Should New Yorkers Invest Money in Buying a Home or Save it for Retirement?

Living in New York and making your way financially can be very challenging. The cost of living in New York city is 68.8% higher than the national average, while living in Manhattan is more than double the national average.(1) Food, rent, parking, and entertainment expenses make it difficult to achieve the typical American dream of buying a home in this city. However, to many buying a New York apartment is the ultimate way to say that you’ve made it in this city.

On the other hand, while many young New Yorkers aren’t focused on it, saving for “retirement” is always a necessary need no matter your other financial goals. Given these issues, the New York market provides a unique challenge when you are thinking about how to set yourself up financially. Which should you put more focus on, saving for retirement or saving for a down payment?

Buy, Buy, Buy

For many, an owned home is often their biggest asset. With prices for some one-bedroom apartments approaching $1 million in parts of Manhattan, purchasing one can be challenging to achieve for many young professionals. However, for those planning on staying for the (really) long term, buying a home can be a great way to accumulate wealth. Many of us here have seen that the New York market provides great long-term returns for real estate since land is finite and demand continues to grow. But the data on this is, at best, mixed (2,3,4) with some periods of explosive growth, and others with periods of stagnation.

Some of the benefits of purchasing, from a financial perspective, are clear when compared to renting. Your monthly costs of owning should rise more slowly than your rent (maintenance and common charges typically increase while your mortgage payment remains flat) and your payments are a sort of forced savings plan that increases your net worth. Additionally, despite the TCJA being passed in 2017 which lowers the amount of your mortgage interest which is deductible, there are still some tax benefits to owning a home. And as your needs change, you can get larger properties. 

Fund Your Retirement

Buying a property requires one thing that renting typically doesn’t, a down payment. How long will it take you to save that down payment? Can you afford to save $2000-$3000 a month on top of your rent? Are you willing to give up on vacations or other pleasures in support of that goal? If you took that down payment of $150,000-$250,000 that you built up in cash, how much more would it be worth if you invested it in your 401k or other investments instead? How much is that down payment potentially worth after many years of investing and compounding?

The answer as with anything involving investing, is that it depends. Over time, a moderately aggressive investment portfolio (or more aggressive) has a higher return than owner occupied real estate. But real estate may be more tax efficient as you may never have to pay taxes on your gains.

Ideally, there needs to be a bit of both. If you choose to favor buying a house, you have to remember that you should have some other liquid assets in case of opportunity or emergency. Or if you don’t buy a house and remain a renter, will you be comfortable with how much money you’ll have in your later years?

Whichever you choose, buying a house is a major financial decision that should not be undertaken lightly. Having an objective voice work with you as you develop your plans while helping you balance how best to use your money can be an asset in and of yourself. If this is a decision you’ve been struggling with, schedule an introductory call by clicking here.

Russell D. Rivera, CFA®, CFP®, is the Founder and President of Voice Wealth Management (Voice). He considers himself as a Personal CFO and Financial “Therapist” for entrepreneurs, young professionals, and their families. He helps clients make prudent financial decisions regarding spending, saving, investing, and planning while giving a voice to the individual client's financial priorities and experiences. Get in touch with Russell at 646-630-0980 and