Rent vs Buy: Figuring Out What Works for You
It’s the age-old question. For many New Yorkers, deciding whether to buy or rent poses a difficult conundrum. On one hand, owning a piece of property in the city sounds like the dream – it’s a solid investment, and you get to break the annual cycle of deciding whether to renew your lease or coordinate another expensive and exhausting move. On the other hand, renters don’t have to deal with long-term mortgages or the daily stresses of home ownership. Here are some questions you can ask yourself to help you decide whether you should take the real estate plunge.
1. How long do I see myself living here?
Buying an apartment can be cheaper than renting if you’re in it for the long haul. If you’re not sure that you’ll live there more than a few years, renting is probably the choice for you, as your home will need more time to increase in value. However, if you do see yourself living in the property for seven or more years, making the investment makes financial sense, as NYC real estate values are consistently on the rise. Whenever you do decide to sell, you’ll be much more likely to turn a sizable profit.
2. Is this compatible with my debt-to-income ratio?
The debt, meaning your monthly mortgage, maintenance fees, taxes and other expenses, should not exceed 25% of your total income. According to the Consumer Financial Protection Bureau, debt-to-income ratio is determined by adding up your monthly debt payments divided by your gross monthly income. If your debt-to-income ratio exceeds 43%, you probably won’t qualify for a home loan, as studies show that borrowers with higher ratios are “more likely to run into trouble making monthly payments.”
3. What makes the most sense in the current market?
Following years of rapid price growth in both the sales and rental markets, the industry is now seeing slower growth across the board, with median sale price increasing .7 percent in the fourth quarter of 2016 – the slowest growth since the fourth quarter of 2010. This could be good news for renters and buyers.
In Manhattan – where 40 percent of sales listings had a price cut in the fourth quarter of 2016 – sellers received around 97.4 percent of their asking price, compared to almost 100% in 2015.
Our annual FiDi report found that the Financial District was an exception to this slowing trend in the sales market, as the average sales price rose 4.82 percent to a record high of $1,232,379 in 2016. The rental market in FiDi still appears to present the best value. While market rents have remained high, concessions are on the rise, with nearly two-thirds of all units on the market showing some sort of concession.
Once you’ve made your decision:
Give yourself time and see as many apartments as you need to feel confident in your final decision. Finding the right place can take an estimated 30 to 60 days for first time buyers, and then an additional 45 to 60 days to close. For closing and upfront costs, expect to budget 3 to 5 percent of the sale price for closing, and 10 percent as earnest money with an additional 10 percent for upfront closing costs.
Be aware of market trends and apartment availability in the areas you’re interested in, and stay abreast of shifting trends. You’ll need to be ready to move quickly, because the apartment vacancy rate in Manhattan is less than 1 percent, so the early bird really does get the worm. The annual income for a renter should meet a minimum of 40 times the gross monthly rent, and if you’re signing with a guarantor, their annual income should exceed 80 times gross rent Have all your paperwork ready upfront and be ready to make a quick move once you find the right apartment.