how are people affording 3 bedroom apts?

Guess it depends where you are willing to live. Where are you looking? Also a lot of families are willing to have their kids share a bedroom in order to continue to live in the city. And just assume that those taking the higher cost apartments are actually able to afford them. considering how everyone is looking at your income these days to be extra careful, those renting the $9k apartments are earning $360k a year or more.

Assuming 1/3 of income goes to rent:

$7,000 - rent
$21,000 - pre-tax income / month
$252,000 - pre-tax income / yr
$100,800 - tax (@40%, local, state, federal)
$352,800 - income needed to afford $7K/mo.

I suppose if Mom and Dad are making $150K each, they just MIGHT be able to afford this. Can I be their baby, please? :)

there's a couple in my bldg. with two children (boy and girl) living in a one bedroom paying $3500..the parents sleep on a murphy bed in the living room. $3500 could rent them a house somewhere but they obviously want to live in manhattan.

I know a husband, wife & 16 yr old kid: they live in a studio apt @ $1,000 per mo & sleep in a bunk bed, kid has top bunk. I'm serious. Kid will probly become a serial killer.

It puzzles me as well. I have come to the conclusion that people just make a lot more than I assume, have family who helps them out, and/or have less aggressive savings goal that I personally find prudent.

asa rule you can price 3 beds anyway you want and you will get traffic. if i needed a 3rd bedroom id move to hamilton heights and find a private school.

There are a LOT of people who make a lot of money in Manhattan. While the MEDIAN income per family is $68k, the AVERAGE is more like $120, per the Census.

And there are many more who live here and get help from mommy and daddy.

You would not to move to HH, btw. You could even live just in Central or East Harlem and get a 3/2 with a w/d in-unit in a brand new doorman bldg for $k or less. Upper Manhattan is one area where 1-bedrooms are a premium to 2s, and 2s to threes.

easy way to answer with another question...

how are people clearing multi-million dollar salarie$$$$$ based on $20/hour type of work in actual service produced?

or negative $20/hour in actual service provided..

but then apparently negative calories were just debunked, ala meritocracy.. back to watching my thighs it seems.

By moving to Arizona.

so let's take $300k after tax family income - $100k on rent, $80k on private schools for 2 kids, $30k living expenses (food, entertainment,etc), $50k for nanny, leaves roughly $40k/year for vacation or savings......? That is absolutely horrible. Are there really that many people/families earning $600k+/year?

but jason i like hamilton heights

go to brooklyn or bronx

if the.kids are in school do yiu still need to.pay a nanny 50k per year?

People who aren't wage slaves, that's who. Many people clear $500k a year. In every field imaginable. But it involves sales, commissions, ownership, stock, bonus, employees working for them, etc. Not a paycheck. People who rent $7000 apartments probably could rent $14000 apts just the same. It's not a budget calculation. Totally barking up the wrong tree.

nycrejunkie, The type of expenses you are talking about is for someone with a family income of $1mm or more. There are many people in Manhattan who make that. The number below are my rough estimates of people who make more than $1mm to give you an idea.
Typical MD at an investment bank averages north of $1mm in a revenue generating function (5 banks, 300 revenue generating MD each, 1500). Add Smaller banks b/dealer, and senior finance/control functions (1000)
Top law firm partners $1mm+ (top 10 law firms 100 partners each in NYC, 1000).
Top executives (100 companies advertising, executive search, tech, media - 10 each, 1000),
Top surgeons (200),
Trust funds/investors (1000),
Small businesses (1000),
Consulting and accounting firm senior partners (500).
Hedge Funds (1000).
Almost 8000 out of which 50% do not live in the city. Other 75% of remaining 50% own. Leaves a 1000 renters with incomes of $1mm or more. 3 b/r rentals is not that large of a supply and not every one has two kids in school.

I think the market is deeper than that, 300_mercer. Not including Upper Manhattan, there are currently 600 3BR apts for rent in Manhattan on SE out of 6500 total. Then there are listings that are not on SE.

I believe there are 175K market-rate apts in Manhattan, and if you assume the same 10% ratio of 3BR after subtracting out 10% for Upper Manhattan (which is the fraction seen on SE), you end up with 15K market-rate 3BRs in Manhattan.

Perhaps the average 3BR sits on the market longer, so call it 10K.

ok i am single, 30, & make over $600k per yr. i have alot of friends making over $1 mill per yr and also over $2 mill per yr. many of these guys are under 40.

we all share one thing in common, which is that the vast majority of the money is from running a business. not just a normal business, but care is taken to make sure the business idea is scalable and with leverage potential (i don't mean financial leverage but time leverage). i would venture to say 99% of all people living in apartments worth over $5 million are there due to their income from business. i grew up in a professional household so i didn't really know this until later but it is a big misperception in america that the big chunks of cash come from professionals. the news talks about goldman incessantly but how much do u think a guy owning 5 pinkberries in the city would make if he or she were to run them well? do the math and u will see buying a 3 bdrm apt is easy! there must be 10,000s of people owning businesses earning over 2 mill per yr in manhattan...

the key is don't work for someone else, learn how to make people work for u

oh & dealboy is right, none of us is purchasing a house and having 3 times the income. usually most of us rent at annual salary at least ~150 times monthly rent or if we buy, then u should be able to buy with at least 50-60% cash if u had to and also the mortgage is small compared to whole income. meaning that the guy making $2.5 million a year (~120k per month) is probably gonna buy something under 5 million with a $ 3 million mortgage, prob monthly - $25k with all fees, etc. remember the $120k per month, btw, is business income, it doesn't mean the guy is killing himself working, this is usually fairly close to passive by the time the purchase is made.

that being said alot of these guys rent for a long time (into their 40s), because assets are better used for growing the business rather than in a condo or coop. also we need to be flexible with cash and big reserves so that when the recessions hit u can weather the downstorm....also ur reinvestment into ur business is tax free so u get a large return rate vs taking out profits & taxing them to buy stock, bond, or apartments. it also allows u to have a larger credit pool to apply to ur business if u rent. finally, the flexibility is key...all of us our entrepreneurs meaning that we r always looking for opportunities. buying can kill this in a heartbeat when u r overleveraged. u need to be able to not get paid sometimes for 2 yrs while waiting for the score. that's not fun when u have kids and a mortgage!

