Buying Vs Renting in NYC: What’s Your Best Option?

Most people think they will never be able to buy an apartment in New York City.

And it makes sense to be skeptical—New York is a city of renters. Only 30% of residents own their homes.

Buying a house is a scary process to jump into.

With a seemingly endless stream of co-op interviews, broker meetings, bank forms, and open houses, the process can be draining.

But putting down roots in the City can be worth it for your bottom line, especially if you plan on staying here for a while.

This article will finally answer the question we all ask at one point - should you buy or rent?

Buying Vs. Renting

• There are many things to consider when deciding whether buying or renting an apartment in New York is better.
• Buying a property will help you build equity; you can potentially save on rent (especially if your mortgage payments are less) and receive tax breaks.
• The New York City real estate market is also traditionally robust.
• However, real estate is not a liquid asset. So, if you need access to funds immediately, it's not intelligent to tie your money up in real estate.
• Renting may be the correct option if you don't have enough savings or income to afford to put money down or pay for a mortgage.
• It's also wiser to rent if you need the flexibility to move when you need to, don't know the City well, and rent may be more affordable in some areas.

Reasons to Buy an Apartment in New York

One of the main benefits of buying instead of renting is you put your money toward ownership.

Renting is like throwing your money out of an open window.

Even though you pay thousands monthly, you still won't own any apartments.

Making monthly payments on a mortgage is different.

Rather than throw your money out of the window, you can close that window and start putting money back into your house toward paying off that mortgage.

You Can Build Equity Through Real Estate

NYC is still one of the nation's most expensive cities to rent.

With sky-high monthly rent checks eating into our savings, New Yorkers have to look for any edge to ensure they come out on top.

If you buy your apartment, your monthly mortgage payment is going towards ownership of your home.

No matter how small, you own your slice of NYC, just like Joe's Pizza owns the best piece in the City.

Building equity takes time.

At the beginning of your mortgage, most of your payment pays off the accruing interest on your loan.

But the longer you pay down your mortgage, the more your payment begins to pay down your principal, or in other words, you can start accruing equity.

Read on: What You Need to Know Before You Buy Property in New York

You Can Save Money

Since building up equity in your home takes time, one of the biggest questions you must ask yourself is, "What's my timeline?"

Most experts agree that you should look five to seven years before purchasing a home.

If you think it's likely you might move within that time frame, maybe because of a career or family change, then it is wiser to rent instead.

Given long enough, the benefits of buying win over renting, however.

To purchase an apartment in NYC, you'll have to pay several different fees, like insurance, closing costs, and broker fees.

Usually, these fees add up to about 10% of the purchase price.

So, if you buy a home for $675,000, the average NYC home price, your closing costs will be $67,500.

The closing costs can be hefty, but over time, you will make that money back and then some.

The stability a mortgage can give you is a big leg up in a city that is constantly evolving, moving, and changing.

Knowing you have a home to return to that you own, even partially, offers a sense of security.

You Might Qualify for Tax Breaks

The US government wants you to buy a home.

Buying stimulates the economy and supports the vast US housing market.

So, they make it worth your while by allowing you to deduct mortgage interest from your gross income.

You can even deduct your property tax payments, too!

If you are married, you can qualify to deduct up to $750,000 of mortgage payments on your primary or possibly even on your secondary residence.

The limit is $375,000 if you end up filing separately.

Tax breaks are one of the most practical reasons to consider purchasing a home. It puts money back in your pocket that you would have lost forever if you were renting.

Check out this article on PropertyNest to learn more about what tax breaks New York homeowners can land.

Shelter From Rising Rents

Most renters experience rent increases every year.

On average, your rent will increase by 3% every year.

For example, if you pay $2,500 or $30,000 a year, your monthly payment will increase by $75 or $900 yearly.

That doesn't exactly break the bank, but your rent will be noticeably more expensive after a few years.

Your mortgage will shelter you from those rising rents.

With a 30-year fixed-rate mortgage, the industry standard, you're locking in a payment that, after a few years, will likely be well beneath the market rent in your area.

NYC is a Buyer's Market

Remember the figure we mentioned earlier, that nearly 70% of NYC residents are renters?

That means two things to you.

Rental Inventory is Low

Because the amount of renters is high, the competition for every available apartment is intense.

That means NYC is a landlord's rental market.

If they have 30 different renters all applying for the same apartment, they can impose stricter requirements or even raise the rent.

However, there are shifts in the market sometimes, especially during economic downturns or when a departure from the City might occur.

Historically, landlords have been able to dictate and control the rates.

Real Estate Inventory is High

On the flip side, it's a buyer's NYC market. The majority of New Yorkers are looking for rental properties.

This means you will face less competition when buying a property. That doesn't mean the process is accessible by any means.

