New York City’s reputation as one of Earth’s most expensive—and daunting—real estate markets is well-earned, thank you very much: $1.8 million studio apartments? Check. Full-cash offers everywhere you look? Check. Freakishly competitive open houses? You bet. Welcome to the big time—with the prices and killer views to match. It’s little wonder that housing is top of mind for just about all of the nearly 8.4 million folks who call the Center of the Universe home.
Everyone, it seems, is angling to hit the NYC trifecta: a decent space in a good neighborhood at an affordable price. That’s why it’s so important to get a handle of what’s going to be the next big neighborhood, before it explodes in popularity and prices get out of reach.
To find out which neighborhoods in this bellwether, nationally scrutinized market are seeing the biggest price climbs—and the biggest falls—we teamed up with real estate appraiser Jonathan Miller, co-founder of Miller Samuel. He compared the median home sale prices in all of New York City’s neighborhoods throughout the five boroughs in 2017 and 2018. We included only the neighborhoods with at least 25 sales in both years.
What we found is a city going through churn, much of it due to the flurry of luxury development in some areas that traditionally have had older—and more affordable—homes. Prices go up, an area gets saturated, the luxury stock sells out, then prices go back down. Rinse and repeat. Meanwhile, the megadevelopment causes people to search out nearby areas that might be cheaper.
It’s the NYC circle of life, and it’s accelerating.
“Developers have left no stone unturned and developed wherever they could,” says Miller. “They went everywhere there was an opportunity. And that caused a lot of price fluctuations, especially in more modestly priced neighborhoods that saw a lot of new, high-end development introduced.”
But New York City hasn’t been immune to national trends. The overall market is slowing throughout all of its five boroughs of Manhattan, Brooklyn, Queens, the Bronx, and “can’t-get-no-respect” Staten Island. The city has been particularly affected by the national tax changes that make it more expensive to own a home in pricier parts of the country, says Miller.
More fun still: This month, New York state’s new mansion tax went into effect, upping the amount of taxes on properties $2 million and up. Sales had been down earlier in the year, but the prospect of giving more to Uncle Sam resulted in a rush of higher-priced home sales. Going forward, the number of sales is expected to fall back down again. Phew … Dramamine, please.
High price tags are pushing many New Yorkers farther out into cheaper communities such as the Bronx, which doesn’t have the hipster cred or water views of Brooklyn. But dollars can stretch way further there.
“A large shift or decline [in a New York neighborhood] is generally not a reflection of weakness,” says Miller. “It’s more of a reflection of … now it’s back to business.”
So which neighborhoods are seeing the largest real estate price spikes? And which expensive communities are getting (a bit) more affordable?
Annual median price increase: 122.7% Median 2018 home price: $612,500
When folks think of the Bronx, the mix of grand Tudors, Georgian Revival estates, and midcentury modern homes and lovely winding streets in suburban Fieldston are rarely what come to mind. Homeowners in this privately owned enclave of tony Riverdale pay property taxes and fees to their property owners association, which maintains the streets and sewers and pays for its own security patrol.
Prices are surging because word has gotten out: Buyers are increasingly drawn to its seductive combo of urban and suburban living. The historically designated community is near top private schools, which include the Horace Mann School and Riverdale Country School. It’s also only steps away from the Hudson River and the 28-acre green oasis of Wave Hill Public Gardens in the northwest swath of the Bronx.
“In Fieldston, you are part of the city but you have the real suburban feeling,” says Chintan Trivedi, a licensed real estate broker with Re/Max In the City. “Here you’re getting a real home, a backyard and a private community.
“For a good house with a larger backyard, a complete renovation, and maybe a pool, you can expect to pay $1.5 million to $2.5 million,” he says. But there are six-bedroom homes listed in the $1 million range. Just tryto get that in Manhattan. (Spoiler: You can’t!)
Annual median price increase: 41.2% Median 2018 home price: $275,000
Just south of Fieldston are the middle-class communities of Kingsbridge and University Heights, where buyers can score deals for a fraction of the price. But the lack of homes for sale and little turnover are causing prices to heat up. And investors are buying up whatever lots and houses they can for new development or rehabbing.
“The Bronx is the new Queens in the sense that there’s been an expansion of demand moving out from Manhattan as consumers search for affordability,” says Miller.
The neighborhood’s become popular with 20- and 30-somethings looking for a reasonably priced community with an urban vibe. Hilly Kingsbridge is filled with century-old, single-family houses and midrise co-op and apartment buildings as well as plenty of shopping, parks, and public transit.
These buyers “are[part of] the new generation that’s learning that real estate should be part of their planning,” says Trivedi. “They want to feel like they’re in Manhattan—a place where they can still go right downstairs and get a smoothie.”
Annual median price increase: 38.7% Median 2018 home price: $1,535,000
Over the past couple of decades, lower Manhattan’s East Village has shed its image as a sketchy, open-air drug market to become a sought-after place known for lively bars, great restaurants, and a defiantly boho vibe—as well as a slew of new, high-priced developments, causing prices to jump. They’re going up everywhere you look.
Annual median price increase: 36.1% Median 2018 home price: $1,226,750
Like the East Village, Prospect Heights has been rapidly gentrifying. Professionals, families, and a few stray hipsters are drawn to its charming rows of stunningly restored early 19th-century, multistory brownstones on tree-lined streets. The neighborhood is near several main subway lines and in close proximity to the 526-acre Prospect Park and the Brooklyn Botanic Garden. It also borders Barclays Center, home to the NBA’s Brooklyn Nets (and soon the team’s new dynamic duo, superstars Kevin Durant and Kyrie Irving).
In recent years, Prospect Heights has become popular with folks priced out of neighboring Park Slope, a community long popular with upper-middle-class families. They gravitate to the brownstones as well as the new high-rises and the used bookstore, artisanal bakeries, and constant stream of new restaurants.
Not surprisingly, the Prospect Heights neighborhood has attracted a slew of developers putting up luxury condo and apartment buildings wherever they can. Those high-end housing developments are skewing the neighborhood’s median prices up to new heights.