By moving north of 110th Street and east of CPW. That's the only way. Unless you or your family has a serious trust fund. Most of Manhattan is for the very rich now. It's sad, but the reality.

So here's my estimate of how many people can afford to rent the median 3BR listed in Manhattan at $8K (although $6K might be more accurate if you use Miller Samuel's median price rather than asking price).

I think a gross income of $600K comfortably affords such an apartment.  After-tax will be in the range of $350K.  You spend $100K on rent and $50K on living expenses as a couple, maybe another $100K for a couple of spoiled brats in private school and summet camp and vacations or whatever.  You still can put away $100K into saving; pretty easy life.

So how many people in NYC make $600K a year or more?  I'd put it at 85K people.  On a national level as of 2008, the median income reported was $33K.  The top 1% started at $380K.  So the top 1% made 11.5x the median.  I think NYC (as in all 5 boroughs) is a good microcosm of national income distribution.  The median in NYC is $50K, putting the top 1% at about $600K.  Given that there are 8.5M people in NYC, that's around 85K people at $600K or higher.

Since my business is largely about marketing to wealthy people (btw, NYC1234, hi!) what I'd like to point out is that we're trying to come up with an aggregate portrait of a group that actually has many varied subgroups. For example, a gross income of $600K for a small business person and a gross income of $600K for a professional are going to result, depending on the accountant, in two extremely different after-tax incomes. As such, I think $600K as a pretax estimate for an $8K apartment shopper is a little high, and you've got some families who make less than that living in these apartments.

On the other end of the spectrum, I deal with a lot of people who make their money from entertainment, or from tech -- two industries that we haven't mentioned -- and once those people bust through $400K a year they are somewhat likely to hit $2 mil. We picture successful people as climbing mountains, but in some fields they're really ziggurats.

ali r.
DG Neary Realty

Here's an interesting site pulling IRS data by ZIP code: http://www.incometaxlist.com

E.g., in 10023 there're 7,000+ returns with AGI above $200,000. Of those, 86% had wage income, with an average of $512,000.

NWT
good stats

I am not going to beat a dead horse but TARP, QE1, QE2 and QEn+1 are the reason why people are making that sort of money and more than willing to pay today's market rates.

It is just funny how people see themselves and other successful people as "free market champions" when the reality is that without government involvement in the mortgage market or by bailing out irresponsible and fraudulent industries many of today's "rich" would have taken a bath. (Yet 99% of them are either too proud, delusional or arrogant to admit it.)

Today's nominal and real NYC RE prices are founded on US gov't/taxpayer monies that have been transferred to primarily save the rich (by inflating risk assets) and the those others that willingly defrauded the system by over borrowing/over lending/over spending (by promoting inflation over deleveraging).

For those that are championing the "competitive" and "hard working" individuals that have done well over the past 10 years, I will not deny that they aren't so; just that the lack of attention to responsible risk-taking, fraudulent actions and concern for society's and the economy's well-being a bit disconcerting. Additionally, to act as if all of these individuals "did it all by themselves" and didn't receive the vast majority of the benefit from the government's policy of socializing losses is misleading to say the least.

double neg: I will not deny they are so

memito, you are a little off topic. But all the previous posters clearly give the original poster about who can afford a 8k per month apartment without streching. Nada/Ali/NYC1234, great posts. The only part I disagree is income. If you have 600K stable income you can make till 65, 8K rent is ok. However, most poeple with that income tend not to have volatile incomes and shorter lived careers. I would think that 750K min is more reasonable. But then people make the choices they like with their money and I am more conservative then others.

Mercer,

The original post states: "Are people not saving anything these days? I just don't see how this is sustainable."

And I just gave an explanation for how it is "sustainable" (for now).

Your post lined up a series of professions that make over $1M and my post points out that gov't taxpayer money makes up a part of those salaries, directly or indirectly.

If you really think that all of those people would be making exactly what they are today without government charity, I don't know what to say.

I guess there is an underlying assumption that the government will continue to pump risk-assets and bailout fraud/mistakes so people can continue to get paid 600-750K/yr until they are "65". If that is the case, then people in such positions should have no problems paying today's prices for 3-bedroom apts.

I do not think that these policies are "sustainable" and am afraid that the consequences could be far worse than what we saw in 2008-2009.

But I guess all that has led us to today's 3-bedroom pricing is "off topic"...

But these people were making money before TARP as well. Easy money is actually bad for banks. Ideal for bank is 2-3% short term interest rate. So that they can pay people 1% on their deposits and even if they do not do anything with the money they can earn overnight LIBOR. Currently, they do not pay any thing to depositors but can not make any money either unless they take duration risk.

Mercer, what kind of purchase price do you think is reasonable for a person making $600K by your more conservative standards?

And exactly what was taking place before TARP? (since around year 2000 or so)

Answer: Extreme fraud throughout the entire mortgage market that created the largest RE bubble we have seen in modern times... which created unsustainable spending throughout the entire economy...

Look, I am not saying that many of today's successful people won't have been successful in one way or the other even if times had been bad for the last 15 years - it all is relative. But the numbers being thrown around have to take into account that they weren't made in a conventional capitalistic environment over the past 10 years.