But it does mean you won't be looking at the identical apartments as all the new, doe-eyed transplants.

NYC's Real Estate Market Is Time Tested

People keep coming to New York City. It's the center of culture, music, fashion, and publishing.

Even though housing prices dipped in 2019, New York's bounce-back rate is higher than other US cities.

It's an incredibly tested and weathered market that has shown it can keep standing even while other cities buckle under deflating real estate prices.

Buying a home is an investment, so it's important to know that you are putting your money into something worth more, not less, when it comes time to sell.

New York City offers a more substantial chance of your investment returning dividends than other cities.

Use our Mortgage Affordability Calculator to determine how much you might qualify for with a mortgage lender.

Is It the Right Time to Buy in New York?

That said, you still need to ask yourself questions before putting a huge chunk of your hard-earned money into a property.

Real estate is a steady market, but the United States has seen drops in housing prices before and still might in the future.

So here are some questions to ask yourself if you want to guarantee a strong return on investment (ROI).

Have Sales Prices in Your Area Generally Been Increasing in Value?

Look at recent sales in your neighborhood vs. sales from a few months ago and a few years ago.

Is the average sales price going up?

If not, you may consider buying in a different area or wait.

Look for neighborhoods that are seeing a steady sales price increase over time.

What Condition is the Home In?

Buying a home that needs a little extra attention can be significant.

Usually, that comes with a lower sales price and sellers eager to have the property off their hands.

But ask yourself if you can commit to making the repairs the property needs and if you can afford to spend the time and money they might require.

You don't want to find yourself in the middle of home repair only to realize you don't have the money, energy, or time to finish the job.

Does the Home Have a Universal Appeal?

We all have our version of a dream home. You should find the home that makes you happiest.

After all, you're spending the money and time to make it yours.

But something to consider is: does your dream home have a mass appeal, or is it only a dream home to you?

You might be willing to pay big bucks for sentimental reasons, but if you plan on moving and selling at any point, you want to be sure that someone else will be as excited as you are.

Otherwise, you might end up losing money.

What are Mortgage Rates Like?

Of course, low mortgage rates might mean it's a great time to take out a mortgage.

You can always try to refinance in the future if you've taken out a loan with higher rates, but you can avoid all the hassles of refinancing by borrowing at low speeds.

While we all want the best deal regarding home prices or mortgage rates, it's also important to remember that what sounds high to you may be low from a historical perspective.

A rate of 4.6% may sound higher than a mortgage interest rate of 3.5%.

However, the rate can get over three times that. In the early 1980s, the rate was above 16%.

In the past, taking out a mortgage has not always been affordable.

Furthermore, low rates may not matter if home prices are at an all-time high.

Is Demand High or Low in the NYC Real Estate Market?

If you are looking at a situation where demand is high, but there is low inventory, it might signal that it's the wrong time to buy.

Competing with many other buyers when there are few properties may lead to bidding wars.

Getting caught up in a buying frenzy is easy when you hear of several friends and family looking to buy.

That excitement usually rubs off, especially when rates are low.

However, it could be a trap you fall into--grossly overpaying for a property.

On the other hand, if demand is low, whether or not there is a lot on the market, it may work to your advantage as you may meet more sellers willing to negotiate.

Are You Ready to Buy?

Buying any property doesn't just have to do with a property you like and your financial preparedness.

Typically, purchasing real estate will require most Americans to take out a mortgage.

Depending on the type of mortgage, you may need to put down anywhere from 0% to 20% (in some rare cases, some co-ops require higher than a 20% down payment, sometimes as high as 40%-50%).

To qualify for a mortgage, you must have at least fair credit. The higher, the better for your rates, a reasonable debt-to-income ratio, and provable income and assets.

If you have poor credit and little to no savings, there might be some government-backed programs you might qualify for, but overall, your chances won't be great in getting a mortgage.

The Cons of Buying

Though buying is a sound financial decision, there are still reasons why buying might not be the right choice for you.

It's a Long-Term Commitment

Because of the upfront fees you pay when purchasing a property, which is around 10% of your purchase price, it will take about five years to recoup that amount through your property appreciating or increasing in value.

That upfront financial commitment makes it difficult for people to buy a house.

People move a lot in New York City.

Whether to be closer to a new job, experience a different borough or neighborhood, or because of relationship changes, committing to staying in one spot for 5+ years is a big ask.

That means people new to the City should probably try renting before buying. You want to be sure that you like the neighborhood you plan on buying in and can see yourself living there for a long time.

Strict financial requirements

The financial requirements for buying a house can be challenging to understand. Some brokers and banks like to make the process seem more complicated than it is.

But in reality, lenders look at three major factors to determine whether you are a strong borrower.

