Should I Keep Paying Rent Increases, or Dent My Savings With a Down Payment?

New York Times

4 hours ago

Q: I rent a one-bedroom in a high-rise doorman building with many amenities on the Upper West Side. The rent went up substantially in the second year of the lease, but I wasn't ready to move, so I renewed. Now I'm thinking it might be better to buy an alcove studio co-op apartment in the same neighborhood, rather than deal with rent increases. Even with monthly mortgage and maintenance, I'd probably save about $1,000 a month. But as a 65-year-old retiree, does it make sense to use a portion of my retirement savings as a down payment? Or should I keep the money in my investment account?
A: You ask an age-old question: whether it's better to rent or to own. The answer will be different for everyone based on financial factors and lifestyle preferences.
You said that you have calculated a $1,000-per-month savings with buying, but your analysis shouldn't stop there. Yes, your rent will likely go up every year, while your mortgage payments would be more stable. But co-op maintenance fees will rise and building assessments can arrive with little warning.
'When you own, everything is your problem,' said Ally Jane Ayers, co-founder of the investment firm Brooklyn Fi.
Owning builds equity and can have tax benefits. But consider the lost investment income and mortgage interest payments.
If you take money out of your retirement savings, be sure to account for the tax implications. If you need the money later, it will be tied up in your home. As an alternative, you could borrow against the value of your taxable brokerage accounts through a securities-backed line of credit, which keeps your portfolio intact and avoids the taxes generated by a withdrawal, Ms. Ayers said.
Another consideration: How long will you live in a home that you purchase? It's difficult to recoup your costs if you won't be staying for seven to 10 years. The Upshot at The Times built a handy rent vs. buy calculator that adjusts based on your financial situation.
There are other factors at play: If you are renting and have a bothersome neighbor, it will probably be easier to move than if you own your apartment. On the other hand, if you own and you don't like the kitchen, you can renovate.
Finally, your move would diminish your living space, which shouldn't be overlooked, said Melissa Cohn, regional vice president at William Raveis Mortgage. 'If you're downsizing from a one-bedroom to a studio, you have to think about lifestyle and happiness in your home,' she said.