It is just when the original poster mentions "sustainable" in his/her post and nearly everyone ignores that last comment and just focuses on how much one has to make and how many make it, I had to say something.

As for what is ideal for banks, just remember that most of them shouldn't exist - nor should GM, GE and some other non-financial companies. They took on far too much risk and essentially held the world's economy hostage - which is a reflection of the DEEP structural issues our economy has (many of which are allowed to continue to exist due to our interest rate/economic policies). Easy money hasn't been "bad" for banks because it has prolonged their post-TARP existence and helped them recapitalize - either via secondaries, investment in government pumped-up risk assets or the very consequences of a zero-rate environment (fees from mergers, refinancing, IPOs, etc). On top of this you have to include continued financial fraud (robosigning and financial misrepresentation) and the lack of any real prosecution of such fraud - to the point that it has become nearly institutionalized (even though the gov't is trying to put on a show "challenging" it).

I am afraid you are correct though... I am off topic. If I were to answer this post in the same light others have, I would say that one should probably have a "safe" job that pays over $600K+ yr and money in the bank to be able to "afford" to rent a $8K+ 3-bdrm apartment. My only worry is what is "safe" given that our economy has been dependent on ultra-low interest rates since 2002 and government bailouts since early 2009.

FLmaoz... ok.

300mercer. Lesson 1. Causation vs. Correlation

Credit Bubble => Income Bubble=>Housing Bubble=> Income Bubble=>2nd Home Housing Bubble=> Income Bubble=> Unnatural Employment Bubble in Finance/Banking/Legal/Advertising/Burger Flippers=> global housing bubble as Irish carpenters learn to buy cheap airline tkts.

Bubble POPS, => unwind all previous feedback loop. Hence STRUCTURAL unemployment of 9% until ppl that ate at the bubble trough die or flip burgers again.

2nd Lessson on inflation. Inflation is a measure of daily consumption. Think bread, milk, condoms, astroglide. Weird things happen when the economics of inflation/employment (i.e. the tug of war between inflation and employment goals by policymakers) is completely missed by EVERYONE.

HERE is an example of that. Let's assume $1MM studio and $200K/income and layer in 3% "inflation." But w67, "we don't buy a home every day." Class, let's put that aside for now.

In year 1, let's call this guy SteveF. Buys one studio for $1MM with his $200K (5x leverage) saved from his Bar Mitzvah. Nice parachute pants SteveF. After one year, SteveF does a great job of picking up garbage and his boss gives him a raise as required by his union of 3%. He now earns $206K ($6K more). How has his inflation adjusted "home" done? Well if we assume a like 3% increase his "studio" has gone up to $1,030,000 or $30K "equity" income gain versus his $6K 364 day pay "raise." If you look at that STUDIO as his "couchsitting" boss that IS a 500% differential in raises. Doesn't take many years for SteveF to load up on STUDIOs and quit his day job, now does it?

If you allow additional leverage ( in the neighborhood of 3% down), well let's just say you get a million add'l ppl going into real estate every 6 months and the feedback loop is OFF and RUNNING.

Exam on Tuesday if the Redskins lose.

Follow up on Lesson 2.

Education inflation. well we don't send kids to college every year, do we? It's a 4 year hit and in so far as all these tax advantaged "funds" allow ppl to prepare longer and save more over 20/30 or even multi-generationally for that 4yr HIT, education will continue to outpace other "inflation." Likewise "healthcare." You only need it when you are "sick" so you can imagine "we" as a society are "generationally" supporting higher and higher inflation in healthcare.

It's the very "insurance" policies that WE all pay into that allows outsized inflation to continue to in healthcare.

BUT you do all know, inflation is the SUM of all demand and supply and that as a society WE have all chosen to pump up Education, Healthcare and more recently HOUSING, right?

w67th,

You clearly don't understand that inflation is a good thing...

I don't know about the rest of Streeteasy's audience, but the reruns of Talking Ape: Real Estate Edition are getting tired this summer, worse than that show with the weird California guy with the plump lips and housekeeper fetish who renovates and flips.

I'm really looking forward to the new Prime Time season starting later in September, which I understand will for the first time include not only the Talking Ape, but his oldest monkey child too, in the first episode taking a poop in the bathtub.

Great points by NYC1234 and FrontPorch.
Owning a few laundromats allows you to have a 7 figure income. These are the people.

And yes, once you hit $400k, it's almost impossible NOT to hit $1m, $2m, etc. It's a whole different paradigm once your someone important. IF you make $1m, you might as well make $10m. The difference is very small in terms of what you'd need to do to make than incremental $9m.

nada, "Mercer, what kind of purchase price do you think is reasonable for a person making $600K by your more conservative standards?"

I look at affordability in terms of mortgage amount. Two cases,

If your earning stream is volatile and longevity in your profession is unpredictable/short (finance being prime example), no more than 2 times the income as mortgage. If you saved a lot of money, say $500k for the downpayment + 2 years of living expenses ($300K) - total $800K, $1.7mm. If you only have 300K to put down, you should not be buying an apartment as you can not afford more than $1.2mm.

If you are a surgeon with $600K income (with good malpractice and no pending lawsuits). You can have 6 months of living expenses (75k) after minimum downpayment of 20% $500K. You can do 3 times your income as mortgage. $2.3-$2.5mm.

memito, thanks for giving more details of your views.

Mercer,

I don't mean to bang heads here...

Imagine if you went to a financial planner and he/she said you should expect 20% year-over-year returns for the next 40 years; would you match your spending to such rates of return? Buying an apt assuming that one is going to make 600K+ for year (just like people did from 2000 on) for the next 20 or so years is rather optimistic - especially given all that is taking place in the world today.

