To Rent or To Own
Some common questions pop up in the minds of people as they're browsing the real estate market. "Why am I throwing away all this rent money when I could be putting it toward equity in something I'd own? Should I be buying rather than renting? What's the real difference? How do I decide?"
Here are some of the basic distinctions between renting and owning:
| RENTING | OWNING | |
| Tax deductions | Virtually none | Deduct real estate taxes, mortgage interest |
| Cash value buildup (equity) | No | Yes |
| Liquidity/ease of movement | Very good | Limited |
| Maintenance and upkeep | Not your problem | Your responsibility |
| Decorating/remodeling | Restricted | Unlimited |
| Impact on credit rating | Zero, unless you default | Builds credit rating points |
| Impact on cash reserves | Cash remains intact | Equity subject to real estate market fluctuation, and it is not a liquid asset |
| Time cycle from selection to move-in | Rapid (days to weeks) | Slow(weeks to months) |
There are many considerations that come into play when you're making the decision to rent or to own an apartment. For example, how long do you expect to live in this community? If you are new to Manhattan, how do you know what neighborhood will suit you best? Are your particular requirements easy or difficult to fulfill? Here are some things to think about when making your decision.
Advantages of Renting in Manhattan
If you are committed for no more than one to three years, renting will keep you relatively mobile and your cash supplies liquid.
- If you are new to NYC, renting an apt will give you the chance to "try out" a neighborhood before committing to a major purchase.
- If your needs are very particular, the apartment you're seeking to buy may not be immediately available in a tight market. A suitable rental apt. might provide what you need while you wait for the right buying opportunity.
- In some cases, you may be able to rent with an option to buy (i.e., get first refusal if property is to be sold or negotiate a portion of the rent payments to be applied to the purchase price).
- If you need to move or relocate quickly, renting will get you settled much faster than buying.
- Renting takes far less time and paperwork than buying (and lawyers are usually not involved in the rental process!)
- Lease approval is usually by one person; a purchase transaction will typically include mortgage approval and the approval of a condo or co-op board.
- In live/work situations, renting may actually have more tax advantages. Since the lease can be co-signed by you and your business, there is a greater potential for tax deductions.
- If you need to relocate for professional reasons, you can usually "walk away" from a lease with relatively few headaches.
- Renting generally keeps your cash reserves available for other uses.
- Your "investment" is safer and more predictable in a volatile real estate market, since your financial commitment is fixed and not subject to market fluctuation.
Advantages of Buying in Manhattan
- You can build up equity and gain leverage for borrowing.
- You generally have some say in how the building and its common facilities are managed.
- In a co-op, you may have some say in who occupies the building.
- You benefit from a variety of tax deductions, such as real estate taxes paid and, in many co-ops, interest on the underlying building mortgage.
- Your monthly after-tax costs may actually be lower than renting.
- Unlike consumer loan or revolving credit interest, equity loan interest is fully tax deductible, regardless of what you spend it on.
- Mortgage and co-op loans help you build a positive credit history.
- If your needs are very particular, you may only find what you want in the sales market. Some of the choicest neighborhoods are predominately owner occupied.
- You have a sense of permanence.
- You have more freedom to customize your apartment to suit your needs and decorating tastes. In some cases (such as new conversion lofts), construction plans can be negotiated prior to purchase.
- For certain foreign nationals, people with credit issues, and anyone purchasing an apartment in an all-cash deal, buying can be easier than passing the strict credit and income requirements of landlords.
Some Notes About "Investing"·
Many potential purchasers focus solely on the notion that an apartment purchase is an investment. If this is your primary goal, ask yourself a few questions before taking the leap. Do you plan to live there? If so, for how long? Are you hoping to rent it out or sublet the apartment? If it's more an investment than a home for you, is it your best investment?
If you're looking primarily for a return on investment, compare the real estate market to the stocks and bonds markets, for example. When you compare the relative risks and active management requirements for each scenario, what's your best investment?
If you want to rent the apartment out, many co-ops have strict limitations on how many apartments may be rented, to whom you may rent, and for how long you may rent. Some co-ops with low owner occupancy are less restrictive. Condos tend to have few or no restrictions in this area. For more information see, about co-ops and condos