This isn’t the kind of place where you’ll find buzzed-about restaurants—you’re more likely to stumble upon a dollar store than a bougie boutique. It’s a more down-to-earth community, populated by old-school Brooklynites, hipsters, as well as Pakistani, Orthodox and Hasidic Jew, Mexican, Chinese, and Latin American immigrant groups.
Annual median price increase: -40.7% Median 2018 home price: $915,500
Once grim downtown Brooklyn has been booming in recent years. It’s become home to a slew of glassy, luxury high-rises. So why are prices in such a vibrant area plummeting?
Well, now there’s a glut of new construction, giving buyers more negotiating power as buildings compete against one another to lure residents. Plus, builders are putting up towers with some smaller, less expensive units. But in NYC, less expensive is relative. Buyers might save themselves a couple hundred thousand on a million-plus-dollar condo.
But many of the condos here, some designed by famous architects, come with just about every amenity imaginable, including sun decks, hot tubs, dog runs, saltwater pools, and even music studios. This two-bedroom, 1.5-bathroom abode in a 57-floor building is going for $2,040,000.
Some believe developers overshot their market.
“Developers there created a mountain of homogenous product,” says agent Blumstein with the Corcoran Group. Buildings in the area “were built on the thought that people are demanding amenities. But the old-school, prewar neighborhood vibe is what’s in.”
Annual median price increase: -39.3% Median 2018 home price: $3,200,000
Even many lifelong New Yorkers have never heard of the Civic Center neighborhood in lower Manhattan. The tiny community encompasses City Hall and courthouses as well as some high-rise co-op, condo, and apartment buildings. It’s just west of ultradesirable Tribeca, where prices are sky-high, and just below Chinatown, guaranteeing plenty of good Asian eats.
Prices are down because the wave of development has pretty much played itself out, says Miller. Many of the older brick and limestone, midrise office buildings had been gut-rehabbed and turned into pricey condos. That led to a spike in prices. Now that those units have been bought, the real estate for sale is a mix of lower- and higher-end properties.
It’s “run its course,” says Miller of the wave of development in Civic Center.
Annual median price increase: -30.2% Median 2018 home price: $450,000
Like Civic Center, Javits Center as a neighborhood isn’t very well-known—but that’s likely to change. Named for the sprawling convention center on the west side of Manhattan where the community is located, it’s wedged between trendy Hell’s Kitchen and Chelsea and abuts Hudson Yards.
Even nonlocals have probably heard of Hudson Yards, Manhattan’s newest neighborhood, built on a formerly desolate stretch of disused train tracks. It’s a glam (and critics say overly generic) development of ultrahigh-priced condo and rental towers overlooking the Hudson River, complete with its own weird tourist attraction, the beehive-like Vessel. The Javits Center’s proximity to this buzzy development will likely have an impact on sales with prices shooting up.
But in the meantime, prices fell because there simply isn’t much of the first wave of luxury real estate left on the market. Now what’s selling is less expensive, older condos.
That’s likely to change as sales heat up in Hudson Yards.
“Sales [in Hudson Yards] will help to increase values in the surrounding area,” says New York real estate agent Matt Crouteau. The place “was designed so people don’t have to leave.” Ever.
Annual median price increase: -30% Median 2018 home price: $997,500
Just south of the Civic Center is the Financial District, home to Wall Street and the World Trade Center on the tip of Manhattan. Like all of the other neighborhoods on this list, FiDi (as it’s called) experienced a spike in development, then a market saturation.
“It’s not that prices are collapsing,” says Miller. “The early wave of high-end new development drove prices higher. … After that activity cooled, the prices for the neighborhood are less than what they were.”
But there are still plenty of new units to choose from, including this three-bedroom, four-bathroom condo going for $5,300,000. The unit features granite countertops, a waterfall island, high ceilings, and floor-to-ceiling windows. On the lower side of the spectrum, buyers can snag this studio with plenty of closet space for $480,000.
The neighborhood is home to a few cobblestone streets, giving it an old-world charm, as well as the South Street Seaport, a tourist fave.
Annual median price increase: -29.6% Median 2018 home price: $1,550,000
Thank the long-awaited Second Avenue Subway line for prices falling in the upper portion of the Upper East Side, from about 96th to 110th streets. Developers flooded the neighborhood putting up buildings near the new train extension, which opened in 2017 after being discussed, planned, and replanned for nearly a century. They believed—rightly so—that this least fashionable part of the Upper East Side would become far more desirable thanks to its close proximity to the new train line.
“That’s essentially East Harlem, which has benefited from a significant amount of new development,” says Miller. Now development is mostly over and there’s fewer sales.
“You’re not seeing the same amount of high-end [sales], because there’s not as much new housing being introduced,” he explains.
The Upper East Side/East Harlem now has a mix of sleek towers, brownstones, low-rise brick buildings and townhomes, and apartment and public housing developments. This new one-bedroom, one-bath condo clocking in at just 609 square feet, which is near the new subway line, is on the market for $786,161.
The real estate crash in 2008 was unique in that we saw a very fragmented industry that was burdened by large-scale systemic risk. This is not what usually happens.
It’s important to realize this situation would not be easy to duplicate; it was sort of a perfect storm of bad circumstances. Since then, we have implemented things to protect us from a similar event. Things like Dodd-Frank, better lending fundamentals, and a lot of growth left to capitalize on all make the possibility of another crash similar to 2008’s very unlikely.
Real estate is usually market-specific, so this isn’t to say prices can’t drop in the near future in your market. But it does imply that those waiting around for the next nationwide crash are going to watch a lot of success pass them by in the meantime.
This is going to frustrate many people who see inflated prices and increased competition making it a harder time to buy. However, the truth is real estate is going to be a good investment for a long time going forward. Now might not be as lucrative of a time to get in as it was in 2012, but investing now is likely better than getting in five years from now. In 20 years, it won’t make any difference at all.
Waiting for the perfect moment costs a lot more in experience and opportunity than the potential downsides could produce. As the saying goes: “Time in the market is better than timing the market.”
When Will the Next Crash Happen?
In 2016, I bought my first rental property. At the time, there were an abundance of threads on BiggerPockets that said, “Don’t buy now. We are about to see a crash.”
