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 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 a very strong one.
- However, real estate is not a liquid asset. So, if you need access to funds right away, it's not smart 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 smarter to rent if you need the flexibility to move when you need, don't know the city well, and, in some areas, renting may be more affordable.
Reasons to Buy an Apartment in New York
One of the main benefits of buying instead of renting is you actually put your money towards ownership.
Renting is like throwing your money out of an open window.
Even though you pay thousands every month, you still won’t own any of your apartment.
Making monthly payments on a mortgage is different.
Rather than throw your money out of the window, you’re able to close that window and start putting money back into your house and towards paying off that mortgage.
Building equity through real estate
Rent is at an all-time high.
NYC is still the second-most expensive city in the nation (looking at you, San Francisco), with the median one-bedroom rent hovering around $2,750.
With sky-high monthly rent checks eating into our savings, New Yorkers have to look for any edge they can get to make sure 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 own slice of NYC, just like Joe’s Pizza owns the best slice in the City.
Building equity takes time.
At the beginning of your mortgage, the majority 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.
You can save money
Since it takes time to build up equity in your home, one of the biggest questions you need to ask yourself is “What’s my timeline?”
Most experts agree that you should look five to seven years out 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 smarter to rent instead.
Given long enough, the benefits of buying win over renting, however.
In order to purchase an apartment in NYC, you’ll have to pay a number of different fees, like insurance, closing costs, and broker fees.
Usually, these fees add up to about 10% of the purchase price.
So if you are buying a home for $675,000, the average NYC home price, then 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 come back to that you own, even partially, offers a sense of security.
The US government wants you to buy a home.
Buying stimulates the economy and supports the huge 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.
Shelter From Rising Rents
Most renters experience rent increases on a yearly basis.
On average, your rent will increase by 3% every year.
For example, if you pay $2,500 a month, so $30,000 a year, then your monthly payment will increase by $75, or $900 a year.
That by itself doesn’t exactly break the bank, but after a few years, your rent will be noticeably more expensive.
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 for 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 up the rent.
Real estate inventory is high.
On the flip side, it’s actually a buyer’s market in NYC. The majority of New Yorkers are looking for rental properties.
This means you will face less competition when looking for a property to buy. T
hat doesn’t mean the process is easy by any means.
But it does mean you won’t be looking at the same 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 in 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 that will be worth more, not less when it comes time to sell.
New York City offers you a stronger chance of your investment returning dividends than other cities.
Questions to Ask Yourself
That being said, you still need to ask yourself some 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 been increasing in value?
Look at recent sales in your neighborhood vs sales from a few months ago and then a few years ago.
Is the average sales price going up?
If not, you may want to think about buying in a different area. Look for neighborhoods that are seeing a steady sales price increase over time.
What condition is the home in?
It can be great to buy a home that needs a little extra attention.
Usually, that comes with a lower sales price and sellers who are 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 really finish the job.
Does the home have a universal value?
We all have our version of a dream home. You should absolutely find the home that makes you happiest.
After all, you’re the one 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.
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 amount of upfront fees you pay when purchasing a property, around 10% of your purchase price, it will take about 5 years for you to recoup that amount through your property appreciating, or increasing in value.
That upfront financial commitment makes it difficult for people to commit to buying a house.
People move a lot in New York City.
Whether it’s 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 that 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 difficult to understand. Some brokers and banks like to make the process seem more complicated than it really is.
But in reality, lenders look at three major factors to determine if you are a strong borrower or not.
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, $200 car payment, and a $200 student loan payment, then you have $500 a month in debt payments. If you make $2,000 a month, then your DTI would be 25%, which is well within normal requirements.
Generally, banks will require a DTI of at least under 43%.
Banks want to ensure that you have money in your pocket to keep paying your mortgage in case the unexpected occurs.
The requirements for how much liquid funds you need to have on hand varies based on your lender, loan type, and property type.
But in general, you will be expected to have at least a year’s worth of mortgage payments on hand after closing.
Another big one is your credit score. The higher your credit score, the lower your interest rate.
A high credit score tells your lender that you are a trustworthy borrower and you have a low chance of foreclosure.
Your credit score takes a lot of things into account, like your payment history, number of open accounts, and big events like bankruptcies and foreclosures.
One of the main drawbacks of buying in New York City is the cost of maintenance.
If you rent and your refrigerator or stove breaks, then it’s your landlord’s duty to 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.
But co-ops have their own 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 are buying “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 simply buy the space the condo 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, common area maintenance, and building insurance.
They might also include more common utility fees like heat, hot water, electricity, gas, etc.
Though condos have a more straight-forward and typical buying process, they are in high demand and are often much more expensive than condos.
Also, if you are interested in buying a pre-war home, your best bet is to look at co-ops. Most condos have been constructed in recent decades.
Reasons to Rent
Though buying is universally considered the smarter 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.
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 that you can’t explore if you stay in one place your entire time here.
Renting gives you the flexibility to change apartments with relative ease.
There is no selling process to go through.
You can simply 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.
If You’re New to New York City
Fresh transplants have a lot to figure out.
You might have grabbed a nice, new apartment sight unseen only to realize it is above a bar that stays open until 4 AM.
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 go to get to know the City better and not make the same mistakes twice if you do decide to buy.
Though no one has ever said that rents in NYC are affordable, they are much easier to stomach compared to the average mortgage price.
Renters on average pay less per month.
With the cost of living where it is in New York, it can be incredibly difficult 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 on hand to be approved for a loan.
The choice to rent or buy is a huge decision.
It requires you to consider your timeline for at least the next 5 years, the state of your financials, and what you want to get out of New York.
Renting is the smart decision to make for younger New Yorkers who crave flexibility and may not have the cash-on-hand 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.
Search for Home Sales in NYC
Search for your next home based on a credit
score, price, neighborhood & more.