should we buy or continue to rent?

$100k may not be enough! You'll need at least $120K + liquidity after closing. I heard liquidity requirements are getting tighter b/c coops do not want to be stuck holding the bag in RE market that is unsure. You might look at Condos but you ay only get a studio. Good luck

I'm sure you will find great disagreement here on this discussion board, and while it may not be a marvelous short term investment at any given moment in time, real estate has histoically been a great investment over time. It isn't easy to predict the market, so I would suggest you take the plunge whenever you find something you like, or else you may find yourself renting 5 or 10 years from now instead of owning and building up a nest egg.

Huh, let's see....(1) it will be a downgrade...(2) it will be more expensive...(3) you will tie up all your savings (I assume) in real estate...(4) real estate prices are falling....I think this would clearly be a bad investment.

#4 is correct. You're happy where you are, invest your money and keep renting.

Although i support buying in general, in your specific case I would continue to rent.

I own an 1 bedroom apartment, and I am considering selling the apartment and renting. After selling cost and mortgage, I will net $300k. I can put the money to work in the stock market or the bank. Safe CDs are paying 5.5%, which will net me $16k a year. I estimate an 1 bedroom rental will cost roughly $3k. Current maintenance and mortgage is $2.9k. I know I lose the tax deduction, but I get hit by the AMT so I think the tax benefit is questionable.

#7, how will a CD net you $16K - you have to pay tax on that interest as income, right?

You should consider the tax benefits, if it applies to you (ask your tax accountant). I was in your position last year and decided to buy - really glad I did. Though for the same amount per month I might have rented a place with more features, the cash I'm saving in taxes is more than enough to pay for upgrades and rennovations, plus the value has already gone up.

Also consider this - you might be paying $2700 in rent NOW but if you go with a fixed rate mortgage your payments are locked in for the life of the loan. As for maintenance, check the financials and history of the building to predict how often fees would increase.

If you plan to be in your new place for at least 5 years it's worth it to buy. If the place has good resale potential (proximity to subway, light, high floor, etc.) chances are greater it will appreciate in value.

OP, I think as a general matter, people will not be able to afford to buy a place as nice as the one they can rent. Same happened to us; we were renting a great 2+ bedroom, 1400 square foot place for $5350 and then decided to buy a year ago when they proposed raising the rent to $5850. For about $6000 per month we have a smaller (1150 sf) 2 bedroom that is not as nice and not in a full service bldg. - overall a fairly substantial step down in apartments. But, we now don't have to worry about rising rents and we get a huge tax break on the interest (we also would only buy a place we could stay in for at least 5 years - not sure if that is the case for you with a 1 BR). So, if you are ok with taking a step down, then go for it. But, if you are worried about RE prices and need the same quality place, then keep renting. Good luck.

Buying will generally cost more b/c you have the potential upside and tax benefits. Still the OP doesn't sound like they have a lot in excess liquidity and can barely afford a one bedroom. I think if they had more in savings, it would be better for them to try for a condo where the restrictions and liquidity requirements are not as bad.

7, with AMT, your rental depreciation is one of the few deductions you can take.

Not OP, but what is rental depreciation? We pay AMT and our accountant never mentioned this.

A great link

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?ex=1184212800&en=f0c49442a9ecc07e&ei=5070

will help you make that decision. You need to register to the NY Times (it is free).

I would rent, but just keep in mind your rent will no doubt go up a lot in the next few years.

by rental depreciation, I suppose he means depreciation on investment property. However, it sounds like he doesn't know what he's talking about.

For the OPs, at your income and savings levels, look outside Manhattan. Blowing all your savings on an apartment is risky. You should keep at least 30-40K handy just in case. If this were 2002-2004, I'd advise otherwise, but prices have run up pretty well here and you'd be better off going for value outside Manhattan---NJ, BK, etc. I know you think you probably do well, but 200K in this City is just not a lot. Not an insult, just advice.

#13 and #16, #12 here
yes depreciation on rental property. Sorry if I was unclear.

I don't know the exact formula, but you can deduct something like purchase price divided by 27.5 years. The caveat is that it lowers your cost basis so it could increase your taxable gain.

OP here. 200k a year is not much in NYC, I am painfully aware. We do have the required liquidity for coops and the cash needed for the closing. I meant that we have 100k which we designated for the down payment. All else being equal, does it make financial sense to buy a place which is not as nice as the rental, and having to pay more for it?

>> I know you think you probably do well, but 200K in this City is just not a lot. Not an insult, just advice.

This is why I bought a place in '04 when mortgages were affordable for someone making ~100k. Also why I don't see prices falling drastically. Too many high income, dual income, foreign investment.

In your situation it doesn't make sense to buy.

