Is it better to rent or buy? We’ve discussed this age-old housing question several times in the past, but it’s always been on a theoretical level. Sometimes what seems simple in theory is tougher to figure out when you have to make a decision in Real Life.
That’s the case for Erik, who dropped a line yesterday to ask whether, based on his personal circumstances, he should rent an apartment or buy one. Here’s what he has to say:
I currently live at home with my parents, but I’m now engaged and looking for an apartment with my fiancée, which we plan to move into in January or February.
Here are some more details:
- My fiancée is 24, and so am I.
- Together we have $17,000 in liquid cash and $8,000 in non-retirement investments.
- After taxes, we take home about $5000 per month.
Since we’re waiting until January to move, we should have about $27,000 in liquid cash to work with. We might have more, but this number seems safe.
We live near New York City. In the areas we’re considering, a one-room apartment rents for $1200 to $1800 depending on which town (Queens, Great Neck, Little Neck, Douglaston). Most of them are old places without any updates.
Or we could buy a pretty decent one-bedroom apartment for between $160,000 and $180,000 — though we’d also have homeowners association fees of between $500 and $600 per month. I’ve looked at mortgage calculators, and it seems that with a mortgage and HOA fees, our housing payment would be almost the same as a rent payment.
We don’t have any credit-card debt, and our credit scores are great. Other monthly costs (including a car, student loans, cell phones, and so on) are about $1000, though there’s some fluctuation. I’m a teacher on Long Island, so my salary is very predictable. But my fiancée’s salary isn’t predictable at all because she’s working at an entry-level job.
So, I guess I’m wondering: Does it make more sense for us to rent or buy?
First, Erik and his fiancée are to be commended for their fine financial situation at 24 years old. I think they’re doing great. Plus, it’s awesome that they’re willing to think about their housing situation, and to make a considered decision instead of just acting on impulse. Housing is the biggest expense for most people, yet it’s one they think little about. Erik has a chance to have a huge impact on his financial well-being by making a good decision here.
Having said that, I don’t think there’s one right answer to this question. Either renting or buying could be good, but it depends on a lot of factors, including:
- How long does Erik plan to live there? If he plans to stay put for a while, buying makes more sense. He’d have time to recover costs, and he’d be able to build some equity.
- How does he feel about owning his own apartment? For some, owning a home is a piece of the American Dream. For others, the chores and maintenance are a nightmare. Erik’s feelings about homeownership are just as important as crunching the numbers.
- How are rental prices in New York? Housing prices? If one market is significantly attractive, that should play a role in his decision.
It sounds like Erik has already played with some online calculators. He might also want to tinker with the New York Times rent. vs. buy calculator. This thing is very useful, and will let him toy with a lot of parameters to see whether one choice is significantly better than the other.
So, which should Erik rent or should he buy? To be honest, I don’t think there’s a clear-cut answer. (And if there were, I don’t think he’d be asking the question.) If I were in his shoes, I’d keep both options on the table. Between now and January, I’d keep a close watch on apartments, both those for sale and those for rent. This will help him get a feel for current market conditions, which will let him know whether something’s actually a good deal.
My top piece of advice, no matter which option Erik chooses, is to keep housing costs low — less than 25% of gross (pre-tax) income, if possible. Doing this one thing will do more to help his long-term financial future than anything else.
What do you think? Should Erik rent an apartment? Or should he buy? If you were in his situation, which would you choose? Why? Are there specific factors that might push you one direction instead of the other?
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Rent!
You’ll be newlyweds. Enjoy that time without the stresses and burdens of home ownership. As a renter, you’ll have a landlord to deal with all that.
As you and your soon-to-be wife learn increasingly about each other’s housing wants and needs, potential for and timing of kids, and personalities, you’ll be better prepared to determine the type of ownership options that work best for you both, especially if you guys haven’t lived together previously (I’m guessing not, if you’re living at home now).
Plus, I’ve learned the hard way that the monthly cost of ownership (esp for recent buyers) is generally more than just PITI and HOAs. PMI will get thrown in if you don’t have 20% down, maintenance and repairs, etc. generally require additional money at the most unexpected times.
You both seem like you’ve got good money instincts; which will help you out tremendously through your married life. Good luck!
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@Mike
Excellent answer on both the emotional and financial sides of the equation. As an owner of multiple properties, the costs are almost always higher than the sum that the financial calculators return.
Like having children, buying a house is a decision better left to those couples with time invested in their relationship. Time is very much on your side, use it to your advantage. Haste, on the other hand, will often lead to disappointments. Mike nailed it succinctly.
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It sounds like you guys are really in a great financial situation, so congrats! I know a lot of newly-weds that just combine debts, not savings!
