Is it better to rent or buy? The choice depends upon the goals and circumstances of the buyer. 

Stories of New Yorkers purchasing in the 1970s, or even as late as the mid-to-late 1990s, and making millions on their apartments, are legion. And if you make all your payments on a 30 year mortgage, then you should have a sizable asset for your retirement. 


However, if there is a chance you may have to relocate, and cannot sublet, or if you anticipate holding onto the apartment for a short period of time, then perhaps renting may be wiser. Remember, closing costs can reach up to 10% of the sales price. 


In Manhattan, the monthly carrying costs, assuming a 20 percent down payment, will always be significantly higher then the cost of renting a like apartment. If you are not in a high tax bracket, you will not be able to defray this difference by deducting the mortgage interest. 


Let’s see what happens if you were to rent or purchase the same apartment, a 654 square foot S-Line apartment with river views at Manhattan Place Condominium at 630 First Avenue.


1) Rent: $2450/month


Annual Increase: 3% 
Rental Average: $2,681 per year. 


2) Purchase


Sale Price: $600,000
Closing Costs: $12,000 
Common Charges: $680/month (Currently $640, assuming 2% annual increase)
Taxes $780/month (Currently $712, assuming 3% annual increase)
Down Payment: $150,000
Loan: $450,000 @ 5.5%, 30 Year Fixed
Loan Payment $2555/month
Upkeep $100/month
Total Monthly Cost: $4,115
Tax Bracket: 35%
Tax Savings Mortgage: $804/month (assumes 90% of payment is applied to interest) 
Tax Savings (R.E. Taxes) $275/month
Total Tax Savings $1079.00
Total Net: $3,036/month


Therefore, the renter saves about $350 per month or about $4200 per year, or almost 30K over seven years. 


The key to this analysis, of course, depends what happens when the property sells. In the early 2000s, many buyers assumed that 15% annual increases would continue indefinitely. Over the last two years, prices have dropped about 15%. 


Assuming that Manhattan condos have bottomed and will increase at 2.5% per year from hereon, then the resale price would be $712,000 after seven years. After deducting $56K for broker fees and transfer taxes, plus another $2500 in closing costs, the buyer is left with about $650K. 


But remember that the buyer paid $4,000 more per year than she would have paid had she rented. And her $150,000 down payment could have been earning interest or dividends elsewhere. 


Real estate is among the most highly leveraged of all investment classes. If prices do not recover, or if you have to sell due to a relocation (remember, many co-ops do not permit sublets), a 10% drop on the condo above would result in over a 60% loss on the down payment, once closing costs are factored. 


So, here are my conclusions: 


• Buy if you can get a good price that does not stretch your finances
• Buy if you anticipate that you will be staying in the apartment for seven years or more 
• If you may not stay for seven years, and cannot afford a loss, be sure you can sublet your apartment. Be wary of co-ops that charge exorbitant sublet fees or require cumbersome application packages 
• Buy if you can take full advantage of the tax benefits
• Buy if you will be happy in the apartment


The most desirable locations in better buildings, with light and nice layouts, will  hold their value in a down market much more than apartments with flaws or those situated in outlying areas. 


In the 2000s, many buyers looked at real estate as a means to quick riches and as their own personal ATM machines. I would now look at an apartment as a place to live and, if you are going to hold for the long term, a means to slowly accumulate some wealth.