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Rent vs. Buy Calculator

Choosing between renting and buying a home in New York City is a significant financial and personal decision. While homeownership is often considered a part of the American Dream, it may not be the best option for everyone. Our buy vs. rent calculator can assist in determining the monthly costs of both options and help you make an informed decision about what is best for your future.

It’s important to note that owning a home typically yields capital appreciation after 5-7 years, which often makes buying an NYC apartment less expensive than renting in the long run. Our calculator considers this factor, providing valuable insight into the financial implications of both options.

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Buying vs. Renting

You can get some money back or even make money off your apartment by owning your home in simpler terms. By owning your home, you have the potential for capital appreciation, tax deduction, and property taxes. But buying an apartment requires a down payment, closing costs, monthly mortgage payments, property taxes (which tend to rise yearly), possible renovation costs, and home insurance.

Renters typically pay less per month, and the savings can be; invested. To sign a lease, the renter must pay; the first month’s rent and security deposit and usually require renters insurance. There is also the potential for, usually annually, about 3%.

Rent vs. Buy, Do The Math

Our buy vs. rent calculator is excellent and helps 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, 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 difficult, there is a more straightforward approach.

If you plan on staying in the city for only a short period, renting is undoubtedly the better option. Mainly 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 are the home price, how long you plan to stay, and the mortgage interest rate.

Math

A simple example is 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, assuming a 3.5% interest rate.

There are maintenance/standard common charges and utilities if this is a co-op or condo. If these come to $2,500, your monthly cost is $7,900.

It 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 primarily be paying down interest. The payment amount may bring your monthly cost down to $6,000.

Considering it is still a higher price than renting, you may choose ownership for the potential price appreciation and the pride from staking your claim.

Of course, if you can invest that $300,000 down payment at a higher enough return, perhaps you’re 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 Buy or Rent in NYC?

Buying vs. renting 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?

There are pros and cons to both – factor in monthly payments, a down payment, the investment aspect of buying, and the flexibility and mobility of renting. Most importantly, 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 and monthly expenses are critical. How long you plan to live in an apartment also weighs heavily.

In New York City, nearly 70 percent of its residents rent vs. buy apartments. Because of the high cost of buying and the long-term commitment to staying in one place. If you are not living in a rent-stabilized apartment, you’re paying excessive monthly rent. If this is the case, buying might be an option to consider.

Buy vs. Rent in NYC: How to Decide 

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:

• 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?
• How much can I put for a downpayment if I purchase an apartment?
• Am I in any debt? Could I handle more with a mortgage?
• What features are you looking for in a home?

When Buying is Better

When you’re sure, you want to stick around.

If you’re sure you want to stay in New York City and are 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, paying less for the same property makes sense, 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 ROI

Buying pays off financially when purchasing gives you a decent investment return (ROI). Whether you’re looking for your forever home or an investor looking for another rental, you need to ensure 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?

The best way to maximize your chances of finding the right place is to get an agent to scout out your needs’ best properties. 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.

When you want your place

If you’re unhappy with renting for various reasons, whether the lack of freedom to renovate or the intrusive inspections, becoming a homeowner can make you more comfortable.

Owning your home will give you higher control over your life. You also don’t have to continually renew leases and abide by specific terms (like pet restrictions, etc.). Call a realtor and see your buying options if you’d be happier being the #1 person in charge of your estate.

Tax 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 yearly taxes, which means less paid to the IRS and more money in your pocket.

A resilient market

Even in a recession, prices hold reasonably steady in desirable areas of town. Manhattan prices might have dipped in 2020, but they historically recover faster than any other real estate market. 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

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. 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 annually since building taxes and operating costs will also increase.

Building equity from day one.

Manhattanites pay an average of $5,000 monthly in rent. It is not a good feeling when you realize you’re not writing a big check to a management company or landlord every month rather than building equity immediately (no matter how small).

The vacancy rate.

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. Depending on your needs and when you start your apartment search, you’ll probably have more sale options; then, you will find rental opportunities.

When Renting is Better

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, may be wiser than you think, and here’s why.

A big city with many neighborhoods

Considering the size of New York City and the unique characteristics of every borough and neighborhood, 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 outdoor concerts, long training runs, and relaxing lounges on the Great Lawn.

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 daily. 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 harder to hack than they had thought.

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, etc. 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, 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 them 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.

Mobility

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.

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, renting is a better choice than buying if you’re not looking to stay in the same place for at least two to three years.

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, etc.

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.

When you buy an apartment, the upkeep is your responsibility. You must pay for the repairs if the toilet floods the downstairs apartment. When a paint job is necessary, you’re buying the paint.

