Cheaper to own than to rent?

We just had this discussion on another thread.

That down payment that they want is a huge security deposit. My cash is not trash.

No we didn't, LICC. THIS IS A CHALLENGE!

Find in Manhattan one of the apartments that you claim exists.

I dare you.

Or find two, or three, or four. You say it's not the norm. Prove it.

Sorry - "You say it IS the norm."

LICC & JuiceMan, WHERE ARE YOU?!

I don't want to out myself, but a place that is comparable to mine (1 minute walk), same level of finishes, same school district just rented for 30% more than my gross carrying costs (i.e. before tax deductions).

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1#

use to calulate on you own

nyc10023, how does it compare to what you would be paying for your unit today?

Not sure what you mean, ar.

If you mean whether my carrying costs are lower than they would be if I had bought today - we bought our current place in 2006, so my carrying costs if I bought today would be lower than what they are now.

if your mortgage is from 1996 your carrying costs will be quite low. if it's from 2006 it will be quite high. if you put 50% down, it's lower, etc. without knowing what your carrying costs are relative to today's market, it's impossible to interpret the fact that someone is renting a similar unit for 30% more.

we were typing at the same time, clearly. interesting. would love more details but understand why you're hesitant.

craberry,

Your cash may not be trash but the federal reserve are doing their best to make it that way. When is someone going to stand up for the prudent folks...

steve, don't lie again. I never claimed anything other than the cost to own, in general, is nowhere near as high as 50% above the cost to rent, as some claim.

Sorry, was too lazy to go into details (of course, devil's in the details). Forget our place because as you say, we could have put in a huge dp, etc. Say someone bought a place similar to ours right now(not too hard to do), and sunk money into it (yes, I know what if they wanted gold faucets) to bring it up to the standard of our place and this place that was recently rented. If they put in 20% and 200/sqft, on a monthly gross costs basis, they would be paying more to rent. What they are risking, is of course the very real risk of depreciating equity as the housing market tanks and the loss of interest on their dp and reno costs. So they have to weigh that against the likelihood of being able to rent the same place indefinitely and finding similar places if they have to move and what they can afford to lose.

Of course, things can change on a dime and maybe similar rentals will go down drastically (imagine economic tsunami that reduces USD to zero). I'm very familiar with the housing stock in our school district (ever decreasing as PS199 explodes and the DOE draws a tighter noose) and there are not many places that are apples to apples.

The original question was (I think) if rent/own ratios are reasonable as a whole from an investor perspective and no they're not. But I've been through the exercise a kabillion times from my point of view (an admittedly narrow one based on personal circumstances) and the flexibility in renting isn't worth it.

bugelrex, you just did. keep talking about it.

nyc10023, i was content with adding a jennaire french door refrigerator, pull out pantry and pan drawers. easier for me. honestly what kept me out of the market was a huge streak of cheapness and the fact that i couldn't easily afford what i wanted.

now i'm out because it doesn't make sense to go back in right now, and for me due to age and the fact that we'll retire elsewhere, possibly ever. i've always said that for some people in secure, comfortable situations the emotional value of owning will outweigh the risks of downward price pressures.

I was trying to help my friend find a similar rental to hers (her LL isn't negotiating due to some unique circumstances) and we're having a hard time finding a similar space for less. You're very lucky, AR, to get your kid/(s?) into a private you're happy with. That gives you real flexibility in where to live. As long as we (and other families) have a younger child not old enough for K, we have to stay put until that kid gets enrolled.

Here steve - this was completely random. I clicked on the first featured listing on the streeteasy homepage and looked at the building. This apartment is listed at $610,000 and an apartment the exact same size in the building one floor up just was listed at rented at $2950. I didn't do any research of buildings, I just looked at the first random listing that was on the homepage.

http://www.streeteasy.com/nyc/sale/373142-coop-32-west-40th-st-midtown-south-new-york

Who is really that secure and comfortable these days? Not me. But we tried the rental route, from 05-07 and it wasn't for us. Maybe I shouldn't be that scared of private school admissions but we applied to a large number of preschools for our oldest child and rejected/wled from all but one. That kind of scared me off the whole scene.

That's not the way I read it, LICC:

The exact same apartment was listed for rent at $2,700:

10/25/2008 #4G $2,700

http://www.streeteasy.com/nyc/building/32-west-40-street-new_york

To buy would cost:

Down Payment $122,000
Mortgage Amount $488,000
Mortgage Payment $2,771
Total Monthly Payment $3,731

It's 40% more expensive to own than to rent.

Try again.

There you go ignoring the tax deduction. This cannot be a serious conversation if you are just going to make up the actual costs. The actual, after-tax cost of buying would be under $3000 per month.
steve, unless you want to get real with this discussion, please stop wasting everyone's time.

