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October 13, 2009

To Own or to Rent?

Over the weekend The New York Times profiled a series of co-op or condo owners who became renters either due to the market downturn, size requirements, or both. The article begins, for example, with a family of four that moves from an 850-square-foot Upper East Side two-bedroom, one-bathroom co-op to an Upper East Side rental—three bedrooms, three bathrooms, and 1,400 square feet for $5,200 per month. The praises sung for renterhood include: freedom from responsibility and anxiety, fewer financial requirements, more space, and sometimes more amenities. Some of those profiled in the article, however, miss ownership: the camaraderie in the building, the freedom to renovate and customize, the autonomy of ownership. Those profiled are primarily individuals, couples, or families who live in expensive Manhattan neighborhoods like the Upper East Side, the Upper West, or Greenwich Village—people who can afford rents of $5,000. It would be interesting to hear from readers with a wider range of incomes and locations. For example, has anyone out there had a similar experience in Brooklyn, where you have recently sold a house or apartment (either by choice or necessity) in order to become a renter?
Owners No More [NY Times]
Image by Mark Ovaska

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Comments

Unless you are trying to flip homes like stocks then over the long run owners win , Hands down.

Posted by: sebb at October 13, 2009 9:32 AM

For 60k per year I would rather own. That's just me. If they were trying to save money 5k per month isn't a way to start.
Me thinks that people in this article aren't the types that really need to save anything. Writer for SNL????

Posted by: Adam Dahill at October 13, 2009 9:32 AM

I have to agree- if I had that kind of money to spend i wold own. Makes you wonder why they just didn't find a home within their seemingly not too shabby means. On the other hand, I've never felt the compulsion to own a house. At least not in NYC. If I ever move upstate I would- but here, it would be a huge exercise in stress for me, and I already have far more than I need in that regard.

Posted by: bxgrl at October 13, 2009 9:35 AM

If you have $5k/mo for housing costs AND you want to live in one of the nicer neighborhoods in Manhattan AND you don't want to live in a closet, you will have a much better living experience if you rent.

Now, if you wanted to take that $5k/mo to Brooklyn, maybe you would do better owning.

But not everyone wants to be crammed onto the subway next to angry large butted people with ipod nanos that seem to consider it a personal affront if you want the vacant seat next to them.

Sorry... lousy commute this morning...

Posted by: northsloperenter at October 13, 2009 9:44 AM

It's amazing how large some of those butts are.

Posted by: daveinbedstuy at October 13, 2009 9:46 AM

"But not everyone wants to be crammed onto the subway next to angry large butted people with ipod nanos that seem to consider it a personal affront if you want the vacant seat next to them."

Easy there, NSR.

BTW, I agree with your analysis.

Posted by: benson at October 13, 2009 9:49 AM

Last autumn (great timing!), I decided to put my 1BR in Park Slope on the market to look for a 2BR w/ outdoor space somewhere in the greater Brownstone Brooklyn area. Then the markets and economy got even worse, and I resigned myself to staying where I was. To my surprise, in early winter, I ended up with a number of competing bids on my apt. However, by that time, I was uncertain enough about the future of the markets (and my own job!) that I had no desire to invest a huge chunk of savings in an apt that would become difficult to afford if my personal circumstances took a turn for the worse. Plus the really nice apartments were still expensive -- sellers didn't seem to be realistic yet.

On the other hand, I was able to rent a new condo that hadn't sold, that met all my needs (nice kitchen, outdoor space, close to subway) in Cobble Hill for far less than what I was seeing as mortgage payments on the places on the places I wanted to buy. It wasn't my dream apt -- small bedrooms, shoddy details in some places -- but since I wasn't investing my life savings, I didn't care. And if something happens to my job, all I have to deal with is a few months on a lease -- not worrying about a fire sale in this market. So I sleep much better at night.

Eventually, I'll be ready to think about buying again. But in the meantime, I'm willing to trade off the lost investment of rent for the flexibility and security of liquidity.

Posted by: fitta at October 13, 2009 10:13 AM

fitta hits the nail on the head, for us at least. When we purchased a few years ago, we simply did not understand what was coming, and put too much of our cash into a large downpayment. Things got tight in my business for the first time in years, and suddenly I was worried about cash flow. We got a surprisingly good offer for our place (we are waiting anxiously for the closing) and, though we'll miss the pleasures of owning, I will sleep much better knowing we have some significant liquidity.