Luckily I ignored this noise and bought anyway. In the last three years, I’ve done very well—despite the supposedly imminent danger. Grant Cardone had a bunch of content around this time claiming he was preparing for a crash, as well, but he’s done quite a bit of business since then.
The BiggerPockets forums now reflect much of the same message as a few years ago. Don’t buy! There will be a crash soon!
Maybe those members who are spreading this sentiment are right; maybe they are wrong. Either way, I find that this message seems to have a single constant underlying motive: jealousy.
I really think much of this mindset is coming from people who are actively hoping the market will downturn so they can buy in. They are salty they missed the last big opportunity.
I’m not mad about that. In fact, I’m salty I missed the last downturn, as well! I would have much rather purchased in 2012 than 2016. But unless I create a time machine to go back to 2010 and buy assets, I’m sunk. Fussing about it is never a helpful strategy.
While another recession of some sort is inevitable, no one really knows what it will look like or when it will happen. It most likely will NOT be a repeat of last time though. So waiting for the bottom to drop out of real estate is a mistake, because you’ll be waiting forever while not learning or building experience along the way.
If you don’t have the confidence to buy in an upmarket, you don’t stand a chance to pull the trigger in the down market.
Plan Around Fundamentals—Not Luck
Over the last eight years, many BiggerPockets members (myself included) have bought low and then ridden the wave upward, making money on the sheer luck of being in a good industry at the right time. This is not a sustainable strategy for success in the long term, but it doesn’t mean that real estate only works when you stand to get outsized gains.
Do you only want to buy real estate because you think you might get lucky with an area that’s rising? Or do you want to buy a profitable asset at a discounted price that is going to make money even through market fluctuations?
Waiting for a theoretical crash is just admitting to the world that you can’t compete unless the market is unusually easy to make money in.
In real estate, you make money when you buy. This holds true no matter where we are in the market cycle.
So instead of waiting for your market to downturn, find great deals that are going to make you money no matter what. Have good exit strategies in place, and pass on deals that don’t make sense.
There are two kinds of mania surrounding real estate right now:
Those who are so excited about real estate that they are willing to spend anything to get into an asset and are therefore blind to risk.
Those who are so sure a crash is coming that they are sitting on the sidelines.
Neither of these two parties is going to make as much money as they could. They are too busy making decisions based on emotional hyperbole, anecdotes, and luck instead of solid financial analysis.
Focus on the fundamentals, and you can make money in any market.
Accept That Real Estate Is a Long Play
Why does everyone seem to be playing a two-year game with a 30-year investment? Even if you’re doing fix and flips, there is a long road of education and understanding that goes into this business.
Certainly there are outlier success stories of people doing 20 deals in their first year. However, it’s disingenuous to assume that is universally possible.
In many cases, chasing unrealistic gains gets people into more trouble when ambition outruns reality. Real estate is a slow business filled with complex transactions and ill-liquid assets. Even most superstars go slow!
It’s a patience game that relies on compounding. Trying to force outsized gains at the command of one’s ego is dangerous.
The long game of real estate levels out lots of short-term instability. You need cash reserves to weather economic storms, and you need to buy based on good fundamentals.
You will absolutely experience drops in the future; you can’t avoid them completely. This is why it’s best to get in now (at the right price) and start making money—money that will help you get through a recession.
Even if there were a crash tomorrow, it would be a long time before you felt comfortable at the bottom. The last bottom was in 2009, but people didn’t start buying until 2012 or so.
That’s three years later! Do you really want to wait that long to get started—just because you can’t buy at the discount the last crash offered?
You missed the crash. So what?!
Stop waiting around, nostalgically hoping that opportunity will return. Instead, enter the marketplace. Grab the opportunities that are available right now!
Buying a home isn’t always about finding the perfect place to raise a family or host those summer barbecues — for some first-time buyers, owning real estate is the gateway into the realm of landlordship.
Becoming a small-scale landlord can look easy, but there’s more to it than collecting the rental cheques every month. Whether you lease out an individual property or have a self-contained rental unit in your home, such as a basement apartment, buying to become a landlord requires you to be a hands-on business owner.
“I tell my clients upfront [that] you’ve got to think of it as a business,” says Nawar Naji, a Toronto real estate investor and broker at Chestnut Park Real Estate. “It’s not just about, ‘Let’s go buy a condo and rent it out.’ You’ve got to think of it from a business perspective. Think of the operation side of it, taxation aspect of it, and the other part of it — the exit.”
Want to buy your first home?
With television shows like HGTV’s Income Property showcasing the benefits of owning a rental property, like easy income and a boost in property value, renting out your basement looks appealing. Yet, without proper preparation or knowledge of provincial landlord and tenancy laws, the landlord dream can quickly go sour.
“If people have a bad experience in the first year [of landlording], and the first tenancy is problem-ridden, nine times out of 10 I would think they would get out of the business,” says Susan Wankiewicz, executive director of the Landlord’s Self-Help Centre, a non-profit legal clinic for Ontario’s small landlords.
If you do your homework and plan accordingly, becoming a small landlord can be rewarding. As Naji and Wankiewicz tell it, here’s what you can expect if you’re working towards that first investment property.
Put your back into it
Landlording isn’t a passive investment — it requires maintenance, time and experience to nurture into a successful money-maker. As with any business, being present and aware of your investment’s unique needs will start you on the path to being a successful landlord.
“You’ve got to be active in the business,” says Naji. “It’s not just paying the mortgage, getting the rental cheque and calling it a day. There’s more work to be done to it.”
Naji, who has been investing in real estate since 2006, says a new landlord can expect the operation stage of landlording — running the property — to be the longest and most cumbersome. Semi-annual inspections, repairs, collecting rent and regular maintenance are the landlord’s responsibility. You could hire a property management company to take care of this for you for a percentage of your rental earnings, but Naji advises not to within the first year of a new investment property.
“[That way] when you pass it on to a property manager, and they call you [about a house issue], you’ll understand if it makes sense or doesn’t make sense,” he says. “If you haven’t done it by experience, somebody can call you and can come up with explanations that don’t necessarily make sense — it might not need any repairs.”
Naji also recommends building a team of professionals that specialize in residential investments. Your accountant, repair person or real estate agent, he says, should have knowledge of landlording in order to fully understand your needs.
