The Pandemic Changed the Renting Vs. Buying Game in NYC
(Bloomberg Opinion) -- $68,750: That’s how much my husband and I will be paying in rent over the course of our two-year lease in New York City. It was startling to see the total amount on our agreement — this could buy a home (albeit a fixer upper) in some places in the U.S. or constitute a hefty down payment in others.
I had to confront the reality that this money wouldn’t go toward building equity. It wouldn’t be used as an investment with the ability to compound. Instead, it would subsidize the mortgage payment, property taxes and co-op fee that our landlord has to pay.
Still, signing that lease has been the right move for us. Despite being routinely asked when we’ll buy a home or if it frustrates us to “throw our money away each month,” I disagree with the commonly preached rhetoric that buying a home is always a good investment and that paying rent is just throwing my money away.
Location is the first rule of real estate. For those of us who elect to make our homes in expensive corners of the United States, like New York and San Francisco, our location can open up opportunities in terms of both career and lifestyle. But the trade-off can be the inability to access affordable, permanent housing.
The one-bedroom apartment in which I currently reside would cost nearly $800,000 to purchase — a steep price, but market rate for the area. Plus it’s in a co-op building, which typically means you don’t technically own your apartment so much as shares in the building. Co-ops charge monthly maintenance fees, akin to an homeowners association fee, but usually at a much higher price point.
The co-op fee for our unit is approximately $1,500 per month on top of a monthly mortgage. Even with a 20% down payment, the mortgage on our apartment would probably run us about $3,000 — so we’d owe $4,500 monthly before being responsible for the utilities, repairs and property taxes that currently don’t fall on us as renters. More on these costs in a moment.
The pandemic has also changed the renting vs. buying game. People have been flocking out of NYC to buy property upstate. Manhattan rents fell 12.7% in 2020, which was more than declines seen during the Great Recession, according to StreetEasy. Meanwhile, the median sales price for houses across New York state rose increased 22% from Feb 2020 to Feb 2021, according to a housing report from the New York State Association of REALTORS. This is also the fifth month of sales growth in these year-over-year comparisons.
For the first time in the decade I’ve lived in New York, renters finally had leverage. We scored a dog-friendly apartment in a prime part of Manhattan with a working fireplace and in-unit washer dryer. In 2019, this combination would’ve been way out of our budget. Not only that, but we still have our almighty mobility — renting makes it easier to move should we want to take advantage of opportunities elsewhere.
The true costs of homeownership are hidden. Beyond the fact that renting gives us access to a city we may not be able to afford as homeowners, the rhetoric around owning being the better financial move is also worth investigating.
As a homeowner, you’re responsible for so much more than a renter: taxes, property upkeep, utilities, the eventual maintenance like a new roof or dealing with a burst pipe. As a renter, it was a relief that when my bathroom ceiling caved in at 2 am due to the upstairs tenants, I just called my landlord who handled the logistics and cost of the repairs. Homeguide.com estimates this likely cost my landlord a couple thousand dollars between replacing the pipe and handling water damage repairs. Not to mention, if he hadn’t acted quickly, he would’ve had to pay for me to stay in a hotel until the bathroom was functional again.
It is worth noting, though, that the laws in New York City tend to be more tenant friendly. In other cities where laws favor landlords, owning may be a better move to spare having to financially invest in repairs for a property that isn’t your own.
Of course, the hope is that as you build equity in the home, the property value starts to appreciate, making those expenses worth it. For some, this can go up handsomely. But there’s never a guarantee.
A house isn’t always a good investment. This really comes down to how we’re interpreting the word “investment.” In terms of investing money for profit — the purest sense of the word — a primary residence is not always the best option. It could be decades before you truly do see a profit on your home, making it more of a savings account rather than an investment.
Yes, there are knowledgeable flippers who can live in a home while fixing it up and sell it for profit. There are those who buy a duplex or triplex as their primary residence and rent the extra units out to pay off their mortgage and eventually turn a profit. But this isn’t the case for the average homeowner.
None of this is to say that homeownership isn’t valuable. It can, of course, help build wealth and be a vehicle for creating generational wealth for a family. But this doesn’t mean that renting is a waste.
For me, renting still makes sense. I’m exchanging my money for housing while avoiding headaches of home ownership. Sure, I don’t get the perks either, but there are other ways to invest and grow my money for the future, including the stock market and building my own business. Even if we stay in New York another decade or two, it may always make sense to rent to give us flexibility to move to new neighborhoods or bigger apartments if our jobs or lifestyles change.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Erin Lowry is the author of “Broke Millennial,” “Broke Millennial Takes On Investing” and the forthcoming “Broke Millennial Talks Money: Stories, Scripts and Advice to Navigate Awkward Financial Conversations.”
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