An HOA fee of $500-$600??? That’s crazy! I had no idea it was so expensive over there in New York. However, given the place is only $160,000 or so, I think it would still make more sense for you to buy.
And, if you are willing to move after 3-5 years, a good option might be to pay down nearly all of the mortgage and rent out that place that you own! By that time, you might be able to get $2,000 a month and then you can live quite comfortably somewhere else.
Renting sometimes makes sense, but with home prices the way they are, I think there’s really nowhere to go but up with that investment.
Good luck on the decision!
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Congratulations!
I don’t think buying a one bedroom apartment is a good plan. The market for 1BR apartments is much much smaller than 2+BR, so if your circumstances change dramatically in the next few years–which at your age is more likely given that you are just starting out on your careers and on your relationship, you may find yourself desperate to sell with few interested buyers. In addition there are costs to ownership above and beyond the mortgage and co-op fees. So you may be paying more per month for less flexibility/freedom. I would rent an apartment that allowed me to continue building my savings for a few years, and buy when I was ready to afford a 2BR. That will give you some time to settle in to your current life, and will ultimately give you more options if you face major life decisions like starting a family, working from home or selling & relocating elsewhere.
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In NYC, one-bedrooms are always in high demand. be careful not to let conventional wisdom from somewhere else influence your decision.
That said, I am very suspicious of the $160,000 figure. What kind of neighborhood is that? It is very unlikely that an apartment that cheap (note to non-New Yorkers–i know that is a crazy phrase, but it is the reality of NYC)is in a neighborhood at all comparable to the kind of neighborhoods you are considering for renting. You indicated that you are looking in Queens (FYI: you really should get a better sense of the geography before you buy anything–Queens is a borough, not a town. Douglastown is in Queens (not sure about Little Neck and Great Neck–one is outside the city limits, but i can never remember which)). Most of Douglastown is quite nice, but there are some dodgy areas as well. You will be quite remote from Manhattan, and public transportation out there is limited and expensive (LIRR rather than subway). That will affect your ability to change jobs, should you desire to do so, and to take advantage of the City’s attractions.
More importantly, it is next to impossible to buy a one-bedroom in a good Queens neighborhood for that price, especially one with easy access to transportation for that price. Be careful about moving to a marginal neighborhood. Many such neighborhoods were hit very badly by the financial crisis, even though real estate in the City as a whole seems to have held up pretty well. The last thing you want or need is to be stuck in a deteriorating neighborhood that is not very safe. Do not go by distance–just because neighborhoods are within a mile of each other does not mean that they are in any way comparable. in NYC we measure proximity by travel time, not distance. neighborhoods can change profoundly over the course of 10 blocks (1/2 mile).
THe HOA fee you cited suggests that the place is pretty small. Is it a coop or a condo? either way, make sure that the building has sound financials. if the sponsor still owns many of the units, you can expect the fees to go up significantly as the units are sold. Sponsors often keep the fees to a minimum to attract buyers but once the residents take over the board, the fees will have to go up to make sure that necessary maintenance and services are provided.
good luck!
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I’ve got to say, the price quoted seems laughably low to me. I am not from NY, but that doesn’t pass the smell test to me. In the city I live in you couldn’t buy a shoe box for under $200,000. Are you sure that’s accurate?
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tricky. that rocks you guys are so financially stable. However, just because you can afford something doesn’t necesarily mean you should. Hmm, 3 things popped into my head.
Thing 1
-babies! 1 bedrooms can be difficult to grow into with a little guy. But if you guys already talked about it and are sure this is no big deal.
Thing 2
-relocation with jobs. At 24 you guys are both young enough that you might want to jump on exciting opportunities. Are you cool with the area?
Thing 3
-if one of you looses a job, or gets preggo, or gets disabled, or hates thier boss, would you be ok on one income?
Congrats on your upcoming marriage, and enjoy your next big adventure together!
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Ditto
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I would suggest renting for now. As the first commenter said, you’ve got plenty on your plate as newlyweds and being tied to home right off the start isn’t always the best scenario. You’ll be surprised at some of the issues that from the outside or from later in life look silly, but will wear on you to as you figure it all out.
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I agree with Emily! I was just going to post that I would be hesitant to buy because a pregnancy would change everything. Not sure if it’s true, but I’ve read that you really only benefit buying real estate if you plan to stay put at least five years. Otherwise, you’re losing a lot in taxes and closing costs. (Maybe that’s just Canada?)
I think renting is a good stepping stone between living with parents and owning. Besides, there’s no mention of what the wedding will cost or how it will be paid for. They might not have as much cash as they anticipate.
Kudos to this couple for thinking so far ahead!
