Renting vs. Buying in this economy

yes, someone posted this a few days ago as a challenge and I found it helpful:

No matter how you slice it, renting is ALWAYS financially more beneficial over time than owning.

Let's make some financial assumptions that are borne out by decades of empirical evidence:

1) Real property prices and rents increase at the rate of income, or 0.7% per year adjusted for inflation.

2) The S&P 500 increases at a real rate of 8.0% per annum.

These being true, it is ALWAYS better to rent property than to buy, if you invest the down payment in the S&P 500. Watch:

Say you make $100,000. This implies that you can spend up to $2,333.33 per month in total housing expenses (28%).

An 80/20, 30-year fixed $375,000 mortgage at 6% gives you monthly mortgage payments of $2,248.31.

Assume that taxes and common charges amount to a VERY CONSERVATIVE 10% of total mortgage payments, or $224.83 per month.

A $375,000 mortgage implies a purchase price of $468,750, and a down payment of $93,750.

If rented an apartment for the amount of the mortgage payment, you will have paid $903,455.33 in rent over 30 years if it increases 0.7% per year.

If you invest the down payment in the S&P 500 for 30 years, $943,374.08 at the end of 30 years, for a total net profit of
$39,918.75. To that, however, add your yearly maintenance and tax payments $2,697.96, increasing 0.7% per year and accruing 8.0% per year over 30 years, and you will have earned an additional $330,084.36, making your total profit $370,003.11.

Now do the same thing for your house. If your $468,750 home appreciates at a real annual rate of 0.7%, at the end of 30 years you will have a home worth $577,863.68, for a profit of $109,113.68. Add to that the original loan of $375,000 - the rest of the equity you will have built - and you get a gross profit of $484,113.68. But you would have paid $434,393.21 in interest, so your real profit is $49,720.47. In addition, you will have spent $90,343.15 in tax and maintenance, making your GRAND TOTAL PROFIT a whopping NEGATIVE $40,622.68.

That's right! You rent for the amount of your mortgage, all values go up linearly in line with historic data over time, and you will wind up with a total profit of $370,003.11. Whereas if you buy a home you will wind up with a loss of $40,622.68.

This of course excludes special assessments and all the transaction costs associated with owning real estate: brokers' fees, conveyance tax, etc. It also ignores the tax effect on dividends. But dividends and capital gains tax rates are currently the same (and can't be predicted in the future). The only further benefit from owning is the $250,000/$500,000 tax exemption. But it is doubtful that $410,625.79, which is the absolute value of the difference between the owner's loss and the renter's gain.

Guys, it's indisputable: renting is FAR better in the long-term than buying. All the figures and assumptions I used are real and verifiable. Do your own calculations: rent for the price of your mortgage payment, invest the down payment and maintenance and property taxes in the S&P 500 at the real rate of increase of 8.0%, increase your property value, rent, taxes and maintenance payments at the real rate of 0.7%, deduct the mortgage interest paid, and you will see IT IS ALWAYS MORE BENEFICIAL TO RENT.

Your assumption though is that the S&P will go up at 8% annually in the future. As this market has show historical trends cannot predict the future. We plan on renting in manhattan for 7 years at the max. Say the S&P only goes up at 3% annually over that time. Would it still be a better deal to rent vs. buy?

With the high transaction costs involved (especially in NYC)? Clearly.

And if you're not comfortable assuming 8% annual increase in S&P for the next 7 yrs, you're at least equally unsure of housing appreciation/depreciation over the same time period, right? Additionally, take into account the lag between the 1987 stock market crash (a trigger to the 1989 NYC housing crash) and 1990, when housing started appreciating again, and you can see that the 7 years is very likely a flatline period at best for NYC housing.

Soontobeowner.... look at price to gross rent ratios...compare them to normalized stock market P/E ratios... Right now neither are that attractive. S&P is trading at 15x the normalized eps of 60 and apartments are in the high teens.

PS: I dont think your $525k place would truly rent for $3500 in this market. A $3500 rental is probably nicer.

I think the answer is relatively consistent no matter how the market condition might be.

If you know you have a narrow window of time after which you'll be selling, it makes little financial sense for you to be buying. This is particularly true if you are looking at this apartment as "an investment property," rather than a primary place of residence which you intend to enjoy for the years to come.

Reason: Like mutual funds and stocks, there is no guarantee that the value would be where you would like it to be when you NEED to sell them, and this is true even in the "bubble climate."