Know it like the back of your hand
Legal jargon may be a dry read, but understanding tenancy laws in-depth before you become a landlord could save you a whole lot of trouble down the road.
“Usually we meet landlords once they’ve rented and they’re in trouble,” says Wankiewicz. “If they were to do the front-end research and understand what they’re getting into before they rent, I think they’d be better off.”
Wankiewicz has seen every kind of problem come through the LSHC office: tenants that default on rent; pets that suddenly appear unannounced; damage to the property; and tenants that decided to move their whole extended family into the unit. Whatever the issue may be, Wankiewicz explains that landlords who familiarize themselves with the provincial landlord and tenancy laws beforehand have a better understanding of what their rights are. For instance, she still encounters landlords who haven’t fully read Ontario’s Residential Tenancies Actand don’t understand that the law equally applies to both high-rise and second suite rentals.
“Landlords are surprised because they think that [because] they’re renting in their home and they’re the king of the castle. That’s not the case. They’re subject to the same legislation as if it were a high rise rental,” she says.
Photo: James Bombales
If a tenancy isn’t working out and an eviction is required, Wankiewicz warns that the process isn’t a quick fix. If a tenant stops paying rent, a landlord will need to give a termination notice and apply for a court hearing to the Landlord and Tenant Board as soon as possible.
“What we are seeing now is that it’s taking anywhere from four to six months for a landlord to terminate the tenancy and recover possession of the rental unit,” she says.
The price is right
Buying a house ain’t cheap, nor is saving for a downpayment, so you’ll want to ensure that you can get a return on your first investment property, and it starts with picking the right rental unit.
Naji says to follow the money — wherever there’s construction for a master-planned community or an injection of government funding into infrastructure, there will be a demand for rental housing. Highlights of a specific neighbourhood — proximity to transit, a family-friendly community, lots of amenities — will entice tenants over more space. As Naji explains, buying the largest rental unit on the market might allow you to charge slightly higher rent, but it will cost you more to purchase.
Photo: James Bombales
“If you’re buying the largest two-bedroom, two-bathroom condo, it’s not necessarily the best idea because the tenants are not going to pay more rent,” explains Naji. “They might pay a little more rent, but not enough to justify the additional cost of acquisition for that larger, or extra large, unit.”
Instead of focusing on big bedrooms and living areas, Naji says to look for smaller spaces with appealing characteristics. Tenants are feature focused; they’ll value better appliances or a shorter commute time over a bigger kitchen. A semi-detached could bring you in the same amount of money as a fully-detached home with the same number of bedrooms, but will cost you less to buy.
“It might be a little bit smaller, but your cost of acquisition is less, and the numbers are going the be in your favour because your rent is going to be pretty much the same with a lower purchase price,” he says.
When pricing your rental unit, Naji says to compare current neighbourhood rental prices with seasonal demand to determine the right price.
Meet and greet
With a tenant living on your property, you’ll get to know all of their quirks very quickly. Some landlords aren’t prepared for the extra smells, sounds and interesting habits on display that go hand in hand with having a tenant.
“Landlords in a smaller situation, were they’re renting part of their home, they become consumed with tenant behaviour, like if the tenant has an overnight guest and, ‘They didn’t tell me’, ‘The tenant’s taking too many showers’, or ‘The tenant’s leaving the lights on’, or ‘They brought in a pet and I didn’t approve a pet’— issues like that, small-living landlords are unprepared for,” says Wankiewicz.
The landlord-tenant relationship can sometimes be a rocky one. Wankiewicz emphasizes that in addition to good communication and responding to issues quickly, landlords need to conduct a comprehensive screening process to find a trustworthy tenant. She advises that going off face-value alone won’t provide enough information about a person. Using a rental application, speaking to references and checking a tenant applicant’s credit score are good methods to finding a quality tenant.
“So many times the small landlord will just make their decision on how their tenant appears, but they need to dig in and check with previous landlords, not just where they’re living now, but where they lived prior to that, because that’s where they’re going to get accurate information about what their behaviour was like,” says Wankiewicz.
Naji likes to take a personal approach to rental applications; he strongly recommends meeting prospective tenants in-person not only to check for that gut-feeling, but to get to know the person.
“At the end of the day, this is a people business. You’re renting your property to a person or a couple. It’s good to meet them, get to know who they are.”
The renting versus buying dilemma is one my friends have started to face since they’ve begun leaving Manhattan and escaping to the suburbs (I’m still not there yet, but when I think about how much money I “throw away” each year on rent, it’s actually cringe-worthy). But, maybe it’s true when they say the grass is always greener. Buying doesn’t come without its own set of problems, considering both sets of my friends who recently purchased homes faced movers damaging their patio, gas leaks, and even a broken washing machine within the first week. (They’ve confided in me that their bank accounts are still recovering.)
Since we’re no experts on the topics, we decided to tap Scott McGillivray, a real estate/renovation expert and TV host, to get his professional take. “Neither renting or buying is intrinsically right or wrong,” he says. “It basically comes down to your goals and your lifestyle.” That being said, he encourages getting into the real estate market once you feel financially prepared to do so. And what if you’re worried about going all in? McGillivray suggests trying a practice mortgage in which for one year while you’re renting, you put aside the amount you’d have to pay as a homeowner (mortgage, property tax, potential repairs). This gives you a realistic idea of how your lifestyle and budget will be affected if you buy.
“If you can manage, go for it,” the expert says. “And the bonus is that at the end you’ll have some extra cash for a down payment.” Since renting versus buying is no small debate, we asked McGillivray to break down all the pros and cons for each. Keep reading to get the full scoop.
Flexibility to Move: “You’re not tied down with a mortgage and can move as often as you want.” Not having to commit to a neighborhood (or region) means you can try things out until you find the right fit. Or, if something happens in the neighborhood you’re not thrilled with, it’s easy to just move on.
Maintenance/Repairs Are Included: Oven breaks or there’s a leak? Call the landlord and they’re required to make the fix for you, free of charge. “You won’t need an emergency repair fund.”
Possibility for Better Location: If you’re looking to live in a certain neighborhood but can’t afford to buy there, renting can be more affordable. And if you have kids, this can mean a better school system, transportation, and more.