Debt-to-income ratio

Number one is your Debt-to-Income ratio or your DTI.

This ratio weighs your debt payments, not your total debts, against your monthly income.

That means if you have a $100 credit card payment, a $200 car payment, and a $200 student loan payment, you have $500 monthly in debt payments. If you make $2,000 a month, your DTI would be 25%, which is within standard requirements.

Generally, banks will require a DTI of at least under 43%.

Liquid Funds

Banks want to ensure you have money to keep paying your mortgage if the unexpected occurs.

The requirements for how much liquid funds you need on hand vary based on your lender, loan type, and property type.

But in general, you will be expected to have at least a year's mortgage payments after closing.

Credit Score

Another big one is your credit score. The higher your credit score, the lower your interest rate.

A high credit score tells your lender you are a trustworthy borrower with a low chance of foreclosure.

Your credit score takes a lot of things into account, like your payment history, number of open accounts, and significant events like bankruptcies and foreclosures.

Read on: How to Choose a Mortgage Lender in NYC.

Maintenance Costs

One of the main drawbacks of buying in New York City is the maintenance cost.

If you rent and your refrigerator or stove breaks, then your landlord must fix it.

If you own your house, however, that duty falls on you.

If you own an older property, then you will probably have routine maintenance issues to deal with. These issues can cost a lot of time and money, a headache that renters can avoid.

Co-op vs. Condo

One issue unique to NYC is the condo vs. the coop.

Nearly three-quarters of the apartments in NYC are co-ops. This means that co-ops are usually less expensive than condos.

However, co-ops have their requirements, fees, and hurdles to consider.

First off, what exactly is a co-op?

It's essentially a share of a building. When you buy a co-op, you buy "stock" in the company that owns the building.

A condo, on the other hand, is more like a traditional house.

You don't buy a portion of the building the condo is in; you buy the space the apartment occupies.

The process of buying a co-op is slightly different from buying a condo.

There are approval boards for every co-op building, and you will likely have to go through an interview process and be approved by the board before you can buy into the building.

You also have the added cost of maintenance fees that cover things like property taxes, management fees, standard area maintenance, and building insurance.

They might include more common utility fees like heat, hot water, electricity, gas, etc.

Though condos have a more straightforward and typical buying process, they are in high demand and are often much more expensive than condos.

Also, if you want to buy a pre-war home, your best bet is to look at co-ops. Most condos have been constructed in recent decades.

To learn more about what's right for you, read What's the Difference Between a Co-op and Condo in New York?

Reasons to Rent

Though buying is universally considered the more brilliant financial decision if you plan on being in the City for a long time, there are still plenty of valid reasons to rent instead of buying your next apartment.

Renting Offers Flexibility

Most people, especially if you are younger, don't imagine they will stay in their apartment for 5+ years.

You want to experience all that New York has to offer.

It has a rich diversity of neighborhoods and communities you can't explore if you stay in one place your entire time.

Renting gives you the flexibility to change apartments with relative ease.

There is no selling process to go through.

You can wait until your yearly lease is up or even transfer the lease to another eager renter, and you'll be free to pack up and move.

Read on: When is the Best Time of Year to Rent an Apartment in New York?

Renting is a Good Option If You're New to New York City

Fresh transplants have a lot to figure out.

You might have grabbed a lovely, new apartment sight unseen only to realize it is above a bar that stays open until 4 AM.

It's a perk for some but more likely a nightly nuisance.

Or you didn't realize that your daily 30-minute hike to a subway station would be as soul-numbing as it is.

Whatever the case may be, renting as a first option for new City dwellers is the way to get to know the City better and not make the same mistakes twice if you decide to buy.

Renting is Usually More Affordable

Though no one has ever said that rents in NYC are affordable, they are much easier to stomach than the average mortgage price.

Renters, on average, pay less per month.

With the cost of living in New York, it can be challenging to save up enough money to cover a down payment on an apartment, plus the fees that come with it.

Even if you can afford the increased monthly rent, you might not have the cash to be approved for a loan.

Want to figure out how much rent you can afford in the City? Use the PropertyNest Rent Affordability Calculator.

The Pros and Cons of Owning and Renting

*If you take out an adjustable-rate mortgage and rates increase, or your property tax assessment goes up, your monthly payments also go up.

**In condominiums or cooperatives, board approval is usually required. Some restrictions may apply.

Conclusion

The choice to rent or buy is a huge decision.

It requires you to consider your timeline for at least the next five years, your financial state, and what you want to get out of New York.

Renting is the smart decision for younger New Yorkers who crave flexibility and may not have the cash to afford a down payment and mortgage fees.

Buying is the right way to go for people with cash saved up and a plan for where they want to spend the next few years of their life.

If you can afford to buy in the City (which is a big if!), then you should absolutely go for it.