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Buy vs. Rent: What Should You Do?

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If you've been looking to rent an apartment recently, you might be experiencing a little sticker shock. Seven grand for a two-bedroom on the Upper West Side... Really? Really!!

As you may have read in previous blogs, the rental market has seen some significant increases over the last two quarters. This has prompted a lot of renting New Yorkers to ask themselves the obvious question: "Could it really be that much more expensive just to buy something?" Buy versus rent: what should you do? I've been getting this question a lot lately. Well here are some facts and some food for thought.

The question becomes easily answered if you don't have a down payment: renting is the way to go. However, if you do have a down payment and a job (what a concept), I would without a doubt recommend that you buy.

Let's use $1,000,000 as our example. It is common in New York City that you will be required to put down 20 percent ($200,000) to 30 percent ($300,000). This scenario would leave you financing $700,000 to $800,000, figuring a 4 percent interest rate (you may be able to do better in this market, depending on the particulars of your deal, but don't quote me; talk to your friendly neighborhood mortgage banker for all the details). Your monthly costs on that would be approximately $3,350 to $3,820 per month. You can play with the numbers or plug in your own scenario here. Then you have your monthly common charges and real estate taxes (for condos) or your monthly maintenance (for coops). This will run in the ball park of $1,000 to $1,500, which brings your monthly payments to approximately $4,350 to $5,320 per month.

Depending if you have a doorman or not, an elevator versus a walk up, a view versus no view, and if the apartment needs renovation or is move-in ready and a COOP versus a condo, (more on that in next week's blog so stay tuned!), this price range will generally buy you 800 to 1,100 square feet. A rental of that size could run you $4,500 to $6,000. Don't forget, the added benefit of owning is that all of your mortgage interest and real estate taxes are tax deductible, plus your home will mostly be your largest appreciating asset, which is true even more so now since the bubble burst and you have low prices and historically low interests rates.

Interest rates should stay at these historical lows for at least the rest of the year, possibly through 2014, Chairmen Ben Bernanke said recently as he's been trying to temper people's enthusiasm on the seemingly improving economy. It is clear the Fed understands that raising rates too soon could be detrimental to the fragile recovery.

Specifically in New York City the rents are rising and the prices are flat. Once prices start increasing, I feel they are going to move upward fast. Buying a home is kind of like buying a stock; you have to get in at the right time. Don't you wish you had purchased Apple stock a year ago when it was trading under $350? (It's over $600 today, FYI.) There is no better place to own real estate then New York City, so jump in now. The rest of the world has! We have more international buyers than ever before. So, If you think you can't own in this city, think again. Consult some experts! (A knowledgeable real estate broker and mortgage banker.) They will give the benefit of their knowledge for free! And you'll know exactly where you stand.

If you need even more specifics or if you have any questions, don't hesitate to email us toni@elliman.com