With thousands of buildings, hundreds of available apartments, and dozens of neighborhoods, the right apartment in New York City might be under a cloudy shroud of half-information. How would you know if you’re better off renting or buying your next NYC property?
Whether it’s your first apartment or fifth, you keep asking yourself “should I buy it this time instead of renting?” Then, you’re probably thinking that buying an apartment in New York City isn’t possible — it’s just too expensive.
The truth is there’s no right answer and it depends on your preferences, needs, and a little bit of family planning.
We decided to focus on three main criteria that might help you decide: Control, Cost, and Community.
Control means how much flexibility you have to change your situation.
Cost means how much housing you can afford.
Community means how badly you want to lay roots in your community.
Renting or Buying in New York City? Let’s Get Some Advice for Our Friends
Tony, Miguel and their two sons currently live in TriBeCa in a two bedroom apartment they found in a lucky steal. It’s a two bedroom apartment, with one-and-a-half bathrooms, a decent sized kitchen, and a small-but-manageable living space that they also use as a dining room. Reality has set in: the kids are getting bigger and the space is no longer big enough for two boys, their stuff, and their privacy needs. They’re also thinking about a third kid — it’s definitely time to upgrade. Where should they go? Should they buy or rent?
Sarah loves her community, but is concerned that if she buys now she’ll be less flexible when another life-altering event happens.
Sarah is a single freelance writer who lives in Bushwick. Life is pretty good! She has enough work to pay her bills, save a little, and enjoy her neighborhood. She’s built community through local political campaigning and volunteer work cleaning up her nearby parks. By some combination of work ethic, talent, and sheer luck, Sarah has a new full-time job offer to be a senior editor of a famous publication. It comes with perks, but most notably, she’ll get a steady and substantial paycheck. She’s thinking that she loves her neighborhood and wants to lay down roots here, maybe start a family. Should she look into buying a house in Bushwick?
Consider This When Deciding Whether to Rent or Buy in NYC
Let’s keep it simple: let’s focus on costs. There are two types of costs you should consider when thinking about renting or buying in NYC: upfront costs and recurring costs.
We’ll compare the pros and cons of each and hopefully give our friends Tony & Miguel and Sarah some good advice about what to do next.
Lots of technical terms below — here’s the tl;dr version.
- Way more often than not, it’s going to cost you a lot more up-front to buy vs. rent
- Even if you can afford to buy a home, you might choose to rent because a certain apartment fits your preferences, or you’re expecting/desire to move or grow a family in a few years
- You reap the rewards of building wealth when you buy an apartment, but you also are responsible for maintenance and other issues, which might eat into your profits. No risk, no reward, as they say.
Upfront Costs: Shelling Out Some Cash, Now.
The biggest difference between buying and renting a home is upfront costs, or what you pay before and at closing. Note! Much of the following information only applies if you are borrowing money to buy the home, instead of shelling out some of your considerable wealth to buy it without borrowing money (“all cash transaction,” they call it even though you’re unlikely to use paper money and/or coins).
Buying: When you buy these costs can include, but aren’t limited to:
- A down payment: a percentage of the purchase price of the home. This will vary based on a few variables, but will generally be somewhere between 10% and 20%. It can also be considerably less.
- An appraisal fee and/or credit check: a sneaky, usually unexpected $500.
- 1 year up front of some future recurring costs, like insurance or property taxes: your lender might require you to set aside money for these monthly recurring costs on top of your monthly principal and interest payment. This could be waived in certain circumstances.
- Closing costs: you’re paying to make this transaction legal, documented, and agreed-upon. Sometimes these include lawyer fees, checking the “title,” or chain of ownership custody, or, especially if you’re buying a co-op in New York City, a transfer of the stock & lease documentation. Almost always, a co-op’s closing costs will be significantly cheaper than a condo or a free-standing house.
Renting: When you rent these costs can include, but aren’t limited to:
- Security deposit: the landlord will likely ask for a check equal to one months’ rent to guard against future damage to the apartment. In most cases it’s returned in full at the end of the lease, after the landlord has inspected the apartment. Since 2019, landlords can only require first month’s rent and one month’s security deposit.
- Brokers’ fee: if you hire an agent to help find your apartment, sometimes you’ll pay them a predetermined fee; sometimes your landlord will pay this fee.
- 1st and/or last months’ rent: your landlord will likely ask for this to ensure that you’re not going to skip out on the lease, even if you’ve signed a contract saying you won’t.
Recurring Costs: Trips Around the Sun, Broken Into Never-Ending Payments.
There are two differences that distinguish renting and buying regarding costs that you’ll pay, likely, monthly:
- Eventually you’ll stop paying a monthly mortgage payment and you’ll own this home outright.
