So you finally got that big job in New York City—perhaps it feels like the pinnacle of your career. Now, how do you actually afford to live there?
In most cities, buying can have more financial rewards in the long run than renting. But the option that is right for you depends on a variety of factors, both financial and personal.
- Usually, the only region in the U.S. that has higher rental and housing costs than New York City is the San Francisco region.
- While Manhattan gets the spotlight, rentals in outer boroughs can be had for far less money and might better fit into your budget.
- While you will likely enter into a lease, renting provides you with more flexibility if your job or income change.
- Being a homeowner means getting a tax break.
- Despite some ups and downs, overall home prices in New York have increased substantially in the past four decades.
5 Reasons You Might Decide to Rent in New York City
New York Prices Are Higher Than Other Markets
According to the real estate listing site Zumper, the median rent for one-bedroom apartments in New York City in August 2020 was $2,840. Nationally, the median home listing price in the U.S. is about $226,800, according to Zillow.
While it depends on how finely you slice the data—are you considering just Manhattan? All five boroughs of New York City? The broader New York metropolitan area?—it’s clear that prices are at or near the top. Usually, the only region in the U.S. that has higher rental and housing costs than New York City is the San Francisco region.
New York State Has One of the Tightest Markets
According to Jed Kolko, chief economist for the real estate data firm Trulia, Inc., buying is 38% cheaper than renting nationwide—“and buying is cheaper than renting in all of the 100 largest metros,” he wrote. But the picture is more complicated in states like California and New York. Right now, unusually low mortgage interest rates make buying the better option. If rates go up over 7%, then renting becomes cheaper than buying.
New York Has a Widely Varied Rental Market
While Manhattan gets the spotlight, rentals in outer boroughs can be had for far less money and might better fit into your budget, especially if you are just starting out and don’t have money for a down payment. From borough to borough, and within each borough, there is great variability in prices—and many quality rentals in up-and-coming neighborhoods.
No Maintenance, Real Estate Tax, and Upkeep Costs
Buying property can entail lots of additional, and sometimes unexpected, costs. Between repairs, regular upkeep, and renovations you may want to make, the price of homeownership goes way beyond the monthly mortgage. If the idea of calling the super to fix things that break is more appealing than fixing them yourself, renting might be your best option.
You Have Flexibility
While you will likely enter into a lease, renting provides you with more flexibility if your job or income change. Renters usually can decide to move with a notice of a month or two, while homeowners likely face a more drawn-out transition of listing and selling their property. The cost of buying and selling adds up, so if you don’t see yourself staying in the property for a while, it probably does not make sense to buy.
5 Reasons You Might Decide to Buy in New York City
Median Sales Price May Be Experiencing a Downward Trend
Even amidst the global pandemic caused by the COVID-19 virus—and the ongoing economic impacts of the business shutdowns—there has been an increase in activity in the New York City housing market. Pricing trends in the city were positive at the beginning of the economic crisis, and it appeared like the city's median sale price would remain high. However, that trend began reversing in June, and, according to Property Shark, in July 2020, the median sales price experienced a sharp decrease in all four boroughs.
From a sales activity perspective, there were 633 sales in July, specifically in the borough of Manhattan. This was the strongest month since the beginning of the crisis, although this figure represented a 36% year-over-year drop in sales (the least-drastic decrease since March 2020).
New York City Isn't Just Manhattan
In the New York City area, it's all about location, and once you get out of the New York City that is usually seen in the media, housing in the outer boroughs is far cheaper. Jonathan Miller, president and chief executive officer of Miller Samuel Inc., real estate appraisers and consultants in New York, says only the borough of Brooklyn has actually exceeded the price records set before the beginning of the financial crisis.
There Are Tax Benefits to Owning
Being a homeowner means getting a tax break. Mortgage-interest costs and property taxes are deductible, which can add up to big savings over time. Also, as you build equity in your home, you are also creating value that you can borrow against. If you buy one of the brownstone rowhouses that Brooklyn is famous for, your house may come with one or more rental units, allowing you to depreciate that portion of the house.
You Build Long-Term Investment Value in the Form of Equity in Your Home
If you don’t have the discipline to regularly stash money away, having to pay your mortgage monthly is like a forced savings plan. And real estate can be a good investment. Home prices generally rise faster than rent. Despite some ups and downs, overall home prices in New York have increased substantially in the past four decades. When you sell, the increase in value is taxed at the capital gains rate, which is lower than your income tax rate.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
The Pay-off of Buying May Coincide With Retirement
Buying means you’ll eventually pay the mortgage off (usually after 30 or so years). Then, as long as you remain in your home, when you retire you may no longer have monthly housing payments—giving you more money for other needs in your later years.
"Rent or Buy" Calculators
There are multiple rent-or-buy calculators; some are very simple and others are very sophisticated. Most generally start with the assumption you know how much you could spend—either buying or renting—and then allow you to factor in mortgage rates, your tax rate, property taxes, and upkeep expenses.
The Bottom Line
New York City housing prices are among the highest in the country, but values have appreciated over time. So, if you plan to keep a property for a few years, buying can be a good investment— as long as you have enough cash for a down payment and to cover ongoing maintenance costs.
Tight credit is making it difficult for some first-time buyers to get financing, notes Miller of Miller Samuel Inc. This “logjam” has made the rental market more expensive than the purchase market as a general rule, he says. The ultimate decision to buy or rent may not be about which market is more affordable, but whether you can qualify for a loan.