Roubini (now optimist): Buy don't rent

I was waitin for this...preachin doom and gloom from the front door and buyin real estate out of the back

well, to be fair, he bought several years after preaching the doom and being right.

I think the more telling thing is... adjustable-rate mortgage!

Three possibilities
1) talking it down
2) he's richer than g-d, so why not
3) He believes now is a good time to buy

I'm betting it's a combination of 2&3

Nice part about an arm is if you prepay the new payment after reset is reduced. Very good product for those
that get bonuses or receive large lump sum payments as part of their income.

RS, maybe I didn't read the article correctly, but your thread title is quite misleading. I don't think Roubini has ever been any more reliable than other economists, so I didn't put all that much stock in his doom-and-gloom, and I don't put a lot of stock in his purchase now. The guy seems to be incredibly wealthy, and apparently loves to party, and I'm not about to base my financial decisions on his. Since I never paid much attention to him, can anyone elaborate on exactly what he predicted? I know in swe's black-and-white world, he's "right" because he predicted a downturn, but by that definition, anyone who said real estate moves in cycles was also "right" so it's not exactly a ballsy or earth-shattering prediction.

Where did he get all that money? Speaking gigs?

This is hilarious. Remember, Roubini wasn't just doom and gloom, he was apocalyptic. People lapped it up and he got paid for it.

Guess he doesn't relate Manhattan real estate to the rest of the country....

http://www.roubini.com/roubini-monitor/260131/roubini_nyt_dealbook_interview_-_u_s__real_estate_problems_are__underappreciated_

In 2008, Fortune magazine wrote, "In 2005 Roubini said home prices were riding a speculative wave that would soon sink the economy. Back then the professor was called a Cassandra. Now he's a sage".

During an interview in June 2009, he was asked about his personal lifestyle expenses and other investments. He said, "I regularly save about 30% of my income. Apart from my mortgage, I don’t have any other debts. The credit crunch hasn’t affected me much. . . . I’ve always lived within my means and, luckily, have never been out of work. I would say I’m a frugal person — I don’t have very expensive tastes. . . . You don’t need to spend a lot to enjoy things."[7]

http://en.wikipedia.org/wiki/Nouriel_Roubini

Roubini is also a party animal. Very different from his orthodox jewish roots.

Hello...
Wheres the link to the apartment so we can all take a look at the Dark Man's hide out.

"I know in swe's black-and-white world, he's "right" because he predicted a downturn"

bjw, Roubini is a nothing more than a good marketer that has built a great brand to sell his services (much like Al Gore). Good for him, but lets call it what it is.

falco: http://streeteasy.com/nyc/sale/53393-condo-6-east-1st-street-east-village-new-york

ok ok
http://streeteasy.com/nyc/sale/53393-condo-6-east-1st-street-east-village-new-york

JuiceMan, that's pretty much what I figured; I just wanted to see if there was much substance to the claim that he "preached the doom and was right."

Roubini did call it. He also went all cash.

If you play with the NY Times Rent vs buy calculator, you don't have to be all that bullish to see why
Roubini bought.

Scenario 1) Flat home price and rents increase 1% per year buying is better after 17 years, rents increase 2% break even drops to 12, and 3% break even is @ year 10

Scenario 2) Flat rents but home prices increase 1% per year, break even in 9, HPA jumps to 2% per annum and break even in 5, , 3% then break even in 4

Scenario 3) 1% HPA, 1% rent increase break even in 8, 2&2 means break even in 5.

Assuming rents and/or home prices increase by more than 1% per annum seems like a very good bet. Even better when you are leveraging it by borrowing @ 4.5%. Nothing is certain, but this is a smart bet considering he can carry the expense.

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

'he can carry the expense'. Whoa! What a concept. Flmaoz

Wait, RS. Did you do something stupid like put $25K for the rent into the calculator? I am guessing you're not in the market for renting a $5.5M apartment, but the market is nowhere near that. It's more in the range of $14K to $18K.

Ino,
Before it was sold, the apartment was offered for rent at $25,000 a month.
You are free to substitute your own "stupid" assumption.

and...did it rent at 25K?

Yo columbia/Inonada.

Come on of course riverdoucher put in an ask rent, Thatz dude is off his rocker. Point taken on w81, but ain't it funny we got one or two brokers on her who aren't 100% shilling all the time and can actually comp a few units, and he's like a Fking re 'god' on SE? It's as if we assumed all docs were quacks and if one or two dont kill one a week, we elevate them to deity, but I digress.

