I’ve read a handful of articles in the last few years around the idea that buying a condo/co-op isn’t a sound investment mostly based on a few rationales that it’s not a true investment; that it’s not liquid and doesn’t pay you money every month. That’s true in some senses, but not the full story obviously.
When it comes down to it, there’s no boilerplate right or wrong decision when it comes to buying a condo vs. renting an apartment. Everything in life is a risk, you don’t have to be at the new online casino to make bets in life. You make decisions every day.
As someone that has owned my place for over 10 years, I haven’t regretted my decision to own. In fact, I am look back and truly appreciate the fact that I was able to dive in when I did. So that said, I wanted to counter those naysayers with a list of 10 reasons why it’s a good idea to buy real estate over renting, but only if you’re financially-ready and in it for the long term. Even not for the long term there’s some reasons why it’s even good in the short term (>10 years).
1) The Stock Market is Riskier The #1 argument I see most often against buying is that you can play the market. I’m not a realtor or a investment expert, but I know my way around money enough to know that housing is a safer bet and very few of us have the time or understanding to log into our TD Ameritrade account on a daily basis to ensure we’re winning the market enough for renting to make sense. And hiring someone to oversee your portfolio (if you have one) isn’t a guarantee either. Not to mention the fees they’ll tack on.
2) Predictable Payment If you got a 30 year mortgage, you’re locked in to that same payment for 30 years, so if rent or housing costs go up over the next several years, you don’t have to pay the market rate. Instead you’re a homeowner that is making the same payment the day you locked in your payment. You’re paying the cost of living for whatever year you got your mortgage.
Imagine 10 years from now with payments from a decade ago. Rents and housing costs will probably have gone up. The new normal is more expensive than what you locked in your mortgage at 10 years previously. For example, the average rent in San Francisco in January 2011 for a one bedroom was $2176. Eight years later, the average one bedroom in San Francisco is $3405 — a difference of $1200. Imagine if you had the chance to buy eight years ago when housing was cheaper.
3) Tax Benefit Mortgage Interest and Property Taxes are well-known benefits of owning, but we’ll mention it again: you can deduct some/all of the mortgage interest and property taxes when you do your taxes.
4) Property Taxes In some states, annual property taxes payments are tied to the price you purchased at, so that’s a double win in terms of locking in a predictable payment for the future.
5) Building Equity You might not be getting a paycheck every month, buttttt every month you pay your mortgage and associated payments, you are building real equity in your home. Something that you can sell if you wanted to get out. As long as your condo or co-op doesn’t go underwater, you’ll be paying into something that will grow long term. This combined with the timing of when you bought your place (#2) should have you smiling as the years pass on.
6) Rent Extra Room If you considering buying a place, one that has an extra room, you an always rent or Aribnb out a separate bedroom to help offset your payments. For example, if your mortgage, utilities and HOA (or maintenance) is approximately $2000/month — you can easily rent out a room for $600-$1000. That’s 30-50% of your costs! In this scenario, if you rent out the room 80% of the time over 10 years, that’s potentially $9,000 a year or $90,000 a decade going toward the payment of your apartment. And if rent pries increase in your area, you can raise the rent to market rate all the while you’re mortgage payment stays the same. In a nutshell, someone else is paying for a third to half (or more) of your housing costs. If you look at renting it out, that income is real money; making your condo a really good investment.
7) Retirement You might be 40 years away from retiring but this is another benefit. Housing costs are the biggest expense, so imagine not having to pay rent when you’re 65 years old, or earlier! We all know those people that bought 25 years ago that paid relative pocket change for their home. Now it’s paid off and they’re just paying property taxes (in some states, it’s locked in for the year they bought!). That’s can be you talking to the next generation of prospective home buyers. What seems like a lot of money now will very likely be viewed as VERY CHEAP in the rear view.
8) Move Out Costs This isn’t a MAJOR deciding factor but it matters. For the most part, if you live in the suburbs you’re in your place until you want to leave. However, if you live in a city with competitive rentals like New York City or San Francisco, moving around every couple years can add up. Not just in real dollars, but in stress and friends (asking them to help).
9) Move in Costs It’s not just moving, but the time spent looking for a place, putting down another deposit. And if you live in New York City, you might be potentially paying another brokers fee (10-15% of the annual rent!)
10) Appreciation No, you won’t appreciate life more, but your apartment will increase it’s value. And if history tells us, the long term will see your co-op or condo appreciate in value. However, it’s only worth the value if you sell it. If you plan on keeping it forever, then the money you can milk from it will come in the forms of some of the things we talked about earlier: renting out an extra room, paying it off so you don’t have that expense, the tax benefits and hedging against inflation.
So is home ownership a good investment? I think so, but it depends on the circumstances in which you buy and it depends on really knowing yourself and educating yourself to make the most-informed decision.
Home ownership is a huge life decision no matter how much money you make and that’s scary. Make those unknowns, knowns. Get to know your finances in and out, estimate your realistic earning potential, weight the risks of both sides, consider the when and where you want to buy, and have a decent understanding of the ups and downs of both the stock and real estate market over time. Is buying a condo or co-op a bad decision or a good one? Only you know.
Take a deep long look at all the benefits, risks, and advantages and it won’t be nearly as scary.