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I say rent, but for a different reason than the others. Relationships can change a lot once you move in together. I’m sure you and your fiance have a strong relationship, but you should probably live together first in a rental and wait to buy once you are sure you can get along day in and day out in cramped quarters.
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I say buy (I like the autonomy of ownership), but do more research. Queens is not a town, it is a borough and county of New York City. Douglaston is a section of Queens. So is Little Neck. Great Neck is one of the more expensive towns in Nassau County, with sky-high property taxes. My suggestion is to look further afield: Brooklyn, The Bronx, other part of Queens, Rockland County, and even parts of New Jersey might be considered.
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One thing to consider if autonomy of ownership is a big factor for you – many condo buildings tend to have VERY restrictive rules which infringe on this. Just be sure to take it into consideration (maybe talk to other condo owners, def go through HOA meeting minutes) before you make that decision. Many of them have very restrictive rules when it comes to remodeling, what you put on your patio, use of common areas, and so on.
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Owning an apartment I would think the chores and maintenance would be negligible vs owning a house, but still very important to have an emergency fund for repairs. Also consider the overall health and age of the building, as all owners share in major repairs and upgrades.
In my experience utility costs are roughly the same or slightly higher where you own, so not a big factor. But there are added costs to buying and selling that trim away some of your equity gains if you own short-term.
Also consider how long it will take to sell an apartment if you decide to move; realtors can estimate the number of months on the market for similar apartments (if they will tell you). Carefully consider the character of the neighborhood – is it improving or falling into disrepair? This can affect future saleability of the apartment.
Last but not least consider if you have neighbors who are unpleasant (loud or whatever), how will the HOA deal with them? You are really stuck with them when you own, but when you rent if they are annoying enough you have the peace of mind to know you can move out within a year.
Since most of the US is in a down real estate market right now, if you are planning to stay in one place for ten or so years you could see some very noticeable rise in equity during that time.
The most significant thing in your description is that rentals sound out-dated and unimproved compared to purchasing. That could well be the deciding factor. You will want a place that you are going to be happy in for at least a few years, especially if you are going to start a family.
If this nest-egg were the majority of your liquid funds, at your age I would put it all in investments. But you sound like that is covered already, in which case owning your own home will diversify your investments even more – so it would be a plus from that perspective.
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I don’t really have anything to add to what JD said. One of the biggest factors when you’re young like this is how mobile do you want to be. Don’t buy unless you’re planning on staying put at least 5 years or can take a big loss if housing values go down.
That HOA fee is pretty darn large and it could even go up in the future.
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That’s a very good point. A lot of older co-ops/condos require major repairs, and the costs are distributed among all of the apartment owners. You can buy an apartment with a $500 maintenance fee, and two months later, they can double that amount as a special “assessment” for needed repairs to the building’s infrastructure (heat, roofing, boiler, etc).
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buy with a caveat
1. chances are prices may continue to decline learn about why this is research it throughly and be able to make an informed independent decision when the time comes don’t base your decision on what people are yammering about on the finance shows a lot of them have no idea of what they are talking about.
2. From a personal point of view we took the shortest duration loan possible made extra payments on it and paid it off years early. my housing expenses now entail taxes upkeep and utilities they are a fraction of what monthly rental fees would be.
3. over the years anything that needed to be done was paid for when it happened no home equity loans where considered and while I did not know how to do a lot of things when I started I taught myself and saved a ton over the years
4. If I was considering buying an apartment I would want to know the condition of the existing structure age of the roof heating system etc .Take into account the possibility of special assessments to pay for these large repairs.
Good luck !
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My wife and I bought our first home at 19, (we married at 18 and no she wasn’t pregnant)and I can honestly say we didn’t regret it. We were very fortunate to live in an area with very reasonable home prices and no HOA fees, which in my opinion are one of the biggest rip offs in real estate. We we got lucky and nothing major needed fixed on our home during the five years we lived there. If something expensive, like the roof, would have needed repaired, I’m afraid that might have put us in a financial pickle. When we eventually sold the house we made about $6000 profit between the selling price and our purchase price five years previously. That sounds nice, but when you factor the small repairs, upgrades, and mortgage payment and insurance we paid each month then we actually didn’t make any money.
I know as a young married couple you want to show your parents and the world that you have been responsible with your money and a home is a way to prove it, but like most have said already, I think the most responsible thing to do right now would be to rent. There are a lot of ifs and changes in your future and a house can be a tremendous burden when trying to make decisions about your future.
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If you and your finacee are considering having children, that should play a factor in your decision. I know several couples who bough 1 bedroom apartments in NYC during their mid-20s, and now a few years later they either have or want to have a baby, but are lack a second bedroom and can’t sell their place. The couples who rented have a lot more flexibility to move to a 2- or 3-bedroom (either purchased or rented) now that they have a better sense of their long term needs.
