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
Thanks for the encouraging posts, guys. We’ll keep renting (praying our landlord doesn’t sell) and saving, and hopefully I’ll feel a little more optimistic about things in a few years!
I would suggest anyone who is currently renting and thinking about buying to seriously take a look at your own math. I currently rent a 500 sqf apt. in the east village for $1800. I did own math a while back figuring the same place would cost me $500k with $750 per month maintinance. If I buy now and prices stay flat for the next 5 years I would lose $50K if I had to sell at that time, not including broker and closing costs which could be an additional $30k.
On the flip side if home prices appreciate at 4% per year I would break even. If they appreciated more I would make money from buying.
So the bottom line is where do you think real estate prices in NYC will go from here. I personally believe they will remain flat at best for a long time and that the real estate market is clearly at a very risky juncture. So the risk of buying right now just does not pay for me. So there is no way I am buying at this point.
In the six years my husband and I have lived together we have been forced to move out of THREE rental apartments (two in Brooklyn) due to the landlord’s decision to sell. We were so sick of moving (3 broker’s fees, 3 moves), losing weekends to open houses, having our lives uprooted, not to mention watching these landlords make wads of cash, that we bought a co-op as soon as we could scrape together a 10% down payment. In spite of the costs (our closing costs were minimal but there really are a lot of costs in owning–plumbers charge an arm and a leg!) and all the people telling us we bought at the wrong time, we should wait (and what–rent a 4th place? incur the costs of two more moves–in and out of the rental), we are so unbelievably happy to have our life back–and a sense of control over our destiny. People keep talking about the “intangible benefits of owning” –in our case, it is a palpable sense of relief. PS– I looked at 20 or so rentals in Oct-Nov 06–no way we could rent what we have now for the equivalent of our mortgage. (Throw in our maintenance, however, and there is a possibility…)
Just about to buy-Congrats to you and yours !
Rachel — I thought the same thing and it drove me crazy for many years (I moved here in 1999). I saved modest amounts every year only to watch the prices rise faster than I could save. I did not have a starter apt. to sell, earn a Wall St. salary and bonus, or have any help from mom, dad, uncle, aunt, etc. My partner and I got creative by starting a business on the side to create an additional income stream (he runs the business full time now) and I made good career moves to keep my salary growing. We also always rented cheap (and that meant being in neighborhoods that were safe but lacked amenities), well below our means, to also help save money. My partner and I could have afforded renting in Cobble Hill, Park Slope, and even a small place in Dumbo, but we decided saving was more important. Our unlimited metrocards got me to all those places in minutes anyway. And overall we tried to stay as disciplined as possible without giving up the things that make NYC great.
All that has finally paid off in that we are in contract on a 2bed/2bath, under $400K, over 1000sqft apt in Brooklyn. The neighborhood lacks amenities (we’re used to that so not a major adjustment), but we chose space and quality of the apt (move-in condition) and a low monthly mortgage. Our mortgage payment is only a hundred more than our rent (but rent goes up, our mortgage will stay the same), but we will now incur maintenance fees. We should be able to break close to even once we get the interest deducted. All in all, we’ll still have enough left over each month for travel, some luxuries, and dinner and drinks out.
Buying for me has symbolic value. Having grown up in rentals, I am finally buying part of the American dream. We’re also investing in a community — and excited to become engaged and help improve it (much less incentive to do this when you’re renting and improvements mean rent hikes). While everything up until this point has been focused on the money and financials, now we can focus on paint colors, buying furniture that we won’t have to move from one rental to the next, and making investments in custom pieces and home improvements that in a rental would have been a waste of money.
Regardless of the NYT article’s take on things, I’m very thrilled.
I don’t think it’s a fair to compare the cost of renting vs. ownership in any given year. You have to look at it over time. I’ve both rented and owned. When I think I know about renting is that my rent always went up (averaged about 5% over 10 years). If you’re renting an apartment for $3,000 today and rents go up 5% a year, you’ll be paying about $5,000 in 10 years. With ownership, your costs can go down oer time. While taxes + maintenance will rise, interest expense will go down because the loan is amortizing.
Rachel, it took me years to save up the DP, living in cheap(er) apartments and trying to be as frugal as possible. even with the income of my girlfriend though, we couldn’t even consider our brownstone neighborhood and chose an area the rich folk wouldn’t dream of looking at. so it’s possible for non-wealthy, non-trustfunders to buy a house, but it’s unlikely to be that ‘ideal’ historical house. but ya gotta start somewhere!
12:40 who are you refering to? I posted about the 10k. And yes I would have had to pay it if I was renting since I own a small business.
We moved away, rented and saved and came back. It was the only way we could do it, both hubby and I come from poor folk so no trust funds to help us. For us it was worth it. Our property has appreciated more than it would have if we’d bought where we lived while we were saving.