"All else being equal, does it make financial sense to buy a place which is not as nice as the rental, and having to pay more for it?"

Any type of financial analysis must involve looking at what's called future cash flows. It may not make sense if you compare what it would cost you NOW, but you need to look at your future costs - including the tax benefits - and compare. If you really want to get technical you have to consider inflation, cost of borrowing, etc.

Point is, assuming you'll live in the place for a while you must consider future costs and the expected future market value of your place. Also, consider any changes in income - chances are it will increase higher than inflation, making buying even more worth it in the long run.

chances are that it will NOT even keep pace with inflation. #21 is clearly a RE pusher (i.e. broker)....prices are going down. Use the calculator set forth above.

You simply will not be able to buy anything in this market as nice as you can get were your debt service applied to rent. This is the current state of the market. That the place you buy won't be as "nice" as the hole in which you are throwing your money down today shouldn't even be a concern. If it is, then buy a house in the suburbs because thats the only place you'll get a better place for less money.

#22, I'm #21 and am NOT a broker. I work in finance and the example I gave applies a typical analysis that a banker or financial analyst would apply when considering any investment. It's what they teach you in finance 101 classes in B-school and what many people may not consider when purchasing a home (i.e. discounted cash flow, opportunity costs (rent)).

oh, and the calculator from the NYT doesn't 'prove' that prices are going down...it actually doesn't prove anything, just provides guidance.

If you are focusing on quality of life issues and not on the tax breaks or investment return I would continue to rent. A 1 bedroom in a full service building with "incredible views" cannot be duplicated in todays market in your price range. Whats the rush? Sit back and see where the market goes in the next 18 months. I am also in the market on the UES for a 2 1/2 or 3 bedroom west of Lexington Avenue. I have been looking now for 8 months and am taking my time - my instincts tell me that the market may get slightly better for buyers in the next year. The international political enviornment is so fragile that anything could happen. Sometimes it takes a disaster to shake up the NY market!!

not for nothing but 600K for a 1 BR? Very best of luck to you finding that in this town. I'm with the guy who says look in Jersey. And I'm no Jersey-basher either. This town has simply sucked our collective common sense right out of our minds. $1.1 MM for a 1 BR on the average is just insane.

#26 is spot-on. Perfect example of how out-of-wack Manhattan has become - it will essentially be a place where only the top 1% net-worth individuals can live in.

Just want to point out that though you can lock in a mortgage with a fixed rate, your coop/condo fees are likely to rise over time. So buying doesn't entirely make your home costs flat.

The NY Times had a good article on this on June 3, 2007. Its title is "It Takes Money."

Some excerpts:

Buildings that have failed to accumulate big nest eggs have to make some tough decisions. Their boards are often inclined to levy assessments on the individual shareholders, for one or two or six months in a row (or even years), rather than increase the maintenance (or in condominiums, common charges), an act that is often seen as a deterrent to sales.

. . .

Driven by escalating costs of fuel, insurance and property taxes, maintenance fees have risen an average of 24.1 percent over the last five years, compared with 10.2 percent in the preceding five years, according to Miller Samuel.

These days, monthly maintenance fees of $1.30 to $1.60 a square foot are considered good, Mr. Miller said, and anything more than $2 a square foot is on the high side.

. . .

''If the maintenance levels are kept at too low a level, then you're basically firefighting anytime something breaks,'' Mr. Miller said. ''It impacts the appeal of an apartment. So having very low maintenance charges is not always a good thing.''

(In appraising an apartment, his company checks two years of assessment history; a troubled scorecard can neutralize the boost that would otherwise be provided by low maintenance.)

''I don't think there is the same sensitivity to the frequency and amount of special assessments and their impact on value as there is with maintenance,'' Mr. Miller said. After the last increase in property taxes in New York City in 2003, he said he fielded questions from around two dozen co-op buildings about the competitive standing of their maintenance fees. ''No one asked about assessments,'' he said.

. . .

Especially galling for owners who do not sit on their buildings' boards is the lack of control over how their money -- and how much of it -- is spent. Within their own apartments, owners can choose whether to install a $300 toilet or a $2,700 model, or simply to keep a plunger handy and hope for the best. But they have no standing to choose a $100,000 lobby renovation over one costing $500,000, or even whether to renovate at all.

In most cases, an owner's only practical recourse is to catch the attention of a sympathetic board or to toss the board out on its ear in the next election, by which time it may be too late.

In the meantime, just as influenza disproportionately affects those with the weakest immune systems, assessments inflict more misery on people with fixed incomes and those just starting out. Among the latter group are the thinly stretched first-time buyers who failed to anticipate the possibility of being assessed.

''With a house I think I would have been a lot more thorough,'' said Jason Rogers, 30, referring to his lack of attention to the condition of the condo building where he and his wife, Sarah, 27, bought three years ago. ''But in an apartment building, if one person has a problem, you all have a problem, and I didn't even think about it.''

