Oh, Inverted World: Renting Better Than Buying?
As prices for residential real estate were reaching all-time highs around the country back in 2005, the smart money decided to wait it out on the side lines in a rental, says the New York Times today. And even though purchase prices have fallen considerably since then and rents have ticked up, when you add…
As prices for residential real estate were reaching all-time highs around the country back in 2005, the smart money decided to wait it out on the side lines in a rental, says the New York Times today. And even though purchase prices have fallen considerably since then and rents have ticked up, when you add in all the expenses of owning (taxes, maintenance, mortgage), it’s still a better bet to rent in most markets. For buying to make sense, the article asserts, you have to believe that your local market will appreciate five percent a year for the next five years. Do you think Brooklyn, and New York City as a whole, can do that?
A Word of Advice During a Housing Slump: Rent [NY Times]
Photo by bondidwhat
What you conveniently choose to ignore David, is that the 5% appreciation you are refering to is on the total value of a home. That is a very different number than the 5% ROI that you get on your money if it is a CD or agressive money market account. If you take $100,000 and put it into a CD at 5%, it is worth $105,000 after one year. If you put $100,000 down as a 10% down payment on a property that costs $800,000 (with the extra $20,000 covering closing costs) and that asset appreciates 5% in one year, your original $100,000 would be worth $140,000. It doesn’t even take the historical average of 5% home appreciation a year for the home to be a better long term investment.
My parents own a small 450 sq.ft. studio in SoHo. They just rented it for $2100 a month. The coop board demanded that the tenant pay a year’s rent up front ($25,200). At the end of the lease, this tenant could be booted out. Is the rent/buy debate really an issue here in NYC? I don’t think so…
Actually it is a very good article – they point out the falsehood that owning is always better then renting. They use a specific time period 5yrs – which is realistic based upon average time people live in a location and consider the costs of owning that are often ignored and just as ‘thrown away’ as rent – post deduction mortgage costs, taxes, fees etc..
And in fact the article ignores the most hidden cost – the opportunity lost for the equity investment in your home- which if the market stays flat is 5% ayr compared to the most basic money market account.
I did the math & that would mean my house would increase in value by close to $44,000 a year. No chance. I do believe that 30yrs from now, when we’re too old to walk up all those stairs, we’ll be able to retire comfortably on the proceeds of the sale and live our final days in Jamaica … sorry, daydreaming … anyway … I say no way 5%/yr is achievable in the next 5 yrs.
I own. I don’t think prices will appreciate as indicated in the article.
have to agree with both 9:26 posts.
every situation, property, neighborhood, price point and the income levels of a buyer related to their potential purchase have a huge impact on the intelligence of buying vs. renting. you just can’t dumb it down in articles like this, which basically tell us nothing useful.
plus, what of the flip side of this lame-o perspective? rents are already astronomically high in nyc, even in transitional nabes, so as property values potentially slip, more people will seek rentals which drives up the price of said rentals. Why no mention of this?
If you ever wish to own, should rent well below your means and stash extra money away.
And when you buy, it better with intention of more than 5 years – and not as ‘investment’ to sell at ‘profit’- but for security, build equity (none of that only interest loan nonsense), and quality of life.
I
This article assumes we will repeat a 1989-1992 real estate market. Interesting how they “forgot” to mention that there was a nationwide recession at that point that had a profound effect on real estate. How can they make the comparison and leave that out?
I swear, journlism is going to hell.
I guess the guy who wrote this rents. Shocker.
I’ve never read a more broad, generalized, and silly article in my life. It takes into account no particulars about where you are buying, what price point in reference to the rest of the properties in that market, how much work you are going to put into the property, and if you are selling something else. Who ever said there was some absolute right to buying a home and having it be worth %25 percent more after five years. You have to live somewhere.