In this article, we will consider the local market of Morristown, NJ. Is it better to buy or rent? We will sample two active listings available in this market and run the numbers. Follow along with us as we investigate. We reveal the surprising answer.
All About Morristown, NJ
Morristown is a bedroom community located 25 miles outside of New York City, NY. Morristown has undergone a gentrification and modernization over the past 20 years which has transformed the community into a small city.
If you are looking for a small city with access to New York City, and want most of the city life, Morristown is a good choice. There are a few choices in New Jersey for urban communities close to NYC and Morristown is among them:
- Morristown
- Montclair
- Hoboken
Morristown is also an historic city, born before the U.S.A become a country. In fact, as the saying goes, George Washington slept there. Not only did he sleep there, but maintained a military headquarters in town. It is still there and you can visit and tour the property.
Morristown could be considered as being in the “crossroads” of northern New Jersey. New Jersey has major interstate arteries that make getting around easy within the state and beyond. Morristown is right in the middle of (3) of these major roads (Route 80, 78 and 287). Also, it is close to a major shopping district on Route 10.
If travelling by car isn’t your thing, you won’t be disappointed by the walkable lifestyle offered in town and the easy transit options to get to other cities, including NYC.
Along with the history, you will find Morristown offers some amenities that enhance its livability and quality of life. Its location offers the following possibilities:
- A 1 hour direct train to midtown Manhattan, right in town.
- Access to the North East corridor trains (Amtrak) which cover the east coast.
- 30 minute drive to Newark International airport.
- A drive within 2 hours of the ski slopes of PA and NY.
- A drive within 2 hours of the sandy beaches of the Jersey Shore.
- Great parks in town and in the surrounding area.
In recent years, there has been a boom of housing construction, primarily condos constructed in town. Along with the housing boom, there are hundreds of shops, restaurants and as well clubs/bars that are walkable.
We will feature two one bedroom condos, one for rent and one for sale. These condos are right in the same neighborhood and offer very similar amenities. They are both unrenovated apartments with bathrooms and kitchens of similar age. This makes the comparison equitable, since a more update to date condo would sell/rent for more money.
These are the links to the two condos. If these links become stale, use the attached pdf documents to view the details of each apartment. Also attached is the BVR spreadsheet that we use to compare the properties. Follow along with as, the spreadsheet has the numbers already filled in.
Purchase Link:
Rental Link:
https://www.apartments.com/elmwood-gardens-morristown-nj/8trn6j3
Filling In the Numbers.
We have filled in the (4) basic inputs that are used in the comparison. The sticker price for the rental is $2,300/month, and the list price for the condo is $280K.
The purchase price, monthly rent and an estimate of expenses. Both of these apartments include some amenities such as garbage disposal and heat and hot water. The only expenses that renters would be on the hook for are electric and a TV package (if desired). This is shown below in the Monthly Expenses worksheet:
For an owner, they would be responsible for those expenses as well, but also a few others. We have put into some details here for owner expenses that are good estimates. The condo association fees and property taxes were copied from the sales listing itself. The homeowner’s insurance is an estimate from the listing website.
Mortgage Details
For buying, the mortgage information and configuration are available in the Mortgage Details worksheet. We recommend that you buy a conforming mortgage, which would require a 20% down payment and no mortgage insurance.
This is a standard 30 year fixed rate mortgage at a market rate (at the time of publication) of 6 3/8%. The mortgage payment works out to be $1,397 per month.
In practice though, your mortgage company will pay your property taxes and homeowner’s insurance on your behalf. Upon closing an escrow account (an account that pre-funds these expenses) will be setup by your mortgage company.
The total payment to the mortgage company would be as follows:
Mortgage Payment: $1,397
Property Taxes: $350
Property Insurance: $60
Total Payment: $1,807
Cash Flow Versus Balance Sheet
We are first and foremost investors, and we help you evaluate these financial decisions from this view point. The following section will review the numbers that will help to describe how the transactions change over time.
Building wealth is about your balance sheet as well as cash flow.
Cash flow is straight forward, this is measuring money going in and out over time. Balance sheet is an asset and liabilities point of view, which describes what you own and what you owe. Let’s start off with cash flow.
We saw that your total payment to the mortgage company is $1807, while the rental payment was $2,300. We should also add all expenses to these numbers because this is money you are spending every month. Taken together, these numbers add up to the Monthly Payment in the above picture.
From a monthly payment point of view, buying is less costly $2,302 versus $2,420. However, renters can invest their acquisition costs (down payment + closing costs – rental deposit). This is estimated to be $243. When accounting for this income, renting only costs $2,177 because the interest income comes in each month.
However, on the buying side, you are initially paying down your loan principal each month, starting at $207. This isn’t cash in your pocket, but a transaction that is added to your balance sheet as home equity. This money can be realized as cash either when you sell or take out a home equity loan. Taking this into account, the buyer is paying effectively $2,095 per month.
Taking in the total picture, the buyer is getting ahead each month right from the start because the effective monthly payment (which takes into account principal payment and investment income) is lower.
Defining The Investment Term
We have seen that the buyer is effectively spending less money each month. However, the buyer has sunk closing costs when buying which cannot be recovered. Also, when the buyer sells, there are also closing costs which need to be spent. The BVR spreadsheet models these costs.
If the buyer sells too soon, they might not get ahead financially due to the closing costs. The buyer needs to stay in the condo for a certain period of time to recover these costs.
The Investment Term defines how long you keep the property, and then you sell at the end. The model projects out all the payments to that term and comes up with a final number. The default investment term is 5 years. The chart below shows how the payments change over time.
Over time, renting loses out to owning. The cumulative effect can be summed up in the final total, which sums up everything for the investment term.
This result shows that you come out ahead by owning by about $16K. This includes the estimated closing costs and all the other assumptions we talked about previously.
If you plan on owning for 10 years, the numbers get even better.
Summary
As of this writing in 2024, we have high housing costs and high mortgage rates compared to recent history. Even so, if you are looking to buy in Morristown, NJ, it is right now better to buy than to rent. In order for you to make the the numbers work, you need to commit to keeping the home for years, because over time owning beats renting.
The reason is that we generally recommend that you try to get an investment payback on owning within a 5 year investment term. Under the assumptions in this article, you would get ahead from buying actually in less than 5 years.
It’s a great time to buy.
PDF Link to Buy
PDF Link to Rent
BVR Spreadsheet