I only have one, and I did get very lucky. It wasn't so bad, but there were far fewer children competing then. Mine got into three out of eight private schools, and we were told that two additional ones would have taken her if we were willing to first choice.

i wonder if admissions directors these days are talking more amongst themselves, so to speak. so many people are applying to so many schools that planning and yields must be a nightmare. do you like the preschool, at least? i wish that i could be more positive, but i've been posting about the education issue (divvie and I have a long history on this topic) forever, and i think the situation has been handled horribly, to the extent that it's been handled at all. You have a good public school, correct, although I could see how that can only provide so much comfort these days.

Good luck and if you have any questions if you do wind up filling out those ongoing private school applications, i'd be happy to answer them if i can.

3/8 or 5/8 is amazing. The preschool is good in some ways, but I'm not that impressed with the curriculum. As for exmissions help, you're on your own. I just thought (could be wrong) that there was no way that my oldest child could have pulled off 90+ ERB scores, we were on our own in terms of PSDs working exmissions, so we didn't bother. My oldest child is amazing to us, but not the super-verbal, outgoing, expressive (to strangers) personality that I would have thought really shone on playdates (could have been wrong here too).

The game isn't quite over for us yet in terms of private school. Our youngest child is very outgoing, so we might have her take ERBs and maybe work the sibling connection backwards.

the above 90+ erb scores is not true. more true today, but not the clincher. you are right, you'd be amazed at how important the play date interview seems to be, but alot of it depends on the mix of children they get. they can't fill a class with leaders, they need different types.

when I picked up my daughter from her playdate interview at her current school, she was busy tellling the head of the lower school about all the times that she had "frowed up" including the most recent time all over my husband.

Your daughter sounds v. outgoing. No way my oldest would say things like that to a stranger. Takes her a long time to warm up. The other thing (which sounds horrible) is that she warms up fastest to pretty young women. Generally heads of schools don't fall into that category.

not true 10023. my daughter is very hesitant to trust new people. these people are amazingly good at what they do, some of them. and you'd be surprised at who they use. the best schools use anyone who is good to do the interviewing. at Dalton all the interviewing was done by pretty young women (kindergarten teachers). true of a number of the other schools as well.

"This cannot be a serious conversation if you are just going to make up the actual costs."

I'm not making up the actual costs, LICC. I said BUY TO RENT TO AN UNRELATED THIRD PARTY and make money.

Can't be done.

So you switch the argument again.

The other thing is that she will never push forward in a group of kids or speak up (unless it's her class where she's found her comfort level). So I couldn't help but think that in a playdate she would just sort of play by herself or hang back if everyone rushed for the same things. These are precisely the reasons why I would want her in the right private school which would challenge her to go beyond her comfort level. This was the best part of my private school education and my partner's as well. And the reason why she wouldn't get any attention in a public - not a troublemaker, quiet, pliant, great focus.

Aboutready and nyc10023 seem to want to change the subject, as well.

I think there's a thread about schools.

I hope I'm not sounding too negative about my kid. When she was in a preschool, I sort of cast a critical objective eye on the kids in her class, imagine that they were all applying to private. My daughter and some of the other kids, I could just see not particularly appealing to any school (other than our ability to pay full fare and make annual donations). Sad to say, I don't think I've been wrong in any assessments.

Steve: it's kind of a moot point, no? For the vast majority of properties in Manhattan, it's cheaper to rent than own. For a small minority (mine included), it's arguably cheaper to own than rent if you don't mind risking your equity. QED.

Going back 100-odd years to the inception of co-ops, the idea is that you pay a premium over rent in order to stabilize your costs in volatile rental markets, to get (usually) a better apartment, and other factors. Maintenance or CC-&-taxes are going to be just a bit less than rent over the long term. How much that premium is/should be is another story.

Recent example. 200WE 3br, listed at 10k, must have rented close to ask because it went into contract very quickly. Don't know which unit it is but B units (18th & above) are shown as having closed for between 2.675m & 3.25m. No-brainer, cheaper to rent at 10k than to buy.

Steve, there is nothing out there that you can buy and rent and make money...unless you put 100% down and you're happy with a 2 or 3% cash return. This is definitional because cap rates are lower than mortgage rates. This debate is moot, because people (bulls) are comparing rental costs to after-tax cost of occupancy (and not charging themselves for an opportunity cost of the down payment). And its moot because that way of looking at the investment in a primary residence has already proven damaging to ones financial health. I admit, however, that if you are holding cash and you are confident in employment, its easy to get sucked into the idea you are 'saving' monthly on an after tax basis and on top of that owing is the righteous thing. However, even if you saw cap rates for investment owners go to 6%, you are talking about dessimating values. Its a binary switch in the pricing... And it probably takes that to clear the unsold glut of condos, which by extension takes the coop market with it.

