Rent or buy - Faruqi Team at Keller Williams real estate

Rent vs. Buy in 2020: The Hard Numbers

You may have read the recent report that the borough of Queens experienced the 2nd highest average rent increase in all of America, up 7% from this time last year. The only city with a higher percent increase was Phoenix, Arizona.

Rents are already notoriously high in New York City. The average rental price in Queens is currently $2,350; substantially higher than the US average of $1,594.

I’m sure you always hear things like, “Why pay the landlord’s mortgage?” and “You can get a mortgage for the price of your rent.” Well all of that could be true, but is renting or buying the best option for you? Let’s break down some numbers:

 

RENTING

Let’s say you are paying a rent of $2,500 a month. That is $30,000 a year. Say your rent never increases: In five years that is $150,000…. (Over 30 years that is $900,000!)

 

BUYING

Say your new house is worth $700,000 and you have a 30-year, $500,000 mortgage at 3.8%. That would be a monthly payment of about $2,330.

The home will appreciate year after year, historically at an average of just over 3% here in Queens. To make it simple, we will round it off to 3% and break it down, year by year:

Year one home value: $700,000
Year two home value: $721,000
Year three home value: $742,630
Year four home value: $764,908.90
Year five home value: $787,856.27

 

SUMMARY

So after just five years, your net worth would be either $150,000 negative from renting or $87,856 positive from buying. That is not even taking into consideration things like writing off property taxes, having paying tenants, etc.

 

WAITING FOR “THE RIGHT TIME”

I get that there is a lot of volatility in the world at the moment, and you may think you should wait it out and to see if home prices fall… Which they very well may, because housing prices fluctuate. That is just the nature of the market.

However, historically, when home prices fall, mortgage rates go up. So in the long run, you may not be saving what you think.

Let’s say that the $700,000 home mentioned above is now going for $650,000. That is a huge savings! Right? Let’s see: A 30-year, $450,000 mortgage at 6%  would be a monthly payment of about $2,698.

And let’s say it will still appreciate at the 3% per year:

Year one home value: $650,000
Year two home value: $669,500
Year three home value: $689,585
Year four home value: $710,272.55
Year five home value: $731,580.77

In this case, you would actually be losing $6275.50 as opposed to buying the home at $700,000 with the current mortgage rate.

 

BOTTOM LINE

There is a saying, “The right time to buy a home is when you are ready.” A savvy buyer will look deeper than the basic numbers, and I hope this article opens your mind to explore further.

There are so many variables, it is best to speak with a profession to discuss your unique situation. We are here to help. The Faruqi Team has over 25-years of NYC experience, has helped hundreds of families find homes, and is consistently a top 1% sales team by volume. We know real estate.

 

Written by Eric Ferrara, Listing manager, Faruqi Team