Extra Money to Invest: Depending on the rental market and where you live, you may have extra money to invest outside of your humble abode. “For many homeowners, there isn’t a lot of extra money left over.”
No Equity Built: “The money you pay each month will never be seen by you again.” Even though you’re spending money, you still have no ownership over your spot.
Rent Can Fluctuate: “With mortgages, you can sometimes refinance to make things more manageable, but not so with rent.” Anyone who rents understands that it’s rare for your rental rate not to increase every year.
Limited Ability to Decorate: Many rental buildings are strict, meaning you can’t even paint the walls a different color without approval (some buildings don’t even let you put a doormat outside your door for sake of uniformity). When you buy, you’ll have free rein to decorate and design everything from pendant lights to paint colors to carpeting or wood paneling.
No Return on Investment: “When you own a home, you can make value-adding improvements that will pay off when you sell.” That’s not the case for rentals, which is why you should be careful about spending too much on things like blinds and other custom pieces you won’t be able to take with you when you move out.
Landlord Issues Exist: “If you have to rely on someone who’s irresponsible, it can be a nightmare.” And while you can expect repairs to be made, it’s often not as quick of a turnaround when you’re not paying. (Pro tip: Try to rent from a reputable management company and ask friends and family for referrals.)
“If you’re in a temporary position or planning on moving in the short term, or if you have to take on unrealistic interest rates in order to buy, renting can be the smarter option.”
Equity is Built: When you buy a house or condo, you immediately start to build equity. This is different from renting in that you never see that money again once it’s paid out to the landlord.
Renovation Opportunities: “If there’s something you don’t like, you can simply change it—although you can be somewhat limited in apartments and condos.” Still, your ability to customize and personalize your home is greater when you own it.
Chance to Increase Value: Now when you make improvements and changes, you are actually adding to the value of your home and investment. “This means more money when you sell, and/or the opportunity to refinance and pull money out of the home for other reasons.”
Ability to Be the Boss: “With your own home you can pretty much do what you want.” Want to have pets or build a fence around your yard? Rentals require that you follow certain rules that can limit life choices; buying does not.
Tax Credits Exist: Ask your accountant about available tax credits that can help offset some of the costs when you buy. Although they vary and you may not qualify for all, you may get a tax break.
Long-Term Financial Commitment: You’ll have to be patient to see your return. “While you will build equity over time, it will take many years to see the financial benefit.”
Commitment to Location: “You can change pretty much everything about a house but its location.” If you don’t like your neighbors or a noisy bar or restaurant opens next door, you can’t just move (without a significant expense).
Large Down Payment: Remember you’ll need to put down a significant down payment (20% without paying a penalty). This can be a challenge for many people starting out.
Costly Maintenance and Repairs: Repairs are not free when you own and there’s no landlord to send someone to fix a problem. You’ll need to create an emergency fund for when the oven breaks or there’s a leak in the roof (or something similar).
According to McGillivray, “If you do it right, it can be the best investment you ever make. And if you’re looking for long-term financial gains or stability, this is typically the way to go.”
Now that you’ve learned all about renting versus buying, you’ll be able to make the decision that feels best for you.
As every landlord surely knows, running a credit check during the tenant selection process is paramount. However, not every landlord realizes what to do with the information the credit check reveals.
“Every independent landlord knows that to screen a tenant, you have to look at their credit, but a lot of them have no idea how credit relates to a tenant’s ability to pay rent on time,” said Jerome Werniuk, director of sales at Naborly Inc., which runs free credit and background checks. “Ninety-five percent of landlords have tenants show up with their own credit file, meaning they go to Credit Karma or Equifax, but when we hear professional tenant stories, these people come with doctored credit checks.
Doctoring a credit check is as easy as finding a template online and filling it in as one wishes. It’s what Werniuk describes as a huge problem within the industry.
While savvy landlords realize they can obtain credit checks from Equifax or TransUnion, many still don’t know, nor have time, to mine the information therein to decipher a tenant’s capacity for prompt rent payments.
“To get a credit file from either of the credit bureaus, they have to pay for it and a set-up fee for the individual’s report, but there’s a heavy credentialing process to pull somebody’s file,” said Werniuk. “Even when the landlord gets a credit file, they don’t know how to read it. They don’t know exactly what an R9 is or how someone paying a cell phone bill on time impacts their ability to pay rent. So credit is not necessarily a good tool for independent landlords.”
Naborly builds a different type of credit report using critical criteria like contemporary cost of living and verifiable income to determine a potential tenant’s ability to pay rent. It has proven so popular that, when it launched in February 2018, Naborly screened 100 people a week. Now, it screens at least that many people in a day.
“The biggest feedback we’ve received from landlords is our tool is amazing at assessing risk so that they can properly evaluate whether or not to accept the rental application,” said Werniuk. However, there remain risks that are extremely difficult to predict. Landlords have said that many of their previous evictions were due to circumstances that changed after the tenant moved in, like job loss or some other unforeseen, and expensive, event in their lives. Nobody can predict those things.”
The average cost of eviction in Ontario is $9,000, and that could cripple an investment. In response, Naborly has rolled out Rent Guarantee, which doesn’t just risk assess but also protects the landlord for the full term of the lease. In effect, Naborly cats as the tenant’s co-signor, which shields the landlord’s investment.
“It’s based on the Naborly report and the risk score we give, which directly correlates to a tenant defaulting on rent,” said Werniuk. “We give a quote for how much rent guarantee will cost. They can have Naborly become a guarantor on the lease, meaning if the tenant ever defaults then Naborly steps in and covers the rent for up to six months. Our primary customer for Rent Guarantee is the landlord who only owns one or two units because if they don’t collect rent for two or three months, they’ll have issues paying their mortgages and they could lose the property.”
Source: Canadian Real Estate Magazine – by Neil Sharma 04 Feb 2019
Billionaire investor and Shark Tank star Mark Cuban said that the safest investment you can make right now is to pay off your debt, according to an interview with Kitco News earlier this year.
“The reason for that is whatever interest you have — it might be a student loan with a 7 percent interest rate — if you pay off that loan, you’re making 7 percent,” said Cuban. “And so that’s your immediate return, which is a lot safer than trying to pick a stock, or trying to pick real estate or whatever it may be.”
