2025 Buy vs. Rent Analysis
Using NY Times Buy vs. Rent Calculator
1. Introduction
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In this section, I’m conducting a real-life case study of buying with a mortgage versus renting in New York City. I’m using the most recent NY Times Buy vs. Rent Calculator* for this case study.
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I developed a case study based on a real-life transaction, assuming a couple earning $200,000 annually is deciding between buying a one-bedroom condo in Midtown priced at $838,000 or renting a one-bedroom apartment with the same layout in the same building.
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We’re using 159 West 53rd Street Unit 24D as an example. It was sold for ~$838,000 on 04/25/2024 (ACRIS Link). Another one-bedroom unit with the same layout in the same building was rented for $4,500 on 10/31/2024 (StreetEasy Link).​
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In the following chapters, I’ve broken down each factor and explained how they affect the equation, so you’ll have a clear understanding of how this works. I intentionally used a highly conservative approach for each factor to minimize potential objections.
(*) You need to have a NY Times digital subscription to use to the calculator.
2. The Basics​
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2.1 Home Price
How does this affect you if you buy?
The price directly affects the amount of down payment you need, the closing costs you must cover, and the size of the mortgage you’ll require. I assume if you keep renting instead of buying, you would invest an amount equal to the down payment plus the closing costs in exchange for a certain annual return—I’ll explain this later in the article. This becomes a part of your opportunity cost. The size of your mortgage also determines how much tax you can write off, based on current tax laws. All these factors directly impact your cost of buying.
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Our Case: ~$838,000
2.2 Monthly Rent
​How does this affect you if you rent?
The rent you pay directly affects your cost of renting. It will also determine your security deposit amount, which is typically one month’s rent in NYC. That money could have been invested elsewhere for a certain annual return (similar to how you could have invested your down payment and closing costs if you chose to buy). Even though it’s a relatively small amount, we will consider it to ensure accurate results and a full picture.
Our Case: $4,500
2.3 How Long Do You Plan to Stay?
How does this affect you if you buy?
This directly impacts how much you’ll pay toward your mortgage principal and interest, as well as other recurring expenses such as common charges, real estate taxes, maintenance fees, homeowners’ insurance, renovation costs, and any additional utilities (if applicable). It also determines how long the funds used for your down payment and closing costs will remain tied up, unable to be invested elsewhere.
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How does this affect you if you rent?
This determines the total rent you’ll pay over time and how long your security deposit will be tied up, unable to generate returns through other investments.
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General Rule: Buying tends to be more appealing the longer you stay because the upfront costs are spread over many years.
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Our Case: In Case 1, we’ll consider you stay and assume you’ll stay in this property for 10 years before selling it. In Case 2, we’ll consider you stay and assume you’ll stay in this property for only 5 years before selling it. Again, the longer you stay, the more profitable buying becomes.
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Case 1:
Case 2:
3. Mortgage Details
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I assume you’ll have a fixed-rate mortgage. If you choose an ARM (Adjustable-Rate Mortgage) instead of a fixed-rate mortgage, the calculation will vary and involve more uncertainty due to fluctuating interest rates.
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3.1 Interest Rate
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How does this affect you if you buy?
The mortgage rate directly impacts the amount of interest you pay, which increases the cost of buying. The higher the interest rate, the higher your total costs. However, under current tax laws, you can write off a portion of your mortgage interest, which offsets some of the expense. I’ll elaborate on this later.
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Our Case: %6.50
3.2 Down Payment
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How does this affect you if you buy?
The down payment directly impacts your opportunity cost. This is because you could have invested this money elsewhere for a certain annual return.
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Our Case: $167,600 (20% of the purchase price)
3.3 Length of Mortgage
How does this affect you if you buy?
The length of your mortgage directly influences your monthly payments and the total interest paid over time. Shorter mortgages result in higher monthly payments but significantly lower interest costs.
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Our Case: 30 Years
3.4 Private Mortgage Insurance (PMI)
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Typically, lenders require private mortgage insurance if you put down less than 20%. PMI rates vary by credit score and other factors, typically ranging from 0.58% to 1.86% of the original loan amount. You must pay PMI monthly until you reach at least 20% equity in your home.
For example, if you put a 10% down payment on a $950,000 home, your PMI rate might be 0.58%, resulting in monthly payments of $413. You would stop paying PMI after 7.87 years, once you achieve 20% equity. The total PMI cost in this example would be $39,043.