While I could do it, I would not take on $1.5-2.5M of debt with a loan to value of even 60-70%. I think that people that buy multi-million dollar apartments should be able to put down AT LEAST 50% and should have the ability to pay off their mortgage without any significant impact on their portfolio or living standards. That is responsible, non-bubble spending in my book.

Mercer, you've got me scratching my head.

Case #1. I've been earning $600K and have saved $600K to $800K (which should only take a few years of earning $350K after-tax and saving $200K living "conservatively"). I decide to go put nearly all my money into an apt, committing to a monthly nut of $9K to $14K after the commitment of capital. If I ever need to get out, it costs me $200K in transaction costs. Plus uncertainty over whether I should sit tight vs sell. You say "that's conservative".

Meanwhile, same guy same money spending a monthly nut of $8K, the $600-800K untouched, with an ability to shut off the spigot at the turn of a dime at no cost, is somehow "unconservative" to the tune of living that which should only be spent by people making twice as much (as you originally posited)?

Seem like a double standard. Can you explain? I'm curious as to how you see it differently.

Great thread. I think NYC1234 adds a lot to the discussion by introducing a profile of renter (the business owner) that makes a lot of sense.

Other dynamics that I think we need to make sure don't fall by the wayside in the equation:

- The transience of the Manhattan population - It's not like the island (Manh) has the SAME people on it, year in, year out. Some business owners succeed, thrive, and stay here, while others fall away and leave. Or, another way to look at it:

- Variability of income - plenty of investment bank managing directors (MDs) make $1 million in a given year, but many more make less in bad years. The lucky ones hold onto their jobs and do great in the next up-cycle, while others lose them and don't get back in the game, and/or leave Manhattan.

So, I guess I'm saying Manhattan holds a self-selecting population of people who are doing well *at the present moment*. And the island's desirability means the "winners" of the current cycle are really motivated to come here, making those who aren't doing well effectively invisible. (They move elsewhere when their leases run out, or rent their condos out to someone doing better than them.)

Add to this the fact (simple human nature) that people tend to be very discreet about their failures -- they don't broadcast them. (No one knocks on all their neighbors' doors to say, "hey, I'm leaving because I got downsized and have a new job with a lower salary so I can't afford to live here anymore.") So, it's easy to wrongly conclude that there's a big permanent uber-class that are here, year-in, year-out, paying top dollar and having a great time of it.

But, this is how (huge, anonymous, densely populated) Manhattan differs from old-money, multigenerational bastions of wealth (and I don't follow those places well enough to give great examples), where the big names and mansions have been there for generations, all in the same hands.

Maybe it's useful to sort of think of Manhattan rentals in desirable neighborhood as being more like hotels than homes. That is, it's not a place where, on average, people at a given, steady income level are likely to spend a lifetime. Many people may have a passage in their lives where the premium they're paying makes sense, but the chances of evolving into a steadily-rising income stream (one that keeps up with apartment price inflation here) compatible with life here are somewhat lower than may be obvious.

Sort of like a lavish beach resort: many people can afford to spend a few weeks there a year at a cost they could never afford for all 52 weeks. Any many people are in Manhattan temporarily, though they may not know that when they move here.

What this means, then, is that while we know folks like NYC1234's profile exist in Manhattan, it sure is hard to know what percentage of them are making up the population of folks living in the 3-bedrooms at $7,000/month.

I was not comparing buying vs renting. You asked me what I thought about purchase price for someone who wants to buy (got comfortable with the current price levels being the most important). As we have discussed before (and at this risk of this becoming another buy vs rent thread) we disagree on the cost of buying vs renting which is why both markets exist and will continue to exist.
- You are willing to wait till the last minute to get the deal (assume your budget of more than 7-8k and specs are very flexible) and most of us would not do that. I seems that you have been able to get 15%-20% discount off the prevailing rentals due to this criteria.
- Also, in your buying calculations you assume that one needs to lock in the rates rather that do 5/1 but in your rental you are not locking in a 30 year rental. Also, the upkeep costs are lower than what you estimated in your other post (your estimates will constitute an upgrade rather than update). In my view every twenty years, a $2-2.5mm apartment considered high end rental (not talking about USW 15 finishes) needs redecoration (not gut reno) the bathrooms ($75K for two, change tiles, tub, vanity not the layout), kitchen update (50K), others ($75k). Total 200K. 10K per year. Throw in another 2K for sundry ongoing fixes. $1k per month.
- Our 2800 sq ft prime village apartment is costing us $6K (5/1 i/o risk, 35% down, tax benefit of 1K per month) plus upkeep, updates and transaction cost at selling (call it 1k for upkeep and 1K for selling cost = 2K per month). $8K. Holding period of at least 10 years. Cost comes down if we hold it longer. Inflation protection. If no inflation, we can roll our mortgage at low rates. Plenty of liquidity left for investments. Happiness we will get is also worth something.
- This apartment will not cost us less than 10K under any conditions (plus worry about moving, rent increases, not being able to decorate the way like). Market rent will be at least 12K. Current 5/1 rates are making it cheaper to rent. There are cost to renting as well - broker's commission, furniture damage when you move, repainting if you like it a particular color.
- I do not invest much in equities so that I focus on my job. The rewards are higher and peace of mind more.
- I believe, if you do not own, you should be saving more to buy in current market conditions or if the prices come down further.
- If your return on capital is high (>8-10%; most people do not have that), you should save more to have larger capital to enjoy the returns on (nyc1234 gives that example). Delaying gratification with this type of returns is a good idea.

