The renting vs owning a home equation becomes complicated for move-up buyers

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Bigger family with kids and a dog means a bigger home

If you are looking to move up from a starter home, the new tax laws may have ignited the renting vs owning a home debate. Those who own starter homes have seen first-hand what owning a home can do for your net worth. But with the new tax laws in place, many are asking whether owning a higher-end ownership in places like New York is going to be passe´.

Once again, in the interest of full disclosure, I am stating up-front that I am not an accountant. I don’t even play one on TV. Also, everyone’s circumstances are different. So always seek professional advice.

At the entry level (co-op/small condo/starter home) the answer is that it definitely does. At the upper end, the renting vs owning a home debate is less clear-cut. There is no doubt about that fact that if your income is high enough to be buying a larger home in Westchester, you will be paying more in taxes over the years to come. Among the primary reasons for this increase are the loss of personal exemptions and the cap on SALT (state and local tax) deductions.

The renting vs owning a home debate needs to be approached in a different way…

The question really needs to be rethought. If you are paying more in taxes, does that mean the “homeowners advantage” is gone? Not at all. These deductions often allowed families to bigger houses in more exclusive areas. But that doesn’t necessarily mean that you will do better renting. Homeownership still has definite advantages and you can build equity in a home that you can’t in a rental.

A typical move-up home in Westchester NY…

Moving-up - Renting vs owning a home breakdownThe infographic to the left was taken from a real-world listing in the city of White Plains. The asking price on the home in February of 2018 was $1.2 million, The home is 3800sf and has 5 bedrooms and 4.5 baths and it sits on a generous lot of 0.35 acres. The taxes are $23,000.

The downpayment and monthly outlay:

The monthly outlay of $6500 includes the property taxes and mortgage payments. It is based on a 4% fixed rate loan and a 20% downpayment. If you read my post about starter homes and entry-level homes, you know that building the equity for this downpayment takes time, but can be done.

It should be pointed out that many home buyers at this level actually make a larger downpayment which would serve to lower your outlay.  A lower down payment is also possible but would include PMI. The property taxes don’t include the STAR (School Tax Relief) savings, so they will be somewhat lower in reality if this is a primary residence.

When you compare this with the outlay for a median-priced rental of similar quality, you are saving about $600/month. Over five years that’s a savings of $36,000 in just raw outlay which does not include the equity that is being built.


Over 5 years, paying off a typical 4% loan on $960,000 will generate $93,000 in equity because you are paying down the principal of the loan.

Tax Deductions:

There is no denying that tax deductions are not what they used to be. But the $26,000 in savings over 5 years is what was calculated in excess of the standard deduction given married couples filing jointly which is what a renter is most likely to take.


Appreciation can vary a good deal. But traditionally homes appreciate at about 4% a year. In this case, it was calculated somewhat conservatively at 3%. This would generate $191,000 over a 5 year period.

The final nest-egg:

The total nest-egg of nearly $600,000 is something you would not get with a rental. The only person being made rich through renting is your landlord.

Under most circumstances, buying a larger home still beats renting…

There are many variables that would change these numbers. But there is a bottom line here. Almost NOTHING builds equity as effectively as owning your own home. If you took that $240,000 and invested it in the stock market, it would take 5 consecutive years or 20% appreciation to achieve the same result. I’m not a stock market expert by any means, but that’s an extremely rare scenario. I’m not even sure if that has ever happened.

Caveats to the benefit of homeownership in high-end markets…

There are some caveats here. The new limitations on the SALT deduction means that areas with higher taxes won’t achieve such as big an advantage over renting. Comparable homes in high-tax villages like Irvington and Larchmont will take a great big bite out of affordability. For example, a comparable home in Larchmont carries a $2 million price tag and a tax bite of roughly $49,000/year. That’s a $39,000 of property taxes that are no longer deductible.

This leads me to believe that many buyers who have had their hearts set on one of the small villages with their boutique school systems, will be giving suburban neighborhoods in some of our small cities a second look. Some of these areas have been left out in the cold by the recovery and are overdue for a pop in price and popularity.

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