Good point #28, but it only shows that you have to do your due dilligence when purchasing a condo/coop - look at the financials, read the board meeting minutes, etc.

If your renting, landlords still face the same cost increases and pass them along to their tenants. For a coop with decent financials maintenance increases typically have not increased at the same rate as rents. If they have then it's a red flag about THAT building, not coops/condos in general.

As a owner, most of my monthly payment is comprised of my mortgage...an increase in maintenance - once every 3 years - still holds me ahead of the game.

If you're looking to stay long term buying always makes sense. 5 years ago people were saying how NY has gotten 'out of hand'. They said that 20 years ago. whatever...

#26, #27 - You're realizing this a few years late. You should have realized this 5 years ago when an individual making 100k could afford a nice 1BR by him/herself. How many new yorkers live in a true 1BR by themselves? Studio = 1-2 people, 1BR = 2 ppl or married with newborn, 2BR = family.

In 2003-2004, I told my friends that 1 BR condos would crack 1M in 5-10 years... they laughed and are still renting and now cannot afford to buy. I can't say what the future will hold or what you should do, but generally I've been told that when buying real estate, it does always feel like it is "just out of comfort's reach". However, you should crunch a lot of numbers.

without more specifics on the size/location of your apartment, it's hard to know how good a deal you're getting on rent or how much apartment you could buy in a similar location. On the UES, 80th and lex is a very different market than 93rd and 1st, for example.

In looking at the tradeoffs between renting and buying, I'd encourage you to consider two factors:
1) what will your rent be going forward (rents seem to be going up all over the city)?
2) when buying a place, your mortgage payment goes toward both principal and interest. The principal portion is essentially savings. To determine an appropriate rental comparison, you really need to look at the portion that goes into interest added to the maintenance, reduced by the tax benefit (this is the total cost of ownership that doesn't go to an increase in your equity). Making the following assumptions (100K down, 6.5% interest rate, 1K maintenance, 50% deductible, 40% tax bracket (fed, state, and local)), it looks to me like you could bump up your purchase price to $700K and still have a monthly cost (not including the portion of your mortagage payment that goes to increase equity - which would be another $550 or so) under $2750. Assuming you aren't strapped for liquidity, which it doesn't seem you are, given your combined salary and savings, this may be worth considering.

OP here. Thanks, #31, your response is really helpful.

OP--- Owning a home is like living in an equities account. the debt service applies to principal and interest. The principal paid down, along with equity contribution are savings. they have not been spent but rather reallocated to another asset class (i.e. from cash/equities, etc. to real estate). The interest is an outlay, yes, but there are tax advantages to this expenditure. Rent, however, is spent money, never to return again, ever. The opportunity cost of the expenditure makes it an exponentially negative expenditure of cash. Worst case scenario in purchasing a home is that you buy at the top of the market and your value goes down 10-20% in the short term (which is unlikley). In Rent, you have a guaranteed loss. $2500 (or whatever you pay) * 12, for a guaranteed loss of $30,000 a year, after tax money. Its a complete no brainer that you should buy and don't worry about market timing or any of that crap. Remember, when you invest in a home its not spent money, its a reallocated investment. The money (outside certain closing costs and transaction costs) is still there, just in another form.

In addition, you may think you are living "well" now in a nice apartment, but you are throwing money down the toilet to live like that. Buy a dump, or something lesser than what you have now. You'll never regret it.

OP - If you choose to rent, be disciplined to save up so you can buy elsewhere. If you buy here with a ~5 year horizon, you can feel somewhat secure that you can transfer your equity to afford anywhere else in the country. My opinion is that if you love NYC and you really aren't considering moving, you should probably buy. You'll blink and realize that 5-10 years have passed and you threw away 200k in rent.

"should we buy or continue to rent?" What if one or both of you are laid off from work? What if you get separated or divorced? What if one or both of you has terminal diseases? What if the real estate market in NYC crashes overnight? It doesn't make much difference what if all the above happen to you?

#34 again.
You can't plan for everything, you can only make the best decision at the time with the information you have. You shouldn't be too optimistic nor too pessimistic.

You'll never feel like you are super comfortable when you get your first mortgage. Same with your first kid... you'll never feel like you're ready. You have to take the plunge (reasonably of course) and adapt.

#34, I tend to agree, but seeing that OP has a great deal on rent and could possibly outgrow a one-bed in 5 years (speaking of first kids!), I would stay put for the short-term.

All the RE pusher scenerios make no sense - in NYC right now buying is what a crazy person would do - your condo fees alone can equal the equivilant rent on a similar apartment. Throw your money down the drain if you buy - prices now make zero sense when you run the numbers.