Buying in a a plummeting market when unemployment is rising every month is the worth move you can make.
Yes, prices have dropped 20% but do i need to remind you that prices have increased 300% over the last 10 years?
A major correction is happening right now. It's for the best. Keep renting.

"No matter how you slice it, renting is ALWAYS financially more beneficial over time than owning."

TOTAL NONSENSE.

Let's make some financial assumptions that are borne out by decades of empirical evidence:

***2) The S&P 500 increases at a real rate of 8.0% per annum.***

How much did the S&P 500 increase over the last 12 months??? And if we look back at the last decade, stocks are roughly what they were in 1998. Housing, on the other hand, is at what they were in 2004 (more than DOUBLE their 1998 values). So, tell me, who is better off right now:

The renter who bought stocks in 1998?

The guy who bought real estate in 1998?

such a pitty. amikhin can't even come up with his own B.S. argument and has to plagarize from stevejhx:

http://www.streeteasy.com/nyc/talk/discussion/3410-real-estate-is-a-bad-investment

notice how steve said that the S&P 500 is a better invesestment than RE last year only a few months before last fall's crash. Great timing steve!

alpine, way to cherry pick the year. 1998 was the beginning of this real estate bubble. but of course you knew that.

before you decide, have a look at this chart.

http://blogs.reuters.com/felix-salmon/2009/06/12/housing-chart-of-the-day/

that is not true. The bubble did not start to really take off until 2002/03. And as far as "cherry picking" the year, the truth is that someone who rented and invested their money in the stock market last year is worse off than someone who bought real estate at the same time.

How so dummy? Market is down 40%... A 15% equity down payment is down 200%. This is if you put your whole stock market investment at the record high. It was much easier to buy the top in real estate than put all your eggs into the stock market at 1550.

Honestly, though, I find this shit about renting forever and buying stocks just as stupid. In just the last ten years we saw a stock bubble with a very sensible real estate entry point at the same time (1999). Why? Stocks traded at 40x while real estate traded under 10x rent (cue LICC to deny this fact). Manhattan price to rents are still way above average ratios...Stocks with this recent run are at historical average multiple of trendline EPS (15 x $60 for S&P). You can stomach stocks here for a 401k autoinvest but thats about all that can be said.

what market is down 40%? The RE market is not down 40%.

The stock market....but shouldn't you already know that given the statement you made? Either way, the comparison is downpayments vs. stock investments...and downpayments of 30% are down 100%. 15% downpayments are down 200%... This may prove tough for you to follow. Clearly, it already has proven.

a basic rule of thumb for stock investing is not to invest if your time horizon is less than 20 years. ou plan on selling in 5-6 years as asset that is far less liquid. i think you should rent.

If you can stay put for 6 years, then I don't see any harm in buying. I think it is very likely that prices will be higher in 6 years than they are now.

Soontobe...based on what your original post, I ran my personal little buy vs rent calculator....and a $525K buy is a little cheaper than a %3,500 per month rental for an individual with normal tax circumstances and no heroic assumptions either way on appreciation/depreciation

But as someone else pointed out, I'd bet that you can rent an apartment for much less than $3500 per month these days that would sell for $525K. Two years ago I rented an apartment for $3500 per month on West 72nd off CPW....a 1BR that at the time would easily have sold for $800K...think twice before pulling the trigger if renting is a real possibility and you only have a 5 year horizon.....

as I said before mjsalisb, a 5 year horizon is sfficient for buying. Let's be honest: The days of people staying in the same place for 10+ years are over. Plus, the guy is buying a 1 bedroom apt. and almost nobody stays in those for a long time as they eventaully need more space should they have kids.

And just for the record, there is absolutely no reason to believe prices will be "higher" six years from now. They could just as easily be right where they are now.

I don't recall anytime in modern U.S. history where prices declined fro 6 years straight.

Alpine, you are so effing stupid. Prices can fall 30% from here and then rise to current levels in six years...

What's it like, to be so effing stupid?

Al: How old are you?

I don't know. Why don't you ask yourself? You would know more than I do.

And I think it's extreemly unlikely that prices will fall another 30%. Home sales are stablizing. Inventory is on the decline. And rates are still low.

