Renting vs. buying. Mobility vs. home equity. Lease vs. mortgage. These are some of the common dilemmas one faces when deciding between staying put in an apartment in the city or buying a house in Pennsylvania. I will give you some information that will simplify your decision-making process between these two very different places.
First Things First
You just received a letter from your landlord. Your two-year lease will expire in a few months. If you choose to renew it you have a couple options, and both sound pretty awful. Renewing for another two years and pay an extra $125 per month or renewing for only one year and see your rent go up by “only” $75. The catch is clear, but you do not like the alternative one bit: spend countless hours apartment hunting, trying to decide if the commute will be as good as what you have now, if the new neighborhood is okay, if your next-door neighbors will be okay with your newborn crying through the night (or if you will be okay with your upstairs neighbors’ overnight partying).
In our case, our rent for the next two years would be $1,450/month, with absolutely no chance of going down. Meanwhile our monthly payment in the house is only 13 dollars more a month all-in (that is, mortgage + HOI + property taxes) for the life of the loan, but could at some point be refinanced and cost you less per month. WINNER: TO BUY.
A Game of Musical Chairs
You have a family and so relying solely on public transportation is not an option. So you buy a car. But in a city where free space is a commodity, why would it be any different with a parking space? You come home from the dealership and find a parking spot close to your
building and think to yourself everything is fine and dandy. Until a week later you have to drive to the pharmacy at night to get some NyQuil and come back just to find out your precious spot is taken. You are livid, but there is nothing you can do but park half a mile away and walk back home. You persevere through the first winter and a half dozen alternate side parking tickets just to cave in to the big capital. You enter another lease with your building, but this time you get a parking garage lease.
Our parking spot cost us just over $200 per month. To get to our apartment we had two options. #1 Walk outside of the garage and go up a set of stairs before going back into the building and catching the elevator. #2 Stroll outside the car entrance into the sidewalk and then go back into the building. Both of which were a delight with 4 kids in a snowy day after you just gorged in groceries and diapers at BJ’s. That is part of the past. Now our garage is attached and costs nothing extra. WINNER: TO BUY.
This part is very exciting. Who doesn’t love going up and down that tiny elevator with all your stuff, wasting a very nice day out (the weather is always gorgeous out, specially if you decide to move during the weekend). You have to start packing your stuff well in advance in boxes you have to either gather around the city early in the morning or buy at Home Depot. As you go through your closets you find plenty of stuff you no longer need and most of the rest you might need but is not sure where to put in your new storage-deprived dwelling across the city. You can, of course, avoid that hassle by spending a small fortune to have some guys come and do it for you. But then, there goes your emergency fund. I looked into it and found out you could get it done for over $2,000, and that is just an estimate. If you have moved before you know reality is always a bit uglier.
You might be saying “Ok, but regardless of renting or buying, the annoyance and costs of moving are still the same.” That is only partially true. When you move from lease to lease you usually only have a small window to do so. Sometimes only a day or two, if you want to avoid paying penalties or forfeiting part of your deposit. Not all landlords warm up to the idea of you going month-to-month on them (ours did not). Lease to mortgage is different because you can schedule the closing to a specific date in the future. Now you have however long you and the seller can work out in terms of time to move. And since you are not in a hurry, you can move some things ahead of time since you will be making a few trips to your new house anyway. Lastly, you will not have to move anymore after that! WINNER: TO BUY.
Nobody warned us before going to New York that there was an almost universal rule prohibiting you from having a washer in your apartment. The reasoning behind it is beyond me. “Your device could flood you apartment, you could be using up the water from the tenants upstairs, the noise would bother your neighbors downstairs, your war-era building doesn’t have the proper hookups.” All of which were probably very valid up until the 1980’s, but not so much nowadays. But your sweet landlord installed those laundry facilities on the basement years ago and would hate to lose that precious and steady income stream. Its washers are new and huge but you are always surprised at how little of your clothes will actually fit inside each. And I’m sure you know that $1.25 per wash per machine adds up fast. My family spent around $100 per month in there. But it’s not just the cost. It also has to do with taking your dirty laundry in the elevator and then back upstairs when it is clean. Luckily you can do your laundry when not all machines are taken, otherwise you have to wait in there or come back later. What about the awkward situations of having to remove someone’s clean laundry that was forgotten for hours? What about when you are the one that was off by a few minutes and come back to a basket full of your under garments – kindly placed there by who knows who. WINNER: TO BUY.
Living in an apartment does have its advantages. The small space helped the electric bill to stay somewhat manageable. Since we were only responsible for the electric bill, we were happily paying around $70 every month. At least during the winter, since gas was included in the rent. The stove and heating were gas-powered and the hot water was heated at the building level. Nothing to worry about there. Summer was a different story, with the bills coming right around $250 in July and August. But that’s because we had to have a few A/C units often running at the same time to keep our place cool.
Moving out here required some adjustment. Our house was all-electric powered, so electric heating, hot water and stove. Plus we have a well and septic tank, both using pumps running on electricity. And that is without mentioning lights outside, garage doors and a few other things we didn’t have to worry about before. The summer bills came as high as $350, although we had family over for almost the entire August/September time. But the winter bills are just as high. And since winter temperatures tend to be 5-10 degrees colder, you do the math. We have not lit the wood stove downstairs yet and the solar panels we got installed will not yield much power when it is cloudy, so in this first full winter we will be able to see how bad things will get. WINNER: TO RENT.
The Tax Man
We could (and will in the future) discuss this one at length. It was probably the deal maker for us. But I will keep it to only two points here:
1. We paid in NY City taxes $2,500 every year. That’s money that you will never see again. No such thing here.
2. Mortgage interest is tax-deductible. Rent is not. And since at the beginning most of what you pay every month on a conventional 30-year mortgage is interest anyways, you soon realize that even though the amounts you pay every month are somewhat comparable in nominal terms (in our case only a $13 difference), your tax returns will show otherwise. WINNER: TO BUY.
Buying was the clear winner, not by unanimous decision but with a 5 spread. Naturally, this type of comparison is clearly different depending on the areas you are considering relocating to. But when you compare New York City with northeastern Pennsylvania it is almost a foregone conclusion.