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Not only could the HOA fees go up- so could the taxes. Our taxes, in the last two years, have almost doubled. We have been assured that they will go up again for the next two years because of the “emergency” problems- like paying firefighters and teachers after the overspending with construction and roads.
Have you thought of renting in your desired area for a year and simply watching the market yourself? Real Estate agents want you to buy- NOW- but they do put up with couples who look for places on their own. My son watched for two years and just bought. The real estate agent was good about reminding him that “we are at the bottom and could be here a LONG time”. By waiting the years he was able to save 20% down and still have a good emergency fund.
BTW- babies can fit into a one bedroom apartment- ours did when we lived in a huge city.
Teaching is a steady and good job in NYC. You would never be able to buy a house on that job here in Kansas:>)
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While it is a good point, you would expect rent to increase too if property tax doubled, assuming you’re renting the same area you’re buying.
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Surprisingly- that has not been the case here. Rent is stable even with taxes going up!
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Same situation in my city. Property taxes has been going up by rent has not. Go figure! As a renter, I’m not complaining.
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Here’s my take on it. If you intend to live in the area for atleast for a few years and have saved up 20% downpayment, buy.
Else rent and start saving.
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I agree with what Nancy said in that a two-bedroom apartment is the better investment. Your eventual pool of buyers will be a lot larger. I grew up in Bayside, Queens and since you teach in LI (not sure where your fiance works) you might want to consider apartments further in Queens, but close to a Long Island Railroad station. This opens up more choice for you.
Also, any thought to leaving with your parents after you are married for another year? If this is an option I would say its definitely worth considering. You can even pay some rent if need be. This will allow you to build a larger pool of cash (which, if you will have $27,000 saved by January and use that for a down payment, will your savings be down to 0?) for a down payment, and an emergency fund. And you can continue to fund your investments.
Good Luck!
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I’m a fan of renting until you get a bit older and have some more stability in your lives. At some point you will probably begin to feel more “settled” and know what you need to do and where you need to be. Last night I was talking to a friend whose mother-in-law rented the same house for 30 YEARS. And now the kids not only don’t get to sell it for equity, they have to keep paying rent while they clean out 30 years of accumulated stuff. Yikes!
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At least they don’t have the headache of trying to sell the house. Especially if there are siblings who want to keep the house and live in it. I’m almost thinking the mom in this case did the kids a favor.
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If you’re not both completely done with school, I say rent.
While you’re in college the chance of needing to do an internship or other out-of-town studies is higher, plus there’s the issue of job placement after graduation.
I LOVE owning a house now, but if I had owned while in school I wouldn’t have had any time for regular maintenance and upkeep.
I may work 60 hour weeks now but I still have more free time than I did in school.
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We are close to being able to buy our first house, pending a successful job offer in our new city of choice.
We’re 25 years old, $71k/year salary, no debt, 6-month emergency fund in place, will have 20% down and pay our own closing costs and our target house price is $150k or less.
I feel like all our ducks are in a row and I am excited we are at this point! Still, I am nervous. We are living on one income and it feels a little more risky, I suppose, to be tied up with a mortgage.
It’s a big expense and commitment! But we hope to be in that city for the long-term., and it really does make sense to buy. We might need to rent on a month-to-month basis while we are looking at houses, so that we aren’t rushing to buy something simply to have it over with.
My biggest fear with having a house is what happens if we want to sell it, but can’t (or can, but having to take a significant loss first), or if there is a major problem that just drains our savings or worse.
I still think the benefits outweigh the risks, and we are in a great position to move forward.
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One question I have is how many condos/apartments there are for sale in the areas they’re looking in. My wife and I are in a similar situation (we’re 28 with a kid) but our Chicago neighborhood’s market is flooded with 2- and 3-bedroom condos. One of our neighbors has been trying to sell for over a year, and it seems to be a nice apartment in a desirable area (and at a competitive price, from what I can tell). Of course, when they bought their place, the market wasn’t so flooded, so the situation can always change, too.
Our philosophy with buying is that when we buy a place, it should be a place that we *could* live in long-term, even if we don’t *intend* to. That way, if you get stuck in a market where you can’t sell (especially when you don’t have much equity built up and can’t take a loss), you’re okay. Between potential job changes and potential babies down the road, my guess is that that won’t be the case here. My vote goes to rent.
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it doesn’t make sense to me to buy in nyc unless you’re pretty well established. i don’t think i know anyone in my circle who owns a place, except my landlord.
personally i would rent, but i’m a what-iffer. what if something happens to your relationship, what if she gets knocked up, someone loses a job or gets sick- basically if financial disaster happens will you be able to keep up with the costs and hassle of owning an apartment?
by the time i want to own anything, i want a lawn to go with it
until then i’ll pay rent for my little urban treehouse, thanks.