PS - your $525k apartment is probably a $2700 rental and its no bargain with rents falling, values falling and interest rates rising. Speaking of modern history, you will have a very tough time finding a real estate downturn that has ever bottomed in eight months...so really, why should anyone consider buying?

Because I'm old enough to remember 1973-1979....not a pretty picture for real estate prices.
For a refresher on real estate conditions in NYC, btw, rent a copy of "Panic in Needle Park"
Needle Park was Sheridan Square at 72nd and Broadway

"I don't know. Why don't you ask yourself? You would know more than I do."

The "I know you are but what am I" defense.

I remember 1979...I was six...But Alpine's age is no excuse for her low intelligence. Truthfully Alpine, are you a little embarrassed to have written "I don't recall anytime in modern U.S. history where prices declined fro 6 years straight." I mean, isn't embarrassing to show everyone that it didn't occur to you that prices could fall and rise inside of a six year period from here?

Soontobeowner...don't buy a one bed in this market...its fucking insane to do so. Its not cheap, buy any historical metric. Rents are falling, rates are rising, and supply is rising. Its a really really bad idea. You are also clearly overestimating the cost to duplicate it in a rental. Clearly one bed prices have not sunk to 12-13x rent. I am signing off. Please do not buy. A lot can change in five years. Thats a short time horizon to begin. It might be acceptable if we were looking at historically cheap valuations... We are not. Alpine is one of the least respected people on this board.

supply is not rising idiot. Have you never seen the charts on UD?

and your also an idiot for suggesting that 5 years is a short time horizon. How long do you think people stay in 1 bedroom apts? A 1 bedroom apt. is not a "forever" apt. that you live in util you kick the bucket. Has it never occurred to you that people in 1 bedroom apts. get married, have kids and eventually need more space? If your a loser and plan to raise your family in a 1 bedroom shoebox, good for you. But you are the exception.

alpine, maybe where you live people don't stay in 1 bedroom apartments very long. But here in New York, many (most?) do. Many couples choose not to have children, and are happy in their one bedrooms. But what's your point -- that if most people stay in apartments for less than 5 years, that makes short-term ownership financially beneficial for them for ANY five year period?

plus, alpie, the market as a whole is dependent on the move-up buyer, doesn't really exist right now. and probably won't in NYC for awhile.

look at that chart, there was an easy money bubble that started late 90s, and then, when income and employment growth were anemic, a bubble based on dismantling underwriting standards took off.

and supply? you are basing your analysis on some seasonal info, a month's worth? you're analytical skills underwhelm, once again.

I think this analysis ignores one important piece of data: what the cap rate is on rentals at the time of purchase. there have certainly been times, especially at or near market bottoms, when cap rates are very high (in other words, the percentage of the purchase price that the rent is). I don't see how you can do an analysis and say "always" without using both the extremes of what cap rates we have actually seen. And I'll preemptively note that often cap rates are highest when rents are low, not high, so that rents will increase more than average at the same same that apartment prices are increasing the most (at least that's what has historically happened. The reason for this (IMNSHO) is that when prices and rent are low, people psychologically don't build in future capital gains into their "buy" decision, whereas when prices are high, they tend to overly value appreciation).

let me give you a concrete example, and then you can do the math and tell me where is comes out: if you bought a distressed studio in 1992 for $40,000 (and I could list you 100's which were $10,000 to $20,000, so $40,000 is not a "bad number") which had a maintenance then of $450 and rented for $900 a month, which today sells for $200,000 (down from a peak of $275,000) and rents for $1500 (down from a peak of $1800), and has a maintenance today of $600.

1 - unlikely that a $3500 rental is only going for 525K, but if it is and you know someone else would pay $3500 for it per month, then buy for $525K
2 - assuming a more market ratio than the one you suggested, if your timeline is what you say, you might wish to rent
3 - the second post has been debunked many times, mathematically, based on the assumptions included, and empirically.
4 - the person who said you are comparing putting down a real estate downpayment of 20% to buying stock should be fair and assume buying stock based on Reg T at 50% down. Also, the stress of the recent stock market could imply that the buyer hit the minimum equity of 25% and had to put additional down or sell at a low.

wow, getting nasty, huh Rhino? Looks like someone is insecure... In case you hae not noticed, inventory has been treading under 11,000 for a few weeks now and continues to decline. But if you want to keep you head in the sand and disagree with solid data, be my guest. And considering that the average American only owns their house for 5-7 years, if everyone listened to you that 5 years is too short of a timeline to own, then NOBODY would ever buy. America is and will always be a mobile country... it's why cheap furniture stores like IKEA manage to stay in business.