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You can use the following tool to calculate your PMI costs: PMI Calculator.
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How does this affect you if you buy?
PMI adds to your monthly costs and increases your overall cost of buying.
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Our Case: It’s $0 because we assume a 20% down payment.
4. Financial Forecasts
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4.1 Home Price Growth Rate
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How does this affect you if you buy?
The home price growth rate affects the profit you make when selling the property at the end of your stay. A higher growth rate reduces your net cost of buying. However, if you sell your property for a profit, you may need to pay capital gains tax.
Capital gains tax applies to profits from assets held for more than a year. Rates vary based on taxable income and filing status (0%, 15%, or 20%). Most taxpayers pay no more than 15%. The IRS allows homeowners to exclude a certain amount of profit from their taxable income: $250,000 for single filers and $500,000 for married couples filing jointly.
To qualify for the exclusion, you must meet these criteria:
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The home must be your principal residence.
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You must have owned the home for at least two years.
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You must have lived in the home for at least two years in the five years before the sale.
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You cannot have claimed the exclusion in the last two years.
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You cannot have bought the property through a like-kind exchange (1031 exchange).
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You cannot be subject to expatriate tax.
Our Case: Since this is a Manhattan condo, historical PPSF (price per square foot) data is relevant.
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The average PPSF for a Manhattan condo was $328 in 1997 (Source: MLS).
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The average PPSF for a Manhattan condo was $2,080 in 2022 (Source: Statista).
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The compound annual growth rate over 25 years is 7.08%, but we’ll assume a conservative 6%. The higher the growth rate, the more advantageous buying becomes.​
​4.2 Rent Growth Rate
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How does this affect you if you rent?
The rent growth rate directly affects your cost of renting over the time you stay in the apartment.
General Rule: The higher this rate is, the more advantageous it is to buy.
Our Case: Since this is a 1-bedroom apartment in Manhattan, we will look at historical average rent data for a 1-bedroom in Manhattan. The average rent for a 1-bedroom in Manhattan was $928 in 1997 (Source). The average rent for a 1-bedroom in Manhattan was around $3,850 in 2022 (Source). If you calculate the compound average annual rent increase for a 1-bedroom in Manhattan over 25 years, you’ll see that it’s 5.86%. (Calculator). However, to be conservative, we will assume a 4.9% rent growth rate.​​
​4.3 Investment Return Rate
How does this affect you if you buy?
If you buy, you forgo potential returns on the money used for your down payment and closing costs, as these funds could have been invested elsewhere.
How does this affect you if you rent?
If you rent, your security deposit could have been invested to generate returns, albeit a smaller amount than the cost of buying.
General Rule: Higher investment returns make renting more appealing since buying requires a larger initial outlay.
Our Case: According to McKinsey, the average nominal return for the S&P 500 index was 9% between 1996 and 2022. We’ll assume a conservative 10%.​
​4.4 Inflation Rate
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How does this affect you if you buy?
Inflation negatively impacts recurring costs like maintenance fees, common charges, renovation costs, homeowners’ insurance, and additional utilities.
General Rule: Higher inflation rates increase the cost of buying.
Our Case: According to Statista's recent research dated August 2024, the average inflation rate over 25 years was 2.54%. Inflation in October 2024 was 2.6%. To be extremely cautious, we’ll assume a 4% inflation rate for the time period you own the unit and leave no room for objections.
5. Taxes​
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Property taxes and mortgage interest costs are significant but also deductible. The higher your marginal tax rate, the larger the deduction. However, if your house-related deductions are smaller than the standard deduction, you won’t see any relative tax benefit from buying.
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The calculator assumes savings in line with current tax laws: the 2017 Tax Cuts and Jobs Act increased the standard deduction while reducing the maximum deductions on property taxes (part of what’s known as the SALT deduction) and mortgage interest. These provisions are set to expire in 2025 but are expected to be renewed. To see how the 2017 Tax Cuts and Jobs Act affects individuals and to fully understand how mortgage interest and property taxes work, you can refer to the following sources:
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5.1 How You File Your Taxes
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Single and individually, married but separately or married and jointly?
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How does this affect you if you buy?
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If you’re single or married but filing separately:
Your standard deduction amount is $14,600 (Publication 4491: Itemized Deductions). For debt secured after December 15, 2017, the mortgage interest write-off limit is $375,000. This means you can only write off the interest for the $375,000 portion of your loan. This limit was $500,000 before the 2017 Tax Cuts and Jobs Act.
