When should you Buy vs. Rent in NYC
Buying into New York City real estate has never been an incredibly affordable proposition. Interestingly enough, neither has renting. Renting may often feel like a tortuous process, knowing full well that the money spent in rent can be enough to often justify a downpayment. Obviously, if you plan on living in a place forever, buying is clearly the way to go. However, NYC is an interesting market because its people are often more transient and the cost of living is just that much more expensive. So let's break it down.
5 Major Costs Incurred from Owning an Apartment
- Mortgage (Interest / Principal)
- NYC Property Taxes
- Transactional Costs of Buying and Selling
- Homeowners Insurance
- Maintenance
5 Major Benefits of Owning an Apartment
- Property Appreciation
- Tax Exemptions from Capital Gains (assuming 2 years of primary residence)
- Tax Deductions from Mortgage Interest
- Ability to Lock In Your Costs
- Peace of Mind
5 Major Costs Incurred from Renting an Apartment
- Rent
- Broker's Fees
- Rent Deposit
- Rent Increases
- Move In / Move Out Fees
3 Major Benefits of Renting an Apartment
- Flexibility to Move
- Opportunity Cost of a Large Downpayment
- No Need to Pay for Capital Improvements
As you can see, there is a careful cost-benefit analysis that needs to be considered. Streeteasy recently conducted a tipping point study, whereby they analyzed how long it takes of living in NYC to make sense for one to buy a property.
Keep in mind that as of Q4 2015, the median resale price of Manhattan real estate grew 7.1% year over year, reaching $1,002,008. The median resale price in Brooklyn grew 8.3% year over year to $537,193. Here is Streeteasy's Q4 2015 market report. With all this impressive growth taking place across the boroughs, there are two options. One of them is to get left behind, as prices continue to soar, and the other option is to see if the time is right to buy.
So what are the tipping points? For New York City as a whole, it's 4.9 years. Manhattan is a whopping 7.9 years. Blame the high prices! Bronx 4.6 years. Brooklyn 4.4 years. Staten Island 4.1 years. Queens 3 years. To understand how Streeteasy got to their tipping point calculation, take a look here. What's even more interesting is that within specific neighborhoods, like Chelsea, tipping points can get even higher!
So how long do you plan on living here? Or better yet, how long have you lived here? Maybe it's time to tip homeownership in your favor.