Posted by: lrlarson at October 13, 2009 10:48 AM

Hey - this is an article about me. I was looking to buy in Brooklyn but then did the math with insane brooklyn prices and said screw it. Now I'm renting an awesome loft in Financial district 3 minutes walk from work and couldn't be happier. A friend of mine bought a condo for just over a mil in Park Slope in 2007 and he's down almost 200k so far in market value. I can rent 5 years for that amount of money and I'm not even counting maintenance and interest that he paid over last 2 years. There is a huge disconnect between rental prices and condo prices with rental winning hands down.

Posted by: loty at October 13, 2009 10:57 AM

"...over the long run owners win , Hands down."

But Rosie Perez said...

***Bill Thompson for Mayor***

Posted by: Brownstones Half Off at October 13, 2009 11:01 AM

We've come a long way from the days when if you said you wanted to rent you were soundly trounced, or called a bitter renter.

Posted by: bxgrl at October 13, 2009 11:01 AM

"For 60k per year I would rather own."

Nonsense. You're omitting the total net risk of buying in a down market and unexpectingly selling before even a feel-good nominal "return" (but likely real loss). Divide that prospective loss by the months owned and you will likely far exceed 60k per year for the same charm/space/location.

"Now, if you wanted to take that $5k/mo to Brooklyn, maybe you would do better owning."

No way. You could still lose by the calculation above. A loss is a loss. Maybe you meant "feel better".

"angry large butted people"

Hmmm...can you please describe the appearance of these people in more detail? I'm trying to get an image in my head of exactly the type of people you speak of.

***Bill Thompson for Mayor***

Posted by: Brownstones Half Off at October 13, 2009 11:17 AM

A friend of mine who sold his condo FSBO-style, and had it listed here once and he reminisced to me about the comments, now rents. Reason? Backyard space for his young sons.

The path to wealth in America is home ownership. I am getting closer and closer to buying.

And once again, the Times shows how it's a paper for elites or that least those who aspire to elitism.

Posted by: infinitejester at October 13, 2009 11:20 AM

"lost investment of rent"

No such thing during this stage of the cycle.

Big up to fitta, lrlarson and loty. But don't count your eggs yet, lrlarson (I wish you luck on the closing).

I think this article is real sneaky about how it portrays renting versus buying. It was strategically written in a manner not to piss off the advertisers too much. There's no particular excerpt I can reference but I just get that sense. Am I alone?

***Bill Thompson for Mayor***

Posted by: Brownstones Half Off at October 13, 2009 11:30 AM

"The path to wealth in America is..."

spending less than you earn for decades.

But no one will ever ever ever ever admit it.

Posted by: northsloperenter at October 13, 2009 11:31 AM

"Maybe you meant "feel better"."

I mean, oddly enough, what I typed: "better living experience"

The financial argument for buying is weak. But the "I want to renovate and decorate my home the way I like it and then live there for 20 years" argument is as strong as ever.

I have a nice rental. I'm happy with the place. But I'd be happier if I could gut the bathroom and redo the whole thing.

Posted by: northsloperenter at October 13, 2009 11:34 AM

I would love to see a study that shows the real numbers on how home ownership has impacted people's wealth. I think there will be a huge gap in the middle where above a certain income level, its positive, and below that level really not so much. In the past I'm sure there would be a much smaller gap but these days?

Posted by: bxgrl at October 13, 2009 11:35 AM

"spending less than you earn for decades"

But you have to do SOMETHING with what's left over. Staying in dollars will not guarantee you wealth (i.e. the Lira in Italy - GOLD BABY!!!). And buying in RE before it finishes crashing may not be such a good idea either.

You must stay active (diversify, hedge, etc.).

(Shut up, BHO! What do you know? Stop trolling.)

