Should I Buy or Rent?

You should do a rent versus buy calculator. Also take into account how long you will hold the property. Because of transactions costs etc associated with buying and then reselling, it may not make sense to buy now unless you are going to hold the property for 7-10 years. If this is a small starter apartment and you end up married with kids and needing more space in 5 years, you could take a loss upon resale.

I am waiting to buy right now until prices come down (if they do) because I have calculated that the non-tax-deductible, non-equity building costs of owning right now are more expensive than rent.

Examples of non-tax deductible, non-equity building costs: most closing costs, monthly common charges, 60-70% of the mortgage interest you are paying (depending on your tax bracket). Also keep in mind that when you own, if an appliance breaks or the building needs repairs/upkeep, you will be paying, not the landlord.

^^Oh and if you are subject to the AMT, you will only be able to deduct a tiny portion of your real estate taxes from your income taxes. So if you are paying say $1,000 a month in RE taxes, you might only be able to deduct about $100 a month of that at the end of the year.

So I was messing around with this calc. last night: http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Assuming a 500k purchase that I plan to stay in for 4 years (could be way longer for all I know) with a 3.5% interest rate on 30 yr loan and 20% down payment, renting is only better if I can find a similar place for $2,200. Given the places I have seen for 500k or less, there is no way that would happen.

Then again, I left all the sections starting with "what does the future hold" and below as defaults because I don't know what else should be adjusted and how.

But from what I've seen in my search, a similar rental in UES/Midtown would be 2600+.

For the record, this was the first apartment I was looking at: http://streeteasy.com/building/301-east-48-street-new_york/3e

And I know people will say a good thing about renting is if an appliance breaks, it's on the landlord and not you. But I don't think I have ever had a major appliance, like a fridge, break on me (well, my parents I should say) that had to be replaced. So sure it sounds good, but how often does that really ever come up? In the above listing I think it's pretty over priced but it's clearly freshly renovated and still on the cheaper side, and fits me (even if my GF moved in in a couple of years). And with a new kitchen that fridge should last a nice long time lol

buy :)

If you've lived in Manhattan than buy, if Manhattan is new to you than I would suggest renting for a year or two while you explore neighborhoods and get the lay of the land. Every decision in life can't be a financial decision, besides you can't know the variables of the future both micro and macro as they relate to decisions you make both financial and personal.

You have to look at your horizon. I am always telling clients these days that you should plan on owning for at least 5 years in order to weather the next down cycle. If you can get your monthly costs to a comfortable place, which is not particularly difficult these days with incredibly low interest rates, even if the market is flat by the time you sell, you will have built up significant equity. For example, assuming an $800K purchase price w/ 20% down and an amortizing mortgage loan, you'll have paid off close to $75K of your mortgage principal balance by the end of year 5 - that is real money. You will also generate significant tax deductions based on the interest you pay on your mortgage loan, which may even get your total monthly costs below $3K/month after taxes.

Dan Gotlieb
Digs Realty Group
www.digsrealtynyc.com

It's probably not a financial decision because it probably can't be. To compare apples-to-apples, you'd have to be able to predict the future of rents (which, as the broker you talked to mentioned, seem to be declining) and also be able to place an opportunity cost on the value of not having your down payment in cash. (The Times calculator seems to impute 6%, but how they came up with that in a 3.5% mortgage rate environment, I have no idea). Not to mention, you need to be able to predict future property values!

Emotionally though, you seem to have phrased the question looking for approval to buy. I'd say as long as the building you buy into is financially sound, and you have several months' of mortgage and maintenance in reserve in case you lose your job, it's probably fine.

Buying a new refrigerator is a pain in the a--, especially because with high New York real estate prices it's really tough to find an appliance store where you can go look at non-$5K-appliances, but it's not the end of the world. P.C. Richards ended up doing right by us.

ali r.
{downtown broker}

Here's the Times calculator, opportunity cost assumes you would otherwise invest your down payment in stocks and bonds but it allows you to change many factors.

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

No one can time the market. Interest rates are low; no one knows how long this can last, it can turn on a dime. Also the solvency of Fannie Mae could come int question. I would buy now rather than rent. There are mortgage products that will allow for 90% financing without PMI. There are also seller concessions.

Ellen Silverman
Licensed Mortgage Broker since 1990 NMLS#60631
Lic nosed Real Estate Broker
esfundingco@aol.com

Licensed

Interest rates will not turn on a dime; the Fed will not allow it.
Notice how all the people advising that you buy are brokers with a vested interest in making deals.

