A friend bought her awesome Park Slope one-bedroom co-op apartment fifteen years ago for a little under $300,000 and learned recently that it would now go for around $1,100,000.
When we hear stories like this we always assume that this is someone who did something very special to get these types of returns. Yet, I remember how difficult this choice was back then — to buy what was then an expensive place versus continuing to rent.
The arguments for buying versus renting back then are the same as they are now. First of all, in most markets, over time the amount of money a person spends on rent is about the same as or less than the amount a homeowner spends on a mortgage. When you first purchase a home, the mortgage payment covers mostly interest. As time passes, more of each payment goes toward paying down the balance or principal of the loan itself.
So every mortgage payment is a form of savings because it increases the amount because it increases the amount of your home that you own, known as the “equity” in your home. Renters are not able to build equity with their monthly payments.
Also, if you make a 20% down payment, and secure a long-term fixed-rate mortgage (ideally 30 years), you will have the same payment month after month, year after year. This provides a sense of stability that a renter does not have. Rents are often increased every time the cost of living goes up.
I helped my friend run the numbers and we knew she could afford to buy. It was not so special what she did, just prudent. Now fifteen years later, her hard work will pay off when she is ready to sell. In the meantime, she is able to enjoy living in this fantastic apartment.