Breaking down the monthly nut

To buy or not to buy: That is the question for many New York apartment hunters, particularly as the gap between the monthly cost of owning and renting a home in Manhattan has narrowed.

While mortgage rates remain at historic lows, rents continue to rise: the median Manhattan rent hit $3,100 in the first quarter of this year, or 7.1 percent higher than during the same period last year, according to appraisal firm Miller Samuel. In some cases, rents are breaking records set before the financial crisis.

That has some New Yorkers taking a closer look at the calculus of purchasing a home, observers said.

“If you have consistent increases in rent, at some point, those who have the down payment say, ‘Hey, I really need to start considering buying again,’ ” said Yuval Greenblatt, an executive vice president and manager at Prudential Douglas Elliman.

Naturally, the decision to rent or own rests on countless personal and financial considerations. For some, qualifying for a mortgage is an insurmountable barrier these days, when stellar credit and a 20 percent down payment are standard requirements.

For others, the chance to invest in a saleable asset, combined with the tax advantages of homeownership, are unequivocal reasons to leave the rental world — as flexible and as liquid as it is — behind.

But for a sizeable portion of Manhattan apartment hunters who can afford to take either route, an important factor is the difference in fixed monthly costs — that is, the rent compared to the combined expense of mortgage payments, real estate taxes and maintenance fees or common charges for co-ops and condos, respectively.

Click to enlargeThis month, The Real Deal examined the “monthly nut” in multiple Manhattan neighborhoods, using data compiled and crunched by listings provider StreetEasy, in order to get a better idea of how this slippery metric works. (See the accompanying charts.)

Based on co-op, condo and rental listings available in late April, StreetEasy found the median asking price in each neighborhood. Then the listings provider determined the median monthly taxes, the median monthly maintenance or common charges, and a typical monthly mortgage payment, assuming a 30-year fixed-rate loan with a 20 percent down payment and a 4 percent interest rate.

Next, The Real Deal compared those totals to the median asking rent in each neighborhood, also provided by StreetEasy, to come up with the difference between owning and renting.

We found that in Manhattan below 96th Street, the median asking rent for a one-bedroom apartment was $3,200 per month. The monthly cost of owning a one-bedroom condo was $4,247, and was $3,449 for a one-bedroom co-op.

Click to enlargeBy far the biggest expense for monthly ownership was the mortgage payment, which itself is closely tied to the purchase price. That’s why the monthly ownership costs for co-ops — which tend to be less expensive than condos — were lower than the median rent in several areas of Manhattan, including the East Village/Lower East Side, Midtown and much of Chelsea.

By contrast, that was true of only a few specific unit types in a few condo submarkets: West Village studios ($2,569 per month to own versus $2,795 to rent), Upper East Side three-bedrooms ($13,874 per month to own versus $15,000 to rent) and four-plus-bedrooms in both Battery Park City ($10,232 to own versus $15,250 to rent) and Midtown West/Clinton ($18,580 to own versus $20,500 to rent).

Studios in Murray Hill/Kips Bay and Battery Park City also made this short list, but the difference between the cost of renting and the cost of ownership was nominal.

“The rent versus buy clearly favors co-ops right now,” when it comes to owning, said Miller Samuel president Jonathan Miller, who reviewed the data.

New construction tax breaks, such as 421a tax abatements, may have a drastic effect on the monthly costs of individual condo buildings, but with only so many across a neighborhood (and mortgage costs factored in), that effect is watered down, the data show. Likewise, maintenance fees and common charges depend more on a property’s service levels and upkeep than location.

Additionally, entry-level apartments — particularly co-ops or homes in less expensive areas like the East Village/Lower East Side — are cheaper to buy than to rent, in contrast to a year ago, Miller said.

“The spread between rising rents and falling financing costs, tight credit markets aside, is changing the balance of affordability, tipping it on the buy side of the entry-level part of the market,” he said.

Put another way, on a monthly basis, units with more bedrooms are cheaper to rent than to own, especially when measured against smaller apartments in the same area. This is partly a function of the scarcity of larger for-sale apartments, which can push up the price of available listings.

For example, the median rent for a Murray Hill/Kips Bay studio is $2,300, or about the same as the monthly cost of owning a studio-size condo. However, the median rent for a three-bedroom in the neighborhood is $5,895, while a similar condo costs $10,524 per month to carry — a difference of about 44 percent.

“The multiple between what you can rent [a three-bedroom] for and the price they are selling it for is much higher than what the multiple would be for studios and one-bedrooms, simply because [bigger apartments] are much more in demand [to buy],” said Barak Dunayer, founder of Manhattan brokerage Barak Realty.

Apartments for sale also tend to be larger than rentals on a square-footage basis, which is especially noticeable among homes with three or more bedrooms, said Mark David Fromm, CEO of brokerage Mark David & Co.

“The sweet spot is one- and two-bedrooms … where it’s often beneficial to purchase,” Fromm said.

Some neighborhoods have particularly small spreads between the monthly cost of owning and renting, while in other areas the difference is more pronounced, especially when it comes to condos.

Take Battery Park City, where the gap between renting a one-bedroom and owning a one-bedroom condo is only $94 per month, and where a three-bedroom rents for just under $10,000 per month, or about 10 percent less than the cost of owning a similar unit.

That’s despite the fact that Battery Park City comes with some of Manhattan’s highest common charges because condo owners must pay to lease the land from the city. Still, that has made some buyers wary — which has impacted prices — while rents have not been affected, Dunayer noted.

Meanwhile, in Soho it costs 52 percent more per month to own a one-bedroom condo than to rent: $6,084 versus $4,000. Likewise, three-bedroom Soho condos cost $20,359 per month to own, or about one and a half times as much as the median rent of $13,500.

No doubt that is the result of the expensive properties on offer in the neighborhood, which has some of the priciest listings in the city.

“It’s very desirable for people [to buy in Soho], so they pay a premium to own something there,” Dunayer said.