Cuban is mostly right: More often than not, paying down debt as fast as possible is going to provide the most value in the long run. And perhaps more importantly, it will do so without any real risk that comes with most investing. That said, each person’s financial situation is different, so it is worth a closer look at when it’s better to pay off debt or invest.
Debt is like investing but in reverse.
One important thing to note is that the same principals that make investing so important also make paying off your debt similarly crucial. As Cuban points out, the interest rate on your loan is essentially like the rate of return on your investments but backward. In fact, many investments are simply ways you’re letting your money get loaned out to others in exchange for them paying interest.
Although debt chips away at your net worth through interest, it’s important to note that different types of borrowing do so in very different ways. Every loan is different, with some offering terms that are actually quite favorable and others that can be excessively costly.
An overdue payday loan can lay waste to your financial health in no time, but a 30-year fixed-rate mortgage with a competitive rate can be relatively easy to manage with good planning. Borrowers should be sure they understand what kind of debt they have and how it’s affecting their finances.
Focus on the interest rate.
The key factor to take note of when considering how to allocate funds is the interest rate — usually expressed as your APR. Debt with a high APR is almost always going to be better to pay down before you focus on any other financial priorities beyond the most basic necessities.
The average APR on credit cards as of August 2018 was 14.38 percent. That’s well in excess of what anyone can reasonably expect to sustain as a return on most investments, so it shouldn’t be hard to see that investing instead of paying down your credit card is almost always going to cost you money in the long run.
Does your interest compound?
Another crucial factor in understanding how your debts and your investments differ is whether or not your interest is compounding. Compounding interest — like that on most credit cards — means that the money you pay in interest is added to the amount due and you’ll then have to pay interest on it in the future. That can lead to debt snowballing and growing exponentially. So, not only do credit cards have high interest rates, but they also make for debt that’s growing faster and faster unless you take action to pay it down.
However, that same principle can work in reverse. Gains on something like stocks will also compound over time, so there’s a similar dynamic at work when comparing your investment returns to fixed interest costs.
Know your risk tolerance.
Another factor that plays a big part in the conversation is your level of risk tolerance. Note that the question Cuban was responding to earlier was about what the “safest” investment was. For most people, erring well on the side of caution when it comes to something like personal finance just makes sense, and in that case, focusing on paying off debt is pretty crucial.
However, others might decide that the long-term payoffs that are possible make it worth rolling the dice on their future. Borrowing money for investments is common despite the risks associated, with everyone from massive investment banks to investors with margin accounts opting to take a calculated risk that their returns will ultimately outpace the cost of borrowing.
Costs of debt are set, investment returns often are not.
One important aspect of understanding the risks involved is that the cost of your debt is usually set and predictable, but the returns on your investments are not. It might be easy to look at the historical returns of the S&P 500 at just under 10 percent a year and assume that it’s worth it to put off paying down debt for an S&P 500 ETF or index fund as long as your APR is under 10 percent.
However, that long-term average does not reflect just how chaotic the markets really are. Sure, it might average out to about 10 percent, but some years will be in the negative — sometimes over 30 percent into the red. Even with bonds — where your rate of return is fixed — there is always a chance that the borrower will default and leave you with nothing.
If you have a variable rate loan
Of course, if your loan has variable interest rates, the equation changes yet again. You could see your interest rate rise or fall depending on what the Federal Reserve does, adding another layer of uncertainty to the decision — especially when it’s impossible to say with certainty which direction interest rates are headed in for the long run.
So, although debt will typically have more certainty associated with its costs than investing, that’s not always the case and variable rate loans could change things for some borrowers.
Don’t forget taxes.
You should also remember that the tax code includes a number of provisions that promote investment, and those can boost the value of investing. In particular, contributions to a 401(k) or traditional IRA are made with before-tax income, meaning that you can invest much more of that money than you would have with your after-tax income that would be used to pay down debt.
That’s especially true when you have an employer who matches your 401(k) contributions. If your employer matches, you’re essentially getting a chance to not just avoid paying taxes on that income, but you’re doubling its value the moment you invest — before it’s even started to accrue returns.
Some opportunities are unique.
Another important factor to consider is what type of investments you can make. In some very specific cases, you might have access to an investment opportunity that brings with it huge potential returns that could tip the scale. Maybe a specific local real estate investment you’re particularly familiar with or a startup company run by a family member where you can get in on the ground floor.
Opportunities like this usually come with enormous risks, but they can also create transformational shifts in wealth when they pay off. Obviously, you have to gauge each opportunity very carefully and make some hard choices, but if you do feel like it’s a truly unique chance to get the sort of returns that just don’t exist with publicly-traded stocks or bonds, it might be worth putting off paying down debt — especially if those debts have fixed rates and a reasonable APR.
What really matters with debt and investments
At the end of the day, you certainly shouldn’t opt to invest money that could be used to pay down debt unless the expectation for your returns is greater than the interest rate on your debt. If your personal loan has an APR of 15 percent, investing in stocks is probably not going to return enough to make it worthwhile. If that rate is 5 percent, though, you could very well do better with certain investments, especially if that’s a fixed rate that doesn’t compound.
But, even in circumstances where you might have reasonable expectations for returns higher than your APR, you might still want to take the definite benefits of paying down debt instead of the uncertain benefits associated with investments. When a wrong move might mean having to delay retirement or delay buying a home, opting for the sure thing is hard to argue with.
Which decision is right for you?
Unfortunately, there’s no magic bullet for knowing whether your specific circumstances call for you to prioritize paying down debt over everything else. Although paying down debt is typically going to be the smartest use for your money, that doesn’t mean you should do so blindly.
Putting off paying down your credit card balance to try your hand at picking some winning stocks is a (really) bad idea, but failing to make regular 401(k) contributions in an effort to pay off your fixed-rate mortgage a couple of years early is probably going to cost you in the long run — especially if you’re missing out on matching funds from your employer by doing so.
So, in a certain sense, Mark Cuban is right: Paying down debt is very rarely going to be a bad idea, and it’s almost always the safest choice. But that said, it’s still worth taking the time to examine the circumstances of your specific situation to be sure you’re not the exception that proves the rule.