When we are all talking about buying homes, why waste everyone's time with an analysis for investment properties? This is just more silliness from steve.

Its actually not silliness. If an apartment would be a terrible income investment, then the message is, you are probably buying it at a shitty point in time. Currently, we are witnessing that fact being revealed. If can't move out of your apartment and cover your costs (assuming like a 25% downpayment, and even ignoring opportunity cost on that downpayment), then you are making a poor investment. If you chose not to consider your primary residence an investment, then that is a different thing...but that would mean logging into a real estate site to debate the price of real estate like a piece of art. If so, than what is the point of being here?

sorry steve

AR: I will absolutely ping you if we ever apply for privates.

Ha I'm not Steve. The point is when prices of apartments disconnect so far with their rental power, that is what defines a bubble. When a bubble bursts, you need to start thinking about measures of value that exist outside of bubble periods.

Can't think of anyone who can argue that it's cheaper to rent than own, in general. There are always outliers, but you can't fight the cap rate.

To buy would cost:
Down Payment $122,000
Mortgage Amount $488,000
Mortgage Payment $2,771
Total Monthly Payment $3,731
It's 40% more expensive to own than to rent.

A bit simplistic. On the one hand ignores the tax benefits. On the other hand ignores the cost of the downpayment.

Rhino, it is absolutely silly when the looking at comparing the cost to own against the cost to rent. The comparison is to owning the place where you live or renting the place where you live. This is not a discussion about how general economic factors will affect the future of the market. It is a discussion about current costs to live, comparing renting to owning. To distort the discussion with analysis of investment property is silly.

LIC - the only diff. is the tax deduction. Otherwise you are in the same position as an investor.

Correction:
You should be able to get this place fot $500k - $530k and it is %25 building
With tax benefits it is better to buy

I think you'll find that it is "now" cheaper to own in many parts of the country today.

But Manhattan is still totally disconnected from reality.

The tax deduction is a pretty big difference.

"The tax deduction is a pretty big difference."

But YOU exclude insurance and property taxes and the interest one could earn on the 20% down payment. Guess what? Those amounts would pretty much cancel out.

Yawn.

I don't get the apathy. Insurance and taxes are in the maintenance, but opportunity cost of the down payment alone wipes out your tax benefit. Logically, having a mortgage shouldn't change what something is worth. So if you buy something for cash, you look at the return on your investment (rent minus maintenance) x 12, and its still piss poor like 2-3%. Its just a joke. Bulls can argue all they want, but the market continues to fall. Purchases made based on tax benefits being included (like everything needed to be post 2003) are already out of the money.... So where is the argument? No investment made in the last five years that was based on tax benefits being included has been proven to be a good investment.... Your arguments are for shit. If you tell me 2002-2003 purchases are in the money, you may be right...because they were made based on pre-tax monthly savings.

"(and not charging themselves for an opportunity cost of the down payment). "

Rhino86, that's incorrect. I always include the -40 to -60% return that I would have had if my money was in the market this past year. Funny how this argument is used so frequently on this site but no one actually calculates the possibility of a negative return for that opportunity cost. To be accurate, if you are going to include the opportunity cost in the calculation use a risk free rate or nothing at all.

Juice Man you are a real dope. You can't justify investment in one overvalued market with an investment in another overvalued market. Either way, your 25% down payment from 2H 2007 is now down 100% and falling vs. your stock market investment that is down 40%. Sure if you want me to use the risk free of like 2% then I need to apply it to the whole value, not just the down payment. Either way it offsets your tax benefits. You shouldn't buy a stock market trading at 20x eps any more than a real estate market trading at 30x rent. Congrats on being an investment idiot. Meanwhile all real estate purchases after 2004 remain poor.

I recently purchased a newly-renovated, two-room studio apartment in Sunnyside for $140.000. The mortgage payment with 20% down is $699; maintenance $536 including utilities, but with a tax abatement for four months bringing the maintenace to $456. So I'm living in Sunnyside for $1235 per month (or $1155 for the next four months) including utilities. The coop says that 14% of my maintence is utilities. Tax breaks will bring that total down to about $900. I defy you or anyone to find a studio with an eat-in kitchen in Sunnyside for $900, or, for that matter, under $1100.

Rhino86, unfortunately for you, calling me a dope or idiot doesn't make you right. I was merely pointing out that your statement was false. I know it hurts the ego when your deficiencies are highlighted, but for the sake of streeteasy integrity, it had to be done. Also, you can apply the 2% to the whole value if you want, but it doesn’t make it correct. You can shove a bunch of twenties up your ass and tell us you are earning 20%, it doesn’t make it so.