"American home owners sell and move, on average, every five to seven years. Why do home owners move? People who have lived in the same home for the past 30 years have a hard time understanding this phenomena. They are shocked that people move so often, but I know one thing for certain: Their day to sell and move will come as well."

http://homebuying.about.com/od/sellingahouse/qt/0207WhyMove.htm

I disagree alanhart. When was the last time you met someone in their 40s/50s who lived in a 1 bedroom apt.? The majority of people I know who live in 1 bedrooms are either young and do not have kids yet or they are old and their kids moved out.

Alpine: welcome to the Upper West Side. Many people in their 40s, 50s live in 1brs.

I still disagree. I'd like to see data.

Al...I guess I'm a little confused....since I believe you are a general proponent of buying NYC RE, it's generally the case that the longer one is planning to live in an apartment, the more a purchase makes sense (amortization of fixed costs of purchase/sale, higher likelihood of catching at least one period of above normal price appreciation or at least riding out a downturn, etc)

I'd be inclined to concede that people may in fact live quite a while in one bdrs....and for that reason should buy if financially able.

It's the broker who told me two years ago with a straight face (at what in retrospect was just about the absolute peak) that I should buy vs rent even if only for a year that should have had his license revoked for incompetence.

I would never recommend buying based on a 1 year time line. That is a sure money loser.

"I would never recommend buying based on a 1 year time line. That is a sure money loser. "

Would would the eternal bull tell lies? Plenty of boom-time bubble flippers made money in less han a year. So many were well-publicised. Just at 15 CPW alone Curbed wrote about 4 or 5.

alpine, you're confusing "people I know" with NYC as it is. For starters, look at http://www.census.gov/hhes/www/housing/nychvs/2005/s1at5.html.

Of the single or childfree-coupled people I know living in the city, most are in their 40s-50s and most are in one-bedrooms, with a range either way. One big factor in that is for most of our adult lives, the market here made an extra room unfeasible. They could have a spare room or they could travel more, etc.

http://4.bp.blogspot.com/_pMscxxELHEg/SjRFUyAGcfI/AAAAAAAAFhI/6TBO5aF2yqQ/s1600-h/Another30percent.jpg

Your $3,500 rental might be something you could get for $3,000 at this point, maybe less. I'm a bit surprised that to buy the same apartment, it is only $525,000

None of this holding period bullshit matters - price is the most important thing. The fact of it is that price to rent ratios and cap rates are not attractive enough here - in a falling rental and value / rising supply (new supply not inventories Alpine), and lately rising interest rate environment - to warrant a purchase of a one bed. If you could buy it for four times rent like 30yrs describes was prevalent in 1992 a 5-yr timeframe would be fine. Shit I remember deals like that as late as 1996. I saw a walk up studio on 80-something and 3rd selling for $35k with a very low maintenance. I can recall after taxes it would have cost me $450/month compares to its rental value which was at least $800.

Gleeclub, I guarantee that apartment can be duplicated for $2700... $3500 type of one beds are still asking in the $600s and $700s. After this rental correction the $3500 one bed is the one that was low $4000s not long ago.

If it is $3,500 and $525,000, the price to rent ratio is 12.5x.

I understand. My gut feeling is that 12.5x is too far off the current market to be correct. I don't really see things out there for less than 15x, and often much higher. Also, I just know $3500 in this market is a pretty nice one bed...and I know a $500k ask is not that nice a one bed.

Why must people raise this topic after it has been gone over on these threads over and over? Put a topic like this up and you'll get a whole lot of bad information from a bunch of biased renters.

In general, $525k is a good price to buy if the same apartment would command $3500 rent. The price-rent ratio is a current day analysis, so other factors regarding future price movement should be considered.

Imitation is the sincerest form of flattery.

"notice how steve said that the S&P 500 is a better invesestment than RE last year only a few months before last fall's crash. Great timing steve!"

Actually, the figure I used was the moving average since the end of WWII through I believe 2005, so it didn't include the crash of last year.

If you can buy for $525,000 an apartment that rents for $3,500 a month, show it to me. For $3,500 a month you can now get a pretty good 2-bedroom 2-bath; for $525,000, a studio.

Your definition of good is based on nothing. Note: LICC is one of the least respected people on this board. Every current day purchase is based on current day reality.