Before all the bears jump on me, I am not expressing a view on real estate prices. Rather making a case, that if you think real estate prices will come down more, you should save more to take advantage of the downturn. If you do not know when the prices will come down and in the meantime want to enjoy life, either you have too much money or you need to check your bear thesis. This comes from someone who was a long-term renter and decided to buy recently mainly due to low rates, reasonable price of the apartment we got (1000 per sq ft) and not wanting to worry about moving and rental increases. Purchanse transaction cost negative due to Keith B. Goes to decoration budget.

anotherguy, great perspective.

memito, I do not trust my ability to make money in the market but I also said 8K rent is too much for some one finance making 600K. In terms of buying, you are more conservative than I am. I think, total net worth of the apt value before downpayment is very conservative already.

Memito, we factor in 50% loss of income for affodability. Not for every one but we prefer it this way.

There are many people in the city who make 500K per year. I agree that it does not make sense to spend that much money on rent (still cheaper than buying) -- but if you look at RE taxes on LI and in Westchester -- losing the commute makes it more compelling.

My family is not too far off that targeted in this discussion. We make about $800K with upside in a good year, and no real downside unless one or both of us lose our jobs. BTW, this is the other factor that hasn't been mentioned much above - there are a lot of 2-income families in Manhattan, and making $300-400K is common at the mid-levels (forget senior levels) in law, finance, medicine, business, etc., at least in NYC.

We have 2-kids, and are currently renting a 1200-1300 SF 2-bedroom where we converted the dining room to a bedroom. We pay a bit above $5000, although that was a lease signed in late 2009, it would probably be a bit more today. We are cramped, and we want more kids, so we are looking for a new place. Plenty of savings, plenty of security in our jobs, and we're both pretty employable.

As an aside, although both of us work for other people, I work for an investment firm and get to share in the profits, so there's an element of getting more than just a paycheck, and that does make a meaningful difference.

Our Strong preference is to buy, with a ceiling of probably $2-2.3MM range. But if we can't find what we want to buy, we'd rent, and ceiling there is probably $11-12K or so. We've run the numbers, feel very comfortable doing that, and would still be able to enjoy life and to save. Not having extravagant tastes helps. And we intend to send kids to public schools.

Long-winded way of saying I tend to agree with the math above for $600K income for $9K rent. And I also tend to agree there are tons of people in NY making that - most of our "professional" friends, most people either my wife or I work with/across on deals, etc.

Thank you all for your responses. They have all been very helpful. I grew up in NYC. UES. private school. No trust fund - then or now. My parents worked/earned it and now they are retired so then i will too (happily). I am just amazed at the changes the city has undergone in the past decade plus. My parents never made the amount my wife and I do (forget inflation). Yet still we are struggling to provide the same kind of upbringing they provided us. And that is why I say it is just unsustainable. My wife and I are in different fields from our parents and mixed between stable/volatile but comfortable to say our annual income is between 600k and 1mln and we can't see paying more than 6k/month on rent if we want to send our kids to private school plus save enough (although I have every intention of working well into my 60s). I'd definitely send them to public school til 6th grade but the good ones are impossible to get into.
I hear what everyone is saying and I believe it and respect it and I have to be honest I'm still in shock.

More to the point, my multi-part view to the original poster's question, based on my experience and that of many people I know:

"How are families able to afford to live in 3 bedroom apt rentals (2 kids)? Barely none available and impossible to find a decent one for less than $7k/month ... most are closer to $9k/month). "

1) It depends what you mean by a 3-bedroom. There are plenty of converted 2-bedrooms and even real 1200-1500SF 3-bedrooms for $4K-6K. If you're willing to live in a walk-up or first-floor of a brownstone, even bigger or cheaper is doable.

2) Along the same lines, you really don't need a 3-bedroom for 2 young kids. If the same sex, you may never need it, if opposite sexes, you probably do by 8-10 or so.

3) Many can't, or get sick of sacrificing - that's why so many people move out.

4) Tons of people making enough money to afford $7-9K or more in rent, or the equivalent to buy - see my post plus posts of others on the topic.

5) And tons of people have special deals - rent control, living in parents' apartments bought 40 years ago, company or government subsidized housing, etc.

6) Last thought - because people in NYC often have kids so much older, it gives them time to advance in their careers and save some $$ by the time they need to have bigger apts for kids.

Interesting discussion. We could only afford to buy an apartment to accommodate our two kids (on the way) by moving to the west 150. We purchased a classic 6 for ~500k and did a full renovation. Our household income is between 350-400k. If I return to work full time it will increase - assuming all the children are in school full time. If not, the cost of nannies/daycare, etc will offset what I earn. There really was no way for us to continue to live downtown and the math of moving to the suburbs was also ridiculous once we factored in two cars, taxes, commute time, etc.

So, here we are uptown. It's possible to make anything work if you;re clear on what you want. For us - it was a big apartment in Manhattan. And we just kept looking further and further uptown till we found it.

"300_mercer

Before all the bears jump on me, I am not expressing a view on real estate prices. Rather making a case, that if you think real estate prices will come down more, you should save more to take advantage of the downturn"

FLMAoz. so the converse of this is "if you expect things to cost more you should save less." huh?

Man, you keep talking about "housing" as a "comfort" thing that isn't about investing, but keep putting in buzz words for investing..... like "take advantage of the downturn."

BIG WARNING sign. The equity mkt is capitulating.... it is rolling over based on volatility and movements based on QE3 and policymakers and not on companies ability to earn cash.

We say to the middle class or working class guy who has lost his job of 20 years that his wages and skill were no longer competitive with people in China or India or Mexico, but when it comes to Manhattan real estate, people are so shocked that the global marketplace we live in with free flow of wealth could possibly price them out of the Manhattan lifestyle that their parents enjoyed.

