Is it better to rent or buy in NYC?

Expensive and New York City are two words that often go hand in hand, especially when we’re talking about real estate. The city has been the second-most-expensive place to rent in the country for several years now, behind only San Francisco. The median rent for a one-bedroom recently surpassed $2,900, while a two-bedroom can easily cost upward of $3,200. As far as buying goes, according to Zillow, the median price of homes currently listed in New York is $674,000—but that number is much higher in Manhattan.

Still, the age-old question of whether it’s best to rent or buy is one that’s frequently asked by those mulling a move to New York—and even current city denizens.

And here’s the truth: There is no easy, one-size-fits-all answer; whether you should rent or buy depends on a number of factors.

Two of the biggest things that will affect your real estate predilections are time and money. For the former, if you find a place you love and can see yourself spending many years there, buying may be the better option. But buying a place comes with additional costs beyond a monthly rent payment (or mortgage, in this case) and utilities—there are also property taxes and monthly maintenance fees and/or common charges to consider.

And as far as money goes, you’ll need a lot of it up front: In most cases, lenders prefer (or even require) buyers to have 20 percent of the purchase ready as a down payment. Let’s say you’re looking at a home around the median price of $674,000; to hit that 20 percent down payment, you’d need about $135,000—and let’s be honest, how many people have that kind of money lying around? (And that doesn’t even take into account closing costs, which can number in the tens of thousands of dollars even for the cheapest homes.)

There are programs, like Federal Housing Administration (FHA) loans, that allow buyers to put down a lower down payment (as low as 3.5 percent, in some cases), but financial experts say that this is not exactly the best strategy and may demonstrate that one is not ready for the financial strains that come with homeownership. (Plus, a lower down payment means you’ll likely get stuck paying mortgage insurance.) The city’s Down Payment Assistance programmay help, but there are eligibility requirements: You have to be a first-time homebuyer, you have to meet certain income thresholds, and you must live in the home for 10 years, among other factors.

“Mortgages with lower down payments can oftentimes carry higher interest rates and higher monthly payments over time,” says StreetEasy economist Grant Long. “Those who are only able to put down 5 or 10 percent need to be prepared for these, in addition to a wide range of other ongoing costs of homeownership. It’s important for a prospective homeowner to have some savings put aside to cover not only the down payment and closing costs, but also ongoing maintenance costs along with the unexpected expenses that are bound to pop up over the course of time as a homeowner.”

As if all of that isn’t daunting enough, buyers must take the new federal Tax Cuts and Jobs Act into account. It remains to be seen just how much it’ll affect property tax rates in cities with pricey real estate, but is expected to be “a potential nightmare for homeowners in places like New York City,” writes Curbed’s Jeff Andrews. A September 2018 report from city Comptroller Scott Stringer says that homeowners in New York City are likely to feel heavier property tax burdens as a result of the new cap.

The new tax law has created what real estate guru Jonathan Miller calls a “layer of uncertainty” that is weighing over the market and has made the decision to buy or rent just a little more difficult.

“The impact of rising interest rates and the new federal tax law that limits property tax deductions to $10,000 hasn’t been fully absorbed by the market,” says Miller. “As a result, we’re seeing would-be buyers camping out in the rental market as they try to time the sales market.”

If you do have the funds to buy, another thing to consider is what StreetEasy calls the tipping point, or the point in time in which the benefits of owning a home exceed the benefits of renting. Nationally, the median tipping point is around two years; in New York, however, it’s 5.6 years, though this varies substantially by neighborhood. For example, in Flushing, it takes a staggering 30 years before renting exceeds the cost of owning. But in neighborhoods like Canarsie, Kew Gardens, Briarwood, Parkchester, Northeast Flatbush, and Riverdale, it takes less than two years for buying to pay off. A general rule of thumb: The higher a home is priced, the longer you’ll need to stay in it to make the investment pay off relative to renting. The New York Times has a handy calculator that helps you determine if it’s better to buy or rent, based on personal circumstances.

Ultimately, the decision to rent or buy cannot be determined solely on what aggregated data tells you. If you don’t have enough cash saved—and aren’t expecting a windfall anytime soon—you may want to take time to build up your bank account before making a commitment to buying. “If you’d rather buy and not rent, but you don’t have a down payment, there’s not much you can do there,” says Miller.

If you do have your finances in order and are committed to staying in one place long-term, the good news is that right now, there are a high number of homes on the market in NYC, giving you some leverage. New York’s real estate market ended in a slump in 2018, with prices dropping and more instances of developers offering big incentives to buyers. “In the current market, buyers can afford to be picky, be patient, and negotiate aggressively to find the home that’s right for them,” says Long.

But in the end, it’s really up to you.