#38 OBVIOUSLY RETARDED. "condo fees alone can equal the equivalent rent..." say what? yeah, maybe in dubuque, iowa, jackass. oh, and i point out that when you rent you also have to pay electricity, cable, phone, internet on top of rent. least in coops you can get electricity, sometimes cable in with the maintenance. go "run the numbers" all you want guy. rent is spent, debt service is savings.

Bravo #35 and #36. Real estate is cyclical and will look better in a few months...only thing is that by then pricing will have increased again leaving the procrastinators out in the cold....your chasing a moving target poeple especially when your talking about NYC real estate which for the most part only moves upward in terms of pricing. Being cautious is ok but being too cautious can cost you.

#38 is right - taxes, condo fees, maint. costs can just about equal what you pay in rent for equivilant rentals. On top of this if something breaks in the condo/co-op you are responsible to pay for it if the building doesn't have enough money to pay for it.

Remember this when people talk about "throwing your money away" and "guaranteed loss" or even "fixed costs for life" - this is not true - your fees can go up as much as your condo board/co-op board feels like it every year just like rents can, you are guaranteed to be "throwing away" your fees every month and in Manhattan the fees can be equal to rent (or more for some big repair).

I also agree with 38 - we bought an apartment a year ago for about a million dollars. Our maintenance was 2200/month and they raised it to 2500/month this year. I'm really scared what is going to happen next year - we could probably rent a place almost as nice for a little more than we pay in maintenance and on top of that we have these huge mortgage payments and I'm losing out on the gains I could be making in the stock market on the 200k i had to put down as a downpayment. If I had to do it again there is no way I would make the mistake of buying...

#42, #36 here.
When I bought in 2003, I felt the same way. I was scared. I was worried.
I blinked. It's 4 years later and I can rent it profitably on a cash flow basis. Run the numbers, don't go nuts.

Just like in stocks, you can try to time and day trade if you like, but I say pick solid stocks / funds and don't overmanage. If you buy, buy a quality product and look back and laugh at yourself 10 years from now.

#42 where the christ do you have to pay $2500 in maintenance for a $1 MM apartment? Unless you live in BPC, you are either lying or just plain dumb. And if you live in BPA you are dumb. On top of that, assuming you aren't lying, if $300 a month hurts you that bad, you couldn't afford what you bought.

wow - some people have really inefficient buildings or hotels if they pay that much maintenance.

I was fortunate enough to buy a 1bedroom in a condo for a little over $600k (near columbus circle) this year. My maintenance is $450/month and tax about the same.

move out of manhattan! just because sex & the city thinks it's fashionable. in actuality might not be a better investment to think Brooklyn, Queens, etc, at the current state we're in.
Buy there!
the brokers are assuming that they can still get themselves rich off of manhattan, but then why is my friend's wife at corcoran hurting? (she made a killing 3-4 years ago, but doesn't have it goin on anymore) look at most of these buildings, they are not selling like they thought.

#42 is a fake posting. There are landlords and management agents on this board promoting rentals acting as renters. there are also r.e. agents on this board promoting buying. make your own infomred decisions. be very wary of most of the dreck on this useless board.

um, 42 here - not fake posting, this is true - i pay a fortune to live in my building and i know a ton of others who also do who own. Owning is promoted by the RE agents so they can make a killing while ripping you off - 1 mil for a 1 bedroom? What was I thinking?????? Stupid and I wish i could get rid of it now, but i can't...and i've lost a ton of money.......stock market up 180 pts today i really wish i had my downpayment in that not in an asset that is sucking the money out of me, going down in value and costing me in maint costs alone just about what it would cost me to live in apartment. i was so stupid....ugh.

#42/48--Admit it you live in BPC, correct?

#42/#48, if you bought in a popular nabe, I'll bet if you hold onto the place for a few years you'll be thanking yourself. But it sounds as if you own more than you could afford.

42/48. $1MM for a 1 BR with a $2500 "maintenance". Usually, maintenance is $1 psf, possibly up to $2. So, you're telling us you have wither a 1250 square foot 1 BR up to a 2500 sf 1 BR. Perhaps a loft??? in which case highly unbelievable that you'd have such a high maintenance. I think you're full of shit.

I’m the #28 poster – I really think it’s not an apples-to-oranges situation. The NYT article did a nice job of explaining how it’s not just monthly fees, but a building’s pattern of assessments that will govern how much (annualized over time) unit owners will have to pay. Now (and this is where it’s not apples to oranges) a new or fairly new building will not have this issue at all. Older buildings (where there’s major work or renovations on the horizon) will have this issue.

So I think it’s safe to say that you’re going to have a ton of variability in monthly maintenance, and that this one figure is not the whole story.

rent