NYC is a global, premium product. No, not a global commodity for the Irish carpenter, but a global premium product for those with greater amounts of global wealth. That trend started when Giuliani cleaned up the city, and accelerated as Bloomberg specifically positioned the city as a luxury good.

>BIG WARNING sign. The equity mkt is capitulating.... it is rolling over based on volatility and movements based on QE3 and policymakers and not on companies ability to earn cash.

Anyone have an idea what this sentence actually means? I guess you had to be a TA at Columbia Business School to speak so unintelligibly.

nycREjunkie, something is off in your description. Between $600K - $1MM is plenty for housing even with some private schools in there. I know lots of people who make it work with less.

$6K / month is $72K / year. Even after taxes, where does the rest of your money go?!

And "good ones are impossible to get into" is just not the case for public elementary schools - there are tons of very good elementary schools, and all you have to do is live in that school zone (yes, I know overcrowding has led to some exceptions to this, but they have been pretty rare.

67, 500 per foot. when?

how much longer till you are right 67? flmaoz?

he never answers cause he DOESNT HAVE A CLUE

Jim, you are posting too quickly after I post. Which, since you are me, can only mean one thing ... I am not human, I am actually a computer program, an advanced variation of LivePerson, or the WOPR.

http://streeteasy.com/nyc/sale/581193-coop-150-east-61st-street-lenox-hill-new-york

$522psf... but you seem to be like a lemmingz that will believe the borker when Ali says you gotta bid above ask. Never mind the fact the whole bldg is for sale and has been for 18 months.....

but you can rent if for $4.6K, so gotz a wayz to go. The quick and dirty is would you carry $800K for $2K/month? Don't understand, well I don't expect you to... and besides it's too far from the 2nd ave bus.

FLMAOZzz.....

one example? what about that classic 7 on cpw? whats wrong 67 off your game? dr coozy slit md not giving you enuf azz lately? flmaoz

W67: "FLMAoz. so the converse of this is "if you expect things to cost more you should save less." huh?"

Saving less is due to buying partial inflation protection (partial due to maintenance not being fixed). If there is inflation, real estate will appericate as well despite the increasing rates. Thought you were smarter than that. You are allowed your bearish and biased/obnoxious views/comments but not poor logical deduction.

Also, people who think that the world is coming to end can short equities to express their views. Would have been a great trade in the last two months.

http://streeteasy.com/nyc/sale/609041-coop-320-central-park-west-upper-west-side-new-york

my this seems expensive doesnt it w67? a tad over 500 p/ft. but it is only one example. how long till the other shoe drops?

only been three years since you originally called for it. im going grey waiting to buy on your advice.

>im going grey

Aren't we all

Many wealthy people have apartments in Manhattan but do not FILE here because they (movie stars, CEOs, heiresses, whatever) "live" in Dubai, London, Los Angeles, etc.

good one hberg. i meant me follicles

smart enough to know no bubble bursting ends with that same bubble asset having a re-run.

And even smarter to know financial assets are the way to go if rampant inflation is on the horizon. Do you really think you could pass along 20% increases in rents to infinity when 3bdrms are already at $8k?

But go ahead and load up on your "inflation" hedge NYC RE... there's plenty around.

Mercer, I'm not asking about rent vs. buy being better. All I can say is that you have a strange sense of "comfortably afford" when renting relative to buying.

Your "comfortably afford" metric of a $1M income for a $8000 rental is at 125x monthly rent. This is over 3x the "minimal" 40x requirement placed by LLs.

At the same time, even with your 5/1 loan at 3.5% for $1.8M, which has a $8K mortgage payment, plus say $3K for monthlies, you have a monthly housing expense of $132K on a $600K income. This is 22% of gross income, certainly within the "minimum" 28% requirement looked for by lenders.

But look at what your "comfortably afford" standard has done. For buying, it merely requires 27% more income above the industry-set minimum standards. For renting, you're requiring over 3x the industry-set minimum standard.

I make over $600,000 but I still think the rents in NYC are unreal. And why I wonder are they are at the same $7000 price.

This smacks of a cabal or collusion of some kind. Really. Why isn't there one listing for say 6540 or 6290. They are ALL $7000.

I don't know about you guys but I will move out of state before paying that amount. I think it has been inflated in the hopes of inducing people to buy co-ops & condos.

The good news is that you can rent a whole 4-5 bedroom house in CT with a pool for about $3500 and just be 45 minutes away from Grand Central.

Nada,
I see why I have you scratching your head "I look at affordability in terms of mortgage amount. Two cases,If your earning stream is volatile and longevity in your profession is unpredictable/short (finance being prime example), no more than 2 times the income as mortgage. If you saved a lot of money, say $500k for the downpayment + 2 years of living expenses ($300K) - total $800K, $1.7mm. If you only have 300K to put down, you should not be buying an apartment as you can not afford more than $1.2mm."

For some one with volatile $600K income, $1.7mm is the purchase price (replying to the original ask of purchase price) not the mortgage amount, which will be 1.2mm (sorry should have been clearer).

Also, 5/1 are below 3% right now and have been for a couple of months. Look at 5/1 I/O $1.8mm is $54K per year even at 3%.

Our buying situation is different as $600K is a worst case income scenario for us (except for 2 year job loss for both of us for which we have enough savings) rather than current income.

Rental guidelines are less strict than buying.

Also,
- LL only cares about getting paid as they can kick you out in case of job loss or volatility of income. These guidelines are better applied to people with $150K incomes which tend to be far more stable. There is no saving built in as LL has no incentive.
- In mortgage affordability guideline, they have forced savings built in due to principal payments. Lender are stricter (at least now) and require 30% downpayment for $2mm properties.

another guy,

great analysis!

ali r.
DG Neary Realty

300_mercer: "Rental guidelines are less strict than buying."