***Bill Thompson for Mayor***

Posted by: Brownstones Half Off at October 13, 2009 11:41 AM

we had to sell our place in the spring of 2008 because we found out we were expecting twins and 800 square feet in a walk-up was just going to be too tight. we were very lucky to be able to sell the place for asking and get a much larger (almost twice the size!) rental in an elevator building for a touch more than our mortgage + maintenance.

i love our current apartment. i love the location and the space and the fact that we have a super on call if there's a problem (our old co-op was a tiny building with no super. in fact, i'd never had a super in 18 years of living in nyc! very easy to get used to.) but i just wish that we owned it. unfortunately, we would never be able to afford something this size and in this condition in this neighborhood (park slope/boerum hill border.)

we are looking to buy again within the next few years, but most likely will not be able to afford to do so in brooklyn. as much as i love it here, we just can't afford a house in a good school district with a short enough commute to midtown to make it worthwhile.

but, for now, i am very comfortable renting. it's much easier when all the home related problems are someone else's and just require a phone call, especially when you have two toddlers.

Posted by: funkymonkey at October 13, 2009 11:45 AM

It's the path to wealth because it's equity, and certainly in Lawrence, KS, a college town, it is less than in Brooklyn. It's still the Holy Grail in a lot of ways.

Posted by: infinitejester at October 13, 2009 11:45 AM

"It's the path to wealth because it's equity.
Posted by: infinitejester at October 13, 2009 11:45 AM"

but that's just enforced saving. You could just get your employer to set aside a percentage of your salary and you'd end up with the same net effect (leaving aside the different returns on different types of investments).

Posted by: the chicken at October 13, 2009 11:50 AM

Hence, feel better, northsloperenter. "better living experience" is not what you typed. I'm just trying to clear up the opacity that people see when the pumpers try to say owning is better. Better how? The mentally lazy tend to think 'financially better' w/out doing the math.

I agree that owning feels better no matter the cycle (so I've heard). There's nothing like customization.

bxgrl - All numbers are RED. The MAB was an equal opportunity wealth outlet for those who did not get out in time.

***Bill Thompson for Mayor***

Posted by: Brownstones Half Off at October 13, 2009 11:53 AM

The right number to compare to rent is the lost costs associated with the buy, your monthlies and tax effected interest payments. That is not a new concept. As of right now, in many cirucmstances (though surely not all) the costs for renting in NY are less than buying a comparable property. You want to argue that pride in ownership and ability to renovate overwhlems that, all good. You want to say that you prefer having your savings invested in an individual property rather than other investment opportunities (including REITs and such), understood. But just making an argument that if you are going to spend that much you would rather own misses the point.

Posted by: Ledbury at October 13, 2009 12:02 PM

I'd rather own than rent. All the calculations and investment risk talk makes my head spin. I just know that I don't want to be old and renting.

I don't know why, I just think it's sad.

Posted by: bedstuy11216 at October 13, 2009 12:11 PM

Something tells me that the guy who's owns the 1mm apartment in Park Slope won't be down 200K on the value of the property in about 5 years. That's what happens, sometimes the market goes down but overall his property is still going appreciate.

Posted by: NYGuy7 at October 13, 2009 12:17 PM

We sold our place in spring 08 and have been renting ever since. We sold since we needed to live in a different school zone for our child who was entering K, and we knew we would eventually need a bigger place, so the question was when, not whether, to sell. Given the cost of houses, and the already precarious state of the market in spring 08 (I had thought for years the rise was unsustainable), we figured it was best to sell first and know our budget for a house.

We lucked into a nice, economical rental in a great school zone, though at the time it was hard to find a rental (spring 08 being the last of the frothy moments). At first, I must confess I felt seller's remorse since the bias was still so much towards owning vs. renting. Since Sept 08, it's felt different, and many have congratulated us for our timing. That said, we would prefer to own again, since we liked being owners with all that implied (customization, tax credits, etc.). Also, since the next place we buy we intend to stay in for the rest of our lives, we would like to feel "settled" in our next home.

BUT, given the ongoing declines we predict will continue, we are patient, and enjoying our rental while we wait. It does not make economic sense to us to rush and buy at prices that IMO are still somewhat inflated (though coming down at last). The savings of waiting far outweigh the cost of rent and lost tax deductions. We do not plan to wait forever, and we ARE actively looking now, but feel confident we have at least a couple of years if need be, since we bet prices will continue to slide down and eventually stagnate before the market turns around, and even then, the gains on the market are likely to be modest.