These responsibilities ultimately fall on your landlord and management company when renting an apartment.

Is it Better to Buy vs. Rent?

Buying is almost always a better long-term decision if you can afford it. Your monthly mortgage payment will likely come back to you through 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 vital investment piece for you.

Rent payments are just monthly expenses that do 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 remember that doing so can ruin you financially for many years. A good rule is not to 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 Line

If you’re living in New York City and happy with renting, you may wonder 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 wiser 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.

NYC Mortgage Calculator

Utilize our New York City mortgage calculator to evaluate your monthly mortgage payment and assess your ability to secure a mortgage. Our estimated monthly payment incorporates principal and interest, property taxes, common charges/maintenance, and homeowner’s insurance, providing an accurate picture of your affordability.

ELIKA New York: Real Estate Calculators

Since the financial crisis, most lenders have provided three main types of mortgages: Fixed-rate mortgages of 5, 7, 15, 20, and 30-year terms, adjustable-rate mortgages, and ARMs where the interest rate fluctuates over the life of the loan or hybrids that combine a period of a fixed-rate mortgage, typically from three to ten years, with the remaining years at an adjustable rate.

Planning on purchasing a condo or co-op? Learn more: Steps to Buying an Apartment.

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Frequently Asked Mortgage Questions in NYC

We recommend you seek mortgage pre-approval with your chosen lender before making an offer on a property in New York City. Once your offer is accepted and the contract is signed, it’s time to complete your mortgage application package and choose the right home financing product. These questions will help you make an informed decision about your mortgage.

Which mortgage product do you recommend for me?

Ask your lender to discuss the advantages and disadvantages of available mortgage loans.

Are rates, terms, fees, and closing costs negotiable?

Can I use discount points to buy down my interest rate? A point costs 1% of the mortgage amount, paid upfront, to reduce the interest rate over the loan’s life. In some cases, buying down your interest rate can save tens of thousands of dollars over the life of your mortgage loan. Visit our buyer’s closing cost calculator to break down estimated closing costs.

What is your policy regarding private mortgage insurance (PMI), and how much does it cost?

PMI is usually required if your mortgage amount is more than 80% of the home’s value. Most lenders will let you drop PMI once you’ve built enough equity, but be sure to ask about your lender’s policy.

How long is the rate lock period?

Typically, the rate lock period in New York City is 30, 45, or 60 days. Also, depending on the type of loan program, the rate lock period may extend beyond 60 days.

Will my rate go down if interest rates drop during the rate lock period?

The lender will honor the quoted interest rate during the rate lock period even if interest rates go up.

How much is the penalty if I should need to extend the rate lock?

Sometimes the co-op board approval process may exceed your rate lock period, so knowing the penalty or whether you should extend is crucial.

Do you charge a penalty if I prepay the loan?

If you plan to sell your home in three or four years, it’s essential to understand the lender’s prepayment policy.

How long will the Mortgage Loan process take?

The average time to close a loan is 30-60 days.

Will, you service the mortgage yourself, or is it contracted out to a third party?

What are the escrow requirements for my loan? Most lenders pay your property taxes and homeowner’s insurance premiums using money collected each month and the principal and interest payments held in an escrow account until the tax and insurance payments are due.

Closing Cost Calculator for Buyers

The estimated New York City closing costs for buyers below should only be considered rough estimates. Before proceeding with the transaction, confirming the closing costs with your attorney and mortgage representative is essential.

By clearly understanding your closing costs, you can prepare yourself financially and ensure you have the necessary funds to complete the transaction. Therefore, it’s advisable to consult with your attorney and mortgage representative to get a comprehensive breakdown of the closing costs involved. It is important to note that a written engagement letter is required under NY State Law if the legal fee exceeds $3,000. On the other hand, if you are a seller, you can use the Seller’s Calculator.

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Closing Costs for Buyers Explained

The final closing costs for homebuyers depend on several factors, such as property type (co-op or condo) or new construction, level of financing, and purchase price. The buyer’s closing costs are typically 2-6% of the purchase price. If you purchase a condo or new construction, the closing costs will be higher, including transfer taxes; you’ll need to cover title insurance for a start. New York State sets it and comes with administrative charges, ranging from about $3,000 to $4,000.

Then there are the extra costs if you need a mortgage. Bank fees range from $2,000 to $3,000, while bank attorney fees and the appraisal range from $500 upwards. If the loan is over $500,000, you’ll need to cover a mortgage tax of 1.925%. For loans under $500,000, it’s 1.8%, which only applies to condos.

