cost of renting vs. buying per NYTimes
This past weekend, NYTimes had an article talking about how bad things could get in the this Economy (“Uncomfortable answers to questions on the economy”). This quote caught my eye: “From 1985 to 2002, the average American home sold for about 14 times the annual rent for a similar home, according to Moody’s Economy.com. By…
This past weekend, NYTimes had an article talking about how bad things could get in the this Economy (“Uncomfortable answers to questions on the economy”). This quote caught my eye:
“From 1985 to 2002, the average American home sold for about 14 times the annual rent for a similar home, according to Moody’s Economy.com. By early 2006, home prices ballooned to 25 times rental prices. Since then, the ratio has dipped back to about 20 — still far above the historical norm.”
New York obviously is quite different from the rest of the country. Where do you think this ratio has been for Brooklyn?
If you’re thinking about purchasing a house, even with rental units, you have to think about maintenance costs and heating costs. Maintenance alone can be huge.
I think it depends a lot on where you look in NYC. When we were looking, some places in Manhattan were 16, 18 or 20 times the annual rent roll. But then we found a place in Bed-Stuy at 10.5 times annual rent roll.
20 to 25 times rent seems high for NYC, but then, NYC has $1800 studios, so relatively high rents may keep that multiplier down a little . . .
Brooklynnative–definitely good points. I am trying to factor those costs in though being a first time owner of a whole house I will admit to being less than fully educated on the costs of the things you cite. There are certain repairs that we will make before we move in (pointing, replacing windows etc) that I hope will help reduce heating costs but otherwise I am sure there will be surprises.
1842–I am definitely planning on staying for many years and hope that within a decade the rental income fully pays the mortgage.
The times ran another article a few weeks back quoting sale price to rental expense ratios. http://www.nytimes.com/2008/05/28/business/28leonhardt.html?_r=1&scp=1&sq=sale%20price%20to%20rental%20income%20ratio&st=cse&oref=slogin
the problem is that I have roommates and pay 800 bucks a month to live in park slope.
buying would fuck me in the monies department.
Good points Brooklynnative.
Other positives though are building equity over the long term if you plan on staying put for a significant period of time, and the mortgage interest deductions.
Wasder – I think that it’s mistaken to just compare the mortgage payments on a multi-family without factoring the costs of repair, maintenance, and heat which can be quite substantial for a multi-family. I defintely agree that a multi-family makes the best financial sense, it’s just you must consider a whole bunch of unpredictables.
I am currently in the negotiating stages of a purchase of a two family house in Clinton Hill. With the built in rental income it will be cheaper to live in two floors of a four floor row house than to live in the 800 sq foot co-op I currently own. The potential rental income of the full house is about exactly the same as the monthly mortgage payments. This is all a little off base as to the original point of this post but tangentially related. While the asking price of the house is closer to 20 times annual rent than 14 times, the financials still are favorable for an owner of a multifamily house (at least in Clinton Hill).
I bought my co-op in 2006 and I pay less for my mortgage than my place rented for before I bought it (easy co-op rules…they allow renting…)
So I suppose it depends.
In my case, my apartment costs less to own than it does to rent. By a couple hundred bucks, I’d say. More if you factor in the interest deduction.