In the meantime, we offer lowball-ish offers on places we like (in the range of 20-25% below ask) which often means we are offering far more than the sellers paid a few years ago - increasingly, we see sellers taking us seriously and wanting to negotiate with us, but the few we've engaged with this far along are still, in our opinion, unrealistic so we've just walked away. We are confident our patience will be rewarded.

Posted by: Miss Muffett at October 13, 2009 12:20 PM

bedstuy11216- Considering how many elderly do rent and hardly live sad lives, I'd say that's your personal problematic issue.

Posted by: bxgrl at October 13, 2009 12:29 PM

We sold our small two bedroom co-op this summer because it was very tight with our two children (second bedroom was 6 by 10). We got a decent price for it, but since we'd only put down 10% when we bought in 05, we didn't clear enough to put 20% down on a larger space in our area. So, we are renting in the same neighborhood, a much larger 3 bedroom apartment with a roof deck for several hundred dollars less than our mortgage+maintenance on our old co-op.

We love this apartment. It has room to grow, it's beautiful, the roof deck is phenomenal, the location is ideal. I do wish we owned it, but we don't have the down payment. So, we are here, saving money and loving where we live. It's not so bad.

We would like to own again one day, but honestly, there is something to be said for this feeling of freedom and flexibility. Since this apartment is so right for us, we might look into buying a country house one day, or just keep saving up for a new co-op or condo. And we feel good knowing we have a lot of money in the bank should something happen with one of our jobs.

Posted by: wishinone at October 13, 2009 12:30 PM

"sometimes the market goes down but overall his property is still going appreciate"

But a fresh loaf of bread will appreciate much faster. Eventually, the inflation adjustment calculation will sink his property value back underwater. Maybe not to the tune of $200K but he will lose. The mortgage giveaway, and hot-potato transfer, was a once-in-a-lifetime experience.

***Bill Thompson for Mayor***

Posted by: Brownstones Half Off at October 13, 2009 12:46 PM

It is smart, as NSR and BHO do above, to differentiate between the psychological benefits and the financial benefits of owning. If, as BHO says, mentally lazy people assume that beneficial means financially beneficial then they definitely should be straightened out. In very few cases I think could you make the argument that owning is financially beneficial vis a vis renting in this economy. However, there are many benefits of owning, which I am enjoying right now. My life being what it is (self employed, in an arts related field) I would never be able to live the way I do now (home office, big yard for the kids) in a rental as I would not be able to configure the space in the very particular way that I have. So for me its worked out very well (since I sold my coop just before the collapse last fall and got a great price).

However, there aren't too many people who I would advise to buy right now.

Posted by: wasder at October 13, 2009 12:52 PM

"But a fresh loaf of bread will appreciate much faster."

I'm no financial guru, but I'm pretty sure fresh loaves of bread are depreciating assets, especially if I'm hungry.

Posted by: northsloperenter at October 13, 2009 12:58 PM

"a once-in-a-lifetime experience."

BHO--I think you are really killing it today and in general I very much commend your style of writing since your hiatus from Brownstoner has ended. You make your arguments without resorting to the sort of "poke you in the eye" school yard stuff you sometimes used to employ. I do however have to question the wisdom of so confidently stating that the bubble conditions are once in a lifetime circumstances. There is just no way you or anyone else could make that statement with accuracy. Better to hedge your bets a little and suggest that these are unlikely to occur in the near to medium term. A friendly suggestion...

Posted by: wasder at October 13, 2009 12:58 PM

I agree, it is personal. And I admit not logical.

Posted by: bedstuy11216 at October 13, 2009 1:00 PM

My empathies here for all those on this thread having to find a larger place due to having families. The kids aren't that expensive themselves, but the third bedroom surely is.

Posted by: dittoburg at October 13, 2009 1:08 PM

I've been reading everyones comments (and maybe I missed something) but I failed to see anyone comment on the false security you have renting. My wife and I lived in a great rental in the lower east side, paying a fair rent for a large place and the owner decided to move back. You have no control in rentals. I've also been in other rentals in Manhattan where from one year to the next, my rent was jacked up by large amounts.
We recently purchased in Brooklyn and we are happy with the security we are provided and knowing that we will be staying there for as long as we wish (obviously job security is an issue for both).