Whether you’re buying a co-op or condo, you’ll need to pay your attorney’s fees, which range from $2,000 to $3,000. The deal can be more complicated than usual if you set up an LLC to purchase a condo as an international buyer. Then, the attorney costs will increase and require additional work in filing the LLC. For detailed information on the closing process for buyers, visit the NYC closing process.

Closing Cost Calculator for Sellers

The estimated New York City closing costs for sellers should be considered general guidelines only, as actual closing costs can differ for each transaction. Therefore, before listing your home or signing any contracts, sellers must clearly understand all the closing costs involved. This can be achieved by consulting with their attorney, who can provide comprehensive information about the closing costs that will apply to their transaction.

On the other hand, if you are a buyer, you can use the Buyer’s Calculator to estimate the potential closing costs of a property you are interested in purchasing.

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Mistakes to Avoid When Selling Your Home

Selling your home is typically a stressful venture. Unfortunately, some people create even more difficulties by making one of these four amateur blunders. If you are considering selling your home, ensure you’re adequately prepared and don’t make one of these mistakes.

Selling a home may involve a long to-do list; it can seem complicated to get things done right. However, with proper planning, you can avoid making the following home seller mistakes.

You are not keeping your house clean.

First impressions speak volumes. There’s nothing more off-putting to a potential buyer than walking into a filthy residence, but a thorough cleaning job can be a cost-effective way to make your home attractive to potential buyers. To make cleaning easier, first eliminate any clutter. Clutter includes the build-up of items within closets and cabinets, old appliances, clothing, and furniture. You may even consider donating the things you find to charity.

After removing any clutter from your home, create a checklist for what needs to be done in each room; this includes, but is not limited to, washing windows, mopping floors, and dusting surfaces. You may want to hire a professional service to eliminate some of the efforts on your behalf.

Skipping on staging

According to House Method, staging your home is an opportunity to create a lasting impression on buyers. In-home staging, you’re transforming your home into an attractive and memorable place for buyers. Different from decorating, in the sense that decorating may involve sprucing up your home with memorabilia and “stuff” that creates a personalized and sentimental place for you.

Staging is about creating an inviting and clean slate for the buyer to envision a place where they can see themselves and their stuff. Proper home staging emphasizes the stylistic elements of home while creating a lived-in feel and can be achieved with a few interior design refreshments.

Forgetting to claim tax deductions

Selling a home is usually accompanied by a windfall of cash, and as with every large sum of money, some inevitably goes to Uncle Sam. Fortunately, you can take advantage of certain tax deductions to maximize the profit you make on your sale. While these may not apply to you, the earlier you know, the better (some are time-sensitive).

For example, you may deduct the cost of renovations or repairs only up to 90 days from completion. If you’re debating whether to buy or rent your next home, keep in mind that homeownership has many tax benefits.

We have not hired a real estate agent.

Going it without an agent is a rookie mistake. Most people won’t make it twice. While it sounds good in theory to save on the commission, the time and energy you will waste are rarely worth it. Also, an agent can often save or recoup the money you’re spending on their networking capabilities and negotiation techniques.

Home sellers may pursue a for sale by owner (FSBO) approach to save on commission costs. At the same time, there is the potential for FSBO in parts of the country, less likely in New York City. There are countless advantages to hiring a real estate agent. They can help you price your home, give it visibility to other real estate agents in online listings, negotiate with prospective buyers, and navigate all the bureaucracy and jargon of home buying and selling. The key is to do your due diligence and interview real estate agents before selecting one to find one you trust will put your interests first.

The right agent knows how to help stage your home to make the most out of your space. They have access to professional photographers to best highlight your home and attract interest. Finally, an agent will help you sort through the mounds of paperwork synonymous with the home-selling process.

Emotional Attachment

It’s not unusual to have an emotional attachment to your home. It is the place where you’ve made memories and something you put hard work into creating. The problem is a future buyer isn’t paying for your memories. They are purchasing a property. When selling your home, it’s essential to estrange yourself from the emotional attachment you have with your home. You need to remove your emotions from the staging to the price to sell your home effectively.

Overvaluing Property

Overvaluing property can happen for some reason. You may have bought your house when the market peaked and want to recoup that money. Plus, you want to get back money from the hundred-thousand-dollar kitchen you added before the market crashed. When you price your property, you can’t price it at what you want for the property because it usually leads to overvaluing. It would help if you priced it at what the market will bear. This is where having a real estate agent is especially important to prevent you from overvaluing your property.

Please don’t leave your home sitting on the market for months; avoiding these four mistakes can make all the difference in selling your home.