"so it didn't include the crash of last year" = "so it didn't include the crash of last year OR THE RUN UP BEFORE IT."

Sorry. It's early.

Perhaps for soontobeowner, this is an actual question rather than a theoretical one for many others here.

Although I must admit, when I see the two prices, I'm a bit skeptical that this is real today.

The second post doesn't help the case that it is real either, since that topics' been borrowed from the big controversial thread.

Anyway, happy Flag Day.

rhino takes the prize on these boards for repeatedly making the most ridiculously incorrect statements over and over. When hard facts and data show how nonsensical his statements are, he ignores it, curses and the person who showed he is wrong, and then just keeps repeating the wrong statements. He has lost more arguments on these boards than you can count.

LICC brings nothing to this table. I've posted a number of graphs, which LICC has trouble reading. Other posters here have corroborated my claims of 1990s valuations with specific examples from their personal experience. It really is LICC who denies the 1990s existed...sadly and repeatedly. The proof is in the pudding ultimately...We are talking about a guy who topped ticked the market in a shithole fringe neighborhood and wears it like a badge.

If the price is 525k, and maintenance 1200, then I would be comfortable buying if equivalent rent was 4500+.
I like to build in a bit of a hedge when it comes to committing yourself to a mortgage & transaction costs. Sounds like it's not a "coffin out" apt, so be a little conservative.

"rhino takes the prize on these boards for repeatedly making the most ridiculously incorrect statements over and over."

I believe it was LICC who said transaction costs don't count because "they're just one-time costs." That (and JuiceMan's "he works on the Obama election team") are the two silliest things that I recall ever being said here.

LICC, we already know that at current interest rates the "tax benefit" in owning is entirely eaten up by transaction costs, even if one has an ABSOLUTE tax rate of 35% (and very few people do), if you have an ownership horizon of less than 10 years (and the national average is 5-7 years).

Are you ready to admit, then, that the true comparison of whether it's better to buy or rent is out-of-pocket rental to out-of-pocket owners' costs?

Nyc10023...that is the most understated way of saying your bid is 50% under the market that I have ever heard :) So basically the pretty nice 2 bed for $4500 that still has a $1.0mm ask on it....your bid is $525k...but only if the maintenance is very low for the size..at about $1200. I'm there with you. You are laying out a 7.5% cap rate in a 4% cap rate market!

steve, you occasionally become a liar on these boards, and you just did it again. I never, never, said transaction costs don't count. You know I didn't say that. You really have dropped back down to joker level again.

Boy, you just hate that tax benefit, because it makes all that analysis you do ignoring it laughable. Transaction costs don't eat up the tax benefit. You are making another invalid comparison. If anything, transaction costs add to the opportunity costs, but it does so in a minimal way that doesn't materially affect the analysis.

By the way, now you are using the term "we" to describe yourself? I like it . . .

Rhino: yup. Look, you're committing yourself to a mortgage and transaction costs in & out (soontobe has a shortish timeframe). Not to mention that you can't simply up and move if you don't like the building. Or even be able to rent out the apt (I assume it's a co-op) without some hassle.

We were in a similar situation in 1999 though I guess I MUST be some kind of statistical anomaly since MS stats can't corroborate. Wanted to rent a 2br doorman (not convertible 3) and bought because it made sense (rent 4500, selling price 480k). Old place was 10 seconds walk from new place - in fact we moved a lot of stuff in carts ourselves. From 2000 to early 2002, apts in our line could be had for the same price. The convertible 3 was a better buy, because they (as in more than 1 example) were selling in the same time period for low 500s.

The other thing to note is that we were in an era of increasing rents (pre 9/11). Our rent (for a dman 1br) had jumped from 2150 to 2400 in 2 years, and we'd received a renewal notice for 2500.

I have a soft spot for our old building, and here's another example for rent vs. buy. 2 units are on the market for approx. 1.3m, convertible 3brs. A 3rd unit (same line, same views) is on the market for rent at 5500. Maintenance is 2000. 1/3 of mtce is deductible. Ignore transaction costs, count the tax deductions. Should you buy for 1.1m (assume you can negotiate down to 900/sqft) or should you rent?

Just to be more accurate, the unit for sale at 1.3m, 2200ish maintenance is being offered for rent at 5150.

