Should I Rent or Buy in New York City?

At a glance: New York City is unique both in costs and how likely and frequently people are to move. You may be surprised by the strategy that enables you to spend less.


New York City is a different world compared to most other places. It’s tempting to think that there’s a well-kept secret to figuring out how to live in such an expensive and transient city, but the truth is, there are many ways to make the Big Apple--perhaps too many!


There is so much variety in New York City that it’s impossible to consider every single option, deciding to rent or buy is a great way to narrow your search. Anywhere you go you have to think about how permanent your move is in making a decision, but New York City is unique in that even if you won’t move out of New York City, it’s very common to move within it, especially if you don’t yet have a family and still have room to grow in your career.


Be Prepared Make Quick Decisions


Things move fast in the big city whether you’re buying a coffee or a home. Many renters don’t even bother looking until one month before they’re ready to move, or they move into a new place before their old lease is over. Chances are, if you have your eye on a place, someone else does too, and it’s a competitive first-come-first serve game.


In order to avoid feeling pressured, it’s best to know exactly what you want so that when you find it, you can secure it.


What’s Your Budget for Living in NYC?


Everyone knows New York City is expensive, and your budget might help you quickly eliminate buying as a possibility. After all, nearly two-thirds of New Yorkers rent, but even if you don’t have any financial restrictions, it would likely be less expensive over time to rent than buy.


Renting in NYC at a Glance


Pros

  • Lower cost (both short term and potentially long term)

  • Flexibility to move

  • Not responsible for appliances or building maintenance costs

  • You can find a place very quickly

Cons

  • Process can feel rushed

  • No return on investment

  • No control over rent increases

  • Landlord choses appliances


Why You Would Rent


A lot can change quickly in the big city, and even if you don’t move out of New York City, chances are you’ll move within it. Whether you get a promotion, a new job, decide to move in with a partner, or just want to experience a different neighborhood at some point, it helps to be flexible with your living situation in a city with so much opportunity.


Many modern NYC apartments come with gyms, laundry, dishwashers, security, doormen, package receiving areas, and more. Of course, you can find an apartment to buy in a building with amenities, but renters are not responsible for maintenance.


Utilities also tend to cost less for renters, and renter’s insurance is much less expensive than homeowner’s insurance.


Renting Costs


One bedroom apartments average $2,683 not including utilities. Bear in mind prices vary neighborhood to neighborhood, and Manhattan neighborhoods can be nearly twice as expensive as other neighborhoods. In any case, in order to get on a lease, the combined income of all tenants is expected to exceed 40 times the rent.


It’s also common for landlords to require


  • First month’s rent

  • A security deposit equal to one month’s rent (and may no longer exceed that amount)

  • Application fee (which can no longer exceed $20)

  • Proof of income (or a guarantor’s proof of income)


If you don’t make 40 times the rent and have a willing cosigner, you can pay a rental guarantor service to sign for you. The service fees vary depending on credit history, but are typically equal to approximately one month’s rent.


Bottom line for NYC Renters: Be prepared to have three months of rent set aside to move in. Rent can be a drain on your finances, but compared to buying you’ll likely save more money and be able to adapt to life changes.


Buying In NYC At a Glance


Pros

  • High potential return on investment

  • Tax breaks

  • Customize your living space


Cons

  • High risk investment

  • Maintenance can be more complicated and expensive than typical home

  • High initial cost


Why You Would Buy


The Covid-19 crisis has made New York City’s real estate scene more of a buyer’s market, and despite what you may think, values are still expected to rise. Many homeowners feel now is a better time than ever to put down their roots in an up-and-coming neighborhood that’s affordable today, and likely worth enough in the future to make up for the cost of maintaining it.


That said, buying is as expensive as ever. The average sale price per square foot in new york city is $392. According to Zillow, the typical home value in New York is $645,143. Values have increased 1.6% over the past year are expected to rise 6.7% in 2021.



What’s For Sale?


Apartments, condos, and co-ops are the most common and accessible homes on the market, with townhouses more scarcely available but in high demand. Fully detached houses are almost unheard of in Manhattan (many that still stand today are museums), but you can certainly find all types of housing in the outer boroughs.


Know Your Neighborhoods


Every neighborhood is unique even within Boroughs. In Brooklyn you could be considering a Brownstone in Cobble Hill one day and an oceanfront property in Brighton Beach the next. While much of New York City is on the rise, something as simple as shutting down a subway line can make a huge difference in property value. Renters can easily jump ship whenever the tides start to turn--in some areas that could be literal--but buyers should beware of a neighborhood’s vulnerabilities.


The 20% Down Payment Standard


It’s not a hard rule, but down payments are usually 20% of the list price in New York City. Most sellers in New York City expect close to 20% down payment, and being able to meet that is a good way to secure a lower interest rate on your mortgage. If you opt for a lower down payment, you will likely have a higher interest rate and need to purchase private mortgage insurance.


NYC Buildings


New York City may be a modern city, but it’s also one of the oldest cities in the country, and the age (and condition) of older buildings make them complicated (and expensive) to properly maintain. It’s important for homeowners aware of any potential building code violations and hazardous construction materials common in older structures such as lead paint or asbestos.


Researching the history of a building can tell you a lot about what to expect, but it helps to have a professional perspective to assess the quality of the building itself and the contract.


Hire a Real Estate Lawyer


In New York State, all real estate contracts of sale are to be drawn up by either the buyer or their attorney. A lawyer will be able to advise you of potential concerns about the building and neighborhood and make sure the contract doesn’t favor the seller too much--it’s typical for both sides to have legal representation.


Get a Mortgage Pre Approval


This isn’t absolutely necessary, but given how fast and competitive the market is, getting a mortgage pre approval can make or break an opportunity in New York City.


Bottom Line For Buyers: it’s not just a financial investment, but consider how much time and effort you might spend on maintaining your home.


It’s Usually Better To Rent


For most people, buying in New York City would be more trouble than it’s worth. It makes more sense for most people to rent in New York City because it’s less complicated, more flexible, and more cost-effective.


A business investing in multiple properties can take on the financial risks of buying real estate in New York City and still expect a decent return, but it’s difficult to justify the cost and risk to an individual homeowner or family.


Unless you feel especially confident in the neighborhood and the building, you plan on living in New York City for a decade or longer, and can secure low interest rates, it would probably be a poor decision to buy in New York City. That said, there are plenty of homes in the New York City Metropolitan area you can consider if you want to avoid renting in New York City. Check out our guide to Long Island Real Estate.


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