Man learns from history that man learns nothing from history.

Hegel's paradox

Juice, what makes me right is this. The people who included tax benefits and ignored opportunity costs to simply equal their rental equivalent apartment, on a 25% down scenario...all those people are now in the hole. As well, the rents they used to justify their purchase are now likely too high. You might have been able to debate this last Spring. But how could you now?

I figure its around 2004 when it was impossible to make the math work without including tax deductions and ignoring opportunity costs. Lo and behold, the market is now at 2004 levels and still falling. Worse still it will likely overshoot pre-tax equivalence, like the 1990s... at which time it will be a good investment again. This relates to what Topper/Hegel said...the only question that remains is how high cap rates will go in a world where the government is cramming down interest rates.

Rhino, I agree with you on one thing, you should never justify a real estate purchase based on a tax benefit. At the same time, you can't deny its existence or the benefit gained in lowering monthly ownership costs. This is the simple point that LICC made above. Do the numbers the right way and then you may have some credibility but the more and more people exaggerate the more worthless this site becomes. I find it really funny is that the people who remain on this site are just feeding each other the same exaggerated, baseless crap

"Lo and behold, the market is now at 2004 levels and still falling"

LMAO! More grossly exaggerated malarkey....

I don't deny its existence. I simply say categorically that if your carrying costs require the tax benefit to be less than an equivalent rental, then your appreciation from there is likely to be piss poor. Like those who bought after 2004, who find their purchases under water right now. Your apartment should always be cheaper than rent BEFORE tax deductions, else you are paying for the privilege of owning...a sure sign of bubbletown.

Also, while brokers agree that the market has retraced to 2004 levels, 4 out of 5 dentists remain unconvinced. Sorry man. Take it from Urbandigs or numerous examples on this site. Also please keep in mind, a market is where things need to be priced to sign a contract now...Not backward looking contracts or delusional asks that are many reductions away from attracting a buyer. Do you doubt 2004 is the right figure, or do you doubt it continues to fall? Are you really laughing your ass off, or is it more a nervous chortle? Like hahaha, but thinking wow, we really did erase four years of gains in the short months since September. Scary right?

Telling how neither LICC nor JuiceMan can find an apartment in Manhattan that they could buy and rent out to an unrelated third party and even remotely come close to breaking even. They switch the subject to the mortgage interest "tax benefit," exclude opportunity cost, excluded higher risk of owning, exclude the possibility of losing your down payment when prices fall - magnified by the leverage of a mortgage.

This is a simple problem. It's the reason why Tishman-Speyer is in such dire straits with Peter Cooper Village and Stuyvesantown. Even with the (infinitely better) tax benefits from being a rental property owner (you can deduct property tax, maintenance, depreciation, carry forward capital gains without paying tax, etc.) they can't make money.

So, JuiceMan, LICC: the challenge remains: find a property in Manhattan that if you would rent to an unrelated third party you could make money. If you can't, then property is overpriced by the percentage that you lose.

steve, "That is, the challenge here is to find an apartment you could own as an investment, rent to an unrelated third party and break even from the start."

that means you would have to put down more than 20% downpayment, and in your calculation in retort to LICC you posited a 20% downpayment

lowery, I am positing the standard mortgage for a property - long-term mortgage for a long-term asset.

The issue though is if you put enough money down, you can make money..because maintenance is generally lower than rent. Then the debate gets reduced to cap rates...and the fact that when cap rates are lower than mortgage rates, there is something wrong...Namely excessive appreciation expectations are priced into the market.

steve, if you are an investor buying a single unit to rent out to an unrelated person, you need to put down more than 20% - and it would not be worth it to tie up that much cash in a coop or condo

you win on the argument of LICC's random look at the first apartment, it costs more to own than to buy, by nearly any measure conceivable - but the fact that it doesn't look so obvious to LICC shows that not everyone looks at this question from the same perspective - perhaps LICC looks at what it would cost him to buy the unit for himself and perhaps he's in a tax bracket where his after-tax-savings cost would be close to the market rent today

But none of you are addressing the critical issue here, which is the deplorable appearance of this unit via the photographs. Can South Florida bordello spray-paint-by-number decor be salvaged at any price?

Rhino, I don't disagree and am not in the market for investment properties in Manhattan for that reason. However, I choose to own because I love my home and in it for the long haul. I live in it so I enjoy the tax deduction and pay down principal every month. My monthly nut is reasonable and close to what I would pay for rent . From an "investment" perspective, cap rates mean nothing to me for the home I live in. The only thing to think about from and investment perspective (if you must) is when you finally sell, did you pay less (net appreciation, tax benefits, opportunity cost, etc) than you did if you rented for that period. If you buy today and sell in three years, you will probably not make money.

