Obviously, buying a home is a big undertaking and NYC’s notoriously high sale prices can quickly be the determining factor. Simply, can you afford it?
It comes down to cost and time
Not only will you be on the hook for the mortgage payment, but there’s common charges and maintenance fees, property taxes, and repairs that will command hefty additional charges, not to mention the costs of utilities, cable, Wi-Fi, food, clothes and entertainment.
Also, time is a factor. Do you think you will be located in NYC for awhile? New York City’s breakeven point – the number of years where owning a home makes more financial sense than renting the same home – is currently 4 years. If you don’t think you’ll stay in the city or your job stability is a concern, it’s better to rent than buy.
While cost and time are the two big deciding factors whether you should rent or buy, let’s look at other factors.
Benefits of renting
- Flexibility. “Test driving” a neighborhood or building before you make a longer-term commitment to homeownership is a great way to learn about your surroundings and test commute times to work or your child’s school. Renting is also perfect for those with jobs or personal situations that might change in the future.
- All-inclusive pricing (sometimes). In many instances, the landlord may pay for utilities such as water, sewer, garbage pickup and heat. Of course, you’ll probably pay a little more for these units, but it will save you the time of paying individual bills. This also makes budgeting easier because you know exactly what amount you need to pay each month and you won’t be subject to higher utility bills in very hot or very cold months.
- Time to get finances in order. It may be possible to get a home loan if you have credit card debt or if you have yet to save enough for a good down payment, but most financial experts warn that it’s not the best financial strategy. Creating a history of on-time rent payments can help you build the sort of credit you’ll need to qualify for a mortgage. Plus, renting may allow you to save for a down payment and to pay down credit cards that have balances above 50 percent of the credit limit.
Benefits of buying
- Equity. You increase your degree of ownership in your home with every payment you make; when you rent, you are paying your landlord’s mortgage or adding equity to his bank account. Plus, once you’ve paid your entire mortgage off, you can borrow against the equity in your home to fund major purchases such as a second home or your child’s education.
- Tax deductions. Property taxes and mortgage-interest costs add up, but they’re also deductible. Not only that, but if you meet certain requirements the IRS won’t apply a “capital gains” tax on profits from the sale of your home. You can keep the first $250,000 in profit you make when selling the home if you’re single, or the first $500,000 if married.
- Creative freedom. Want to create better sight lines between the kitchen and living room? It’s your place, you can take out the wall if you want to. Yes, some condo associations and co-op boards have rules about which renovations are allowed, but once you get the OK, you’ll be able to personalize your space in a way rentals might not allow.
In the end, the decision to buy or rent comes down to what you feel most comfortable doing – as long as you can afford it.
- Pros: The biggest pro is that co-ops are somewhat cheaper than their condo counter parts because they make up about 50 percent of New York’s housing inventory and because they require an additional layer of approval and are more restrictive with who they let in. Co-ops have higher owner occupancy rates than condos because most co-op boards frown upon or flat out disallow investors. Because of this, and because co-ops boards rigorously vet potential occupants and have the right to approve or deny each purchase, many believe there is more stability in a co-op.
- Cons: Co-op purchasers must endure a more rigorous approval process, including an in-person interview with the building’s board. And, after searching for an apartment for months and going through the approval process, a buyer can be rejected. Foreign buyers can’t purchase because they don’t have the necessary paper trail with U.S. banks, U.S. credit or both. Co-op boards generally require a minimum down payment of at least 20 percent of the purchase price. Some require more while others don’t allow purchasers to get loans.Each co-op building has its own rules, but most are quite restrictive about how you can use your unit; many limit or forbid subletting and disallow its use as a pied-à-terre. When you become a seller, the extra level of approval can get in the way of your sale. If you lose a great buyer because of a board rejection, you are forced to go back on the market. Finally, most co-ops have a flip tax, which can be up to 3 percent of the sale price, generally paid by the seller at closing. This tax is used to build up the building’s financials.
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