Renting versus buying

Just a warning...the last person who asked this question got called hurtful names. Tread carefully.

Crux of the bear argument is that right NOW rent vs. buy clearly skews in favor of rent based on historical rent/buy ratios. So not that one shouldn't ever buy, but wait until buy vs. rent reaches a favorable ratio.

However, even the most strident bear will concede that if you find the one in a million apt that is not fungible and similar apts will rarely if ever come on the market and that you are headed out of the apt only in a coffin AND you can easily afford it - then buy.

No need for name calling.

And let's not forget the mortgage interest tax deduction, which the bears always conveniently leave out of the "rent vs. buy" equations.

I've said it before, and I'll say it again: When I was a renter, I was paying $1700/month. As an owner, I'm now paying a combined $2100/month for mortgage and maintenance. With absolutely no changes in my income or tax deduction status (meaning the ONLY variable here is that I changed from an renter to an owner), the difference in my annual income tax refund is consistently more than $10,000.

So given my new tax status as an owner, the REAL cost of my apartment is around $1100/month COMBINED, versus $1700/month for renting.

"which the bears always conveniently leave out of the "rent vs. buy" equations. "

In fact its ALWAYS part of EVERY one of the 100+ threads on this topic.

And your particular case is certainly an exception in today's NYC market - that is, assuming your current place is equally nice versus your past rental, and that your 1100/mo includes interior maintanence, insurance, and property taxes. Which I bet it doesn't.

"And your particular case is certainly an exception in today's NYC market - that is, assuming your current place is equally nice versus your past rental, and that your 1100/mo includes interior maintanence, insurance, and property taxes. Which I bet it doesn't."

My new apartment is bigger and nicer (gut renovation).

And I'm paying no more out-of-pocket for "interior maintenance" now than I was as a renter. Same thing with insurance (I had an extensive renter's policy).

And yes, my property taxes are included in my monthly maintenance. That's how it works for co-ops.

i guess i've seen it on here, but people post so many charts i get lost

..but is there a chart showing (using average rentals and prices i suppose) the historic level of the rent/buy ratio (in particular, to be logical, the rent number should be net of fees and taxes)....is there something showing this?...thanks

NYCMatt, your numbers are voodoo that you do not understand, so please try to understand them before spreading them around. I've tried to politely ask you to clarify (http://streeteasy.com/nyc/talk/discussion/17413-nycmatt-help-i-am-confused), but you cannot for some reason. I will use ALL CAPS to help you understand since you are so fond of them.

It is IMPOSSIBLE for a $2100 a month cost to go down to $1100 after the tax deduction. Even if the ENTIRE $2100 were tax deductible (only mortgage interest and property taxes are deductible, but principal payments, the non-tax part of maintenance fees, insurance, etc. are not), and even if you marginal tax rate were 40%, you ONLY get to $1260. You are CONFUSED about how the cost of ownership works.

inonada, I'm only relaying the bottom line as I see it.

My tax refund used to hover around $4,000/year. Now it's around $14,000/year. The ONLY thing that changed was my status as an owner.

I don't understand why. I don't question why. I frankly don't care why. I'm not an egghead accountant -- I pay one to crunch the numbers for me. All I know is the direct result.

melisloan, it is not always better to rent, but for the vast majority of NYC properties, it is better to rent. That being said, I've begun to see a few low-end properties (under $500K) where the rent-vs-buy characteristics are closer to parity on a long-term horizon (10+ years), mainly due to extraordinary govt efforts to prop up the market. However, even those properties do not look attractive once you consider that ownership should be paid somewhat to compensate for risk: the risk associated with not being able to rent out these units if you leave (they're almost always coops), the risk associated with what happens when the govt stops propping up the market (rates go up and prices drop), etc. Once you get into the space of multi-million-dollar properties, the rent vs. buy characteristics are highly skewed towards renting.

In terms of your concerns about rent uncertainty, while it is certainly a possibility, rents are more or less kept in line with inflation because rents make up 30% of CPI, the main inflation index the Fed watches. Here's how rental prices have evolved over the past decade:

http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1263479298xkoid&Record=2

You can see even during the past decade of perceived craziness in the NYC housing market in general, the rises have been quite muted. In fact, once you adjust for inflation, things look quite flat:

http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1263479338nkvcH&Record=3

You can see that on an inflation-adjusted basis, things have actually dropped over the past decade. If you compare cyclical high points (e.g., 2000 vs. 2007), you can see we're actually down 10-20% on an inflation-adjusted basis. To put that in perspective, rents over long periods of time roughly follow inflation plus-or-minus one or two percent annually. I.e., fears of rampant rent increases beyond inflation are unfounded by the data & for good reason (CPI & the Fed).

The graph jimstreeteasy is referring to is probably this one:

http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1249522147RFeuS&Record=1

in the market right now, you could not find anything remotely decent even in a fringe neighborhood for 2100 month owning all in.

Matt... r u listing that homeless guy on your couch as a 5 children deduction? It's the only way you get a $10K swing in your taxes IMHO.

Thx u for using CAPS. it helps matt, maybe in rainbow CAPS.. he'll have a clear picture ; )

melisloan..... I don't know WTF is so hard for ppl to understand... it's like I'm looking at nyc re at 5 feet away on a 50 inch plasma screen from 2003. It says on the SCREEN! NYC RE is gonna tank....

-shrug- I guess if you look at the 3 dead pixels on the top left corner from 3 inches away.. its' really HARD to see the MESSAGE. Like my parents said, don't stare at the screen from two inches away... you'll go blind!

"I don't understand why. I don't question why. I frankly don't care why. I'm not an egghead accountant -- I pay one to crunch the numbers for me. All I know is the direct result."

That's fine, but then I would recommend that you not play egghead accountant on SE if you don't understand the numbers you are quoting.

BTW, it'd take your accountant like 3 minutes to re-run your taxes w/o the mortgage interest & property tax deductions so you can see the real difference, so you might want to ask.

You might also want to discuss with him/her about increasing your allowances on your W-4 so your year-end tax refund is closer to zero. Unless you're a spendthrift who can't hold onto the money by yourself, you'd rather not have an unnecessary $1200 a month withheld from your paycheck only to have it returned the following year. You've probably filled out your W-4 form mistakenly, or you forgot to update it when you bought your apartment. Specifically, you should be filling out the top of page 2 in this form to account for your itemized deductions, which will include at least all state+local income taxes you pay, plus mortgage interest and property taxes:

http://www.irs.gov/pub/irs-pdf/fw4.pdf

Assuming you're single, make $100K a year, have NYS & NYC taxes of $10K, and have $15K in mortgage interest + property taxes, you should be claiming 5 allowances, not the default 2 allowances for a single person.