To Rent or Buy: That Is the Question
Living in NYC is an adventure and renting or buying take you down different paths on the road map. Which will serve you and your bank account better?
Let’s take a look at the benefits of renting vs. buying and figure out what you can afford without wanting to jump in the Hudson.
Cash and Time: 2 Main Investments
If you decide to buy, there are a few costs off the bat that you know you’ll have to cover every month—mortgage, common charges (condo) or maintenance (co-op) fees, and taxes. Some other costs to consider are: upkeep and repairs for your unit, utilities, Wi-Fi, streaming services and/or cable, and the money you’ll want to spend on all of the fun things that NYC has to offer like *insert NYC bucket list daydreams here*. Time is an investment that sometimes gets lost in the shuffle. How long do you anticipate being a resident of New York City? If you’re in it for the long haul—a concept called the ‘tipping point’ is something to keep in mind. The tipping point is similar to a break-even point—after how many years of owning a home does it make more sense money-wise to buy than to rent. In NYC, this point averages out to about 5.6 years, but varies by neighborhood. So if you’re planning on staying for less time than that—renting is definitely a safe choice. If you’re thinking you would like to make and keep a life here—buying is a real option.
- Choice! Options! Playing the field! Renting lets you try out different neighborhoods, types of buildings (Historic walk-up? New construction with a doorman?), and subway lines! Renting is also way more flexible for life and job changes.
- Often rentals include utilities, which can just be easier—less things to remember, less automatic payments out of your bank account every month. You may be paying a little more monthly, but the convenience can be worth it and it’s easier to budget with a steady monthly payment as opposed to factoring in utilities that fluctuate (A/C, we’re looking at you). Side note: when looking at rentals, don’t forget to double check which utilities are included every month—water, sewer, garbage, heat? #score.
- Renting also gives you time to improve your credit historyand puts you in a better place to buy down the road. Having a steady flow of on-time rental payments helps you build credit. Renting also buys you some time to save up a down payment and to chip away at credit card debt, especially cards that are carrying a balance higher than 50% of the credit limit. And the longer your lines of credit are open, the more that can benefit your credit score. If you want more info on how credit scores work and how you can actively work on improving yours—check out this awesome link from Uncle Sam! https://www.consumer.ftc.gov/articles/0152-credit-scores
- Home Equity or Real Property Value.Equity is the real market-value of your home minus the amount that you owe on it. So when you’ve finished paying off your mortgage—boom—that’s a lot of equity. And every monthly mortgage payment helps you get there. When your mortgage is paid off, you also have the option of borrowing against it if life throws you a curveball or you’d like to purchase a vacation home at the beach. When you rent, you’re not building equity. In a rental situation, the landlord is building equity.
- Buying can give you tax deductions.Sweet relief. You can write off a certain amount of mortgage interest and state and local taxes (SALT deductions). The fed has capped SALT deductions at $10,000 currently. There are also some capital gains tax benefits for when you decide to sell again!
- Personalization of your space.Buying gives you the freedom to paint and renovate, and not have to rely so heavily on Command hooks. Treat yourself to that new kitchen island, just make sure it’s A-OK with your condo or co-op association.