Slay, Here is from a non-broker. What is your view on NYC real estate prices?

1. Do you think flattish or up? If so, I would look to buy a 1 bedroom condo (not new development) in midtown east or UES which is in good condition but not luxury. Think 1100-1200 per sq ft with maintenance in a doorman building no more than $2 per sq ft per month. There are building such as 140 East 56th which total carrying costs are reasonable. Do not getting into bidding war. Try to find a place which has some negatives (no view etc but you are ok). Use Keith who will give you a rebate. Once you grow out of it, you can use this as an investment property and buy something bigger assuming your career is taking off. Get 7/1 ARM. You total outlay will be more than rent as you are paying down principal. However, this is the equity you are building.
2. If you think, prices are going down, stay away and rent.

Something like this.

http://streeteasy.com/sale/1217409

3. If you are going to invest your downpayment in the stock market at current levels, #2 may no longer apply. #1 may be equally valid option unless you think NYC real estate of the type I am suggesting is going down but stock market is not.

Slay - was in the same position as you. Actually renting a place I love in the East Village - but just signed a contract to purchase given concern about where rates are going, and the trajectory of general supply in the $750K to $1.0MM in Manhattan. I have had my eye on the market for a long time, and realize there is no way to predict the market so as long as I am comfortable with the monthly outlay compared to my current rent, and have limited downside (good neighborhood, well maintained building), I am so far happy with my decision. I would keep your eye on the market and try to check as many boxes as possible. In midtown east you should be able to get good value.

Slay. Prices are dropping where sir? Certainly not in the sub 1M market. Manhattan is a many tiered market. Maybe you can say there is softness in the 10M plus range. Have you seen the inventory levels for the sub 1M? There is none. Supply is practically non existent. The future pipeline is not promising either with land costs the way they are developers can only pull a profit with large projects. Hence the current 10M+ oversupply. So if you are trying to price the future then supply constraints(a major indicator) forecasts future price appreciation. Anyhow, forget the crystal ball listen to the excellent advice given above stating that if you have the financial means to buy and enjoy.

Steve is right about minimal supply in $1mm range in Manhattan. Competition in this range is from Brooklyn.

Opinions vary and circumstances change over time - that makes this interesting.
Going back to 2008, when people viewed the market differently, there was an extensive debate on this: http://streeteasy.com/talk/discussion/3410-real-estate-is-a-bad-investment

Here are my top five reasons for you not to buy right now. Please note that NONE of them are the financial tradeoff of buying vs. renting.
Studio Apartments
Studios are only really ideal for students, early 20s graduates and business executive pied-a-terre situations. Once you move in you will realize that it is difficult to entertain with your bed in your living room and that cooking with make your whole apartment smell for the rest of the evening. Sharing a studio is difficult because of the lack of personal space. Once you subtract out the kitchen area, bathroom, closets and foyer from the apartment listing you linked to, you will realize that +/- 300 square feet is where most of your living space will be which can start to feel confining. Don’t be fooled by the fisheye lenses and lack of any actual personal belonging in listing photos that make these $500k apartments look like they actually have any size.
New to the City
What are your favorite restaurants? Which streets are too busy for you to live on? What neighborhood fits your style? Are prewar apartments or white brick buildings better? It’s not ideal to lock yourself into an apartment for the greater part of a decade without figuring out New York City for yourself. I personally learned a lot about the city by living in and exploring different areas during my first few years here. Every neighborhood has its own personality which has to be experienced. Different styles of apartments also have their pros and cons (are doormen creepy spies, an anachronism, a sense of security or a bit of culture?). Renting rather than buying initially is a lot like dating for a year before you pop the question. Even if you think you know what you want it is a good idea to test drive and see what’s out there.
Career in law
Lockstep biglaw payscale suggests that you may have the ability to buy your ‘forever home’ in the million plus range after only a few years if you save diligently (and despite “throwing money away” on renting in the meantime). On the other hand, I know several people working in biglaw, very few associates are in the same job past the five year mark. It doesn’t make much sense to lock yourself in from day one of a new job by buying an apartment. It is best in the first few year of a career to maintain some flexibility so when an opportunity presents itself you will be able to seize it, even if it is in another city or abroad.
Coop board
A coop board will not like a board package without pay stubs. They will want to know where your (large 20%+) down-payment is coming from and ‘The Bank of Mom & Dad’ is not a great answer. Guarantors are not acceptable and they like to see a consistent history of employment more than just an offer letter. Condos will be less restrictive as long as you can get the mortgage, but condos have an associated price premium. A few years into your career with a couple of bonuses in the bank account and a coop board will be just a technicality, but right now I suspect that you would be rejected by boards in most of the better buildings - although admittedly I don’t know your personal details.
Five year plan
You are 27 and if you plan to have a spouse or children then a studio will look very small quicker than you realize. I would advise against buying now because your late 20s and early 30s are a time of rapid change in your life: new job in a new city, then perhaps marriage and cohabitation, then followed by kids potentially. Before you know it, you will be paying those brokers fees to get out of the 550 sq. ft. studio you just bought because 1200 sq. ft. will be needed in a good school district.