Your home is not a stock, it is not a wealth generating vehicle, it’s a place to live. Part of the reason we are in this mess is because people treated real estate as a short term wealth generator. It’s not, has never been, and an any reversion to the mean is a reversion to what real estate should really be, a place to live.

To bring it back to the original discussion, if you take today’s rates and room to negotiate on prices and if you can find something you love (which is difficult because I’m finding the inventory pretty crappy) you could buy something (to live in) that would be close to equilibrium from a rent/buy perspective. I know there are folks on this site that don’t want to hear this because it ruins their doom and gloom agenda, but if you objectively look at the numbers, things are looking pretty interesting.

“Telling how neither LICC nor JuiceMan can find an apartment in Manhattan that they could buy and rent out to an unrelated third party and even remotely come close to breaking even.”

How is this a valid exercise when you can’t buy and rent out 75% of the inventory in Manhattan? Not to mention it wasn’t what the original topic to begin with.

lowery, though you are correct I'm looking at this the way economists do - by (economic) definition, no rational person would buy a place to live and (effectively) rent it out to himself at a price greater than what he would get by renting it out to an unrelated third party. It's one way of looking at "imputed rent"; it's the amortization of your capitalized cost.

Actually, JuiceMan, it was the original topic to begin with (I should know, I wrote it), and it doesn't matter that you "can't rent out" the inventory. There is an implied income level for condos and co-ops using comparable rental buildings, and that is what property taxes are based on.

The fact is, you can't find even a single apartment that you could rent out and make a profit. Never mind two or more. You blithely go on stating that 50% to 100% overpriced is untrue, you say you've proved it a thousand times, yet you don't prove it and never have because it can't be proved.

Simply looking at real estate as capitalized rent (which is what this example does), if you were to buy today you would lock in a capitalized rent 50% to 100% more than the free market rent. It's a fact.

You are talking apples and alpacas steve. You yourself have said many, many, many times that you can't compare investment properties with owner occupied real estate. Should I find a quote or will save me the time and say: "Yes JuiceMan, you are correct as you usually are but I argue with you anyway because it makes me feel good about myself"

Another way to frame Steve's argument is that rather than buy an apartment, you can buy enough bonds to pay your rent forever. If you look at what munis yield, the math works better with the munis. Especially if you look at NYC munis which you can argue are a pretty good frame of reference! Juice, you're argument is fine, if you have given up on the idea of making money on your primary residence by being methodical about pulling the trigger. If you simple choose not to bother, valuing the emotional components more highly, then that is your prerogative.

Admittedly, its been a difficult position, that is to dogmatically avoid purchasing for the last 5 years. I have nearly been sucked in several times. Real estate may increase at inflation over time, but the fact that it swings so wildly around that trend, plus leverage and lack of margin calls, is what makes it arguably the most potent wealth generator available. Again - if and only if you can cover your costs - ideally with a cushion!

I refuse to believe that it is beyond peoples comprehension here to absorb Steve's idea. Clearly buying and renting to ones self is a fairly straightforward concept. Also, the tax benefits are absorbed by the levered equity risk to your down payment. Ironically, the risks to your down payment are much lower if the pre-tax math works out lower than your equivalent rental. So really, all Steve's argument is, is a cautionary tale to buyers who need the deductions to get down to rental equivalence...history shows you are not making a good investment. To Juice, if you choose to not consider your primary residence investment, why should this upset you? If Steve says, its a bad investment if you need to consider the deductions...And you say my home is not an investment... You are technically not at odds....

Really I am primarily curious what people think is the right cap rate for real estate. If I guess what my rentals maintenance would be, and apply a 6% cap rate... I get to about $650k for an apartment that would probably ask $1.2mm today and like $1.5mm at the peak. Why would I capitalize my (rent - maintenance) at 3%? That is awful compensation for my risk.

Of course they UNDERSTAND what I'm saying, rhino. The fact is, however, that if they did the exercise they'd have to admit that they are wrong, and all their shilling is for nothing.

No, JuiceMan, I'm not talking apples and alpacas. In fact, I'm being quite consistent. Owner-occupied real estate is not an "investment"; it is capitalized rent. What this example does is compare the amortized cost of capitalized rent to actual market rent. Housing is properly priced when the amortized cost of the capitalized rent is equal to the actual market rent. The time to buy - lock in your capitalized rent - is when it is cheaper than the actual market rent. I have always said the same thing.

So - the challenge is on!

