Impact of maintenance on price/value in a prewar 8

huntersburg: about 14 months ago

>I just applied that 4 more times to get to $17.0K maintenance and $0.0M price.

Wow, in Columbia County, you could practically buy a house for $17K

inonada: about 14 months ago

"How did you get $17k/month?"

I just took your example to the extreme. You started with $4.5K maintenance and $3.75M price. You then applied your 4% rule to translate $2.5K additional maintenance to a $0.75M price drop, so $7.0K maintenance and $3.0M price. I just applied that 4 more times to get to $17.0K maintenance and $0.0M price. At that point, things look awfully similar to renting.

bobnovak: about 14 months ago

More generally, what do people think the current market value is for a Classic 8 in estate condition on the UES assuming a normal maintenance?

bobnovak: about 14 months ago

Ioanada:

How did you get $17k/month?

RogerF: about 14 months ago

I'm a novice at this, but doesn't it matter how well the building is actually maintained and what services are provided?

EBOC: about 14 months ago

One (not so novel) point to add - it may help you to better understand what drives the difference in maintenance between apartments/co-ops, and form a view as to whether you think that differential stays/collapses longer term. I mention it only because I've seen situations where maintenance has stayed relatively flat for unnaturally long periods of time, only to ratchet up dramatically (2-3x inflation) over the course of a few years (I'm living it right now!). And when you get serious about a place, do thorough diligence on the co-op's financials, historical/forecasted operating expenses/capex/headcount, services/amenities offered, etc. - this will help you round out your picture of maintenance to get a better sense for how it may grow longer term.

Wbottom: about 14 months ago

not necessarily bob--most boards require you can can show liquid assets, in excess of whatever your downpayment will be, in an amount that relates to your ongoing monthlies

ie a bldg might require 50% down + (60 (5 years) * (mntnce + mtge pmt))

bobnovak: about 14 months ago

All other things being equal, I agree.

However, given the Board Req's at some of these buildings, it's a lot easier to "qualify" for an apartment with a materially lower purchase price (even if it's due to the high maintenance)

inonada: about 14 months ago

"always buy the lesser mntnce, higher priced comp"

The point being there is a continuing bubble in prices. As soon as maintenance starts approaching rents, a light bulb goes off in buyer's head. However, bad math / I can afford it / the "psychic" benefits of ownership as some here call it dominate in your buyer's cloudy head so long as maintenance is far from rent.

inonada: about 14 months ago

Here's another way to go at it. How much would it rent for? That will give you a place that costs $0 upfront with monthlies of X.

Your 4% rule would put it at a $17K rent. Sounds a bit rich.

Wbottom: about 14 months ago

higher mntnce should be treated not like a mtge, but as a perpetual--plot the inflation-compounded differential 10 years out--ouch--always buy the lesser mntnce, higher priced comp

JButton: about 14 months ago

agree with flarf - at the end of 6-7 years someone else will do the calculation and ding the apartment due to higher maintenance. my view is do the terminal value of this cash flow stream, 4% is reasonalbe so first way to calculate it is correct.

flarf: about 14 months ago

Who cares about the average hold time? The extraordinary maintenance burden isn't going to revert to the mean over 6-7 years. It will continue being an albatross around the apartment's neck and should be accounted for as such.

Seller's broker is either intentionally misleading you and/or doesn't understand the basic principles of the time value of money.

huntersburg: about 14 months ago

>an appraiser once told me you can also argue that avg hold time for an apt is 6-7 years. So you can take the added expense per year and multiply by 6 or 7.

Why would you even repeat crap like that?

bobnovak: about 14 months ago

Your method is what the selling broker proposed. Needless to say, there's a big difference between the two.

Regarding Classic 8s, what do people think the market is for them on the UES?

urbandigs: about 14 months ago

an appraiser once told me you can also argue that avg hold time for an apt is 6-7 years. So you can take the added expense per year and multiply by 6 or 7. In this case that would be 180k to 240k. But I think the market in reality would probably be closer to your method.

bobnovak: about 14 months ago

How do you think about the relationship between monthly maintenance? In other words, let's assume that the "average" Classic 8 pre-war that needs to be renovated is $3.750m and the maintenance is $4,500/month. If the maintenance on a similar Classic 8 is $7,000/month, what should the price be? One way to do it is to look at the difference ($2,500) multiply by 12 to get to $30k and then divide by the current cost to borrow (4.0%) and get $750k as the adjustment. In this case the value would be $3.000m. Thoughts?