk of your life. 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 soled into a high-interest loan. Owning a home is a lot of work, and if you’re paying almost as much in interest as you would have been in rent, then it’s just not worth it.
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. Owning a home is a lot of work, and you can’t just rent the place and go gallivanting off around the world.
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 years 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 increase, 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 probably 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
Buying or Renting 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.
1. 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. Purchasing property is more time-consuming affair than the practice of renting.
Someone who has purchased their home will usually be eager to settle down in their new abode. 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.
2. Equity Creation
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.
3. Tax Benefits
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.
Despite all this, it is essential to note that those who choose to rent are not tying down their capital like those who purchase property that earns them no income. The fact that it is possible to yield a substantial Capital Gain from the resale of a property decides to buy a smart one.
If you require additional information about tax benefits that accrue from purchasing property, contact an accountant or another relevant professional.
4. Well Equipped and Maintained property
People who demand a higher living standard should note that condominiums and co-operative buildings tend to come built with higher standards compared to rental buildings. They typically feature larger living spaces, better finishes, high-end appliances and more great overall amenities. Also, those that own a condominium or co-operative can choose to be actively involved in the management of the building.
5. 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. Find further explanation in our Buyer’s Guide. 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 condominium association or a cooperative board.
6. Long-Term Involvement
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.
7. Dealing with Condominium Associations and Cooperative boards
People who wish to move into a condo or a co-op apartment will first require approval from the management 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.
8. Stress-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 a faster process. 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.
9. 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.
10. 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. Building equity
11. Buildings and Apartments 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 constructed to higher quality standards.
12. 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.
If you already live in New York City and are happy with the apartment you’re renting, you may be wondering what you will get out of going through the often very 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 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 costs that NYC homeowners are responsible for paying.
Should You Buy New or Resale?
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.
5 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 certain 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 major 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 shopping around. 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 total 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 wonderful 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.