When you consider that NYC is notoriously expensive for renters and home buyers alike, making the wrong decision can end up costing you a small fortune.
While the main advantage of buying is that you can build equity and the property can appreciate, the costs are much higher. Purchasing means higher down payments and monthly costs than renting. Even something like renters insurance in New York does not cost nearly as much as homeowners insurance, and you also won't have to worry about property taxes or maintenance fees.
Here’s how to decide if you should rent vs buy in NYC.
Here are some of the key pros and cons of renting or buying a home in NYC.
|Pros of Buying in NYC||Pros of Renting in NYC|
|Stability / Fixed Payments||Flexibility|
|Builds Equity & Wealth||Lower up-front costs|
|Potential Price Appreciation||No maintenance/repairs|
|Tax Benefits / Deductions||Lower monthly costs|
|Cons of Buying in NYC||Cons of Renting in NYC|
|High up-front fees||Potential rent-hikes|
|Lack of flexibility||No building of equity|
|Higher monthly costs||No tax incentives|
As you can see, there are numerous advantages and disadvantages to buying and renting an apartment in New York City.
One of the first questions to ask yourself when deciding if you should rent or buy is “How long do you see yourself living here?”. This is crucial as the longer you plan on living in your home, the more it makes sense to buy it. The amount of time you need to live in a place for it to be worth buying is called the tipping point. As a general rule, it’s usually around five years, depending on the specific location and a variety of other factors, including your mortgage rate, and income (for potential tax deductions).
If you want to dig into the exact numbers, the best thing to do is to perform a rent vs. buy analysis. You can do this by calculating your overall expenses for renting vs. buying. Calculating your costs for renting is relatively simple as you can simply come up with your yearly rent and simply add 1-2% for each subsequent year, in addition to any initial broker fee you might pay. For buying, you’ll have to calculate your gross yearly expenses, including your mortgage, property taxes, common charges, maintenance, and insurance, and add your initial closing costs. To be as accurate as possible, you’ll need to subtract the equity you’re portion of your mortgage, so using a rent vs. buy calculator can be helpful. One of the better ones out there is this one from SmartAsset. As you’ll have very high closing costs when you buy, especially if you get a mortgage due to the NYC mortgage recording tax, it takes a few years for buying to become the better choice.
Renting is a very popular choice in NYC, particularly for college students, young professionals, singles and digital nomads, and for good reasons. Renting offers a lot of advantages, which we’ll go through below.
A significant advantage of renting, in New York City or anywhere else, is the flexibility you get from it. If you’ve just moved to the city, are a college student just starting out, or a young professional in the midst of building your career, then renting might sound particularly appealing. Renting offers you the flexibility you need if, say, you switch jobs or are always on the move. When you buy a home, you usually expect to live there for a long time, but renting is a better choice if you have to keep moving once every couple of years, or if you’re not quite sure where you want to settle down.
2. No down payments or other upfront fees
A significant benefit to renting as opposed to buying is the fact that you don’t need to save up for a downpayment. For homebuyers, a downpayment of at least 20% is usually required, plus other closing costs, broker fees, and other expenses. But for the average New Yorker, even saving up for a downpayment on a home can take decades. Bypassing mortgages and paying for a home in full is out of the question for the average homebuyer. When it comes to renting, all you need to put up is a security deposit, which is usually equivalent to one month’s rent.
3. You can benefit from NYC rent regulations
Let’s say that you’re already a renter in NYC and that you’re lucky enough to live in a rent-controlled or rent-stabilized apartment. If that is the case, then you’re probably better off renting, at least for now. The NYC market recently tightened its rules on rent-regulated apartments, rules that tend to benefit the renter more than the landlord. You can take advantage of living in a rent-regulated apartment and use this time to save up to eventually buy a home if that’s your ultimate goal. If and when your landlord decides to take the unit out from regulation, then you can start to re-evaluate your long-term plans.
4. No maintenance, repairs or real estate taxes
Another good part of renting an apartment instead of buying is the fact that as a renter, you have less responsibility when it comes to the actual property. As a homeowner, you’re required to pay real estate property taxes and to handle maintenance and repairs. As a renter, you don’t have to worry about all that, as the landlord is required to ensure that everything works well and that the apartment is in good living condition. All you need to do is get renters’ insurance, which is not expensive at all, and to know your tenant rights in NYC. This way, you’ll make sure you’re safe in case there’s any damage to your apartment that your landlord can’t - or won’t - cover.
Renting, while it offers a lot of flexibility and independence, is the second-best option for a lot of people. Being a homeowner is, for many people, the ultimate dream, and the definition of maturity and success. Let’s take a look at the pros of buying.
1. You are the master of your domain
The best part of owning your own place is the fact that you don’t need permission from someone else to do certain things. Being a homeowner means you can have pets, guests, you can redecorate or renovate as much as you like, without having to get permission from a landlord. Some landlords don’t allow pets in their apartments or have a strict guest policy, and some don’t want any significant changes done to their property by a tenant. When you own your own home, you can do whatever you want, for the most part - some structural changes are illegal, so make sure you consult city laws and regulations in that case.
2. You won’t have to move again - unless you want to
A significant stressor in the life of a tenant is that they never know when their landlord decides to either take the unit out of rent regulation, raise the rent, rent out the place to a relative, or sell it, and they’ll have to move out. Finding a decent place to rent in the city is no easy task; going through this process once every few years can really take a toll on one’s sanity. As a homeowner, you’ll never have to worry about this again. No one can make you move out of your home unless, of course, you fail to keep up with your mortgage payments. Still, it can be comforting to know that you, and only you, have control over this matter.
3. No more unexpected rent hikes
Another concern related to renting is the fact that landlords can raise the monthly rent and you won’t be able to do anything about it. If your apartment or building undergoes significant capital improvements, or you decide to take on a roommate, your landlord can raise your rent significantly. Building upgrades are out of your control, so you won’t have a say in the matter. When you own your own place, you don’t have to worry about rising rents. Sure, you’ll have to deal with taxes and rising interest rates, but you’ll have more control and responsibility in return.
4. Real estate is an excellent long-term investment
Being a homeowner might mean more responsibilities, but it also means getting a tax break. Property taxes and mortgage-interest costs are deductible, and in time, they can amount to some pretty substantial savings. Over the years, even if you do have a mortgage, you build equity in your home, creating value that you can then borrow against. If you do have to move, either for just a while or long-term, you can rent out your home to tenants and use the rent to pay off your mortgage. Or, you can take advantage of the rising prices in the market and sell the property for a profit. Lastly, if you have kids, you’ll have a home in NYC to pass on to them, which is a pretty big deal.
To sum up, both renting and buying offer a solid set of benefits and advantages. However, they also both have some significant downsides. Ultimately, what it comes down to when making this decision is where you are at in your life and what resources you have at your disposal. Do you have or can get enough savings for a downpayment on a home? Are you planning to settle down in the city, or are you not sure where you’ll be a few years from now? Are you ready to take on more responsibilities, or do you prefer flexibility and independence?
As we said, there’s no easy answer to this dilemma, and deciding on whether to rent or buy should be based on research, planning, and careful analysis of the pros and cons. If you want to get more information on the subject and see which option is more advantageous for your budget, you can try out a rent-versus-buy calculator to get a better picture of your situation.