To Rent or To Buy…That Is The Question


You’ve got to live somewhere and you’ve decided to live on Manhattan’s Upper East Side.  You want 2 bedrooms and 2 baths in a full service doorman building. Now you need to decide if you want to buy or rent. 

On the one hand, mortgage rates are near record lows, but you know that won’t last forever.  Apartment prices are, on average, lower than last year, but sales are up.  Rent, on the other hand, seems set to be rising thanks to low vacancy rates. 

  • Neither mortgage rates nor rents are likely to rise rapidly
  • Apartment prices, relative to rents, remain higher than their long-term average (?)
  • If you plan on moving again in the next few years, renting is usually better than buying.
  • If you’re planning to settle in one place for at least 5 years, buying makes sense

So let’s use the example above where the goal is to buy or rent an apartment on the Upper East Side consisting of 2 bedrooms and 2 baths in a full service doorman building. Let’s say you’ve just seen the First Quarter Rental Report from Prudential Douglas Elliman   , or The April rental report from MNS Real Estate Group  or the Citi Habitats’ First Quarter Report  .

You can use a Rent vs. Buy calculator or you can get to know your Rent Ratio:  Take the sale price of apartment divided by annual cost of renting an equivalent apartment.  Below 15 is where most people lean towards buying.  The New York Times recently reported  that according to Moody’s Analytics, at the end of last year, the rent ratio for Manhattan was hovering around 29. Still down from the peak about 5 years ago, but still higher than the decades before the housing bubble.

I generally suggest using a rent ratio of 15 to 20 as a beginning point of discussion for the rent vs. buy calculations.

So let’s say you want to pay up to $4500/month for a rental ($54,000 per year). Using the rent ratios of 15 to 20, it may be advantageous to buy an apartment costing between $810,000 (15 x $54,000) and $1,080,000 (20 x $54,000).

Rencenty, I did a property search on the Upper East Side (60th Street to 96th Street from FDR to 5th Avenue) for 2Br + 2Bth coops and condos with full time doormen. I limited the maximum price to $1,080,000.

Of the 87 listings,  19 are condos or condops and 68 are coops. The search results show the average price is $937,000 and the monthly charges average $2076. 87.  

Although the benefits could outweigh the costs (tax deductibility of mortgage interest, tax deductibility of coop maintenence, etc.), additional costs of ownership must be considered:  closing costs, borrowing costs and maintenance or common charges. Not to mention the need to have $200,000+ as a minimum down payment required either by the mortgage people or the Board.   

Consulting your buying team (broker, attorney/financial advisor and mortgage banker or broker) will help you make the right decision.

Categories : Build Your Team, Buyers

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