You don’t have to empty your savings account to afford city living in America—at least not in these locations.
Urban areas offer a gateway to culture or a medley of activities, but they typically come with a high price tag. That’s why MONEY crunched the numbers to find big cities—those with a population of 300,000 or more—with the best of all worlds: attractions, iconic neighborhoods, a relatively low cost of living, and promising job growth.
Here are our top 10 picks for best big cities to live in. (See MONEY’s full 2018 ranking of the Best Places to Live in America.)
1. Austin, Texas
Average Family Income: $87,389
Median Home Price: $326,562
Projected Job Growth (2017-2022): 10.9%
Texas’s delightfully bohemian capital nabs the list’s top spot because of the thriving job scene, coupled with memorable food, music, and a startup culture.
Not only is Austin projected to see a whopping 10.9% increase in jobs over the next four years, but the current unemployment rate of 3% also sits below the national average. The city’s median family income is $87,389, and the median home sale price is $326,562, according to realtor.com. Much of its job growth comes from small businesses and the tech sector—Dell, IBM, and Amazon are some of the biggest employers. Entrepreneurs, take note: CNBC ranked Austin as the No. 1 place to start a business, while Forbes named it one of the top 10 rising cities for startups.
Once you do land a job, you won’t have to worry about how to entertain yourself. Dubbed the Live Music Capital of the World, Austin is bursting with talent and more live music venues per capita than anywhere else in the nation. Visitors flock to the annual South by Southwest festivals, featuring concerts, speeches, and comedy showcases.
And then there’s the food. Restaurant-rating powerhouse Zagat named Austin the second-most-exciting food city in the U.S. last year, thanks to mainstays like Franklin Barbecue and new favorites such as ramen restaurant Kemuri Tatsu-ya, which combines Texan flavors and Japanese techniques for a meal as distinctive as the city itself.
2. Raleigh, North Carolina
Average Family Income: $82,021
Median Home Price: $263,000
Projected Job Growth (2017-2022): 9.6%
Part of North Carolina’s tri-city university hub, called the Triangle, along with Durham and Chapel Hill, Raleigh is home to a relatively young, diverse, and educated population.
Like Austin, Raleigh is a hotspot for employment seekers: Moody’s Analytics projects the area’s jobs will grow 9.6% by 2022. Forbes this year ranked Raleigh among the top 10 cities for jobs, owing in part to its 17.25% job growth over the past five years. And people are listening: There’s been a 13% increase in population since 2010, according to MONEY’s Best Places to Live database.
Your wallet will feel the benefits too: With an average sales tax of about 7.25% and average property taxes at $2,632, the city’s cost of living is relatively low compared with our other big cities.
As the historically significant birthplace of Andrew Johnson, Raleigh is host to dozens of museums, earning it the nickname Smithsonian of the South. The North Carolina Museum of History reaches back 14,000 years into the state’s past, and at the massive North Carolina Museum of Natural Sciences, general admission is free.
There’s a strong sense of community as well. Every fall, the North Carolina State Fair draws 1 million visitors to Raleigh for a 10-day festival featuring rides, music, games, and crafts from local artists. Tickets cost about $10 for adults and $5 for children.
3. Virginia Beach, Virginia
Average Family Income: $82,927
Median Home Price: $255,000
Projected Job Growth (2017-2022): 2.6%
The living is easy in Virginia Beach, also named one of MONEY’s best beach destinations last year. The area’s unemployment rate is about 3.1%, below the national average, and crime, relatively low among the big cities here, is also well below the national average. Despite an only 4% increase in population since 2010, the area is booming for retirees: The number of people age 50 and over grew 22% over the past eight years. But perhaps best of all, there are 213 clear days a year, giving residents plenty of time to enjoy six major beaches over 35 miles of coastline.
There’s a sandy stretch for nearly everyone, starting with the family-friendly First Landing State Park at Chesapeake Bay Beach. For surfing, head to Virginia Beach Oceanfront, or for a quieter, picturesque view, go to Sandbridge Beach.
The Sandbridge area is also home to Back Bay National Wildlife Refuge, where you can learn about the region’s snakes, frogs, and turtles during a guided nature hike on Bay Trail. Nearby is First Landing State Park, the most visited state park in Virginia, named after the arrival of English colonists in 1607. First Landing offers outdoor activities as well as cabins, a boat launch, and swimmable waters.
Culture vultures won’t feel left out: Renowned symphony orchestras play the Sandler Center for the Performing Arts, and comedians headline at the Funny Bone Comedy Club.
4. Mesa, Arizona
Average Family Income: $64,455
Median Home Price: $246,000
Projected Job Growth (2017-2022): 8.1%
Seeking a sunny city with easy opportunities to escape to the outdoors? It pays to head west.
Mesa, just 20 miles outside Phoenix, has experienced a 12% growth in population over the past eight years and is projected to see jobs increase 8% in the next four years. The majority of new job offerings here, unlike in Austin, are in the investment and manufacturing sectors rather than tech.
Local government leaders say businesses are moving to Mesa, as well as the surrounding East Valley area, for its low tax rate and relative affordability. Average property taxes are around $1,444, the second lowest among MONEY’s big cities, and the median home sale price is $246,000 as of March.
Once you’ve settled in, you won’t have to look far for an outdoor retreat. Mesa gets an impressive 296 clear days a year, and a whopping 115 campsites surround the area. Camping reservations for county parks can be made online as early as six months in advance. You’ll pay $32, including a reservation fee of $8, for a developed camping site with electricity and restrooms or, if you’re a bit more daring, $15 for a site with no amenities.
To learn about the area’s history, visit the Mesa Grande Cultural Park, which preserves ruins believed to be the religious center of the ancient Hohokam civilization, dating back to 1100 A.D. Admission to the ruins costs $5 for adults and $2 for children. For more insight into the Hohokam ancient people, you can check out the Park of the Canals, which features 4,500 feet of an extensive canal system used to farm corn, beans, squash, and cotton.
