Should I Buy Or Rent?

For most families, moving to a new town and buying a house can be simultaneous acts. That’s not really the case in New York City. Many people who first move to the city rent an apartment. Most people do not know how long they’ll stay, what it takes to purchase a home, or how much it costs.

When you have children, or as your family expands, you may consider putting down more permanent roots by owning a home. Whether it’s better to rent an apartment or
buy a place for your family depends on many factors. Below are some of the factors you should consider in determining whether to rent or buy a home in New York City.

Do you currently own your home?

If you do, that means selling your home first. Depending on when you bought, you’ll have to speak with your real estate agent about current market conditions in order to determine whether or not you’ll be losing money, breaking even or making a profit. If you would be breaking even or making a profit by selling, the decision is easier to make: You’re selling. But will you be buying or renting afterwards? We’ll get there later.

If you would be losing money by selling, then the decision may be more difficult. You might want to stay put for a while until the market improves. Another option may be to rent the apartment out while you rent or buy another home. Many buildings in New York have restrictions on renting, so speak with the managing agent of your building to see what options you have. If you are able to rent your apartment, speak to a real estate agent to figure out how much rent you can realistically get and whether it makes financial sense to rent it out.

How long do you plan to stay in the city?

If the answer is less than five years, then it may be better to rent. Most real estate agents recommend that a buyer hold on to their property for five to seven years before they must sell. While one might make a tidy profit in as little as one year, should the tide turn soon after you’ve bought your home, it usually takes five to seven years to recover and turn a profit after the downturn. Closing costs are expensive and can be as much as 10% of the sale price and in some rare instances even higher, especially if your coop levies a high flip tax on the sale.

Do you have enough money to buy?

Money is obviously one of the most important factors when you’re looking to buy, and it takes a lot of money to buy a place in the city.

While coops can be somewhat less expensive than condos, they have more stringent financial requirements Most coops require, at a minimum, a of 20% down payment, and some don’t s to not allowing allow any financing at all. Coops also You are also require you to show a certain amount of liquid assets and have a certain level of yearly income. Condos have no such requirements; however, they have heftier closing costs, usually as much as 4-5% of your mortgage, in contrast to closing costs of on the buy side for a coops is a few thousand dollars for buyers of coops.

Suppose you just had your first child and are looking for a 2 BR coop for $1,500,000. Your mortgage would be $1,2000,000 if you put 20% down. If the interest rate is 4% for a 30-year fixed mortgage, you’re looking at monthly mortgage payments of $5,730. Maintenance charges on something that size would be just over $2,000. This puts you roughly at $8,000/month. You’ll have to have to put down roughly $300,000, have $150,000-$200,000 in post-closing liquid assets, and show a pretax income of $384,000 and practically no debt.

Should you buy now or wait for the prices to go down?

Timing the market is nearly impossible. Most people who score the deal of a lifetime do so based on pure luck. None of us a have a crystal ball to say what the market will do a year from now. Generally, if you have the means to buy and are willing and able to stay put for at least 5-7 years, then you might want to purchase a place to build equity for yourself rather your landlord.

That being said, you want to be wary of an overheated market. Some people who bought a home in 2007 still haven’t seen the price of their homes recover (although this is less true in New York than in other areas of the country). If rents in a certain neighborhood have not increased as quickly as housing prices, it may mean that housing prices are overheated and renting could be the better choice–and vice versa if rents have risen faster than housing prices.

Are you thinking: I’m spending less on rent for a similar apt, so why should I buy?

Especially in NYC, this is a fair and common question. Initially, it’s highly likely that your mortgage and maintenance will cost you more than what you’re paying in rent. That’s been the case for me and my husband each time we bought a property. However, in just a year or two, we were ahead of the game. The first year might be a little tough financially and might require you to tighten your belt a little. But as the rental market heats up and rents go up, your mortgage stays the same provided you got a long term fixed rate mortgage. What’s more is that if interest rates go down enough, you can refinance and lower your mortgage payments. Then you can watch that loan amount go down as hopefully the value of your home goes up giving you equity each year whereas you’d have nothing to show for the rent you’d be paying month after month.

Don’t forget the tax benefits of home ownership where interest of the mortgage of your home and the real estate taxes and in case of coops the mortgage interest of the building’s mortgage are tax deductible. You get no such savings when you rent.

While staying in a place 5-7 years is a good rule of thumb to determine whether buying is your best choice, that number can vary dramatically–especially in New York City. If rents are high compared to home prices, you might only have to stay there a few years to break even. If rents are low compared to home prices, you might have to stay there longer than 7 years to break even.

The longer you plan to stay in your new home, the more likely that buying is the best choice – regardless of market conditions. To accurately compare renting or buying a
particular property, you’ll have to consider many factors, such as your interest rate, closing costs, property taxes, and the value of your income tax deduction. The New York Times has a great online calculator that can help you evaluate which is the better option.

Do you want to have a say how your building is run or what your home looks like?

When you rent, you have little say in how your building is run and are limited in what changes you can make. Your options are usually limited painting and hanging pictures. When you own, you have far more flexibility. You can even change the floor plan with the permission of the building and customize the home to suit your taste. When you own, You can also join the board of your building, allowing you to and have a say in how the building is run and where and how the money is spent.

If you decide not to buy but have high standards for how you want your home or building to look, consider renting in a coop or a condo as they are usually built and kept to a higher standard with higher end finishes and better overall maintenance. You can also get these benefits with very high-end rental properties.

Do you want to stay under the radar?

You can stay fairly anonymous when you rent; however, when you buy in a condo or a coop, you will have to divulge all your financial information and a lot of personal data to the coop and condo board. If you prefer privacy, renting might be the way to go.

Do you have the time?

While you may get lucky and find the apt of your dreams the first day you go out to tour properties, it will still take you 2-3 months to close on an apartment once you
have an accepted offer. If your housing needs are more immediate, then renting may be the right option. You shouldn’t feel rushed to make such a large financial decision in a short amount of time. Mistakes can be costly.

If you are new to the city, renting would also provide the opportunity to experience and get familiar with the city before taking on the responsibility of home ownership.

In closing, if you are here for the long(ish) haul, have the financial wherewithal and willingness or the means to take care of a home, then buying is the right thing for you. However, even if you have the money, but you think you’ll only stay put 2-3 years and you’d rather just pick up the phone and get your landlord to come and replace your $5000 fridge that just broke, then renting is likely the way to go. Renting gives you the freedom to pick up and leave anytime (within reason), whereas if your circumstances change, it’s more challenging, costly and time consuming to get out of the home that you own.

Of course, there are exceptions to every situation. If yours doesn’t quite fit the box, be sure to discuss those issues with your agent. I’d also be happy to answer any of your questions and evaluate your situation.

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About the Author

Jaylon Brigham

Jaylon Brigham is a Licensed Real Estate Associate Broker with Halstead Property, the NYC Metro area’s largest privately owned real estate firm and a member of the Leading Real Estate Companies of The World.  Jaylon has been in the real estate business for over 10 years and prides herself on being there for her clients every step of the way - whether they’re savvy investors or young families making the transition from renters to home-owners. She’s handled every type of residential property, from tiny NYC studios to multi-million dollar homes and understands that each requires a different marketing approach.

Jaylon is a Certified Negotiation Expert™ and a member of Real Estate Board of NY.  She lives with her husband and their daughter in a Manhattan coop where she also serves on the Board of Directors.

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