Posted by: les212 at October 13, 2009 1:09 PM

"I'm no financial guru, but I'm pretty sure fresh loaves of bread are depreciating assets, especially if I'm hungry."

LOL! I'm pretty sure you know I meant steady supply.

***Bill Thompson for Mayor***

Posted by: Brownstones Half Off at October 13, 2009 1:11 PM

"I've been reading everyones comments (and maybe I missed something) but I failed to see anyone comment on the false security you have renting."

I moved to Brooklyn after getting a 38% rent increase on my Manhattan 2 bedroom. I was coming off a 2 year lease signed in 2005, so, yeah, prices had gone up a lot in the last 2 years, and I was braced for a 15% or even 20% rent increase.

But the 38% was too much. Landlord refused to negotiate. We moved.

Landlord was one of the first to start offering "1 month free!!!" for new leases. Then "2 month free!!!!". Then they cut prices.

I got priced out of my home even though my landlord was wrong about how much they could rent the place for and would probably have happily negotiated with me 6 months later.

But that does me no good.

So, yeah, there is a definite risk to renting.

Posted by: northsloperenter at October 13, 2009 1:21 PM

Thanks, wasder. Do I have that much power to sway people? I think people know that what I say about the future are just predictions no matter my conifidence. It's just the human way to express them.

***Bill Thompson for Mayor***

Posted by: Brownstones Half Off at October 13, 2009 1:26 PM

my mortgage is $2,500 a month, i have a tenant who pays $1.500 and i live in a 1873 RENOVATED brownstone in clinton hill on three floors each over 950sf? what makes more sense? renting in a building where exterminators come around spraying each month or owning and deducting my mortgage, hmmm....

Posted by: witchdoctor at October 13, 2009 1:28 PM

Hmmm, witchdoctor. You did voodoo and made your downpayment 50% or more (subtract that from your future resale price after inflation - you'll need voodoo again!). Otherwise, you bought your brownstone for half off peak comps before the run-up, without refi, or after the crash. Or you don't really live in Clinton Hill (east of Classon). Bad comparison.

Regarding exterminators, let's be fair. In a brownstone, you effectively live in a high rise turned on it's side. You don't eliminate bugs and rodents in NYC, you manage them.

***Bill Thompson for Mayor***

Posted by: Brownstones Half Off at October 13, 2009 1:41 PM

BHO, but even in perfect supply/demand market where economy is stable, Owning should be more to renting since there are added benefits, whether they are personal preferences, emotional safety, etc. The real question is whether the % difference between renting and owning makes sense. Also, I know what you preach but Wasder is right that none of us can predict it.

Personally for me, owning makes sense even when I bought at the height of the market. My mort+maint is MUCH less then comp. rents in my neighborhood for the apartment same size and I renovated the way I like it and not someone else. I will always be able to cash out and recoup what I spent for reno and downpayment even if my apartment falls another 35% or so.

Posted by: Kensingtonian at October 13, 2009 1:41 PM

"Wasder is right that none of us can predict it"

You mean no one can KNOW it. You can predict all you want. You have to predict. It's the essence of science, mathematics, personal finance, investing and buying a house.

"I will always be able to cash out and recoup what I spent for reno and downpayment even if my apartment falls another 35% or so."

How? If you put 20% down, you've already lost 75% of your deposit ALONE let alone reno cost (assuming the typical case where you haven't chipped away at principal yet). Leveraging is just as devestating as it is powerful. You have to divide this loss (actually larger even after tax advantages and writeoff considering reno) by the months between purchase and resale and THEN compare it to renting. Financially, you lose. Emotionally, you might win.

***Bill Thompson for Mayor***

Posted by: Brownstones Half Off at October 13, 2009 1:59 PM

BHO, even financially I win. I got it way undermarket directly from the sponsor of my coop. It was unoccupied for 10 years and was in non-livable condition and I brought it up to more than livable condition.

I am a personal anecdote though. I know what you're saying, quiet a few will lose out. I still think that over years, real estate is a sound investment. We can keep on going back and forth but we both have jobs and I would like to keep mine (not for the financial sense BTW but for the fact that I actually love what I do for a living).