No Negotiation Techniques

Unless you’re fortunate and get your asking price with no contingencies, chances are good; you’ll have to enter into negotiations. People mistakenly believe they need to be challenging and intimidating to get the upper hand in negotiations. Instead of being a bully, be smart about your negotiation talks. Learn about the buyer and what’s motivating that person, and use that information to your advantage. A good negotiator also knows the price isn’t the only aspect of the discussion. Closing costs, length of escrow, or even paying for moving costs are all negotiation points that don’t necessarily involve the final selling price.

A good negotiator also doesn’t sweat the small stuff. This misstep usually happens when people let their emotions and egos control the negotiation instead of their brains. Suddenly, without realizing it, a person is arguing over a few hundred dollars to win when hundreds of thousands or millions of dollars are at stake. A good negotiator won’t worry about the small stuff if the sale is essential.

Lacking flexibility

When selling a home you live in, you likely don’t want the pressure of having strangers parade through at a moment’s notice. You may offer up showings with brief notice, set strict visiting hours, or only keep the property viewable for a few days. Consider the buyer’s perspective. Buyers who aren’t local may be in town for just a weekend, which means limited time to visit potential properties. Buyers’ work schedules and family commitments may also make evening showings their only option.

Real estate agents have their restrictions; they often plan home touring routes for their clients in advance and seek to create a schedule that is as hassle-free as possible. Such involves visiting properties that are easily accessible and available at any time. Every missed showing is a missed opportunity, so if you genuinely must be steadfast on showing hours, work with a real estate agent to create a schedule that involves a compromise but can accommodate many of your needs.

No matter the market, if you want your property to be competitive and sell for the highest price possible, avoid these home seller mistakes.

Mortgage Refinance Calculator

Is refinancing your mortgage a good idea? Refinancing involves paying off your current loan and obtaining a new one. The decision to refinance depends on various factors, including current market interest rates, the terms of your existing loan, and your financial goals. It can be smart if it helps you reduce your monthly mortgage payments, secure a lower interest rate, or change your loan’s terms to suit your financial objectives.

To assess whether refinancing is the right choice for you, you can use a mortgage refinancing calculator. This tool allows you to evaluate if refinancing can save you money by considering your existing loan balance, interest rate, monthly payment, and any fees associated with refinancing. It provides an estimate of your potential savings, enabling you to make an informed decision about whether to refinance your mortgage or not.

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Should You Refinance Your Mortgage?

Refinancing your mortgage allows you to pay off your current home loan in full to get a new one. Suppose interest rates have decreased since you initially closed your existing mortgage. In that case, refinancing allows you to lower your monthly payment or use some of the equity in your home for other purposes. If interest rates increase, you can keep your existing mortgage and enjoy the satisfaction of paying lower rates while new home buyers face higher interest rates.

Average Interest Rate for 30-Year, Fixed-Rate Mortgages

Years ago, when mortgage rates plummeted, people worried that the economy of the United States was heading into another recession. The Federal Reserve stepped in and made getting approved for a mortgage easier to prevent a recession. However, today, we are again looking at a recession soon, and interest rates have begun to increase.

The more robust economy and uncertainties elsewhere have investors worldwide putting their money into safe American assets, including bonds packaged with government-sponsored mortgage products from Freddie Mac and Fannie Mae.

Refinancing Rule of Thumb

When interest rates are lower, many homeowners take advantage of moving to a different type of mortgage to pay their home off sooner. For example, if you can pay the same or close to the same amount of money per month on a 15-year mortgage as your current 30-year mortgage, refinancing to the shorter term to pay off your home sooner would make sense.

Refinancing fees vary from lender to lender but are often in the thousands of dollars and include origination fees and property appraisal fees, much like you paid for the original mortgage. If your goal of refinancing your mortgage is to decrease your payment, look for rates at least one percentage point lower than what you currently pay for your mortgage. This rule of thumb holds even when considering the closing costs and other fees associated with the refinancing.

You might consider refinancing even if the rate isn’t a whole percentage point lower if you intend to stay in your home for many more years. Even small monthly savings over a long period will justify refinancing costs.

Try our calculator to see what kind of savings you might experience. Just plug in your numbers and let the tool tell you your potential savings.

As with any significant financial decision, you must consider individual needs. Analyze the pros and cons carefully and seek professionals’ wisdom before applying for a mortgage refinance.

Rental Property Yield Calculator

With our tool, you can easily calculate the gross and net rental yield of a New York City investment property. It’s straightforward—all you need to do is input the property price, monthly rent, common charges or maintenance expenses, property taxes, and vacancy rate.

By doing so, you can accurately estimate your return on investment and cash flow, providing a clear picture of the property’s potential profitability. This information can be invaluable in helping you make informed decisions about your real estate investment and identify whether the property is worth investing in.