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Though you’re doing well financially, it doesn’t sound like you have 20% to put down, so that’s a mark against buying. Also, it ties you down much more than renting; are you sure you want to stay in that area long term? Perhaps more importantly, for how long is a 1BR apartment going to suit your needs (my guess would be not very)? It just seems like renting is less risky for someone in your situation.
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Like others have said, a baby will really alter your life. If one is at all in the future, I would say rent for the time being and save up until you can afford a down payment on a two bedroom. Even without children, a two bedroom would be really nice to have. The delayed gratification would be worth it in the long run.
When I watch House Hunters and other programs on TV, I’ve always been amazed at the price of HOAs in some parts of the country. $600 is insane! What do you actually get for that? Does that even get you a doorman? Oftentimes I hear that number, look at the actual grounds and can find no reason why it needs to be that high. Landscaping only costs so much, and usually the association calls on the owners to pay more for big repairs (roofs, pavement, etc.), so where is all that money going?
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I agree that $600 is really high – for that price it should include maid service! Ours was about a third of that, and included water and trash services, upkeep and use of common areas (parking, pool, tennis courts, playgrounds), landscaping, snow removal, exterior building maintenance (roofs, gutters, siding, etc), and building structure insurance (our condo insurance was only slightly more than renters insurance because it included appliances, carpeting and cabinets).
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There are HOA fees as high as that in downtown Minneapolis. Generally those buildings have party rooms, gyms, someone at the front desk, and security. If you cross the freeway and go into the smaller buildings that don’t have full time staff then they drop to 200 – 300 per month (sometimes less.) Sadly $600 in NY sounds semi-reasonable to me.
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$600 is a very reasonable HOA/Maintenance fee for NYC. In my neighborhood in Brooklyn, the maintenance fee on co-ops range from the mid $700s – $1100+. Maintenace fees on co-ops usually includes real estate taxes as well as some utilities (heat and hot water).
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+1
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I would only buy if you could survive on a single salary without going into credit card debt.
Two years ago, my fiancee and I were in the same situation. His income stream is predictable, but as a freelance designer mine was not. We didn’t ultimately decide to buy a house until we did the math and realized that we could handle all finances with room to save money on his salary alone. We bought a two-bedroom that we intend to leave when we decide it’s time to have kids. We may not sell it – we may leave it as a rental property.
At the time that we bought I had a steady income stream, but a few months later we decided we wanted to start a non-profit. I needed to stop working so that I could manage the process otherwise we wouldn’t have had the time to pursue that dream. If we’d relied on two incomes, we wouldn’t have been able to do it – and if I’d become unemployed against my will while we were relying on two incomes – we would really be sunk in snowballing debt.
Not to say that it wasn’t slightly uncomfortable for a few months while we figured out what fat we could trim. We’re at a happy place now even with my meager income – no added debt and we manage to save a really good chunk of our net income (about 20%).
So if you can afford a mortgage on just one of your salaries – then go for it. Otherwise, I’d rent. It’s much easier and far less damaging to get out of a lease and find a way to scale down on housing costs when disaster or catastrophe strikes and you have to rely on one income.
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http://weiner.house.gov/reports/Rent4.29.08.pdf is the study on percentages of salary paid for housing in the different boroughs.
http://envisioningdevelopment.net/map is an incredible interactive map about the distribution of income in different neighborhoods.
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this is an extremely good point and I’m glad you brought it up! we are far from normal here, haha.
When I moved here, my broker used the standard that my rent should be ~30% or less of my monthly pre-tax income. But after taxes, I pay pretty effin’ close to 50% or more, and that seems to be pretty normal or maybe even a bit low for this area. (And that’s after having negotiated my rent down by doing odd jobs for my landlords and so on.) And I mean, that’s for a 1br apartment in what I’d call a semi-sketchy neighborhood–not horrible, but not fancy either.
On the other hand, I have absolutely 0 transportation costs, so it sort of evens out
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Awesome info. Thanks, Nancy.
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One reason why New Yorkers are often able to pay more for housing is because many do not have cars (when I paid 52 percent of my monthly income to live in Manhattan this was the case for me and almost everyone I knew.)
The original poster here has a car payment and so he should consider that before jumping into a higher percentage of income for housing.
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Ditto for Boston, though the rents obviously aren’t as extreme here. It’s kind of shocking to realize I was paying basically the same amount in rent + car maintenance/insurance/gas in a suburban Midwestern town as I do here for rent and the occasional Zipcar, and I find here SO much more fun and convenient.
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You found a 1BR apartment near Queens for no more than $180k? What’s wrong with the place?