Starting in 2018, the maximum SALT deduction became $10,000 for single individuals and $5,000 for each individual in a married couple filing separately. There was previously no limit, leaving high-income filers with higher tax bills. For the 2025 tax year, the standard deduction will be $15,000 for single filers, up from $14,600 in 2024. As a result, you’ll need an additional $5,000 in itemized deductions beyond the SALT deduction for tax year 2025 ($4,600 for tax year 2024) to warrant itemizing. This amount consists of property taxes plus local and state income taxes or state and local sales taxes, but not both. Taxpayers who itemize must choose between deducting their income taxes or sales taxes.
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If you’re married and filing jointly:
Your standard deduction amount is $29,200 (Publication 4491: Itemized Deductions). For debt secured after December 15, 2017, the mortgage interest write-off limit is $750,000. This means you can only write off the interest for the $750,000 portion of your loan. This limit was $1,000,000 before the 2017 Tax Cuts and Jobs Act.
Starting in 2018, the maximum SALT deduction became $10,000 for a married couple. There was previously no limit. This amount consists of property taxes plus local and state income taxes or state and local sales taxes, but not both. Taxpayers who itemize must choose between deducting their income taxes or sales taxes.
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General Rule: Married couples filing jointly benefit the most from tax savings.
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Our Case: We assume this is a couple filing jointly.
5.2 Property Tax Rate
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In NYC, property tax rates depend on the building class and the property’s actual assessed value or transitional assessed value. If you would like to learn more about how the NYC Department of Finance calculates property taxes, click here.
It’s essential to know that programs like the Basic STAR (School Tax Relief) program can provide income tax credits or exemptions. For example, primary homeowners can receive up to 17.5% of their total property taxes back as an income tax credit. For more information about personal and building exemptions and abatements, click here.
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How does this affect you if you buy?
The more taxes you pay, the higher your monthly recurring costs and overall cost of buying. Buyers can write off property taxes, but before the 2017 Tax Cuts and Jobs Act, it was much more beneficial as there was no cap.
Our Case: We assume the couple will use this unit as their primary residence and earn less than $500,000 annually. They would apply for the STAR tax credit relief and, if accepted, see their property tax rates reduced by 17.5%. The actual annual property tax rate for this unit is $1,155. After applying the 17.5% tax credit, the final theoretical tax rate is $952.88.
5.3 Marginal Tax Rate
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How does this affect you if you’re buying?
Your marginal tax rate increases as your income rises. While a higher tax rate means you’ll pay more in income taxes overall, it also allows you to write off a larger amount if you’re buying, as you’re subject to a higher percentage of taxation.
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As of 2023, federal tax rates for taxpayers depending on how they file can be found here: Federal Income Rates and Brackets.
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Our Case: We assume this is a couple earning $200,000 annually, placing them in the 24% tax bracket. Therefore, the marginal tax rate is 24%.
5.4 The Future of the 2017 Tax Cuts and Jobs Act
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General Rule: The act is disadvantageous for homeowners as it limits tax write-offs.
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Our Case: As mentioned earlier, the act is set to expire in 2025, but the Trump administration is expected to extend the act or possibly expand it. To play it safe, we’ll assume it will be extended.​​
6. Closing Costs​
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You’ll have to pay a set of one-time fees when buying and selling your home.
How does these fees affect you if you buy?
Closing costs directly impact your opportunity cost, as the money spent could have been invested elsewhere to generate returns. This is considered lost money.
​6.1 Cost of Buying Home
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If the buyer is financing, closing costs in NYC are approximately as follows assuming:
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4% for condos (less if there’s no Mansion Tax) (assuming there is no Flip Tax)
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2% for co-ops (assuming the Flip Tax is paid by the seller)
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6% or more for new developments (less if there's no Mansion Tax)
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Our Case: Since this is a condo under a million dollars, there won’t be a Mansion Tax. We estimate closing costs at 3.1% of the purchase price but assume a conservative 3.5%. Buyer Closing Cost Calculator
6.2 Cost of Selling Home
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Seller's closing costs in NYC range between 7% and 10% of the sale price, including:
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A 6% broker's fee (including buyer’s broker fee, paying buyer's broker's fee is strongly recommended)
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Combined NYC & NYS Transfer Taxes of 1.4% to 2.075%
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A building flip tax (for Co-ops only with the exception of a few Condos in the city)
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Legal and miscellaneous building fees
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Our Case: We estimate closing costs at 8.44%. To be cautious, we’ll assume 8.5%. Seller Closing Cost Calculator
7. Maintenance and Fees
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Owning a home includes costs for repairs, utility bills, and other fees.
