Rent or buy in the city? Experts explain the “tipping point”
If you’re looking for your first apartment in New York City, or relocating here, you’ll have to answer one question before any other: do I rent or purchase? According to experts, your decision shouldn’t be based on guesswork.
Licensed Real Estate Agents and co-founders of The MR Team, Malessa Rambarran of Modern Spaces and Candice Milano of The Corcoran Group, specialize in emerging neighborhoods in Manhattan, Brooklyn and Queens. These city experts advise their clients looking for starter apartments to base their rent-or-buy decision on what’s called the “tipping point.”
“Based on the latest data on real estate costs, we’re able to calculate the amount of time you would need to remain in a purchased apartment in order for it to make financial sense over a rental,” Malessa said. The tipping point across all New York City real estate has increased in recent months: to an average of 5.6 years from its previous level of 4.9 years.
Of course, the number will vary greatly borough-to-borough and neighborhood-to-neighborhood. For example, the average in Manhattan is now 7.7 years, while the average across the Bronx is just 1.4 years. “Purchasing in the city should be viewed as a long-term investment,” Candice said. “You’ll need the financial resources to support your housing costs, as well as a commitment to a city career and lifestyle.”
If you do find that it makes financial sense to purchase, the experts said, you can take advantage of some valuable benefits. “Every dollar you put toward the principal of your mortgage is a dollar of equity you acquire,” Malessa said. “When you rent, of course, you accrue no equity.” And, once you acquire 20 percent equity in your apartment, Candice explained, you have the option to leverage it by taking out a home equity loan, or to refinance to secure a lower mortgage rate/monthly payment.
Property owners also gain some important tax benefits. If your home is your primary residence, the Homestead Exemption provides a hedge against rising property taxes. And, unless Congress moves to change federal tax law, you can continue to deduct your mortgage interest and property taxes from your federal income tax. Purchased properties can also provide a source of rental income. Most condominiums allow units to be sublet, although some co-ops may not.
The other city housing challenge that many MR Team clients ask about is lack of space. Starter apartments typically provide one or two small closets. For seasonal or bulky items that are not needed day-to-day, The MR Team advises exploring new storage options.
“Innovative storage companies with concierge services have arisen to help city residents with their relatively small living space,” Malessa said. “For example, a company called Zippboxx will not only provide bins, pick up and store unneeded items, they will also return them quickly whenever and wherever they are needed.”
Time management is a significant issue for city residents, Candice noted. “People are busy and are willing to pay a little more for convenience. That’s why a hassle-free on-demand storage service like Zippboxx is becoming so popular.”