To Rent or Not To Rent?
A: Read this post I saw on Matrix today about whether you should write your check to a mortgage lender or a landlord.
Its always a tough question and one that should be answered based upon your OWN financial situation. Lets go over the facts and then the figures of owning your own home first before trying to answer the RENT or BUY question.
FACTS IN OWNING:
1. There are Tax benefits to owning a home.
2. You are building wealth for yourself in real property value (condo) or equity value (co-op).
3. You will have something to sell in hard times.
4. Owning is NOT for you if you plan to move in the near future.
FIGURES IN OWNING:
1. Its expensive to own your own home when the housing market has boomed for the past 4 years; Monthly Payment will include MORTGAGE + maintenance + TAXES!
2. Property taxes may RISE raising your monthly payment.
3. Money is MORE expensive to borrow today than it was over the past few years.
4. There is a 'shrinking' difference between the total cost of owning and the rental price of like apartments in NYC. Owning is still more expensive than renting but when you calculate in the tax savings of owning, the gap is closing.
If stocks have a P/E ratio to evaluate value than housing should have a owning/renting ratio to evaluate owning a home vs. renting.
Lets look at a 1BR in Murray Hill that is about 750 sq. ft..
132 East 35th Street: Listed By Richard Silver of Corcoran
TO OWN: At 25% Down and a interest rate of 5.875%, this apartment will come to about $2,968/Month.
TO RENT: To rent a similar unit in Murray Hill my sources say it would cost about $2500 or so; give or take a few hundred for better location and building. Here is a Craigslist Listing.
My thoughts:
It seems to me that the combination of the slowing housing market combined with rising rents is leading to a better BUYING market when you crunch the numbers and take into account tax benefits. Therefore, the formula for whether you should BUY or RENT falls onto the answer to these 2 questions?
1. Do you have a secure job making enough money to put aside 1/3 your monthly income to housing payments?
2. Do you have enough liquid assets to cover the down payment + closing costs, and still have some money left over to cover 6-8 months of housing payments?
If you answered YES to both of these 2 questions then you should BUY now.
If you answered NO to any one of these questions, then you should RENT now.
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Comments (3)
At first glance, it seems that you've completely forgotten the 131,000+ that could be earning 5-10% a year in financial/alternative investments while we wait for the next real estate bubble to emerge. If you factor in that lost income and the unliklihood that NYC real estate will do much for several years while rents and incomes catch up, it seems that renting appears to be much more appealing.
Posted by dkeisman | February 13, 2006 3:21 PM
you also forgot that the cost of buying is 3% or so, and the cost of selling 6% or so. That is the bid/ask spread on property. So your property has to APPRECIATE 10% in order just to get back the money you (or your mortgage) spent on obtaining it.
Sobering.
Posted by jb | May 11, 2006 5:29 AM
JB,
Are you reffering to closing costs as the 3% costs for buying? I dont think you think there are actually fees paid by buyers to agents for finding them a home?
Also, cost of selling is negotiable and you can always choose to spend your own dollars on advertising and sell as a FSBO if you have more time or insight into what you really need to do to sell a property. Best thing is always to offer a commission to brokerage community though as chances are a broker will bring a buyer to your deal!
DKesiman: Yes I agree with what you said. However, rents in NYC are now heading up big time and vacancy rate is at 0.68%! So, basically you will pay a brokers fee for an apartment and you will pay more than you thought . All at the same time you probably will NOT get what you want!
Posted by UrbanDigs | May 11, 2006 2:35 PM