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How do these costs affect you if you buy?
All the following expenses add to the cost of homeownership. The lower these costs are, the better the scenario for a buyer.
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7.1 Repairs and Renovation
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Costs associated with improving kitchen cabinets, plumbing, electrical systems, and general repairs.
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Our Case: $4,190 for the first year.
7.2 Homeowner’s Insurance
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Basic: A policy costing $300 to $400 annually would cover $25,000 in contents, $20,000 for walls and floors, and $100,000 in third-party liability. Pricing varies by location, credit score, and underwriter approval.
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Good: Policies costing $450 to $600 annually would cover up to $50,000 in contents, $50,000 for walls and floors, and $300,000 in liability.
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Excellent: For apartments in the mid-six figures or higher, policies typically cost $1,100 to $2,400 annually. These policies offer $100,000 in contents coverage, $300,000 for walls and floors, and $1 million in liability coverage. Source
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Our Case: I assume you’ll opt for excellent coverage costing $1,257 annually. The actual cost is likely to be less than this. This is a conservative assumption. It will probably cost around $750.​
7.3 Extra Monthly Utilities
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For most Manhattan condos, common charges include heat and hot water. Co-ops may not include these, and for rental units in multi-family properties, heat and hot water are usually included in Manhattan. This situation might differ in other boroughs. For single-family homes, heat and hot water are almost always paid separately by the tenant or owner.
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Our Case: Since this is a Manhattan condo, there won’t be any extra monthly utilities that would burden buyers financially. We’ll assume $0 here.​
​7.4 Monthly Common Fees
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The term for common fees and what it includes varies depending on the property type.​
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Condos: Common fees, referred to as “common charges,” cover the shared costs of operating and maintaining a condominium building. These typically include:
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Maintenance: Routine repairs, landscaping, cleaning, and general upkeep.
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Utilities: Certain utilities such as water, sewage, and garbage collection. In a condo, the common charges typically includes a portion for electricity, meaning that a part of your monthly payment contributes to the building's overall electricity costs, which covers common areas like hallways, lobbies, and laundry rooms; for the most buildings, individual apartment electricity is not included in the common charges.
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Building Insurance: Insurance premiums that protect the building against fire, theft, and natural disasters.
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Amenities: Costs for amenities like heat, gas, parking, and other shared services.
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Staff Salaries: Wages for building staff, such as doormen, porters, and maintenance workers.
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Management Fees: Fees paid to property management companies for overseeing the building's operations.
Common charges are not tax-deductible in NYC. These charges are separate from New York City real estate taxes, which each unit owner must pay directly.
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Co-ops: Common fees, known as “maintenance fees,” cover the shared costs of operating and maintaining a co-op building. These typically include:
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Taxes: Property taxes.
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Maintenance: Routine repairs, landscaping, cleaning, and general upkeep.
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Utilities: Certain utilities such as water, sewage, and garbage collection. In a co-op, the maintenance fee typically includes a portion for electricity, meaning that a part of your monthly payment contributes to the building's overall electricity costs, which covers common areas like hallways, lobbies, and laundry rooms; depending on the building, individual apartment electricity might also be included in the maintenance fee, either fully or through a sub-metering system.
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Building Insurance: Insurance premiums that protect the building against fire, theft, and natural disasters.
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Amenities: Costs for amenities like heat, gas, parking, and other shared services.
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Staff Salaries: Wages for building staff, such as doormen, porters, and maintenance workers.
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Management Fees: Fees paid to property management companies for overseeing the building's operations.
Since the maintenance fees include property taxes, and a portion of it is deductible depending on the shares you own in the building. Co-op shareholders receive a tax deduction letter, also known as Form 1098, by January 31st of each year. This letter provides a detailed breakdown of the portion of the building’s real estate taxes and mortgage interest paid by the shareholder in the previous tax year.
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Additionally, co-op owners can apply for a STAR Tax Credit to receive a discount on the deductible amount, meaning taxes are not paid separately.
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Single-Family and Multi-Family Homes: Common fees, referred to as "Home Owner Association (HOA) fees" are not tax-deductible in NYC. These charges are separate from New York City real estate taxes, which each unit owner must pay directly.