A studio coop was sold in Sunnyside before all the financial disaster of last fall for a little over $110,000. I don't know how much the maintenance is, but it would rent for over $1,000 a month. It's the only building in that neighborhood that has a swimming pool. You could buy it for less today, but the rent would be over $1,000.

Steve, I don't disagree with you that Manhattan real estate costs far too much to buy compared to the rents. But you do bang on the table with arguments that you posit as these inviolable laws of the universe. So you would like to do an analysis of what it costs someone to buy for their own primary residence, but analyze that cost as though it were the purchase of an investment property? That should be looked at by purchasers, but it is certainly not all they should look at. I agree the pendulum has swung too far in the direction of completely disregarding it, but if you would let go just a tiny bit from pounding on the table with it, you might find that easing up a bit is more supportive of your position - I have already stated to you directly on this question on at least two occasions that a correction and bottoming out of this cycle might well be a situation where the gross out of pocket carrying costs of a person purchasing an apartment will be LESS than the market rents at that future moment. Furthermore, no one can predict where rents will be 15 years from now, but my bet is they will be higher, across the board.

lowery, I agree with you for the most part. Lots goes into the decision to buy a home, and for many, who plan to stay put for 30 years, it is the right decision at any time.

The valuing of owner-occupied residential real estate as if it were a market rental is how your property taxes are calculated in Manhattan. It is a commonly accepted form of valuing property.

The point of this exercise is merely to get the real-estate shills to prove what they're saying - that Manhattan real estate isn't excessively overpriced in terms of capitalized rent. They can't.

lowery, you had me until that last sentence.

steve: %u201CTelling how neither LICC nor JuiceMan can find an apartment in Manhattan that they could buy and rent out to an unrelated third party and even remotely come close to breaking even.%u201D

No steve, it is telling of nothing. It is irrelevant to discussing buying your home. You might as well ask to find and example of buying a storefront retail property and renting it to a supermarket for a profit. It doesn't matter. When people buy their home, they get a tax benefit on the mortgage. It is part and parcel of the cost determination. You can try to obfuscate the point by changing the subject all you want, buy you just look ridiculous doing so.

jason, you can't view opportunity costs as narrowly as you do. The comparison of monthly costs to rent v. to buy is just that - tangible costs.

steve loses another argument, so you see above how he disingenuously tries to confuse the discussion to make it seem like he is not wrong. Again.

LIC: Fine. But even playing by your rules, taking the tax deduction into account, there are precious few apts in Manhattan where you would break even owning vs. renting.

I just gave you an example: 200WEA - rented for 10k, unit purchased somewhere bet. 2.675m and 3.25m. Say the owner bought it for 2.675m (+ transaction costs). No way that it is even comparable to own vs. rent.

Take any example in Trumpy buildings on RSB. Same numbers. 10WEA, same numbers.

aboutready, "lowery, you had me until that last sentence."

You think they'll be lower than they are today? Lower in some areas, higher in others?

Steve, if you can buy a 2br/2ba in your present neighborhood that costs you GROSS $4,500 per month, grab it. If it's going to be $9,000/month, forget it. In between $4,500 and $9,000? Not a simple calculation.

At times I have thought you are building a thesis that there is a mean that we'll regress to, that when the premium over market rents that people pay to own goes too high it has to come back to a parity. I'm not sure I see this borne out, whether it is your premise or not, because I look at the Queens examples. Coop prices are coming down now from their peak in 2007 or 2008, pre-autumn. But they were never at a point at which it cost more in gross carrying charges to buy a coop than it did to rent. So it is not because of the lack of parity rent/buy that coop prices are coming down in Queens.

"LIC: Fine. But even playing by your rules, taking the tax deduction into account, there are precious few apts in Manhattan where you would break even owning vs. renting."

Using what timeframe nyc10023?

"You can try to obfuscate the point by changing the subject all you want"

I have never seen the word obfuscate used more than on streeteasy. It has become synonymous with stevejhx.

I think this can be reduced to the idea that some think tax deductions are offset by the risk of capital loss and some apparently do not. History however, shows that appreciation is poor when you buy after-tax rental equivalence. If you don't care about appreciation, then you should stop arguing. If you bought in 2004 and 2007, that was a momentum trade, not an investment. I have never seen such a vehement argument against a frame of reference in my life. That means you LICC. Are you really so resistant to such a simple abstraction as renting to yourself? I mean its a joke.

"bottoming out of this cycle might well be a situation where the gross out of pocket carrying costs of a person purchasing an apartment will be LESS than the market rents at that future moment." Lowery you can drop the 'might well'. That is how every cycle bottom is formed. As we keep declining from here, buyers will seek compensation for risk of declines.