Hypothetically Inonada, feel free to chime in columbia, if you had $10mm and needed to invest for capital preservation and min 3-5% income yr, and given current economics what ratio of Stk bond and sprinkling of individual stks would you do?

I'd do 30% Stk index, 20% bonds (short duration), 25% cash/equivalents and 25% dividend stks. From the hip numbers.

RS, make it a little harder for them to bash you over the head. You're not even wearing a helmet tonight.

w67: 100% cash until i can understand what the hell is going on. i understand that i am not achieving the income goal but i am preserving capital. and i would also look to start a business. using someone else's money.

You are so so funny columbia. I just started a company. A company I can explain in 10 sentences or less. And there is a part of me that wants to stay 100% cash but just asking..... A 2nd opinion as it were. Sometimes listening to myself gets boring :)

Dr. Doom with a face only a mother could love bought a 5m condo! What a freaken do as I say not as I do hypocrite. He was calling for the end of the world just last year. What a crock. So he called the credit crisis but blew it on the recovery. So he's break even just like every other "economist" out there. What a joke.

What about all the ppl on this site that argued for lifestyle choices as part of a purchase that trumps rent vs. buy econs every time. Roubini is a guy who obviously believes it. Note that he is a notorious womanizer and happily landed an apartment in a nabe rife with many young women on virtually every street corner. what a coincidence. also a very low interest rate. let's see. bed hundreds of women in an apt that would make the rat pack drool vs take a small hit on your equity. life is short. doesn't seem to be a economic/RE decision.

w67. just had a terrific battle with my new "wealth manager" -- when did these young whippersnappers all start taking that moniker? He did the ol' balance portfolio presentation and my question was, why buy bonds into a well telegraphed bubble? Got the standard balance/investment answer plus a promise of a conservative bond fund with only short term. We compromised with half the alloted amount. That bond account is down 5% in a few short months. I don't believe in timing the market but when there is an obvious, impending nightmare, why not delay a while . I like your mix and have pretty much the same but with an added big dose of alternatives -- commodities, reits, gold etc.

I don't know what I hate more, "wealth managers" or w67th's nipple ring business

5 mil for that? he'd better like it.
I don't think he's a hypocrite. he knows professor Ben will make sure deflation doesn't happen here.
He obviously knows what's coming,....and takes the counterparty of (doomed) bondholders.
cash loses value at a rate of 8.45%/year as of today. On the principal alone he makes 150K/year, tax free, in purchasing power. He is smart. no question.
He is ugly.

JuiceMan: LOL!!!

Roubini is a showman, and he made a lot of money.

Also, you can't really rent in the $5MM range long-term.

Cash loses value at 8.45% per year, means what?

Hold on, Dr. Doom bought in 2002, and tried to sell his 1 bedroom for $1.895 million and took it off the market after lowering it to $1.795 for few days. He's clearly totally reasonable.

http://streeteasy.com/nyc/sale/563345-condo-66-leonard-street-tribeca-new-york

http://streeteasy.com/nyc/search?search=roubini

inflation is 8.45% www.shadowstats.com
real rates are negative

Inflation is 8.45%? What is going up 8.45% per year? Housing? Food? Energy? Consumer discretionary?

food and energy clearly more than 8%. housing was replaced in the CPI by rent equivalent to artificially lower it (as housing was going up more than that)....and....in 2007....housing replaced rent equivalent to again artificially decrease CPI (and therefore artificially increase GDP), as housing was in decline.
If ur gonna rob COLA holders and bond holders you have to do it by stealth and let them enjoy their nominal.real rates are negative.

I meant rent equivalent replaced housing between 2000 and 2007.

Housing is down. Somewhat personally ignorant of year over year pricing on food and on energy.

That 1BR has also been on the market for rent for 2 months now.

"Also, you can't really rent in the $5MM range long-term."

Why not exactly? Do you have any actual clue / experience in this market? Because it sounds like you're pulling this out of your ass.

Oh jooshy!!...trooshydoochy sure loves your sense of humor...and your global warming denial doesn't surprise me..tho you are a scientist of sorts, white jacket and all..germy I might add

The 2 year old is asleep at this hour, so I'll have to wait to translate!