I don't know about you inonada, but that explains nothing even though the statement is true. If a renter's income drops, s/he can easily move (or forced to move) to a lower cost rental. Among other things, the guidelines reflect that flexibility on the renter/LL and the lack of flexibility on the owner/bank.

So we have a 28% guideline. For that $600K surgeon, it's $168K for monthly costs. For that $1.8M mortgage under a traditional 30-year at historically low rates, with $3K in monthlies, we end up at $150K and barely squeeze into the guidelines. You say "5/1 ARM" indexed of treasuries that yield 1% below inflation to remove $27K and then say I/O to remove another $27K. By using the crappiest loan around, we end up at $96K, so income is now 75% above guideline.

Meanwhile, minimal rental guideline for a $8K apt is $320K income. The guy has income nearly double the guideline without any special considerations. He's got nearly a decade of rent in cash or liquid assets. You say "please come back when your income is double".

Brilliant.

FYI, I am not questioning your view on buying affordability. Rather, I am questioning your relative standards.

nada, you are twisting my argument which was meant for higher volatility profession like finance rather than for surgeons. In your example, a surgeon making $600K can either get a $1.8mm mortgage or get an $8k apartment - I agree with that. As you note, the cost is roughly equal.

For volatile professions with $600k income, $1.2mm mortgage and certainly lower than $8K rent.

Also, I am coming at affordability not from the point of view what a landlord will permit you but from a prudent renter/buyer's point of view. Think a surgeon making $320K (190K post tax) is crazy to spend $8k in rent. This post tax will only leave $95K per year for living expenses, vacations, clothing, savings, children's education etc.

We should reassess "guidelines in terms of "what you can afford"" at higher levels.

Just because you make a decent living, say 500K or $1 - 2 million per year, doesn't mean you should spend or buy the maximum you can afford.

People are quite hung up on the 3x income -- or other rules mentioned above -- but what about the old rule of thumb that says real estate should only be 10% of your net worth?

People scan build liquid net worth -- and not spend for spending sake.

I'm twisting your words? Maybe you've reassesed things over the course of this conversation, but go look at your first post on this thread:

"nycrejunkie, The type of expenses you are talking about is for someone with a family income of $1mm or more. There are many people in Manhattan who make that. The number below are my rough estimates of people who make more than $1mm to give you an idea.
...
Top surgeons (200)"

Also, I have no idea of the relevance of a $320K surgeon to a volatile-income $600K professional. It seems that you have made them equivalent-income somehow in your mind, but the equivalence is unclear to me.

As others have said, RENTERS have more flexibility to move than owners.

Which is why coop boards are less strict with sublettors than with buyers.

Sunday: "I don't know about you inonada, but that explains nothing even though the statement is true. If a renter's income drops, s/he can easily move (or forced to move) to a lower cost rental. Among other things, the guidelines reflect that flexibility on the renter/LL and the lack of flexibility on the owner/bank."

I think the minimal guidelines roughly stem from "at most half your take-home pay should be housing". For rentals at 40x, this is 30% of your gross annual income, or half your take-home if you keep 60%. With the 28% loan guideline, it works out to around the same. The additional strictness of the loan guideline comes from the fact that the number includes principal payments and is prudently applied in the context of a 30-year loan: you are "forced" to save, and you have to match the term of the loan to the term of the asset. When you start doing interest-only ARM loans that are indexed off -1% real 5-year rates from very special economic circumstances, I question whether the loan guideline is any more strict.

Manhattanfox,

Real estate should be only 10% of your net worth... just imagine where prices would be if people followed that rule.

Nada
"Also, I have no idea of the relevance of a $320K surgeon to a volatile-income $600K professional. It seems that you have made them equivalent-income somehow in your mind, but the equivalence is unclear to me."

That is where you need to apply volatility and longevity of profession adjustment. At least 30-40% discount in my view. I have many friends who make half of what they used to make in finance. Many trader friends will not find a job in a differnt industry at more than 30% of what they made on an average in last 10 years.

Also, you clearly are taking surgeons 200 as out of context (with your smarts I think on purpose so that you do not lose the argument). That table is just an example of poeple who make $1mm or more and who can afford $8K or more.

Perhaps you missed the post where I clearly state that $600K in stable income seems fine for $8k rent
"memito, you are a little off topic. But all the previous posters clearly give the original poster about who can afford a 8k per month apartment without streching. Nada/Ali/NYC1234, great posts. The only part I disagree is income. If you have 600K stable income you can make till 65, 8K rent is ok. However, most poeple with that income tend not to have volatile incomes and shorter lived careers. I would think that 750K min is more reasonable. But then people make the choices they like with their money and I am more conservative then others."

I know speakie englizh. Renter no cauze finacial collapse. It 'ownerz' with black pen and $10k advance of Capitalone cardz.

It's like ragging on cash paying boob implanting pole dancer to try and solve our healthcare issues while we all sit around smoking our unfiltered camels and binging on big macs w/ our 4000bmi index thong wearing bodies.

Flmaozzz

hehe, Talking Ape. My favorite freak show at the carnival! Beats the guy who guesses my height.

Mercer, your view of volatility / longevity seems to be "likely to be lower". Imagine someone has made a high-volatility $600K over a decade. For argument's sake, let's say $600K +/- $300K. That works out to $6M +/- $1M with uncorrelated volatility, or $6M +/- $3M with fully-correlated volatility. After-tax, that's $3.6M on average. You've been "conservative" and "only" spent $120K a year, leaving you with $2.4M cash. Invest a little, and you're sitting on $3M.