Posted by: Kensingtonian at October 13, 2009 2:11 PM

He's not pissing his money away in rent.

Posted by: NYGuy7 at October 13, 2009 2:20 PM

Oh, by "height of the market" I thought you meant at a prevailing price. So you didn't refi your liability up to peak comps (coop probably wouldn't let you anyway, would it?).

***Bill Thompson for Mayor***

Posted by: Brownstones Half Off at October 13, 2009 2:21 PM

"He's not pissing his money away in rent."

Apparently, he's not shitting it away in an underwater mortgage neither.

***Bill Thompson for Mayor***

Posted by: Brownstones Half Off at October 13, 2009 2:25 PM

renting seems so transient (unless have RS apt). I would feel my home is so temporary if I rented after owning for so long. Not really my home. That is great for a season- like couple months in warm climate but otherwise I would advise renting to save up to buy...which means rent a place that allows you to put $$$ in bank each month.
That means NOT some new construction highrise doorman bldg.

Posted by: Petebklyn at October 13, 2009 2:33 PM

BHO--I hear you, its more fun to make bold statements than measured appraisals. And no you don't have that much power, as it seems you have figured out over time thankfully. But really what you have figured out is that a friendly bear makes more friends and has more sway than a wildly swinging and aggressive one.

Posted by: wasder at October 13, 2009 2:58 PM

Maybe I've just been lucky with all my landlords, but I haven't felt at anyone's mercy in all the years I've been renting. Renting or owning is a decision everyone makes for themselves and based on their own circumstances. My only objection is those who try to make it into a judgement call on what people are - or are not.

Posted by: bxgrl at October 13, 2009 3:17 PM

I sold my Queens coop in Jan. 2008 and moved to a rental in Bushwick. A month ago, we closed on a house in Bed Stuy.

I had to sell my coop because of financial reasons relating to a divorce. And also because I didn't want to live there -- the place was a compromise with my ex.

The timing was lucky. I benefitted from the boom and bust. My coop increased in value 40 percent the first year I owned it. Prices where I bought decreased 20 to 40 percent during 2007.

It could have turned out differently. I tried to move from my coop to another in 2007, but didn't qualify for two mortgages. I would have paid 20 percent more to live in Bushwick, but couldn't find the right place.

Posted by: mopar at October 13, 2009 3:46 PM

I'm very excited about decorating and not feeling like I'm wasting my money.

Posted by: mopar at October 13, 2009 4:03 PM

Are you decorating with old egg-cartons and used christmas wrapping paper?

Posted by: dittoburg at October 13, 2009 4:13 PM

Ha ha. Point is, I won't be moving soon again (I hope) so I can keep the egg cartons (window shades, rugs, wallpaper, paint, furniture).

Posted by: mopar at October 13, 2009 4:26 PM

Notice a theme: People seem to be happier renting in areas where renting is cheaper than owning and vice versa.

Posted by: mopar at October 13, 2009 4:43 PM

Having just gotten burned on a Brooklyn Condo, but getting out with less than a loss than we thought we'd have... We are happy to re-join the happy forces of "renterdom" we are in a garden apartment with high end finishes that would be way out of our purchase realm...

Posted by: tastybrooklyn at October 13, 2009 5:55 PM

Well, obviously in a down market like this one, renting looks a lot more attractive.

But when things pick up, and vacancy rates decline, landlords will be back to their old tricks again. The holy grail, as always, is to be a little bit ahead of the market.

There's not doubt that renting wasn't looking so hot 3 years ago...if you could have afforded to buy a place in 2003 and didn't, you missed out on 4 very good years of wealth building. And I don't think home prices in NYC are back to 2003 levels. Yet.

Posted by: Bolder at October 13, 2009 9:18 PM

Agree, Bolder, I think we're somewhere in 2005 still. Tasty, did you have to move?

Posted by: mopar at October 13, 2009 10:05 PM

I am now a befuddled mess after reading this entire thread.

How about inheriting a paid-for house?

Posted by: Nomi at October 14, 2009 2:34 AM

Then you're in a sweet spot, Nomi.

Posted by: mopar at October 14, 2009 7:21 PM