At least once a week I talk a client out of buying an apartment. Probably not what you would expect a real estate broker’s newsletter to start off with, but it is true. Buying a property is not always the best idea, so it’s very important to look at all aspects of the transaction: market conditions, transaction costs on the way in and out, holding costs, and what your financial and personal situation is now and projected five years out.
Many factors have contributed to the increased cost of owning a property, especially here in NYC. If you are financing, the increase in mortgage rates are obvious but the monthly fees we pay have gone up as well. To buy/sell in NYC it will cost you approximately 10% of the contract price and, with higher interest rates, you could park money in a Treasury and get 5% or 6% back.
Let’s use one of the apartments I rented this month as an example (see below). The two-bedroom at 15 Hudson Yards would sell for $3.7M and the monthlies are $3,800 (with a tax abatement). If you do the math, in a lot of situations it makes sense to rent. If you plan on staying for more than 5 years and believe that the property will increase in value, then it may make sense to buy. At least 50% of the deals I represent are all cash, but did you know this: at current rates, taking a $1M mortgage will cost $400K in interest over 30 years. That is a lot of money, but of course, you can deduct a portion of it.
Many of you have a huge amount of equity in your apartment or house, so it’s possible that even after paying painful capital gains and transfer taxes that selling and then renting makes sense. As a married couple, you get a $500K tax-free gain (for singles it’s $250K). You can no longer roll the profits into a new property unless it’s an investment property and those 1031 exchanges have strict restrictions.
There is no doubt that owning real estate can and will continue to create great wealth. It’s a hard asset, you get to use it, feel proud of it, make it exactly the way you want it and, as they say, your home is your castle. If you are going to own for a while it makes sense, but every situation is different.
I found this article helpful and hope you will too.
I am happy to sit down and help you look at what’s best for you, even if you are not thinking about NYC.