Now you're looking at the next decade, wondering if you should spend $150K of your income vs. $120K while saving $210K a year vs. $240K. On top of your $3M. Who cares? Things don't work out, you've spent $100K more than you maybe "should have" after 3 years. That's 3% of your assets, less than half of one year's worth of expected savings. Then you just move if you need to.

Your definition of "volatile" income seems to be some high-water mark of a person who was paid something they should probably not have been paid in the first place. If your "expectations" are based on the continuation of some idiotic bubble and/or comp structure, then yes, perhaps you should be prepared for the soon-to-come end after a few years. But that is very different than, say, actual volatile income.

nada, you just added a condition " You've been "conservative" and "only" spent $120K a year, leaving you with $2.4M cash. Invest a little, and you're sitting on $3M." If this person spent 8K on rent (and of course proportionally more on other expenses) while making volatile 600K, savings would have been lower. For this person with $3mm, monthly rent is not based on current income but also on assets.

I believe incomes in finance are not sustainable any more due to regulatory capital pressure and we will go back to pre-1997 world where the comp was good 50% lower in nominal terms. Say 30% lower comp after adjusting for inflation. Hedge fund fee except for a top few will come down with investors adding claw backs. Hence people in finance need to be more conservative.

Hope you are enjoying the long week-end. I am just researching stereo systems.

"and of course proportionally more on other expenses"

This might be where I may differ than many. I know what matters to me and don't feel a desire to spend where it doesn't.

"we will go back to pre-1997 world where the comp was good 50% lower in nominal terms"

Fuck me, that is the most bearish comment I've ever hear for NY RE ;).

"Hope you are enjoying the long week-end. I am just researching stereo systems."

I'm out on a mini-vacation, enjoying pissing about with my favorite online buddy to argue with whenever I have a connection ;). Shopping for a new place, always lots of fun. I have word of wisdom to share on stereos. Outside of a great TV I bought a few years back, I have no desires electronics-wise, so for me it's mainly about furnishing & decorations. Enjoy!

'nada, where are you shopping for furnishings and decorations?

Nowhere at the moment, I meant last time I moved. Favorite place is the Timothy Oulton corner in ABC.

there are 2 totally different groups:

professionals (often dual income) earning between $500k combined to $1 million or so. this group is more likely to put down 10-20% or whatever the minimum is and then take a mortgage following the 28-36% rules, so basically they are buying $2 million apartment with $200-400k down and about $10-12k per month in mortgage on a take home of between $30k-$50k. this is a very different mindset than the entrepreneurial one. major differences are that for the professional, the plan is to save slowly, slightly more stable (at least in their mindset, although i disagree), accrue investment returns of 10% or so (if lucky, reality is much less after taxes & inflation), and then retire with a large enough asset base to withdraw money from as well as from any partnership retirement fund. these are usually families so buying also makes sense psychologically because if ur kids get "settled" it is harder to move.

ok then there is entrepreneurial ones buying these apartments. most of us r buying with at least 100% in cash before we buy. very few are truly leveraging to buy houses. if 10% is put down, it is because the other 90$ is seeking high-yield business investments. key to entrepreneurship is 1)delayed gratification, 2)taking risk, 3)always looking for opportunities. so again, for alot of people living in these 3 bdrms, i would guess the entrepreneurs are buying well within their means. (some are not as always). in order to be successful at business u need to understand cash-flow statements, so it is not the case that i will trust the bank to give me the correct formula for buying as imo, they don't know anything about my personal cash flow or my businesses. if anything i will be EXTREMELY conservative buying real estate b/c i don't see it as being that great of a business, why risk a lot to gain 5% a year if i am lucky, after taxes?

newbuyer99 said "Even after taxes, where does the rest of your money go?!". this actually summarizes the difference completely. at 600k i saved about $225k or so (and felt guilty that i didn't save more). this yr i will break $700k and maybe touch $800k and prob save about $350k. i am only interested in buying one thing with that saved money - more heavy cash-flow producing assets. my friend at $150k per month still keeps his entire expenses below $15k per month...i think this is because we don't feel like we have enough cash to give up the game yet and expenses don't make the cash-flow statement look pretty. if i was making $800k per yr and saving only 10-20% i would probably have a heart attack (this is not an insult but just explaining my mindset)!

btw, i forgot the last part of this, which is if u run a business, at some point u look at selling it. so if u can net $1 mill per yr u r looking at a $3-6 mill asset. lotta of these guys sell 1 or 2 of their businesses and then buy with the cash from the sale.

i try to live by the rule 1 billionaire gave me (he gave me 2 rules, the other one was- don't ever work as an employee one day longer than u have to, regardless of how much u make). the rule was 20-40-40, ie, 20% spending, 40% tax, 40% saving. he convinced me to go it alone because after meeting him and several wealthy guys at dinner, it occurred to me that $1 million a year is chump change and to really "live the life" i should be aiming for $1 million per month! but all the guys said the same thing, which is that they always lived well below the means of their friends making the same amount of money. it was those savings that allowed them to build their empires.

this may be a bit off-topic, but for nyc1234:

how do you reconcile the conservative side of your philosophy ["if anything i will be EXTREMELY conservative buying real estate b/c i don't see it as being that great of a business, why risk a lot to gain 5% a year if i am lucky, after taxes?"] with the risk-taking you point out as being key to entrepreneurship?

Those sound like entirely incompatible skillsets or personality traits! And the combination of expansiveness and conservatism seems very rare. (I admire them.)

nyc1234, thank you for your wise words.

nyc1234, I live the 20/40/40 rule. It is very hard to do in NYC if you earn less than 500K but at $1mm family income, it is doable.

Sorry, I meant I like not live.

nyc1234

you should really be on my rich dads site, or maybe my poor dads.