A quick search on Zillow.com shows average prices in that area between $300k and $700k. Be sure you’re not getting a place without knowing *everything* about it, e.g. if there’s a train that goes by every morning at 3AM or it’s downwind from a sewage treatment plant.
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I’d rent for at least six months to a year (although I would probably be sorely tempted to buy) for two reasons:
One, you’ll have just gotten married, and it’s better to deal with one enormous change at a time before moving on to the next one.
Two, even though it SEEMS like you could buy for the same cost as renting, the probably isn’t the case when you factor in all the additional expenses that buying adds. (You’re more likely to do things to a place you own than a place you rent, and you’re responsible for everything that goes wrong — which usually happens all at once.)
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As a New Yorker, I say rent. But that’s due to my personal feelings on condos/co-op apartments, which is: it’s like an apartment where, if your neighbors suck, you can’t just wait for them to move out.
Since you’re currently living at home, I DEFINITELY say rent. Take a couple of years, at least, to figure out what you like and don’t like about living in certain areas, or certain types of apartments. (Like, I’ve found that I am totally okay with living in a 1br in a really old building until the day I die; in fact, I actually LOVE it.) Knowing your different residential neighborhoods really well will allow you to figure out where to get the best deals in the future. In other words, I think in our city it’s important to have some degree of mobility.
Keep your liquid cash for your emergency fund; it may sound like a lot but I personally wouldn’t want to burn it all on a downpayment.
Also, for what it’s worth, moving around here is more expensive than you’d think–you’ll probably need security, first month, and last month if you rent (even if you have great credit, living at home means you probably don’t have much of a rental history, which will be a factor), movers if you use ‘em, and broker fees if you use a broker. (which, if you can find a good one, I’d recommend, personally. It made a HUGE difference for me when I moved here.)
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I used a broker when I moved here, and that’s $3400 I will never see again. If you’re moving to NYC from out of town, they can be a huge help. But when my lease is up, I’m certainly taking on the task myself. To each his own…
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Based on the numbers given, financially it sounds like buying wouldn’t be a bad choice.
The biggest red flag I see here is that a one-bedroom apartment probably won’t be big enough for very long, and my rule of thumb is that whenever you buy a home you should plan on staying there for at least 7 years if you don’t want to lose money. In a declining market like we have today, that number may be even higher.
Everyone knows that the moment you drive a new car off the lot, you basically lose 20% of its value. There’s a similar rule for homes. The moment you sign the closing papers, you’ve basically lost 10% of its value, because that’s what it’s going to cost you to sell it.
If you’ll be comfortable living somewhere for 7+ years and/or won’t mind losing money when you sell, go for it. On the other hand, if you want to remain mobile, keep your options open, and not have to worry about maintenance and other ongoing responsibilities of home ownership, it might be a good idea to hold off.
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Rent. You’re young and mobility is a very prized commodity at that age. Your lives are still very much in flux. Who knows what career or educational opportunities await you? Who knows what life awaits you? You guys are still in the planning stages of life. You might not PLAN on having kids but life has a fantastic curveball-throwing arm. Save your money so you have even MORE cash available when it really is time to buy. And honestly, I have a feeling when the tim IS right you’ll know. But right now, no way. Rent and enjoy your young lives together free of home ownership. Besides, doesn’t New York have excellent tenant laws? At least compared with most parts of the country who have none?
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“Besides, doesn’t New York have excellent tenant laws? At least compared with most parts of the country who have none?” I learned this from 30 Rock
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I must say, I’m slightly dismayed at all the recommendations to “buy”, especially in one of the most overpriced real estate markets in the US (the greater NYC area). Yes, overpriced; even in a down market.
As others have mentioned, there are so many hidden costs besides taxes and HOI, that your costs will end up being far from the same as renting. Especially in this area where buildings are extremely old and continually in a state of disrepair (more so in the price range you’re looking).
I’m getting tired of people treating home ownership as an investment. Have we learned nothing?! Justifying buying a house by treating it like an investment would be like J.D. treating his comic book purchases like an investment. Yes, they might be worth more in the future, but that shouldn’t be the deciding factor for buying.
Basically, the sad thing for me is that you’d go from a solid start with a decent nest egg to being in the hole significantly for some time. At the least, wait 3-5 years before considering buying.
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Yes, yes and yes to David’s points. Additionally, as a native NYer and being older than dirt, I can also say when I was young and newly married (20 years old) everyone rented the first place or two, had their first baby, THEN bought a house (Queens, LI, Westchester, NJ were the “bedroom” communities of the day.) Owning a home is not only a financial investment but an emotional and time investment. Spend your early carefree years investing in your relationship and your bank account, being free to make choices and having fun. You can always buy a house if that’s the right decision for you. Reread David’s points also.