5. Seattle, Washington
Average Family Income: $112,211
Median Home Price: $676,889
Projected Job Growth (2017-2022): 7.5%
The Emerald City enjoys a growing job market and vibrant cultural attractions but at a cost—the median home sale price, $676,889 as of March, is the most expensive among the cities on this list. But the high price tag might be offset if you could score a lofty job at Amazon, which employs more than 40,000 Seattle residents across its 8.1 million square feet of office space. The company’s dominance has spurred other major tech giants to build their own offices—and poach local employees.
Despite the relatively high cost of living, the area provides plenty of affordable attractions. Nearly 200 wineries cover the region and are ideal for visits. Check out the Charles Smith Wines Jet City tasting room for offerings from one of the state’s largest wine producers. Be sure to also try the famous cream cheese–covered Seattle-style hot dog at Monster Dogs.
To live like a tourist, get a two-in-one ticket to Seattle’s iconic sites: the towering Space Needle and the glass-sculpture garden at Chihuly Garden and Glass. They happen to double as ideal date spots. If you’re young and looking for love, Seattle is the perfect match. MONEY named it one of the best places for millennials and singles.
6. San Diego, California
Average Family Income: $91,199
Median Home Price: $555,000
Projected Job Growth (2017-2022): 4.4%
With 1.4 million residents, San Diego is the most populous city to make the list. It’s also one of the more racially diverse cities in the country, with 40% nonwhite residents.
Head to the east side, and you’ll find mountains and canyons perfect for hiking, mountain biking, and fishing. The area also boasts Las Vegas–style casinos and resorts, including Viejas Casino, home to 2,200 slot machines and an outdoor concert venue. California beaches outline the city’s west side, from mile-long La Jolla Shores, perfect for children and seal lovers, to bonfire-friendly Pacific Beach, often referred to as “the Strand.” And don’t forget to visit the rare giant pandas at the world-renowned San Diego Zoo.
7. Colorado Springs, Colorado
Average Family Income: $75,795
Median Home Price: $285,000
Projected Job Growth (2017-2022): 7.1%
About 70 miles south of Denver, Colorado Springs was recently ranked one of the country’s best tech hubs by the Computing Technology Industry Association. The city will see projected job growth of 7% by 2022, and the cost of living is relatively low among big U.S. cities, according to PayScale.
Skiers enjoy the region’s proximity to major ski getaways like Aspen and Vail, as well as the area’s surrounding resorts, including Eldora Mountain Resort, which offers 680 acres of terrain and 300 inches of snowfall a year.
Here’s a summit for the courageous: the 2,000-foot-high, one-mile hike up the Manitou Incline. Climb all 2,744 steps, and you’ll be rewarded with gorgeous views of the city below. Nonathletic types are welcomed too. The annual Labor Day Lift Off features hot-air balloons and a festival with live music, skydiving demonstrations, and a doughnut-eating contest.
8. Lexington, Kentucky
Average Family Income: $74,531
Median Home Price: $131,000
Projected Job Growth (2017–2022): 4.3%
Good news for potential residents: Lexington has some of the lowest taxes among the cities on this list, with a sales tax of 6% and average property taxes nearing $1,921.
Moving to Lexington means embracing equestrian culture. Nicknamed the Horse Capital of the World, Lexington was the first U.S. city to host an FEI World Equestrian Games, in 2010, drawing half-a-million attendees. Residents and visitors alike can ride horses and ponies at the Kentucky Horse Park.
For a crash course in bourbon distilling, the Town Branch Distillery offers tours and tastings, and one of the South’s best bourbon bars, The Bluegrass Tavern, is home to Kentucky’s largest bourbon collection.
If you’re looking to root for the Wildcats, the University of Kentucky’s basketball team where NBA All-Stars Anthony Davis and John Wall got their start, head to Winchell’s Restaurant for 25 TVs and passionate fans.
9. Jacksonville, Florida
Average Family Income: $63,735
Median Home Price: $196,000
Projected Job Growth (2017-2022): 7.7%
As the largest metro area by landmass in the continental U.S., Jacksonville, like many other cities on our list, claims a growing job market and population. In the past eight years, the city’s population increased by nearly 9%, with a projected job growth of 7.7% by 2022. Those seeking employment, specifically in the tech industry, should head to the area’s growing job market, say ZipRecruiter and Indeed.
Visitors can support the home team by attending a Jacksonville Jaguars game at TIAA Bank Field. The coastal city also features 22 miles of mostly public and dog-friendly beaches. Learn to surf at Atlantic Beach, or brave souls might try a taste of alligator at nearby Mayport’s historic fish camps.
For a combined farmers’ market and artists’ hub, head to the Riverside Arts Market, which attracts thousands of people every Saturday. You’ll listen to live musicians, eat local bites alongside the St. Johns River, and support local artists, all in one day.
10. Columbus, Ohio
Average Family Income: $61,513
Median Home Price: $185,000
Projected Job Growth (2017-2022): 5.7%
Columbus is one of the fastest-growing cities in the U.S.—and in the Midwest—with a population increase of nearly 11% in the past eight years and job growth of 14% in roughly the same period.
Big 10 Ohio State University is the city’s biggest employer, and you can take advantage of the college town’s vibrant culture by attending a football game at Ohio Stadium, which seats over 100,000 people. Following the game, head to the Thurman Cafe and indulge in its massive, double-patty Thurmanator burger for $21.99.
If college athletics aren’t your thing, check out one of the area’s 96 museums, such as the hands-on Center of Science and Industry, or the Columbus Museum of Art, featuring modern and contemporary works.
To create MONEY’s Best Big Cities ranking, we looked only at places with populations of 300,000 or greater. We eliminated any city that had more than double the national crime risk, less than 85% of its state’s median household income, or a lack of ethnic diversity. We further narrowed the list using more than 8,000 different data points, considering data on each place’s economic health, cost of living, public education, income, crime, ease of living, and amenities, all provided by research partner Witlytic. MONEY teamed up with realtor.com to leverage its knowledge of housing markets throughout the country. We put the greatest weight on economic health, public school performance, and local amenities; housing, cost of living, and diversity were also critical components.
Finally, reporters researched each spot, searching for the kinds of intangible factors that aren’t revealed by statistics. To ensure a geographically diverse set, we limited the Best Big Cities list to no more than one place per state.