"Ino,
Before it was sold, the apartment was offered for rent at $25,000 a month.
You are free to substitute your own "stupid" assumption."

Yeah, I know it was offered for $25K for a few months. Hence my question about "wait, you didn't use that number did you"? This asking rent was from the same sponsor who was flogging that sales listing for 4 years: not exactly a beacon of market pricing. If you want to bury your head in the sand and pretend rents are higher than they actually are by 60% to convince yourself of something, go for it. But don't hide your dubious assumption and give some make-believe rent vs. buy analysis on this board where you're gonna get called on it.

It compromises your credibility.

Hey RS, why don't you run your rent vs. buy on this $8.8M ask:

http://streeteasy.com/nyc/sale/496478-condo-25-columbus-circle-lincoln-square-new-york

Against this $15.5K rent (also notice how the asking rent was $17.5K, with the $2K drop between asking rent and actual rent recorded at the time it was taken off the market):

http://streeteasy.com/nyc/rental/672298-condo-25-columbus-circle-lincoln-square-new-york

To make it fair, use $6.5M because that asking price is way out there. Let me know what you get.

Try not to use 4.5% as the mortgage rate since that was never available at this price, and even conformings are in the 5's at the moment. Also try to use an investment rate higher than 4%: you know, something higher than risk-free long term rates whose risk is commesurate with the equity portion of a levered RE investment. Crap, even 30-year govt guaranteed treasuries return more than 4%.

BTW, if you'd like comps that are downtown multi-story penthouses of low-rise buildings with outdoor space, I can give you those too.

nipple piercing business doing fine, but we r down 20% yoy on the labia piercing. Gonna have to let the new labia piercing dude go.... it's for the better, that dude was totally unprofessional.

apt23, agreed it's a "let me skim 1% off your vast wealth to ensure my own wealth" business. My first question to a wealth manager is "would you buy real estate?" One dude just told me he bought a place, well..... that dude ain't getting a call back.

inonada, whoa! taking riversider to the sheds, be careful they may gray you out too... although I find it a little liberating to not have to hold back, since they've slapped the XXX sign on my back. Now I can be as raunchy as I wanna be.

I have to say that $8MM for sale and also for rent at $15K/month (the monthlies are $5Kish) could be the all time knock out punch example on the buy vs. rent debate. I don't think I've ever seen someone insult someone by saying give me $8MM and I'll get you $10K return a month..... I mean my 5 yo when he was 2 could've gotten better returns.

w67, on your hypothetical $10M, you want 3-5% income plus growth? With what you've laid out, I see a 6% average yield overall, but only about 2-2.5% of that as income. I don't speak "wealth management", so I don't know what capital preservation means exactly, but with a portfolio like that I'd guess you'd be hit with a loss once every few years. Nothing major, but at the end of the day you're still half stocks, and that bit can drop by 20% in a year without much special going on.

"I have to say that $8MM for sale and also for rent at $15K/month (the monthlies are $5Kish) could be the all time knock out punch example on the buy vs. rent debate."

Well, the $8.8M ask seems delusional to me given comps. However, I put nothing past people, so maybe someone takes it for $8M. However, I think $6-7M is a "good" price given the market. Even there, it represents just about the best you could do for $15K.

Speaking of $25K, RS, here's the type of thing you see there. Rented at the summer height with a last ask of $25K:

http://streeteasy.com/nyc/rental/658839-condo-25-columbus-circle-lincoln-square-new-york

Two floors below with a $15M asking price:

http://streeteasy.com/nyc/sale/499759-condo-25-columbus-circle-lincoln-square-new-york

Yeah, I know, nobody bought it for $15M. But there's a long way between $15M and $5.5M.

it's laughable how many people on this site go out of their way to ingratiate themselves with w67 and kiss his ass in typed words , telling him how much they love his shtick, how brilliant he is, or share their spontaneous insight about how correct he is about this overbougt market or whatever...etc...

he aint THAT great, and i think he probably knows it ( this is the converse of when he told truth "i dont need you to tell me i'm funny")...does he need all of you to tell him he is so wonderful every other post?

yikes...this is a fow pah....sorry

and i do recognize this wasn't the right thread to put that comment...since on this thread 67 is being so downright rationale and posting a real life type investment hypo....but the tone of reverence is just too much sometimes (altho not really on this thread)..i know, fow pah...sorry

The troll showing his true colors.

why an ARM when 30 yr fixed are below 4.5%?