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Buying an Apartment to Rent Out in NYC

Each year, billions of dollars pour into New York City residential real estate. However, not all come from New Yorkers purchasing their primary residence. Instead, a significant portion comes from purchasing investment units and planning to rent them out. This is good business sense in a city where most people are renters.

For instance, two-thirds of Manhattan’s housing stock is rentals, while 60% is co-ops. So, becoming an NYC real estate investor requires a hefty investment to get started. If you do it right, however, you can secure a very nice income and save a bundle in tax benefits. Here’s how.

Decide on where to buy

Real estate is all about the location, so choose yours carefully. If you want the least risk possible, it’s better to stick with tried-and-true neighborhoods such as Tribeca, East/West Village, Midtown East, and the Upper East Side. There’s always a demand for these neighborhoods, so you will have to worry less about finding tenants, depending on the property itself. But that high demand also translates into limited and more expensive inventory, so you’ll need to be ready to wait and pay once you find the right property.

If Manhattan real estate is out of your price range, look for properties in emerging neighborhoods in Brooklyn, Queens, and the Bronx. You may face less competition from other investors and property taxes that may potentially return higher yields. Wondering how to identify emerging neighborhoods? Look for the following:

• A decline in the DOM (days on the market) of properties in the area
• Significant infrastructure investment includes transit options, schools, and public spaces.
• Are there lots of new construction projects? Be careful that it is not rental buildings that could pressure your rental yield.

Decide on what to buy.Decide on what to buy.

The type of property you invest in will decide whether you’ve purchased a golden goose or a lemon. First, avoid co-ops because they aren’t appropriate for this scenario. They may be, on average, 30% less expensive than condos, but most co-ops have strict house rules that don’t allow subletting until you’ve lived in the unit for at least two years. And even if you find one that lets it immediately, they can always change the rules at any point.

What is the best property type?

Condos present the best choice due to their liberal policies, and you can begin renting them out from day one. Still, they are more expensive, so you must be ready for more money when you buy them. Buying multiple studio apartments can also be wise if you think you’d rather spread your investment around than put all your eggs in one basket. They’re cheaper to pick up and generate higher yields than larger apartments. However, the flip side is that they have shorter life cycles than larger units and less emotional value. Despite the potential for short-term gains, a 2-bedroom apartment will likely outperform capital appreciation over the longer term.

Evaluating the competition

Also, when looking at properties, pay attention to the competition. Avoid areas with a high rental inventory and have buildings with many extra amenities or concessions, such as an additional free month or two included with the lease. Most of these buildings offering grants tend to be in new constructions that are focused, offer more bells and whistles, and have deeper pockets to provide incentives, which highlights the reason to find unique properties with desirable characteristics so that your property stands out, such as a townhouse apartment on a lower floor. Lastly, don’t overlook auxiliary services around the property. A subway station, nail salon, grocery store, and other nearby services can be a big draw for potential tenants.

Calculate your returns

Like any investment, you don’t want to buy without calculating what kind of returns you can expect. Getting a rough estimate of your returns is relatively simple. First, figure out how much you can rent out the property. You can do this by looking at the past and currently available comparable rental properties in the building and neighborhood. Remember that the last list price for an online rental may not reflect the signed lease; it remains private.

What is the cap rate?

Next, determine your cost basis, which is known as the cap rate (capitalization rate). Make sure to include your initial investment in sales price and closing costs and upkeep, such as common charges, maintenance, and property taxes.

To calculate the cap rate, start calculating your Net Operating Income (NOI) and subtracting your Operating Expenses.

It includes everything you spend to run the building but excludes significant capital expenditures or assessments to increase the property’s value or lifespan.

Once you have your NOI, divide the property’s price onto it.

What is the rental yield?

Average yields are difficult to estimate as many variables are in play, such as the neighborhood and whether you’re financing. It’s more of an appreciation game than a yield game in New York. However, a global market can remain competitive even in a down economy, looking at long-term benefits like appreciation. A Manhattan condo has a 2-4% rental yield after deducting common charges and real estate taxes.

As you move through negotiations and towards a binding contract of sale, you’ll better handle these estimates, so keep a close eye on them.

Find tenants and play landlord.

Now that you have the property, it’s time to play the landlord. You have to be sure you can handle the responsibilities of this as you’ll need a solution for almost every problem that may arise. Potential tenants will need to be vetted, maintenance and repairs may be necessary occasionally, and you might have to deal with the cost of a bad tenant.

If you’ve bought multiple properties, it would be wise to purchase umbrella insurance to cover them all. If managing them is too much for you, consider hiring a property manager.

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