If I take my apartment as a 25% down, 2 bed 2 bath $5000 rental, gross carrying costs are $5000 at a price of $850k, assuming $1.5/ft of maintenance and a 6% interest rate...$650/ft and a 14x price to rent ratio... Which is a long way from here and doesn't even seem cheap as a cycle bottom. FYI - it also equates to a 4.5% cap rate.

i don't know, lowery, but i'm seeing some things that shock me. my own case, i think if Tishman restabilizes my apartment and adds the yearly rent stabilization increases allowable it might be actually cheaper to rent market (not right now, but soon) than what they will come up with for rent stabilized. that's a bizarre concept, rent stabilized apartments costing more than market, but i'm sure it's already happening in some smaller units, particularly outside of Manhattan. PCV is unusual in that it was cheaper than average, but prices went from $2750 for my line in 2004 to close to $6000 (for renewals) in the summer of 2007. 2004 seems more reasonable now, and that would be less than the rent stabilized amount of about $3000.

population trends (and income deflation) are the key to this puzzle, and i would give us about even odds that rental prices, after bottoming who knows when, stay flat for a significant time period. how long, who knows?

Timeframe - as in now. I've posted many times before (maybe not enough) that owning was cheaper than renting in 1999, 2000. I have given LIC a few specific apples-to-apples examples where it IS cheaper to rent than own. I'm not an expert on anything other than my neighborhood but in general, if you can find the same apartment in my 'hood that is available for rent and sale, that apt will be cheaper to rent. The issue (as I've alluded to) is that there is not as much choice in long-term rentals in my neighborhood as there is in properties for sale.

Aren't we losing the concept that if you put enough down, its always cheaper to buy...so the real issue is that cap rates are ridiculously low. It would be cool to see a cap rate vs. 10-year return study. A lot has been done in terms of stock market P/E vs. 20-year returns...conclusion, buying stock at above average p/e yields un-equity like returns.

I guess, LICC, that smartmoney.com doesn't agree with you:

http://www.smartmoney.com/personal-finance/real-estate/renting-makes-more-financial-sense-than-homeownership-21111/

Housing costs and rents are 100% correlated. If you want to include your famous "tax benefit," then you need to include the opportunity cost of putting your money elsewhere. You will see, however, that they tend to wipe each other out.

You like to look at one side of the equation, not the other. Probably because it gives you the answer you want. But if we assume that the opportunity cost equals the tax benefit over time (as it does), then all you need to look at are your carrying costs vs. rent.

And when you do that, you will see that it is between 50% and 100% more expensive to buy than to rent in Manhattan.

JuiceMan, this is a very simple problem to solve, no Rubic's Cube. Just find one apartment that under standard financing conditions will cost you less to buy than to rent, meaning that your capitalized rent will be less than market rent.

There's no "obfuscation"; if what you're saying is true, it should be very simple for you to do.

So - the challenge is on!

no rhino, agree entirely. would love to see it. would also point out that the older you are when you buy, the more you'd better be thinking of this as an investment as well as a place to live. alot of people didn't make it into the market during prime buying years, and now have to decide whether to do so later than they would have expected, in these less than certain times. projecting here a bit.

Rhino, there is a website that calculates the cap rate - it is ridiculously low. Your way is just another way of looking at the problem, and a valid one, at that. My way is the way it works for most people who take out the standard 30-year 80/20 mortgage.

"History however, shows that appreciation is poor when you buy after-tax rental equivalence"

Rhino, would be interested to read more regarding this topic. If you have an article or two talking about this history, please post.

"if you have given up on the idea of making money on your primary residence by being methodical about pulling the trigger."

I wouldn't go that far Rhino, making money is a good idea. My point is rather, how much money? Do I expect to net millions because I bought an apartment on the UWS? No. Do I think my purchase will be a better investment than renting and overall, I will enjoy it more? Yes I do. I think the difference is that you seem to be referring to the "get rich from real estate" mentality and I view it as fulfilling a need with some potential upside.

Stevehjx: can you give me specific examples of apts that would be cheaper to own (and live in, with full-on tax deductions) as opposed to rent? On the UWS, 60th to 80ish, I really haven't found any - with the standard 30y, 80-20 (I'm giving you the benefit of the doubt that they're easily obtainable), bearing in mind that most mtges would be super-super-jumbo.

Can I give you an example of an apartment that would be cheaper to own than to rent?

No I can't.

JuiceMan and LICC are the ones that are making that claim. They can't show it, either, not even when taking the "tax benefit" into account, and especially when the "tax benefit" is offset by the opportunity cost. Even taking only one side of the equation into account they can't. Not even close.