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Our Case: The common charges are $895. Since it's a condo, it doesn't include property taxes.​
7.5 Common Fees Deduction
​As explained in the last section, co-op owner can deduct a portion of their maintenance fees while condo or single or multi-family owners can't.
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Our Case: Since our case is based on a condo purchase, the deductible amount is $0.
7.6 Security Deposit
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It’s typically equivalent to one month’s rent in NYC.
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How does this affect you if you rent?
A security deposit carries an opportunity cost. The money could have been invested elsewhere to generate a return. Although the impact is small compared to other expenses, we’ll consider it to ensure accurate results.
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General Rule: The higher the security deposit, the calculation leans toward buying. However, the effect is minimal. To keep the analysis conservative, we’ve assumed the lowest possible values.
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Our Case: One month’s rent is $4,500, so our deposit is $4,500.
7.7 Broker’s Fee
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The Fairness in Apartment Rentals (FARE) Act, passed by the New York City Council on November 13, 2024, mandates that landlords, rather than tenants, are responsible for paying broker fees when the broker exclusively represents the landlord's interests. The FARE Act is scheduled to take effect 180 days after its enactment, providing a transition period for both landlords and tenants to adapt to the new requirements.
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This bill is expected to increase rents but simultaneously lifts the burden of broker fees from tenants. Currently, fees range between $0 (no-fee units) and 15% of the annual rent (slightly less than two months’ rent).
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How does this affect you if you rent?
Broker fees also carry an opportunity cost. The money could have been invested elsewhere to generate returns.
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Our Case: There is a 15% broker’s fee based on the annual rent. Even after the FARE Act takes effect, that fee is expected to be incorporated into the rent and is not anticipated to cause any significant changes in the total cost of renting.
7.8 Renter’s Insurance
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Renter’s insurance is not mandatory, but every renter should have it as it provides valuable coverage at a low cost.
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How does this affect you if you rent?
A renter’s insurance carries an opportunity cost. The money could have been invested elsewhere to generate a return. Although the impact is small compared to other expenses, we’ll consider it to ensure accurate results.
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Our Case: According to recent data from Lemonade, an insurance company, $173/year is a reasonable amount to pay for renter’s insurance.
8. Results
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8.1 Case 1
If you stay in the apartment you purchase for 10 years and then sell it, you are expected to save $169,000.​
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​​8.2 Case 2
If you stay in the apartment for 5 years and then sell it, you are expected to save $39,000.​
8.3 Conclusion
As demonstrated, even under challenging economic conditions with high interest rates, record-low home sales, and a conservative approach, buying still makes significantly more sense than renting. This is largely due to historically high rent prices. It’s also important to note that these calculations assume you consistently invest the money you save upfront when buying. However, in reality, not everyone invests their cash to generate additional profit. Buying a home effectively forces you to save and build equity over time. This additional value isn’t included in the calculations but can make a significant difference to your long-term financial health.
9. Definitions
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9.1 Buying
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Initial Costs: These are the costs you incur when you go to the closing for the home you are purchasing. This includes the down payment and other fees.
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Recurring Costs: These are expenses you will have to pay monthly or yearly in owning your home. These include mortgage payments, condo fees (or other community living fees), maintenance and renovation costs, property taxes, and homeowner’s insurance. A few items are tax deductible, up to a point: property taxes; the interest part of the mortgage payment; and, in some cases, a portion of the common charges. The resulting tax savings are accounted for in the buying total. If your house-related deductions are similar to or smaller than the standard deduction, you’ll get little or no relative tax savings from buying. If your house-related deductions are large enough to make itemizing worthwhile, we only count as savings the amount above the standard deduction.
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Opportunity Costs: These are calculated for the initial purchase costs and for the recurring costs. This will give you an idea of how much you could have made if you had invested your money instead of buying your home.
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Net Proceeds: This is the amount of money you receive from the sale of your home minus the closing costs, which includes the broker’s commission and other fees, the remaining principal balance that you pay to your mortgage bank, and any tax you have to pay on profit that exceeds your capital gains exclusion. If your total is negative, it means you have done very well: You made enough of a profit that it covered not only the cost of your home but also all of your recurring expenses.
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9.2 Renting
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Initial Costs: These include the rent security deposit and, if applicable, the broker’s fee.
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Recurring Costs: These include the monthly rent and the cost of renter’s insurance.
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Opportunity Costs: These are calculated each year for both your initial costs and your recurring costs.
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Net Proceeds: This includes the return of the rental security deposit, which typically occurs at the end of a lease.
