7 Things to Consider for the Rent vs Buy Conundrum
November 26, 2024
To buy or not to buy
Dear readers,
Thank you for the overwhelming support and responses I received after I sent out my last newsletter, where I shared that I have struck out on my own as an independent agent and moved to the national headquarters of Douglas Elliman at 575 Madison Ave!!!
Things have been off to a busy start in the past month (yay!). I signed several new exclusives representing sellers, landlords, buyers and tenants!
I look forward to responding to everyone that reached out and hopefully to seeing some of you during the festive season ahead!
—
Quick note: My next newsletter will come to your inbox in the new year, as I will take December to connect in person with friends and family, and to reflect, rest, and reset.
I hope you have a happy Thanksgiving, filled with good food, great company, and high spirits! 🦃
—
Now let’s get right to the topic du jour: Renting vs buying, or “to buy or not to buy.” (Years of English Literature classes prepared me to come up with this pun.)
I was recently quoted in Investopedia on this age-old question, and I wanted to share my full approach with you all here.
As you might know, I work on both rentals and sales, and part of my responsibility is figuring out whether renting or buying is the better fit for each of my clients.
There are many ways to look at the rent versus buy conundrum.
Katie Gatti Tassin, the personal finance writer behind Money With Katie, has done a great job crunching the numbers to show the potential financial benefits of renting.
Now, I LOVE Money With Katie, but her calculations also don’t apply to everyone.
When my clients come to me looking for their next home, I’m not just thinking about their budget. I’m thinking about who they are as a person.
Having helped dozens of clients make the right decision for themselves (as they tell me afterwards!), I have crystallized seven things that you should consider when deciding to rent or buy.
✨🏡✨
Are you dreaming of your next home? Book a free 30-minute consultation with me with no strings attached.
1. How long are you planning to stay in your next home?
If you’re planning to move within five to seven years, it might make more sense for you to rent (the Money With Katie post I linked above helps explain why, financially). Maybe you’re getting ready to start a family but haven’t decided when or where. Or maybe you’re new to an area and are trying to stake out the vibe.
Remember each time you buy or sell a home, there are closing costs and other fees. Nobody likes paying more than they have to, and if you end up selling a home you just bought recently, you’ll be paying these costs twice in a row, making the break-even point higher.
2. How are you feeling about your career?
If you’re settled in your current job, buying a home nearby can be a perfect investment in your stability and quality of life.
But if you’re considering a career move, home ownership could become a pair of golden handcuffs. What happens if you come across a dream job opportunity in a different location just when a market downturn makes it an inopportune time to sell your home? Also, some employment changes can even jeopardize your mortgage if they happen before closing.
3. What are your current living expenses like?
If your current rental costs are low enough, it may be hard to beat what you have, at least financially. For example, if you got a generous pandemic discount on your rent and your landlord has been kind enough not to raise it too much in the post-Covid era.
If your cheap rent could save you thousands over the monthly cost of ownership, that’s almost like a kind of equity. Especially if you save or invest the extra cash. But if your rental costs are starting to build up, it might be time to think more long-term.
|
4. How much are your folks going to help?
Not everyone is fortunate enough to have a family with the means to help them buy their next home. But don’t be shy if you do: according to the New York Times, 43% of buyers said that family or friends (some nice friends there!) contributed money toward their down payment in 2023.
Gift money can have long-term effects on your finances. The higher your down payment, the lower your monthly mortgage payment, and a higher down payment can sometimes help you qualify for a lower interest rate. Not only that, but certain buildings in Manhattan actually require a higher down payment.
You can also use the money to buy down the interest rate. (In my September letter, I called this spending a little now to save a lot later!)
5. Which tax benefits are you eligible for?
After the standard deduction was doubled in 2017, a lot of people found that they no longer needed to itemize their tax returns. Still, there are a few potential major tax benefits for NYC homeowners who do itemize, including:
The 17.5% tax abatement for condo and co-op owners who use it as their primary residence.
The mortgage interest tax deduction, up to the first $750,000 of your principal.
The SALT deduction, which allows you to deduct up to $10,000 of your state and local taxes, which include property taxes, from your federal income tax.
I’m not a CPA, so definitely consult with a tax professional about your specific situation! But these tax benefits could help offset many of the costs associated with owning a home, if they add up to more than your standard deduction. Renters are out of luck, though—there are no tax deductions or credits for paying rent.
6. How much do you believe in the investment value?
This is a tricky one! If you’re like me, you have Baby Boomer in-laws with fantastical tales of buying a home decades ago and selling it when it was worth multiple times what they paid.
But the value appreciation doesn’t tell the whole story. Carrying costs can be high, with common charges and real estate taxes (or maintenance in co-ops) potentially adding up to as much as the mortgage payment itself!
And some apartments tend to appreciate more than others – condos more than co-ops, for example. So, it’s important to keep the full picture in mind and to stay realistic.
|
7. How important is it to have a place to call your own?
To many of my clients, a home is not just somewhere to kick your feet up. It’s a symbol of your connection to your community, where you watch your kids grow up, where you make memories and dreams, where you have the freedom to express yourself. It’s a place of greater stability.
Renting just isn’t quite the same, for many people.
You can’t renovate a rental without risking your security deposit, so it might not ever feel like your home. If the landlord decides to sell and you need to move, your kids may need to change schools and make new friends. You might need to make new friends!
|
Help me, Judy!
Two months ago, I mentioned a client whom I helped score a major first-time home buyer credit—another consideration in the rent vs. buy vortex.
I knew about the credit because I was familiar with my client’s mortgage lender. And the reason I’m so confident that I can help you, too, is that when you work with me, you work with a whole team of people: lenders to calculate and minimize your costs, tax accountants to help you find the deductions you qualify for; attorneys to protect your investment; even estate planning experts to confirm that your property makes it to the right heirs.
Together—you, me, and the professionals I enlist to help—we’ll chart the best way forward for your unique situation.
Let’s talk!
Yours truly,
Judy
Market Update
A few quick takeaways I got from Manhattan’s October sales and rental reports:
It’s been an unusually busy fall! In fact, Douglas Elliman and comparable brokerages had one of the highest sales volumes in nearly two years.
In Manhattan’s co-op market, new signed contracts in October surged by almost 30% year-over-year, while new listings decreased by 6.5%, with the sharpest declines in luxury listings, including a near 50% drop in listings above $5M. These shifts, perhaps spurred by a historically high stock market, create a tightening inventory in the luxury segment.
Condos in Manhattan were in even hotter demand than co-ops last month! New signed contracts for condos in Manhattan in Oct increased by nearly 50% year over year. Contracts in the $500K-$999K range jumped 76%, while the $5M-$9.99M and above $20M segments saw staggering increases of almost 130% and 170%! Both the condo and co-op market’s strong sales performance confirm a stronger demand in the luxury market, as well as robust market activities in the broader market.
Rentals weren’t snoozing in October either, maybe due to a return to higher mortgage rates environment after the summer dip, pushing some would-be buyers back into the rental market. New lease signings increased by 24% year-over-year in Manhattan, and even the median rental prices rose by 2.4%, reaching $4,295, which was actually the first annual increase since April!
