Is it best to invest in real estate or purchase a new residence this year?
NYC is an amazing place to buy and own a residence or second home. It’s home to some of the best loved mansions, brownstones, and skyscraping condos of the world’s wealthiest and most famous. And there is always something new and grander to upgrade to. However, before buying that next property in the Big Apple, it may be worth asking if it is better to invest first.
There are many advantages and benefits of owing your own place in NYC. It’s yours. You don’t have to deal with hotels or shuffling your belongings. It’s likely that over the long run it can be a solid asset that retains, and even grows in value.
However, no matter how you look at it, a personal residence is not a pure investment. In truth, it is often a liability. Even without a mortgage, there are annual insurance, maintenance, and property taxes. Those aren’t cheap in NY. Keep it long enough, without trading up, and you may be able to offset some of the capital gains taxes you’ll owe when you resell.
In contrast a pure investment in NYC real estate can give you the same prestige and wealth preservation benefits. Even better, it could pay you rent every month, and your gains can be better protected by several tax saving vehicles; such as the 103 exchange.
This is something you must consider if you do not yet have adequate and reliable passive income streams coming in from real estate to cover your retirement. Do you have enough capital and passive income to cover your housing needs, potential medical, and plenty of surplus to take care of those you love, even if something happens and you must retire tomorrow? If not, invest first.
Not only can your cash flow and surplus created from real estate investments pay for all of your expenses, with relying on earned income, investing first can provide a great advantage in compounding your gains in the years you do not need to tap what they produce. Using a 1031 exchange you may continue to roll over gains and grow your real estate investment portfolio without shelling out for taxes.
It is true that low interest rates and a mixed market with unique opportunities for both home sellers and buyers make this an attractive year to upgrade to a new residence. If you already have a sizable real estate portfolio, then go for it. If not; consider investing first. Then buy your slice of the apple, in a more sustainable way.