So although buying or renting may be the better financial decision based on if you perceive prices as increasing or decreasing, I would consider these points before making that offer.

Agree with WoodsidePaul. I would not buy right now if I am in your situation.

By the way, Slay, when you used the NY Times calculator to find that buying a $500k place is equivalent to $2,200 in rent, I think that you forgot the $905 of monthly maintenance charges that the place you listed has. Once I pop the maintenance into the 'Monthly Common Fees' section of the calculator, I get a break even closer to $3,075. If I also adjust the price to the $525k price of the listing you provided, I get a breakeven of about $3,185.

woodside, Can you please post the link to the apartment you are talking about? Do you assume any price gains and 5/1 or 7/1 arm? What holding period?

The link is in the sixth post in this thread, and the author said they used the NY Times default assumptions.

Idk why I would've said 2,200 on that apartment but yeah that would be wrong. But assuming that same apartment (which is actually lower on my list now that I have found more placse, cheaper ones that are very nice IMO) and assuming that apt. sells for asking (which it won't), if I input my actual approved interest rate into the monthly payment formula instead of the provided 4.75, it would be monthly payments of 2,700 including maintenance.

So using the formula with these numbers the break even is 2,971 assuming a 5 year holding period with 30 yr. fixed.

Quick question though - when these condos and co-ops list "maintenance fees" most are listed as that, and some break it down between "common are fees" or something along those lines and "taxes". So when a listing just says "maintenance fees", does that include both common building fees and taxes? I have been assuming it does, but if it does not then that's a problem.

"maintenance" is for monthly charges on a co-op, and includes the unit's share of the building's underlying property taxes, labor costs, underlying mortgage, utilities, and, well, maintenance.

For a condo "common charges" includes the unit's share of labor costs, utilities, and maintenance. There is no underlying mortgage, and the real estate taxes are paid directly to the city (or your mortgage bank will do that as your agent) ... those are broken out separately as "taxes" or as "RET" (real estate taxes).

ali r.

Here: http://www.economist.com/news/leaders/21705317-americas-housing-system-was-centre-last-crisis-it-has-still-not-been-properly

In recent years we owned a co-op on the Upper East Side of Manhattan and a condo in Brooklyn. On selling we lost money on the co-op (not trendy neighborhood) and made money on the crazy Brooklyn sale. But we eventually hated living in our condo because the building had so many problems and assessments to go with the problems.

Paying rent is not "throwing money away" unless you think buying groceries is. You can lose serious money buying and selling real estate and/or co-op shares in NYC, and don't let the brokerage community tell you it doesn't happen. The opportunity costs are significant when financial markets do well, the tax deduction on your interest payment is trivial .

And it is approaching impossible to research any building well enough to assess investment risk, because minutes are written to protect the boards and you will not be given access to the really important financial documents that the board sees.

Sounds like you really want to buy, though, so you probably will. Good luck. If we get another place in Manhattan it will definitely be a rental for us.

@flutistic, assessing investment risk *used to be* something that old-school brokers could help you with ...I remember when I bought my first NYC place twenty years ago, certain buildings were presented to me as aspirational because they were "good" co-ops that had weathered the latest downturn well, and I was steered away from certain co-ops because they had nutty boards, which might prove to be problematic over time.

