Whether or not to purchase a home will likely be one of the biggest financial decisions of your life. While there are a number of rent vs buy calculators available, that question frames the decision incorrectly. There is no strict calculation in which buying a home will mathematically pencil out as a net profit to renting in most New York City neighborhoods. Home values and minimum down payment requirements would have to drop considerably, as would long-term stock market forecasts—while rent somehow stayed the same—before a strictly financial cost/benefit analysis favored purchasing and keeping equity in self-occupied real estate over renting and investing elsewhere.
In the short term, mortgage interest and carrying costs will usually be a higher monthly outlay than rent for a comparable home. In the long term, 8% average stock market appreciation with an average exit cost of 2% will always outperform 4.5% average value appreciation for NYC real estate with an exit cost of 8%. This is going to hold up even after taking into account the tax benefits of owning.
Owning in NYC Offers Stability You Can’t Rent
So why purchase a primary residence? The decision to purchase versus rent is not a financial decision as much as a commitment to a certain quality of life, security, and peace of mind. Rent in Manhattan will always go up—an average of 5% per year. Once a mortgage is locked in, monthly outlay associated with owning is much more stable.
Architecturally, rental buildings tend to be limited in layout by the original floorplans having been chopped up into ever-smaller apartments. The sort of rambling prewar layouts, preserved detail, and skyline views we covet are found almost exclusively in co-op purchase inventory. If modern, luxury high-rises are more your thing, while there’s plenty of that inventory in the rental market, there is no price point you can rent at that won’t subject you to a large, impersonal rental management company. According to Brick Underground, there is virtually no such thing as a good rental property management company in New York City. Renting in a luxury building over the long term inevitably means subjecting yourself to round-the-clock construction, indefinitely closed amenities, and volatile lease renewal negotiations. Co-op and condo boards are typically much more competent and ethical managers of buildings than rental management companies.
Homeownership Is a Lifestyle Commitment—Not Just a Financial One
The most important reason to purchase is so that your home is yours. You can renovate it how you like, your long-term occupancy isn’t up for negotiation every year, and every improvement you make isn’t simply an expense—it’s an investment. Over the long term, your quality of life will be higher, your space will be better suited to your needs, and both your home and your neighborhood will be just that… yours.
Here’s my previouspost on purchase timeline for a complete breakdown of how long the purchase process takes in New York.
If you’d like to talk more about what buying a home would look like for you, please reach out anytime at my contact info listed below. This is Jacob Wood, your New York City real estate broker.