- You have the choice, if circumstances allow, to lower your mortgage payment (you can almost always pay more than required per month without formally doing it).
Otherwise, likely you’ll be cutting a check for the 1st day of your rental month, every month.
Buying: When you buy, here’s what you’ll likely pay monthly.
- Your mortgage, likely principal and interest, and occasionally private mortgage insurance: Instead of paying a landlord, you’re paying your future-self, and the bank for the privilege of using their money.
Sometimes you can borrow money to purchase a home and only pay the interest portion of this loan for a set period of time, and pay the loan off in full later. This is likelier for high net worth folks, however, as it’s a riskier play for banks.
Private mortgage insurance (PMI) is occasionally an extra charge required for borrowers who put less than 20% down this will likely phase out once your total contribution to the principal reaches 20%.
- Property taxes and insurance: if you own your home with no mortgage, home insurance is not required (but let’s say “highly encouraged”).
- Utilities: All the pieces of the puzzle to make the apartment run. Heat, electricity, hot water. Sometimes you pay these directly to the utility company, sometimes you pay them to your building, which then bundles the costs and pays them as a single payment.
- Maintenance costs: This means two things:
- The cost to maintain the apartment; if you put a hole in your wall, if your sink breaks, it’s on you (or maybe on your insurance, which you should totally carry).
- The cost to cover the underlying mortgage on a co-op and to maintain the building hallways, lobby, grounds, etc. This is likely an additional cost to consider.
Renting: When you rent, much of the cost of maintenance is built into your rent:
- Rent: pretty standard, you’ll pay the agreed cost monthly for the term of your lease.
- Renters insurance: This isn’t legally required in New York City, but some landlords require it; it’s usually quite inexpensive.
- Utilities: You’ll likely pay for some or all of your monthly utilities, depending on what’s included in the lease. Sometimes all utilities are covered.
Should Tony & Miguel Buy or Rent? What do They Need to Consider?
Tony and Miguel both work steady jobs and make a good living, enough to give them a choice to rent or buy in most NYC neighborhoods. They’re rapidly running out of space as their kids grow up and they’re thinking about a third. They’d also like to be closer to work and their kids to school. It’s been a little disheartening for them that they’re not building equity in their home by owning an apartment rather than renting — every month the check just goes flying out of their account, never to be seen again.
Should they look into buying a place? Now that we know the costs, let’s look into three core decisions that could help Tony and Miguel decide how to proceed:
- Control: Buying is the less flexible of the two choices. It’s almost always simpler to move when you’re renting space in someone else’s property. But we are not sure Tony and Miguel need ultimate flexibility at this point; it seems like they need space for their kids to grow.
- Cost: Depending on where Tony and Miguel decide to look and how they buy their new home, in the medium-to-long term, they could save money as their mortgage is likely fixed at a certain level — which is unlikely to be the case for rent. Plus they’d be paying themselves rather than someone else. Not to mention potential tax savings (homeowners can write off mortgage interest on their income tax statement).
- Community: Buying a home means buying into a community. Tony and Miguel might have new neighbors come and go but they’ll likely stick around for awhile. Maybe there will be other kids for their sons to befriend? Maybe they’ll host parties or local events?
Should Sarah Buy or Rent? What Does She Need to Know?
Sarah’s very excited about her full time job, but journalism is not a particularly stable field–any number of hiccups could disrupt her life, not the least of which being the publication shuts down, or decides to move in another direction. Her salary is good, but there’s a hard limit on what she can afford so she can avoid private mortgage insurance.
If she rents, she’ll likely search for a studio or 1-bedroom with just enough space for her and her stuff. If she buys — should she look for a bigger space? What if she meets a person and decides to have her partner move in with her in some number of years? She’s excited to be a part of the community long-term, but what if one of a hundred things happens?
Maybe Sarah should rent in the short-term. Let’s look into Sarah’s potential framework:
- Control: Sarah would be responsible for making mortgage payments whether she had a full time job or not. She can’t necessarily run away if the times get tough (though there is the possibility to rent the unit to cover the mortgage, plus maybe a little more). Her job as a freelancer has taught her to be conscious that situations can change at any moment. She also won’t necessarily be able to upsize if her family situation changes
- Cost: She’ll likely have little savings, so maybe it’s not the right time to buy (if she can’t get a gift or family member(s) to help out with a reasonable down payment). But, like Tony and Miguel, she’ll likely save money over time by buying rather than renting. One day, she might not have to pay a monthly fee to live ever again!
- Community: Sarah loves her community, her neighbors. She loves her block, that one small park she can relax in and the local restaurants that come and go. She loves access to the Subway and to buses, and she loves that the city is planning to build bike lanes soon. She can’t imagine herself leaving anytime soon.