Only one reason. You intend to pay off the loan prior to reset, while allowing yourself the option of betting on a libor(or other index) of staying low.

I agree with you howver, take the fixed.

because 30yr fixed is NOT at 4.5%, not anymore anyway with rise in rates the last 4-5 weeks..and not for 3m in financing

Way to ignore the elephant in the room, RS. You still think $25K is the right rent for that place?

This is a discussion board. Instead of simply critiquing the rent assumption ad nauseum, why not provide an updated model and break-even, which would be far more stimulating and perhaps promote further discussion.

"it's laughable how many people on this site go out of their way to ingratiate themselves with w67 and kiss his ass in typed words"

Really? I hadn't noticed. People actually like w67th?

"it's laughable how many people on this site go out of their way to ingratiate themselves with w67 and kiss his ass in typed words"

I hear you!
I met this guy for some drinks and it ended with him holding my head in a toilet and making me say uncle. Angry Polynesian wannabe...that's what's at work here.

Falco... He did the exact same thing to me. Now I guess I won't take it so personally.

there is no one who's ass i would rather kiss.

a discussion board? no kidding. related to real estate no less.

nada would like to discuss the assumptions YOU used.

why don't YOU provide an updated model if you'd find that more stimulating?

LOL!
comp queen is here for the brick by brick analysis.

MORE IMPORTANT
what's the name of his new place?

The Doom Tomb

LOL? no, I asked you a question. it had nothing to do with comps.

can't handle the question? no surprise there. where's your model?

The Econopad

Nouriel Nirvana

Roubini crash pad

I'll bet it's gonna have a round bed with a big neon sign over it that reads ROUBINI 360

What? No reference to animal spirits?

what? changing the subject?

What would you like to see happen here?

I'd like to see you respond to legitimate questions. this is, after all, a discussion board.

What Is the story with w67.
The poor guy (?) is obviously messed up and frustrated angry.
He has no concept of investing, currency, money.
I brought home one like that once. mine was very good looking but could not perform adequately. I think it's the reason he was always angry/arrogant. He was dumped immediately.
You have to pity the impotent crakhead.Let's not judge. Not his fault (unless he smokes).

What s the story with you?

sorry. no drug dealers allowed in the conversation.

Another one.

"This is a discussion board. Instead of simply critiquing the rent assumption ad nauseum, why not provide an updated model and break-even, which would be far more stimulating and perhaps promote further discussion."

OK. I put in some reasonable rent numbers. No matter how I tweaked the other knobs with any semblance to reality, it never broke even. It seems to me the key assumption is the rent. Let's discuss.

rs, it behooves us to be a little clearer on the rent assumption...

they might have a point here.....

It's killing you, isn't it?

Has the professor made a statement?

Answer the Fking question douchebag. It's polite to answer a questiOn from a lady.

Hey when I see a fellow soldier praying to the porcelain gods, I get a nice glass of cold water, make sure no teeth are knocked out. And for you long golden locked Falco, I made sure none did the toilet water dunk.

Merry festivus all.

Having actually taken Roubini at Stern and having seen him live at several events since I can safely say that he NEVER predicted the end of the world. The scenario he predicted was unsustaiable debt levels driving the US into a deep slump. He ALSO only spoke of housing on a
National level. He always said individual markets might do ok.

So he's placed his bet on Manhattan being one of those individual markets? Doesn't he take his advice from the batman pajamas crew on SE?

What r u talking about?

All I want for Christmas is my two front teeth.

He was saying from like 2000-2005 that the US had an unsustainable level of debt (public and private.) AFTER Lehman he said (accurately) that because the stimulas was too small, that the US would have a slow recovery over many years that would feel like a recession, and that unemployment might not fall back to 5% until 2015 or so. Not "the end of the world."

Also this board is INSANE. He is a sephardic Jew by decent, yes. he is not ORTHODOX! He is a typical, secular European Jew who lived in Italy. Its not hypocritical for him to eat shrimp wrapped in bacon dipped in melted cheese on a Friday night because he is not, to my knowledge, devoutly religious at all. And none of his TV "preaching" ever had anything to do with morality.

You guys are grasping at straws here.

Next thing you know, someone will criticize him for wearing dark navy rather than black.

hey don't confuse riversider with facts or the rest of the posters here. he never gets anything right.

sorry, I came to this dicussion late.