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As a newlywed, I’d recommend renting! We’re learning so much about each other and our newly combined lifestyle during this first year, I think our home priorities would be much different now than they were when we were engaged. There’s no rush to buy – rent as inexpensively as possible and save up a huge down payment so in a year or so you can purchase a place that will be just perfect for your new family.
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Buying is a serious commitment to a place. We’ve only owned our house a couple years, but it has already really changed my thinking about taking new jobs, moving to different parts of the country, etc. I wouldn’t buy without being sure this is where you’re going to be for a good while (and you can afford it on one salary).
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Rent for a year or two. Then think about buying.
My husband and I are in a similar position in life – mid-20s (we married when I was 24 and he was 25), roughly the same amount of liquid cash, with probably 20k in retirement savings and some other non-retirement investments.
We rented while we were living in Phoenix, because we knew we weren’t staying here forever. But now that we’re moving back east, we’re still planning to rent for a couple years. My income is steady/secure but my husband’s income is variable – he is quitting his job to move to the new city and it may be 3-5 months before he gets the job he has set his heart on in the new city. We won’t buy until his income is steady.
The flexibility associated with renting is fantastic. If you have obnoxious neighbors, you can move. If your refrigerator breaks, your landlord replaces it for you. If you decide 1 bedroom isn’t enough because “surprise! we’re pregnant!”, then upgrading to a larger space is easy, rather than stressful and trying to sell. If all of a sudden termites start popping out of the walls (this just happened to us last month), you don’t have to freak out because it’s not your problem.
Getting married and all that comes with it is full of really intense life changes. Wait a year or two to make your purchase – save up more so you can borrow less, rent in the neighborhood so you know what you’ll be getting, and avoid the stress that comes with repairs/homeownership while you’re initially getting your married life settled. Plus, buying as a married couple is a lot easier than buying as two separate individuals.
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Just enjoy being married for a couple years. Home ownership can be a huge burden and, more importantly, it makes things so much more complicated if/when you want to change your plans in a few years. Having that flexibility at this point in your life is well worth the “price” of not owning.
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OTOH… one of my friends is happy she bought a house with her new husband (despite selling after a year at a loss) because their marriage was completely and totally destroyed with the stress that came with renovating. It was a quick divorce with no children involved. She says if they hadn’t done that it might have taken years for them to realize they were incompatible. A year later she was engaged to someone else who she likes much better.
Oops… this was supposed to be a reply to the previous comment. Sorry!
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Definitely rent. It is much easier to move from renter to buyer than to offload a house. And at this point, you really have no idea what it will be like to live together (or on your own for that matter).
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I would say rent. You are in a transitional phase in your life, moving out, getting married, etc… You dont want to get tied to an apartment you cant sell.
Rent for a couple of years until things are more settled.
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Six years ago, everyone told me to buy because prices “would keep going up” and I would “build equity.” I didn’t foresee moving anytime soon, but knew it was a possibility so I kept renting.
About one year after that I ended up moving to a different city. I was glad that I wasn’t tied to a house. In the new city, I was again told to buy and my bank even offered to give me a loan for 400K with zero down payment (this was still before the bubble burst). I wanted to save more in my emergency fund, however, because in the new city my old emergency fund wouldn’t go as far. I kept renting.
About three years after that, my landlord sold the apartment I was renting for a substantial loss. The market had just completely changed.
I’m still renting, and now I realize that I actually want different features in a home than I would have previously. I don’t think it would have been wrong for me to buy before, but it probably would have been a serious hassle.
I have been reading GRS and personal finance books for years, and I think it actually did change the way I addressed the rent/buy dilemma. When I couldn’t say that I was 100% sure that I would live there for 5+ years and have an adequate emergency fund in addition, I knew I wasn’t ready to buy.
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This is a tough one. The financials seem to make the case, either way. In my opinion, I think the most important question to ask is: how long do you plan to live there? You guys are young and might not be ready to settle down somewhere yet. If you’re not sure you want to stay in one place long-term yet, I would say to rent. Otherwise, I think buying might be the more attractive option.
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I personally believe it all depends on what your idea of what a house is.
My wife and I recently bought a beautifully restored houseboat for $8,000 which will make a wonderful house for us for years to come. The marina fees are less than $300 per month and this includes electricity, parking, water, showers, laundry facilities and we can park our dingy next to our boat to go island hopping.
I recently started a website that allows people to purchase, sell and rent tiny homes. If you aren’t familiar with what tiny houses are, they are well, tiny houses. They require less energy, maintenance, cleaning, taxes and more.
Here’s the site. http://tinyhouselistings.com (JD, I hope it’s ok to link?)
