Better to Buy or Rent?
The Times took a look this weekend at the math underlying the rent-versus-buy decision. One conclusion of the study was that is was about twice as expensive to buy right now in New York than rent on a purely monthly after-tax cash flow basis. The conclusion seems to be that buying right now only makes…
The Times took a look this weekend at the math underlying the rent-versus-buy decision. One conclusion of the study was that is was about twice as expensive to buy right now in New York than rent on a purely monthly after-tax cash flow basis. The conclusion seems to be that buying right now only makes sense if you believe prices will continue to rise:
For new home buyers, prices in New York would need to rise roughly another 13 percent over the next five years for the average buyer to do better than the average renter over that span. In Northern California, where the gap between house prices and rents is largest, home values would need to go up about 19 percent by 2010. Over the next decade, the break-even increase is about 25 percent in New York and 40 percent in California.
The article also points out that it’s impossible to account for the psychic benefit someone may derive from owning. True, but the psychic toll of losing equity also isn’t being accounted for!
Is It Better to Buy or Rent? [NY Times]
Considering Selling,
You’re a boob.
Just kidding. I also bought a co-op in the 90s and moved up to a house a few years ago. I’ve fantasized about what I could do if I sold my house and pocketed the Monopoly money, but there is no way I could find a rental of similar quality, size, etc., for what I pay (including both repair/maint $$ and rental income),even allowing for interest off the profit. I suspect you couldn’t either unless you bought very recently. So it depends whether you’d want to downsize as well as rent.
The more rewarding option would be to sell and move somewhere in flyover country, where the prices are so different it’s like they have a different currency. But easier fantasized about than done.
considering selling-
Go for it!
I know several people who are rolling with this strategy. One family is selling a brownstone that they bought for 460K 6 years ago. They’re going to triple their money and rent somewhere until they figure out what they want to do with their windfall. Overnight millionaires
The other two are young couples with 1BR apartments in the Manhattan and each have a baby on the way. They’ll rent bigger places until they decide to move to the burbs or until prices level off and they buy something else in Manhattan.
They can all sit on piles of money until the market cools. And they can afford to rent bigger, nicer places in better neighborhoods in the meantime.
I only wish I had bought sooner so I could do the same.
Josh – I see your point more clearly now.
Anon at 2:10pm: I’m no accountant, but basically your rental income is reported as something similar to business income. You only pay taxes on the “profit”, not the gross income. By the time you are done subtracting all the expenses, including non-cash expenses such as depreciation, there should be little or no profit subject to taxation.
Considering selling anon: Oh yeh, I’ve thought about it. I have around $1.7MM of equity, would probably clear $1.4MM after capital gains tax and selling expenses. Tell me I could not retire or at least semi-retire in other parts of the country on that kind of windfall. And I could certainly pay cash for a more modest home in many areas near NYC. But, it’s not all about the money. My home represents the lifestyle I’d like to lead right now. And I’m not that confident that I can park all that money in other investments that will hold value as well as r.e. over the long-run. And living in NYC gives my wife and I access to career opportunities that would be difficult to replicate elsewhere. I made my small “fortune” in NYC and I’m not ready to go vegitate in some other place. Not yet. Ah well, I’m staying put.
Anon at 2:24pm: If you’re not ready to buy, you’re not ready. Nothing pathetic about that at all. Sounds like the smart move. Don’t buy until you feel you can get something you really want.
New Stoner: The point of saving is that we cannot afford to buy any home we’d be happy living in. Hence, saving the money in interest-bearing accounts instead of spending the cash on things like European vacations.
What would *you* do if you had $40K and could only afford to buy a home for $275K or under? “Leave NYC” is not an option.
MC,
And the point of saving is…..?
for the sake of Saving?
This NYT article was the final bit of evidence that resulted in my husband and I deciding to not buy for now. Instead, we’re paying off 100% of our revolving debt, investing the rest into CDs (or some other insterest-bearing device) and moving into a nicer rental apartment for approximately what we’re renting now. We just weren’t seeing anything worth buying in our $275K-or-under price range (which I know is tiny, but we’re normal-income folks). We don’t even qualify for enough mortgage on a multi-family home to buy anything out there. I know some might think we’re being pathetic by holding off, but we’re both really excited at how much money we’ll be freeing up for major savings over the next 2-3 years.
CS — Take a minute to look around at what rentals are like in Park Slope and some other neighborhoods. If you see things at a decent price level that are potentials, then I think you have answered the question itself.
Call me a boob, but I’m seriously contemplating the strategy in the NY Times. I started in a coop in Park Slope in 1998 and moved up to a brownstone less than two years ago. I figure that, consevatively, I can walk away right now with half a million in profit off an initial $30K investment (doesn’t include renovation costs of about $50K total). I love my old brownstone but I’ve got a whopping mortgage and could sink $20K a year in renovations for many, many years. I’m willing to do that but it’s a daunting prospect.
So, what’s the option? Cash out now and POSSIBLY rent a place in the same area for the roughly the same price I pay monthly (not including the renovations). In one move – whammo, I’m not only completely out of mortgage debt but I have a huge pile of cash earning money to pay for the kids’ college, a comfortable and possibly early retirement or if I want, another house down the road. If the market dropped 20 percent or so, and I reinvested my gains, I could probably buy a place in cash in seven years.
It’s a long-shot but it sure as heck is tempting
BB — How is rental income not subject to AMT?