Don't you already 'know' your cap rate is 7.5%? I would not buy for the 3.8% that this calcs to.

PS: Share the details of this rental. It sounds nice.

Rhino: I know what I would do. Just wondering what the potential buyers out there would do.

I guess there are some who would buy...some are buying. Are there enough to absorb all this supply tho? As bearish as I sound, I can appreciate some of the argument. A 4% 'tax free' return is not easy to find... Although I haven't looked at NYC munis lately. I know things appreciate (when bot at reasonable levels) but I have some fundamental issue if the cap rate is lower than the prevailing mortgage rate. I just think the momentum is in place...and on the way up it proved not so easy to reverse.

Can you post this $5500 convertible three bed?

I'll email it to you if you like. I don't want creeps knowing where I've owned previously. $5150, not 5500.

BTW, I liked my old building a lot and in some ways, there is some value there that would-be buyers often overlook. We had a chance to own there again - a much bigger spread on the same floor as our old place but turned down based on school zones.

"you are using the term "we" to describe yourself?"

No.

"I never, never, said transaction costs don't count."

You said that it was disingenuous to include transaction costs because they are one-time costs.

"you just hate that tax benefit, because it makes all that analysis you do ignoring it laughable."

Does it? Let's assume a $1.25 million apartment, 30-year 80/20 mortgage, 6% interest rate, 35% absolute tax bracket. That is the MAXIMUM allowable tax benefit you can have (a $1 million mortgage).

After 5 years, you would have paid $290,273.88 in interest. $101,595 in total tax savings.

After 7 years, $400,016.30. $140,005 in total tax savings.

After 10 years, $556,317.88. $194,711 in total tax savings.

Let's say the property keeps its current value over that time period. Let's say that these are the taxes and fees it's subject to:

Real estate commission: 6%
Mortgage tax and/or flip tax: 2%
New York City Transfer tax: 1.425%
2 closings legal fees: 2%
Points: 1%.

Total = 12.425% of the sale price, in this case $1.25 million. (Mortgage tax is only applicable to mortgage principal, but the rate is actually higher than 2%.)

Total transaction costs = $155,312, exceeding the tax benefit through Year 7, and almost through Year 10.

LICC: "Transaction costs don't eat up the tax benefit."

Apparently, they do.

"You are making another invalid comparison."

Apparently, I'm not.

"If anything, transaction costs add to the opportunity costs, but it does so in a minimal way that doesn't materially affect the analysis."

Really? 12.425% is "immaterial." God help us the day you become an auditor!

You should only count one RE commission, steve. Seller pays, remember?

Also, most apts are co-ops, so mtge tax, closing fees are much less.

http://www.corcoran.com/guides/index.aspx?page=ClosingCosts is comprehensive. Seller also pays transfer tax in NYC, and you forgot mansion tax by buyer.

I don't think Steve double counted the commission. I never added all that up. Without unpredictable bubbles in your favor, or very low valuations, as well as long time horizons... Quite a high hurdle to buy here in Manhattan. Absent dirt cheapness and rental flexibility...I doubt buying a one bed makes sense in most circumstances.

Nyc shoot me the rental at rhinosfoundation@gmail.com if you would please.

Ah, my bad. But he made some misstatements.

I just sent you the info.

Ah, steve's analysis is full of holes. Shocking.
Brokers are taking a full 6% nowadays? I don't think so.
Buyers pay transfer taxes? Nope.
Legal fees 2%? Not quite.
All mortgages have points? Wrong.

Stop lying about what I said. Do you have no shame being a liar? I said it was disingenuous in the specific example we had previously been discussing to count the transaction costs in the 5-year time frame. All your arguing with me all this time on these boards has only damaged your reputation, I can't understand why you still try these distortion and misdirection tactics.

Another thing that you do not comprehend - Price appreciation over time overcomes transaction costs - the market works it into the price over time.

And in steve's world, the buyers pay the seller's brokers commission, forgot about that one.

LICC - can you point us to one time on this board when you've been correct about anything?? That's your task for the day.

Also, LICC, why would anyone listen to you? You top-ticked the market. And now you spend all of your time on this board in a vain attempt to justify your ill-timed purchase.

Face it, LICC, you screwed up. It's okay, enjoy your place.

By the way, LICC, no need to create any more screen names.

Dudes, the example assumes that you own a property. Eventually, it will have to be sold unless you consider yourself immortal. ALL transaction fees must be included, amortized over the time you keep it. You can't keep it forever.