Just because everyone around you is buying homes and paying for them for 30 years doesn’t mean you have to. We wrote a small check and now we are living mortgage-free, and we can catch our meals off the side of our home
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I would recommend renting for at least the 1st year. I’m single, so I can’t give you advice from the perspective of being in a couple, but I can I tell you my story.
I bought a 1-bedroom condo in 2007 with 0 down (DUMB!). I could handle the monthly payments and the assessments and insurance, etc. But, the property taxes have been different each year. I had mice within the first 3 months, so I hired an exterminator (1-year contract). And then had a rat problem early last year and had to renew the exterminator. I’ve also had to have someone come out and service my furnace 5 times. The guy who came the 1st 2 times didn’t fix anything. Then I hired a company who specializes in my brand of furnace and have paid over $700 in repairs.
Not only will you have the regular house payments and everything that goes along with it, but you will have all the repairs and maintenance to take care of yourself.
I would recommend being married at least year and living on a combined budget before you decide to buy. While living on that budget, make it as if you’re paying a mortgage and if there’s a difference between rent & mortgage (and additional housing costs), put that money in the bank and then you know you can live within your means. And you have increased the savings to use toward your down payment.
Almost 4 years after having purchased my condo, my income has increase $1,000 a year!! But my other expenses have continued to rise. I am still fully able to stay within my budget, but I’m meeting with a realtor next week to discuss selling my condo for a loss just to get out from underneath it.
Think long and hard before buying and have as big of a down payment as you possibly can. My plan for the future will be to rent (chicago rent is much cheaper than New York) and save to have a 100% down payment on my next place.
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I rented a one bedroom apartment with my wife when we were first married (two, actually), but now that I’m buying a house, it has four bedrooms. Honestly, that may be more than is strictly necessary, but I definitely wouldn’t have bought a one bedroom. Our first child is due in August, and I’m sure a one bedroom would have started to look pretty crowded about then (I confused myself with whatever verb tense this sentence uses).
Also, I probably just wouldn’t buy any home that shared walls with the neighbors. Too many bad experiences in the past and it’s a lot harder to get out of a house that you own and don’t like than a place you rent and don’t like.
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Congratulations on the addition to your family Tyler!
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Thanks Chett!
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Tyler,
Congratulations on your upcoming addition. I have been reading (and enjoying) your comments and commentary for a long time.
My best wishes to you and your family.
Claudia Jane
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I’d say rent at that age. Unless you’re totally sure you’ll be staying in that location for a long time, it makes sense to rent. Are you going to want to be in a 1 br for an extended number of years? What if you want to start a family later? Don’t take on a burden like a home purchase now. Keep the flexibility.
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Like others, I would advise any newlywed to rent. So much changes in your 20s, and it is costly to move if you have to sell the place. I would give it a year after the wedding, then start looking again. That should give you about 2 years of marriage before you’re actually moved in, and should be enough to get stabilized. Housing prices may or may not be bottomed, but they certainly aren’t going to rise quickly (if at all) in the next few years. You won’t miss out on anything.
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Definitely rent! You need to adjust to marriage life first. Many young couples thought dating and marriage are the same, but that’s often not true. You two want to know each other and your in laws better. Yes, in laws, how close or far way you want to be from each other in laws.
Secondly, you are currently living at home. I don’t know whether this means that you’ve ever rented or not. But if you’ve never really rented and paid everything yourself, that would be another adjustment to make.
Since marriage is a transition, and a very important one, I would say work and enjoy it without the extra burden and extra tie down of buying a house.
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You should buy the apartment. The HOA and building maintenance will covers most issues and you will only have to deal with things that are in the apartment. Owning the apartment should not have much impact on your time vs renting.
If you need more space in a few years, you can always rent out the apartment and move to a bigger place. It is a buyer market right now and you should take this opportunity to own a piece of real estate in NYC. In a few years it will probably be too expensive to buy again.
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I bought a house that is better than renting after 3 years according to the calculator. I plan on living in it for a minimum of ten years, and I made sure I found a house that is capable of handling children, but not excessive. I went with a foreclosed, 3 bedroom, single story rancher that I knew I would be capable of handling any repairs and renovations myself.
I suggest getting a two bedroom, or three bedroom max, mainly in case you have children, and a one bedroom wouldn’t be a wise investment, as Nancy stated above. Also, I would suggest looking into distressed properties, since you have the opportunity to invest in one since you don’t have children yet.
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100% Rent.
Too young without enough liquidity to go all-in on a house.
Expand your careers, your lives, go on trips and one day you’ll figure out exactly what type of home you want to raise together.
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Hell No. One bedroom apartmens are for renting, not buying.
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Rent for now. There’ll be a time to buy when you have a little more liquidity built up and are somewhat more established.
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