Yet they continue to abide by their claims, without proof: JuiceMan "thinks," as he calls it. Obviously he doesn't do the math.

Juice, I'm not looking to get rich (in this way, anyway). I am just looking at what is sensible. There have been times when I have considered looking at the tax benefits...but now I realize the error of my ways. Also, renting is not an investment to compare to buying. In my view the simplest way remains, would I rather rent and buy bonds, or would I rather buy. Clearly buying into this bubble was a bad idea. How bad depends on how low it goes! Long term is a great concept, but who buys in NYC for the long term? I'd argue unlike many other places, a lot of people buy with an idea to upgrade later, or consider buying and moving to the burbs later. This makes 'emotional buying' in Manhattan more treacherous than elsewhere.

There are no examples to meet Steve's criteria. The results imply real estate needs to go down 35-50%... And what's scarier is there really is not reason or historical precedence for the pendulum to stop there.

Steve, Juice and LICC just want to say the market is made by people with 100% job security and no need to cost opportunity...And from 2004 to 1H 2008 they were right, for the ten years prior they were wrong...and now that analysis will be wrong again for a while. Hell, my smartest friend bought his lifetime apartment in 2006...not because the math made sense...because he wanted it, he wasn't happy with the rentals he saw, and he could. However, he will not defend it as a sound investment.

Color me crazy but that would be us - buying for the long-term. I can see us being here for 10+ years, provided we don't all get wiped out by the swine flu, bio-terrorism and the US remaining an economic giant. If the future holds for us a Chinese dawn, then most of us on this board are SOL whether or not we own a Manhattan apt.

The problem is who can feel comfortable predicting 10 years out. This has lots of good info ->

http://www.millersamuel.com/reports/pdf-reports/MMR08.pdf

2 beds = $400/ft in 1999... $600/ft in 2002.... $750/ft in 2004...$1,200/ft in 2008.

Yeah, depends on how old you are and where you are in your career. Luckily, we were very young and at the beginning of our careers when we first bought. 10+ years was not hard to visualize - in fact, what 25 year old is THAT pessimistic?

"JuiceMan and LICC are the ones that are making that claim."

What has been claimed is that it is not 50% more expensive to buy than to rent. You refuse to accept the math we put forward because it doesn't fit into your absurd claims. I can post a number of examples where equilibrium is in sight, but you will go on and on and on and on about tax benefits ignoring principal payments, etc. It is a useless exercise that has been exercised a 100 times on this board. You exaggerate because it is fun for you, I get it. I don't really care except for telling folks on this board to do the numbers themselves and form your own opinion. With these rates and the potential discounts in today’s market, there is opportunity to buy a place and be close to “equilibrium”.

It depends when you were 25...And if you bought big enough to hold for a while...And if you bought such that you "made money" renting to yourself! The thing about making money renting to yourself is its a build in offset to depreciation... However, if you can make money renting yourself, you usually appreciate, not depreciate...The whole run around of this post.

The proof lies in the pudding. If you can't give me specific listings, then we're talking in circles.

Why is equilibrium attractive with falling values, falling rents, and tightening bank standards? As well, knowing that markets typically trough below equilibrium. Lets talk again when rents start rising... that's the first moment anyone should consider buying. Until then, you can't guess.

The mid-90s was a VERY good time to be in your early 20s. In every city I lived in, my roommates and I would do the calculations on our rental and come to the inescapable conclusion that it was much cheaper to buy. A couple of examples - one place we rented cost 2200/month (4 of us) - about 20 prospective tenants, we got lucky. At the same time, the place was begging for buyers at 229k. Another place I rented, its identical neighbor sold for 129k while we rented next door for 1200 (and were lucky to grab it for that). Those of us who shacked up early with someone else benefited tremendously from the economic perspective as we were able to buy that much sooner.

http://seekingalpha.com/article/131341-now-playing-zombie-condos-in-manhattan?source=email

Preview:

A buddy of mine from an old New York City real estate family recently returned from a trip to Florida. He's been quite bearish on all things real estate having sold much of his family's multi-family portfolio in New York City over the last few years. He has kept busy since, helping others do financing across the country and has had a ringside seat to the unfolding debacle.

He has been ahead of me most of the way through this in predicting massive commercial real estate losses and an eventual mass expunging of debt through the foreclosure and REO process. He called me today and said "have you heard about the Miami Falcons?" Now I'm a football fan, but not a fantasy aficionado. Surely I hadn't missed news about the Atlanta franchise relocating. "No" he said, it had nothing to do with football. "The Falcons are the only tenants in the penthouses of all the new empty luxury towers in north Miami Beach. They hang out on the roofs looking out at the nature preserve for rats to swoop down on."