However, three things radically changed:

1) agents flooded into the brokerage business, so it was harder to find an old-school broker, and harder for the old-school brokers to work with each other (30yrs can give you some numbers on this);

2) computerization meant that consumers expected each agent to work a much larger geographic patch (when I started the business, there were agents who basically worked about three blocks of Greenwich Village, and made a living; I know the Village, but my last two closings have been in FiDi and Cobble Hill, because that's what my clients wanted -- and so I've had to do my due diligence by finding Facebook friends of friends who know those buildings as opposed to just calling my friends/neighbors), and

3) quality decoupled from investment returns (especially with the most recent condo boom -- one of my biggest "mistakes" as an agent was steering buyers away from a leaky POS new development where, as it turns out, they would have doubled their money. )

A good broker could still probably help you, if investment is your first priority; you would just need to screen really hard for someone for whom that would be uppermost.

ali r.
{downtown broker}

Wholeheartedly agree with Ali's 3rd point. I started looking back in mid-2012 and found some places that were pretty good, but the buildings were so-so or in areas I wasn't sure if I wanted to live in. Took me a year in searching and I ended up buying in a co-op in an area I loved in late 2013. Of course by then the places that I had passed up on (all condos too) had gone up 30%, and probably went up a lot more than my co-op since. Do I regret the decision? A little bit, but not too bad overall. To me it's both consumption and investment. I probably still wouldn't be as happy living in those units I passed on. I'm happy now with where I am, and I'm paying for a 1-br less in mortgage interest/maintenance/insurance than renting a studio and that's not counting tax deduction. So it was a good decision for me. I guess my point is, in the end, it may make financial sense, but you're the one who will be living in it.

Also, renting may not necessarily be throwing away money. You gotta pay interest on your mortgage or common charges/taxes, and often they could add up to a significant portion of rent for a similar unit. Also, like others have pointed out, the front/back-end transaction costs may get you way more than whatever you may save. From a pure investment standpoint, it could work out better by renting and just investing in stocks

I think WoodsidePaul makes a good point - you may not be able to pass the coop boards at many of the coops if you have no employment history because you were in school the last few years, and condos will set you back more esp. in the areas you're looking in. Not to mention that most coops will want to have 2-3 years of post-closing reserves of mortgage and maintenance, so just having the down payment will not be enough. Of course, we don't know your life, so maybe this isn't a concern. But I'd say that you're better off renting for a year while you get a sense for the city and learn a bit about the real estate market here.

It takes time to find a place and it will take a couple of months to close on most apartments, coops esp., so if you're starting work this Fall, that really doesn't leave a lot of options anyway as far as renting or buying. I'd find a relatively inexpensive studio to rent and then try to buy before the next year's lease needs to be signed. And make sure you get yourself an experienced agent - it sounds like you don't know much about Manhattan real estate, so you need someone professional who knows what they're doing. Good luck.

I was always very cautious about buying, made the decision to rent for many of the reasons listed above. Many of my friends purchased early on and the fact is they all wound up much better than me (financially). Years later a few have sold homes they purchased many years ago and are financially set. These are people who were savvy; they not only owned their home they continued to also invest in equities. In hindsight I am now a firm believer that if you can afford to buy (comfortably) especially if you are young, do it. As OP points out rents are high. In my case I choose to live in very marginal neighborhoods where I could find very cheap rents, many would not do this. Still if I would have bought years ago, I would have reaped the financial rewards many times over. You do very well owning real estate when you can hold for a long period of time (at least 7 years IMHO).

Timing entry is luck. It seems like a no-brainer now, however if you were a buyer say starting in 2009, you took a fierce beating on this board. Those that did pull the trigger did well.

All studios are not alike. I think a good example would be 16 W 16th, these alcoves trade well. Make a careful analysis of current needs, potential future needs and see if owning makes sense. I agree if you think you will need to sell in 2 or 3 years, then renting sounds better.

Either way best of luck!

Keith Burkhardt
The Burkhardt Group

I echo Keith's comments. I was a renter for a long-long time doing buy vs rent calcs and missed out on real estate appreciation in NYC. However, I went in NYC real estate with a decent size starting 2011 and have made very good money. Of course, I would have made the same money if invested that extra money in SPX as well. But I am not sure I would have invested more that I already was invested in SPX at that time. Thats is why it is a complex decision. In my mind, if you do not needs to sell (convert to investment property), look for a good deal and buy. Good deals are out there in this market but you need to look.

FYI: I finally bought in 2012. All good :)

300 mercer was really sweating those mortgage payments for a few years based on his postings on SE. Be a little smarter and make sure you can sleep at night with whatever you choose to do.