Was $5.5mm what he paid, or was it the ask?

If it was the ask, does anybody know what he paid?

thx

http://streeteasy.com/nyc/sale/53393-condo-6-east-1st-street-east-village-new-york

From ACRIS:

DOC. AMOUNT: $5,549,462.50

http://a836-acris.nyc.gov/Scripts/DocSearch.dll/Detail?Doc_ID=2010120901190001

Riversider: Did you see "60 Minutes" tonight?
Chris Christie. Telling it like it is.

"So he's placed his bet on Manhattan being one of those individual markets? Doesn't he take his advice from the batman pajamas crew on SE?"

Maybe he should. This is what he published in Forbes on March 12, 2009.

"How Low Can The Stock Markets Go?
 
Nouriel Roubini,
03.12.09, 12:00 AM EST
 
The answer: Lower ... much lower.
..."
http://mobile.forbes.com/device/article.php?CALL_URL=http://www.forbes.com/2009/03/11/recession-depression-bear-market-equities-opinions-columnists-nouriel-roubini.html?

The market low had occurred a few days earlier, and the market never saw even the price he made his call at again. Two weeks later, market was up 15%. Now, 20 month later, market is up 78%.

Saw it Truth....

Then there's New Jersey. It has the highest taxes in the country, a $10 billion deficit and a depressed economy when first-year Governor Chris Christie took office. But after looking at the books, he decided to walk away from a long-planned and much-needed project with New York and the federal government to build a rail tunnel into Manhattan. It would have helped the economy and given employment to 6,000 construction workers.

Gov. Christie acknowledged that's a lot of jobs. "I canceled it. I mean, listen, the bottom line is I don't have the money. And you know what? I can't pay people for those jobs if I don't have the money to pay them. Where am I getting the money? I don't have it. I literally don't have it."

http://globaleconomicanalysis.blogspot.com/

Nouriel!! The Bear Messiah. You betrayed your disciples. There you are proclaiming death to housing and what are you secretly doing....LOOKING AT PROPERTIES TO BUY.....wow, what a piece of work. You hold-out-bears have been Nourieled in the butt.

It's hard to stay a bear when life is looking up.

Riversider give me a$25k month comp. I need a good laugh.

Fsteve, wish it and it'll come true. Bubblecaust deniers unite!

Riversider: "This is a discussion board. Instead of simply critiquing the rent assumption ad nauseum, why not provide an updated model and break-even, which would be far more stimulating and perhaps promote further discussion."

Fine, you want a full updated model before you discuss. OK, here it is, so let's discuss.

I put in $15K for rent, $5.5M for price, left 5.5% for mortgage (that's where 30-year jumbos are), left taxes at 0.26% (though something tells me there'll be above-normal increases here), common charges at $1240, transaction costs left at 10%, renovation/maintenance each cut to half (0.25%) of NYT default, insurance left at 0.5% (given that it takes about $2000 a month to insure $5.5M, it's obviously not in the common charges), left cap gains exclusion at $500K, left incremental utilities at $100, put renter's broker's fee at 4% annually (8-15% every 2-4 years), renter's insurance at 0.5%.

For inflation, I upped the default 2% to 3% (30-year treasuries vs. TIPS indicate something less than 2.7%, average since establishment of Fed in 1913 has been 3%). For investment rate, I put in 9.2%: the risk on the equity in a levered home is about the same as equities, and equities have returned an average of inflation + 6.2% since the establishment of the Fed; even the past 30 years have returned inflation + 7.4%. Marginal tax rate at 25%. Rent increases at 3% (tracking inflation), home price appreciation at 2% (lagging inflation by 1% so that by 2040 it has returned to long-term inflation-tracking averages from these post-bubble levels).

Best-case scenario for buying: you exit at year 8, and you will have spent a whopping $217K PER YEAR more for buying. Exit at year 30, and it's at $580K PER YEAR.

Now if you assume the place could command a $25K rent, and you're break-even after 18 years. With other assumptions for things other than rent, you may get to break-even earlier or later. But, as you can see, a lot is riding on the rent assumption.

Hence my original question. Do you still think $25K is the right rent for that place?

Left out 1 detail, in case you want to recreate the model: I assumed a 30% down payment.

You have built a very detailed set of assumptions. Nice job!
And I'm fine with any rental assumption you chose. It's just a table napkin analysis..