Is it better to buy or rent?
As a young-ish person hoping to buy a starter studio or small one-bedroom apartment in Brooklyn in the next two or three years, I was wondering what the community thinks of this calculator on the NYT: http://www.nytimes.com/interactive/business/buy-rent-calculator.html. Other than the fact that it defaults to a monthly rent of $1,100 and a home price of $172,000 (ha), which can be changed, I was wondering what other things (if anything) might be off, like the annual home price change, maybe? What else might it not be taking into account? It is suggesting that I might want to stay a renter for a long, long time. Thanks for your thoughts!
m926bk
in Real Estate - General 13 years and 2 months ago
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9 replies
brokelin | 13 years and 2 months ago
the thing is, you may have more control in a house, and more hassles fixing things, but in an apartment building, which a studio or one bedroom will be located in, you do not have that much control, as most of the building is a collective enterprise…and ditto with the repair hassles….most are the problems of the building as a whole. Yes, you have the freedom to paint the interior and make other decor choices, even renovate the interior, but you do not have control of the building. and repairs, while they come up on occassion inside your place, are largely bigger building issues, which you do not manage on your own.
Bklnite | 13 years and 2 months ago
To the original question – I think the buy vs. rent calculator is a useful model. No one can know what future annual rent or home price increases will be but 2 or 3 percent seems a reasonable guess. If you put in the best estimates you can for a specific apartment you’d consider buying and a comparable rental it will tell you you’re better off buying if you stay more than some # of years. The question becomes: do you expect to stay in the place long enough for it to be better financially? If it’s a studio and there’s a good chance you’ll want a bigger place in a shorter # of years, renting could make more sense. Of course the tool doesn’t put a value intangibles: the satisfaction people have from owning and being in control of their home or the value (/cost) of having maintenance headaches be your own problem vs. having a landlord who has to fix stuff. There’s no simple answer – the buy vs. rent decision comes down to the price & rent of specific places you coule buy or rent & your individual situation. Buying works out well for many, but that doesn’t mean it’s a good idea to buy a place for 500k if you could rent a similar place for 1500.
brokelin | 13 years and 2 months ago
It definitely was not easier back then. you are looking at buying a studio or one bedroom. do you intend to live there for a decade or more….if not, keep renting until you can buy something you can live in more long term. It takes some years of appreciation to cover your closing costs to buy and see, if you do not want to lose money on the place. and a decade to ride out any downtowns so it will come back up to where you can sell without a loss. given all the unrealized losses in the banking system, we are in for more rocky times. things will likely get worse before they get better. Unless you are sure you will not want to move for perhaps a decade or more, you are better off renting. It gives you the flexibility to make changes in your life, which are likely at your age.
housepoor | 13 years and 2 months ago
One poster noted that 20 or 30 years ago it was easier to buy a house. Not so. “Back then” banks demanded and got 20% down. Home Equity lines were starting to become available, but the combined first mortage and HELOC couldn’t be more than 80% of the market value. Owners really did have skin in the game. I think perhaps the poster was thinking of 2005 – 08, where buyer could borrow 100% of the purchase price and sometimes a little more, giving them a free option on the upside. Unfortunately, it turned out the option was worthless.
curiositykilledthecat | 13 years and 2 months ago
One thing the calculator doesn’t take into account is whether you plan to ultimately hold this starter as an investment, or sell it to upgrade to your next place. I know you don’t have a crystal ball, but I would say buy a condo (or a coop with lienient rental rules), and plan to rent it out down the road when you are ready for your next place. The idea of buying with an eye toward future rental also mitigates the risk of your getting transferred to Toledo at an bad point in the financial cycle–you can rent it out until the market for sale is more agreeable. Though not exactly the information you asked for, this is the advice I would give my 25-year-old self. Good luck.
slopemope | 13 years and 2 months ago
two main things – it is 1) an inflation hedge and 2) an forced retirement plan through tax-deffered equity building. Just jump ahead to 30 years from now: what will rent be and how much equity will you have in your house? Financially speaking if you use the argument that all savings from the early renting /saving years would be used for investments – – unless they are all tax free (401k / IRA etc) the difference between building equity in large a tax deferred asset – – the difference is not insignificant. If you can avoid taxes (not easy to do) then perhaps the homebuying argument is not the holy grail. Also, the kinds of houses we buy in brownstone Brooklyn (i feel) tend to have lots of maintenance – – for some a money pit – – so the benefit may be more intangible than financial. Finally, for many people “locking into” housing costs through a mortgage is important, because their earnings growth peaks at say 45 or 50 years old, and in an inflation-centric scenario where rent will continue to go up, unless you’re willing to start dipping into the “savings” you’ve previously accrued to date, you might get pushed out of your neighborhood. Sound familiar? There might be a long-term stability and peace of mind / body / spirit by not having your home uprooted should high inflation come at a time in your life where you incure health issues, family issues, etc.
m926bk | 13 years and 2 months ago
OP here. The link didn’t post correcty before. I’ll try again: http://www.nytimes.com/interactive/business/buy-rent-calculator.html?ref=realestate Thanks for your suggestions! I currently live in South Slope/Windsor Terrace and would like to stay somewhat close to Prospect Park, so will probably look at Prospect/Crown Heights, Kensington, and Ditmas Park. It seems like the NYT calculator doesn’t take into account how much neighborhood change affects sale prices in Brooklyn.
coopking | 13 years and 2 months ago
If you plan on staying in new york for the next several years and can find a place that you can AFFORD to live in I really dont see any reason not to buy right now. Mortgage rates are at an all time low and there is a decent amount of good starter apartments out there. Prices and sales have been increasing nicely on the higher end of the spectrum ( 2 bedroom apartments and bigger ) and that is eventually going to trickle down to the lower end. Some people will say ” well the economy could still get worse” but really if it got drastically worse making your mortgage payment will be the least of your concerns, we will be killing each other in the streets for food at that point. If I were in my late 20’s / early 30’s and wanted to buy in Brooklyn I would probably concentrate my search in either crown heights or ditmas park.
guikazoid | 13 years and 2 months ago
as a “youngish” person myself (mid/late 20s), i took into account that a lot of the people who seem to be financially ok all have one thing in common, they own a home. (i think) it was easier to buy a house 20-30 years ago than it is today. its also true that the rate of appreciation over the last 20 years probably wont occur again. regardless, ive been a home owner (2-fam) for now 6 months, we’ve encounrtered some unexpected costs (e.g., waterproofing repairs) but have no regrets. we’ve also been fortunate enough to have good tenants. after the tenant pays rent we’re pretty much paying half of what someone would rent that apartment for. sorry if im all over the place, im also on a conference call. also be sure to have enough $ in the bank to cover your mortgage if the event that you lose your job. lastly, i was raised in brooklyn, i love brooklyn and i know i want to raise a family in brooklyn. so deciding to buy a house in brooklyn was easy!