Currently my wife and I are living in Manhattan, with one young child and another on the way. We’re in a 2 bedroom apartment, but with the family soon to grow, and with our first child getting bigger, we’ll need an apartment with more space.
Right now we’re renting our place, and I assumed we’d just move into a bigger rental. However, most apartments in rental buildings, even if they have 3 bedrooms, still have pretty small common areas (e.g. living room, …), which doesn’t provide the “more space” feeling we’re looking for. However, apartments in owner building can potentially be much bigger. So the question here will be whether we should buy a place, or keep renting.
Now unfortunately, the size of apartment we’d ultimately want to live in (~2500 square feet) would cost roughly $5M in Manhattan. That may sound crazy, but $2000 per square foot is where the market is today.
However, our financial position is pretty strong, with $7M of liquid assets, no debt, and $3M/year of income. That probably means we can afford a $5M home, perhaps more easily than some other buyers. But, is buying such a place a good idea?
On one hand, a home that costs 1.7x a family’s income doesn’t sound out of reach. On the other hand, given our position, some might say we’ve already won the game, and I’d like very much to not “snatch defeat from the jaws of victory” here. In fact, we could probably retire today if we really wanted to – and while we don’t actually want to retire, being able to gives tremendous peace of mind.
A few additional considerations are:
- My wife and I are 34 years old.
- We both work in finance. As a result, if the economy hits a downturn, our family income, our investment portfolio, and a leveraged NYC apartment could all take a big hit. This is the scenario I’m most afraid of.
- If we didn’t buy this apartment now, we’d probably hold off for a few years, and try to make a few additional $M before pulling the trigger. In this case, we could either buy a smaller place in the mean time, or continue renting. Personally, I’m not keen on going through 2 purchases, and so in this case, we’d probably keep renting (maybe directly from an owner, at a likely cost of $15k/month).
- Moving out of Manhattan, either to an outer borough or the suburbs, isn’t an option we’re considering. This would be cheaper, but it would also mean less family time (which we value highly) and longer commutes for both parents.
Any thoughts on the buy vs. rent decision in our case?