Buy or Rent
The decision to rent or to own an apartment in New York City is a matter of a choice of lifestyle- of economics, stability, and customization. CityRealty cannot tell you which one to choose but we can share with you the pros and cons of each option and our 10 years of experience in helping people make the right decision.
Buyers are usually settled in their decisions to buy. The move is often associated with a more serious decision, encompassing all aspects of their life. This change could be in response to a recent job change or promotion, a marriage, or just a change of lifestyle. Unlike renting, buying is generally a more complex and time-consuming process that requires a certain amount of psychological and financial commitment.
However, buyers look forward to moving in and getting settled in their new home. The comfort and privacy that it offers is usually the most important thing to them and they love every aspect of being and feeling at home. They also look forward to customizing their new living space, from knocking down walls and building new ones, installing new heating and cooling equipment, to arranging their bathrooms and kitchens.
Buyers are often attracted by the financial advantages that owning property offers. First of all, they are not "throwing" money away on rent. Secondly, in the event they decide to move out they always have an option of renting their apartment to others and thus generate income. Owning real estate in New York is considered to be a very solid investment. As a matter of fact many New Yorkers have found it to be an excellent investment over the years. Some who purchased apartments on Fifth Avenue in the mid-1970's soon after the Oil Crisis for, say, $50,000, found them to be worth a few million dollars in the late 1990's. Such dramatic appreciation, however, does not always occur. Prices in the 1950's and 1960's were relatively stable and suffered a bit after the Stock Market Crash of 1987.
Buying an apartment offers the advantage of many tax benefits as owners are able to deduct property taxes and mortgage interest on their income statements. Such "tax benefits" are not available to renters and are substantial in a comparison of monthly maintenance costs and monthly rental. They can often result in dramatically lower monthly housing costs. Another important consideration is that renters are not tying up capital in the purchase of an apartment, which does not generate revenues, although it may promise long-term capital gains. New York City real estate historically has had its ups and downs and while property values have risen remarkably since the late 1990's, there have been periods of quite stable values, sudden spurts, long plateaus, and some dips.
For more information about the tax benefits associated with buying an apartment, please contact your accountant or financial consultant.
Condominium and co-operative buildings are usually constructed to a higher standard than most rental buildings. Their general superior size, layout, and amenities reflect the more stable and comfortable living situation of their occupants. In addition, since apartment owners participate in managing and maintaining all common areas, they also tend to be in much better condition then the apartments in rental buildings. In general you can expect much more for your dollar in an owner occupied building than in a tenant occupied one.
The reason why most people shy away for buying is the large amount of money it takes to put down on any property in New York City. An average one bedroom apartment in a good neighborhood costs an estimated $500,000. Most buyers put down at least 10% on a condo and 25% on a co-op, which in this case comes out to be $50,000 and $125,000 respectively. In addition to that there are closing costs associated with any purchase of real estate; attorney fees, mortgage points, insurance etc. (See our Buyer's Guide for more details.) These costs could range from anywhere between $5,000 and $20,000, depending on what's required. Therefore, to start to consider buying an apartment in New York you should have at least $75,000 - $100,000 in your bank account. In addition you will need to fulfill several other requirements such as: credit checks, rental and owner history, as well as approval by a condo association or a co-op board. (See Condo associations and co-op boards section below.)
A second reason that holds people back from purchasing an apartment is the long-term commitments that they need to make. Buying a home is usually a decision that encompasses all aspects of a buyer's life. It requires a financial commitment to re-pay a loan over an extended period of time. It makes one legally responsible for all aspects of owning residential property such as: taxes, compliance with city regulations, maintenance, service, supplies, etc. Buying an apartment is also an important part in a one's over all life process. It signifies a certain degree of maturity and willingness to change which in turn require a strong psychological commitment in deciding on choosing and living in your next home.
Making the commitments, getting the funds together, and finding the right apartment is just half the job when buying property in New York. If you choose to move into a condo or co-op, you must be approved by the organization that governs the building. In the case of condo associations the rules are not so strict and most people get in without any major difficulties. If you are applying for a co-op however, the issue can be much more complicated. New York City is famous for having the hardest approval requirements on co-operative buildings. The local boards have effectively rejected the applications of such celebrities as Madonna, Michael Douglas, and Whoopi Goldberg. Often it is not the financial situation of the applicant that concerns the board, but simply they pick and choose at will who they like and don't like based upon their individual preferences.
To find out more about co-op boards and condo associations, their differences, similarities, and how they work, visit our Buyer's Guide.
Renting an apartment is by far an easier and more convenient way to start living in New York City. From legal, financial, and psychological standpoints it is a very simple hassle-free process that usually takes anywhere from an hour to two weeks time to complete. It is the choice of many who come to the Big Apple. No matter if you are coming here to work, don't yet have a job yet, or even if you do not have any particular plans and just want to experience life in this unique and intriguing city, renting is easy, fast, and convenient leaving you with a lot of flexibility in future decisions.
Renting is also the choice of many new comers who would rather buy but are either not familiar enough with the city, not quite ready to make that kind of commitment yet, or who simply do not have the substantial amount of capital it takes to put down on a condo or a co-op. In such cases, renting becomes the number one option. While they are renting and living in the city they get to know the neighborhoods, save money, and get ready to make that decision to buy their next home.
Renting is obviously the more affordable solution... in the short run. First of all, there are no large down payments, although you will have to pre-pay anywhere from 2-3 month's rent upfront. (See our Renter's Guide for more details.) Secondly, there is no mortgage, attorney, insurance, or any other closing costs associated with renting. You do not need to pay monthly maintenance or occasional assessment and repair fees (these can sometimes be a real knock to your budget). Finally, you do not pay taxes when you rent. In most situations all your financial obligations are limited to rent, gas, and electricity (heat and hot water are included in most rental buildings), and in some instances, a one-time brokerage fee.
Most people that rent value the psychological freedom of not being tied by a long-term financial and emotional commitment to any one apartment, neighborhood, or city. They prefer to write a check once a month and not have to worry about the old refrigerator, broken dishwasher, squeaking staircase, or the aging roof.
The major drawback of renting is that no matter how long you lived in your apartment, whether for a month or for 20 years, you own nothing once you move out. Moreover, the money that you "throw out" on rent does not fall under any tax categories and cannot be used as deductions on your tax returns–something that is a right if you purchase property. These write-offs can add up to be substantial amounts over the years.
Because of their transient nature, rental buildings often are not of as high a quality as cooperatives, or condominiums. While there are many extraordinary rental buildings in New York, on average co-ops and condos are still built to higher standards, especially in terms of room sizes, layouts and amenities.
As a renter you will be forced to accept many peculiarities of your building and apartment. Among the most common issues are: lack of elevator, aging staircases and roof tops, liking the kitchens and bathrooms, color of your walls, and of course your kitchen and bathroom equipment. Even though in many cases landlords will let you customize your living conditions, the costs of getting a new refrigerator or buying an air conditioner are so high that many renters just don't find it economical to do it on their own and thus, put up with whatever the landlord is willing to provide.
This is by far the most crucial aspect of any renter's living situation. A good landlord can make you feel like you own your apartment, whereas a bad one can make your entire life a living nightmare. The best precaution to take, if you are going to rent, is to make sure that you meet with the landlord first. Find out what he/she is like, what they expect from you, and what they are willing to provide. See our (Renter's Guide for more inside tips.)