A: There are several factors that should go into the decision to become an owner as opposed to a tenant. The first consideration is if you have a below-market rent-stabilized apartment, this can be tough to beat. If you are paying market rent, then it’s a more compelling reason to consider a purchase.
Another factor is the down payment required to purchase. If you buy a cooperative apartment, you will need at least 20 percent of the purchase price as a down payment plus closing costs. For a house or condo, you can usually put down 10 percent or less.
Your income will also dictate how much the bank will lend you and how much you can afford in order to pass a co-op board. Assuming you have a market-rate rental and you have a down payment and a job, then the numbers are worth considering. The following examples assume a 20 percent down payment, and a 30-year mortgage at 4.25 percent. (Numbers here are approximate; check with your accountant for a more accurate calculation.):
1. A one-bedroom rental at an average of $1,700/month or $20,400 per year. Figure how many years you have resided or will reside in your apartment.
2. Purchase a one-bedroom for about $250,000 with a maintenance of $650/month and 20 percent down. Your mortgage will be $980/month or a total of $1,630/month. Tax deduction would be approximately $366/month, so your monthly payment would be $1,264.
1. Market rent for a two-bedroom, two-bathroom apartment at $2,800/month or $33,600/year.
2. Purchase a two-bedroom two-bath co-op for $550,000 with a monthly maintenance of $1,100. Mortgage payment would be $2,164/month. Mortgage and maintenance would be $3,264/month. The tax deduction would be $748, so your net monthly payment is $2,516.
1. A house rental — three-bedroom, two-bath townhouse — would be about $3,700/month. To purchase the same would be $750,000. Monthly mortgage payment is $2,952/month plus taxes of $500/month, so the total monthly cost is $3,452/month. Tax deduction is approximately $931/month, so monthly payment is $2,521/month.
Bear in mind that on top of this, the value of your purchase will continue to rise over time, building equity. After five years of renting, you would have spent over $100,000 that you will never see again. It’s quite sobering, so feel free to contact me with questions about this.
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