Opinion: How the pandemic changed the game between renting and buying in New York City
$ 68,750: This is the amount my husband and I will pay in rent over the course of our two-year lease in New York City. It was amazing to see the total amount of our agreement – this could be buying a home (albeit a fixer upper) in some places in the US, or a huge down payment in others.
I had to face the reality that this money wasn’t going to be used to build equity. It would not be used as an investment with compounding ability. Instead, it would subsidize the mortgage payment, property taxes, and co-op fee our landlord has to pay.
However, signing this lease was the right step for us. Although I am routinely asked when we buy a house or if we get frustrated “throwing our money away every month,” I disagree with the popular rhetoric that buying a house is always a good investment and that paying the rent only mine is money gone.
Location is the first rule for real estate. For those of us who choose to build our homes in expensive corners of the United States like New York and San Francisco, our location can offer both professional and lifestyle opportunities. The tradeoff, however, can be the inability to access affordable, permanent housing.
Buying the one-bedroom apartment I currently live in would cost nearly $ 800,000 – a steep price, but a market price for the area. It’s also in a cooperative building, which usually means you technically don’t own your apartment as much as you own shares in the building. Cooperatives charge monthly maintenance fees, similar to a homeowners association fee, but usually at a much higher cost.
The co-op fee for our unit is approximately $ 1,500 per month in addition to a monthly mortgage. Even with a 20% down payment, our home mortgage would likely cost us about $ 3,000. So we’d owe $ 4,500 a month before we were responsible for the utilities, repairs, and property taxes that aren’t currently on us as a tenant. More about these costs in a moment.
The pandemic has also changed the game between renting and buying. People flocked from NYC to buy upstate real estate. Manhattan rents fell 12.7% in 2020, which, according to StreetEasy, was more than a drop during the Great Recession. According to a housing report by the New York State Association of REALTORS, the median sales price for homes across New York state rose 22% from February 2020 to February 2021. This is also the fifth month of year-over-year sales growth in these comparisons.
For the first time in the decade I’ve lived in New York, tenants finally had an impact. We got a dog friendly apartment in a prime part of Manhattan with a working fireplace and washer dryer in the unit. In 2019, this combination would have been way out of our budget. In addition, we still have our almighty mobility – renting makes it easier to move if we want to take advantage of the opportunities elsewhere.
The real cost of owning a home is hidden. Aside from the fact that renting gives us access to a city that we as homeowners may not be able to afford, it’s also worth exploring the rhetoric that owning is the better financial move.
As a homeowner, you are responsible for so much more than just a tenant: taxes, property maintenance, ancillary costs, possible maintenance such as a new roof or dealing with a burst pipe. As a tenant, it was a relief that when my bathroom ceiling collapsed at 2 a.m. because of the upstairs tenants, I was just calling my landlord to take care of the logistics and repairs. Homeguide.com estimates this likely cost my landlord a few thousand dollars between replacing the pipe and repairing water damage. Not to mention, if he hadn’t acted quickly, he would have had to pay for me to stay in a hotel until the bathroom was back to working.
It’s worth noting, however, that New York City laws tend to be more renter-friendly. In other cities where laws favor landlords, owning may be a better step so as not to have to financially invest in repairs to a property that is not your own.
The hope, of course, is that as you build equity in your home, the property will appreciate in value so that it pays off. For some, this can go very well. But there is never a guarantee.
A home is not always a good investment. It really depends on how we interpret the word “investment”. In terms of investing money for profit – in the purest sense of the word – primary residence is not always the best option. It can take you decades to truly make a profit on your home, making it a savings account rather than an investment.
Yes, there are knowledgeable fins that can live in a house while they fix it and sell it for a profit. There are those who buy a duplex or triplex as their primary residence and rent out the additional units to repay their mortgage and ultimately make a profit. However, this is not the case for the average homeowner.
None of this means that home ownership isn’t valuable. It can of course help build wealth and be a means of creating generational wealth for a family. However, this does not mean that renting is a waste.
Renting still makes sense to me. I exchange my money for housing and at the same time avoid headaches when buying a home. Sure, I don’t get any benefits either, but there are other ways I can invest and grow my money for the future, including going into the stock market and building my own business. Even if we stay in New York for another decade or two, it can always make sense to rent to give us the flexibility to move to new neighborhoods or bigger apartments as our jobs or lifestyles change.
Erin Lowry is the author of Broke Millennial, Broke Millennial Takes On Investing, and the upcoming Broke Millennial Talks Money: Stories, Scripts, and Advice on Navigating Troubled Financial Conversations.
This story was published by a wire agency feed with no changes to the text. Only the heading was changed.