"Brokers are taking a full 6% nowadays? I don't think so."

Find me one that isn't.

"Buyers pay transfer taxes? Nope."

You have to sell, dude.

"Legal fees 2%? Not quite."

You're right. Legal fees, origination fees, title search, private mortgage insurance, all applicable miscellaneous charges. Including MANSIONS TAX, which I didn't include.

Yup. 2%.

"All mortgages have points? Wrong."

You're right - most do, but not all. But the ones that don't have a higher interest rate than what I quoted. The effect is the same.

The math is there, LICC - sorry. Unless you plan on owning a place for at LEAST 10 years, the tax benefit is eaten up by transaction costs. And of course after 10 years, that tax benefit isn't worth so much anymore, is it?

you can negotiate the realtor commisison down steve. And private mortgage insurance is only paid if you have less than 20% equity. But considering that most co-ops require at least 20% down, PMI is rarely a factor in Manhattan.

and let's not forget the Mansion Tax is only for apts. over $1 million, so let's not give people buying $350k studios a heart attack.

"you can negotiate the realtor commisison down steve"

Sometimes yes, sometimes no. Below 5% and other brokers won't show the property - it was the death of Foxton's.

10% down is PMI. Not everyone pays it. Not everyone pays mansions tax either. These are just exemplary. 12-13% of gross sale proceeds go to transaction costs. Most people own a home for from 5 to 7 years. At that rate, the tax benefit is wiped out by the transaction costs.

Unless you want to show your math where it isn't.

And you only get the tax benefit if you have earned income.

"so let's not give people buying $350k studios a heart attack."

I think paying $350k for a studio is enough of a heart attack.

Recall that I used a 35% total tax rate for this example, which is unheard of for just about anyone. If you can only afford that overpriced studio, your tax rate will be far lower (25% perhaps), thus further limiting the "tax benefit."

The tax benefit exists, but it's a ruse. Like all subventions, it benefited the first people who took advantage of it. Over time prices roses to offset it. Proof in the pudding - eliminate it and watch prices fall.

forget about tax benefits, write offs, etc. My bottom line is the alcove studios out there to buy are dumps, smelly, dirty apartments, the renovated studios are asking over $500k...that's my reasoning for RENTING!!! Hopefully in a few years things will change but not now.

LOL. To think that Alpine pretends to not be a broker...

NYC10023: Ran my buy vs rent calc on your $1.1MM convertible 3....its comes back rent if rent is under $5800 per month....so I guess if its available for $5,150, definitely rent. Assumes a 30% marginal tax rate....hard to use more than that with all the talk about limiting interest deductibility that's floating around DC these days.....

BTW, mj - it's the same unit for rent & sale. So it's truly apples to apples.

How can a rent vs. buy decision be based on race or racism alpine292? I understand Wells Fargo, but seriously, who is being racist, and how can they justify it in this context?

Stevejhx, if you are considering costs for renting vs buying, shouldn't you increase the purchase costs to cover two transactions, both buying and selling costs?

maura, I did. That's what other people were complaining about - as if you didn't have to pay anything to sell your house!

BTW...did we answer your question, SoonToBe? SoonToBe?

"as if you didn't have to pay anything to sell your house!"

Your math assumes that it does not cost anythign to rent an apt. Let's not forget that when you rent, you have to move twice, pay the realtor, worry about getting the deposit back, etc.

Oh my god! Alpine, the more you post, the more stupid you sound! Time to go troll somewhere else, may be?

dog food breathe: moving is a cost in both examples..no?

worrying about getting the deposit back: how much would you ascribe to that?

the problem with steve is that he thinks it is ALWAYS better to rent than own. He will NEVER EVER say that buying is better, even though those who bought 10 years ago are MUCH better off then those like Steve who rented.

answer my question dog food head.

"pay the realtor...."

No. There are no-fee apartments, first, and second, it's nowhere near 6%.

Getting deposit back? Very easy. First, the amount is small, and second, there is small-claims court.

I certainly have said and will say that buying is SOMETIMES better than renting - when the amortized rent that buying is is lower than monthly market rents. That is, when owners' out of pocket expenses are lower than market rent. It happens on a regular basis.

On the other hand, as I say in that old thread, it is ALWAYS better to rent IF you consider buying an "investment." It's not - it's a capitalized expense.