NYC Rents are UP this summer

Sneaky, you're so easy:

"There is more doorman inventory this month than we’ve seen in a long time, yet prices keep rising. Conversely, prices in non-doorman properties have come down, and inventories for those units have followed suit. But if it’s a widely-accepted fact that the market has, indeed, turned—even the largest companies concede, finally—why are prices continuing to increase in service buildings? As I’m not an economist, I simply observe what’s before me and attempt to offer insight into market trends. With the market as off-kilter as it is this month, I must conclude that owners of doorman buildings are resistant to lowering prices and, instead, are offering incentives while actually increasing prices to offset those concessions. Unfortunately, this strategy appears to be backfiring, and inventories continue to mount as the season hits the midway point. My main concern is that these accumulating vacancies may not be absorbed even if prices are lowered—which is why, as we head into August, I strongly urge all property owners to take a hard look at their marketing plans for the subsequent months so as not to be overwhelmed by an excess of unrented units as the busy season comes to a close."

tregny.com

For the savvy investor that you claim to be, you don't seem to know who illiquid markets behave when they start to fall.

"who illiquid markets" = "how illiquid markets"

Yikes!

"But the layoffs have been gradual: about 2,000 in the city’s financial services sector in the past year, according to the state’s Labor Department."

Truth of the matter: "Layoffs on Wall Street tend to have less of an immediate effect on unemployment statistics because financial companies often hand out severance that tides people over for weeks or months, delaying their need to seek unemployment benefits, analysts said."

http://www.balconynewyork.com/2008/06/20/layoffs-show-on-new-york-unemployment-rolls/

Don't just parrot statistics - look at why they are. Some rents are up, some are down, but rental inventory is swelling. Layoffs on Wall Street haven't affected the unemployment statistics because when you get a package, you're technically still employed for up to 6 months.

Steve - maybe we will believe that you know what you are talking about if and when the market actually tanks like you have been harping about for the past year. Meanwhile if you were actually in the game over the past year, you would have made a few hundred thousand.

"maybe we will believe that you know what you are talking about if and when the market actually tanks like you have been harping about for the past year."

Not a year - just 6 months.

"Meanwhile if you were actually in the game over the past year, you would have made a few hundred thousand."

Yup. As inventories swell, for rentals and purchases.

All I can say is... grasping at straws...

The haters just keep on hating, and paying more rent, and more rent, and more rent . . .

"The haters just keep on hating, and paying more rent"

Dude, you are REALLY strange.

Hey, he's got to make himself feel better about his lousy investment *somehow*.

The Real Deal has an article today that Manhattan rents are UP. Any thoughts on it?

But if it’s a widely-accepted fact that the market has, indeed, turned—even the largest companies concede, finally—why are prices continuing to increase in service buildings? As I’m not an economist, I simply observe what’s before me and attempt to offer insight into market trends. With the market as off-kilter as it is this month, I must conclude that owners of doorman buildings are resistant to lowering prices and, instead, are offering incentives while actually increasing prices to offset those concessions. Unfortunately, this strategy appears to be backfiring, and inventories continue to mount as the season hits the midway point. My main concern is that these accumulating vacancies may not be absorbed even if prices are lowered—which is why, as we head into August, I strongly urge all property owners to take a hard look at their marketing plans for the subsequent months so as not to be overwhelmed by an excess of unrented units as the busy season comes to a close."

tregny.com

Steve would say that rents going up are a sign tht the NYC real estate market is going to crash 50%.

which would still be a lot more logical than any argument about prices going up...

Eddie - spoken like a true renter! that will be a renter in NY forever. I bet that you said the same thing in 2001, 2002, 2003, 2004, 2005, 2006, 2007......

"Steve would say that rents going up are a sign tht the NYC real estate market is going to crash 50%."

No I wouldn't.

I would say that rising inventory does not auger well for the future.

And not all prices are going up. Some did, in June. Some fell.

but Steve what about the rent to price ratio you bitch about all the time????

"bitch about"

I don't bitch about anything. Get real.

But the price-to-rent ratio is in my favor, despite that very selective report you quote, from tregny.com:

Where Prices Decreased:

Harlem— Non-doorman one-bedrooms (0.8%), non-doorman two-bedrooms (4.4%)

Upper West Side— Non-doorman studios (0.5%)

Upper East Side— Doorman studios (1.4%), non-doorman one-bedrooms (3.7%), doorman one-bedrooms (0.9%), non-doorman two-bedrooms (1.2%)

Midtown West— Non-doorman studios (2%), non-doorman one-bedrooms (0.9%)

Midtown East— Non-doorman studios (6.1%), non-doorman one-bedrooms (3.3%), non-doorman two-bedrooms (4.8%), doorman two-bedrooms (5.3%)

Murray Hill— Doorman two-bedrooms (5%)

Chelsea— Doorman studios (1.6%), non-doorman one-bedrooms (5.6%), doorman one-bedrooms (2%), non-doorman two-bedrooms (1.8%)

Gramercy Park— Doorman studios (2.9%), doorman one-bedrooms (2.1%), non-doorman two-bedrooms (4.9%)

Greenwich Village— Non-doorman studios (1%), doorman studios (1.2%), non-doorman one-bedrooms (0.9%), non-doorman two-bedrooms (0.9%)

East Village— Non-doorman studios (4.6%), non-doorman one-bedrooms (1.5%), non-doorman two-bedrooms (0.3%), doorman two-bedrooms (3%)

SoHo— Non-doorman studios (4.5%), doorman studios (2%), non-doorman one-bedrooms (0.8%), non-doorman two-bedrooms (1.2%)

Lower East Side— Non-doorman studios (2.5%), doorman one-bedrooms (7.2%)

TriBeCa— Non-doorman studios (2.2%), non-doorman one-bedrooms (3.3%), non-doorman two-bedrooms (3.6%)

Financial District— Non-doorman two-bedrooms (3.5%)

Battery Park City— Doorman studios (1.4%), doorman one-bedrooms (1.2%)

Where Prices Increased:

Harlem— Non-doorman studios (3.4%), doorman studios (3.7%), doorman one-bedrooms (0.8%), doorman two-bedrooms (0.1%)

Upper West Side— Doorman studios (1.8%), non-doorman one-bedrooms (5.1%), doorman one-bedrooms (2.4%), non-doorman two-bedrooms (0.6%), doorman two-bedrooms (3.5%)

Upper East Side— Non-doorman studios (0.7%), doorman two-bedrooms (4.9%)

Midtown West— Doorman studios (0.7%), doorman one-bedrooms (2.1%), non-doorman two-bedrooms (0.5%), doorman two-bedrooms (4.5%)

Midtown East— Doorman studios (3.2%), doorman one-bedrooms (0.4%)

Murray Hill— Non-doorman studios (1.8%), doorman studios (1.6%), non-doorman one-bedrooms (0.6%), doorman one-bedrooms (3%), non-doorman two-bedrooms (6.4%)

Chelsea— Non-doorman studios (1.3%), doorman two-bedrooms (1.8%)

Gramercy Park— Non-doorman studios (4.8%), non-doorman one-bedrooms (1.1%), doorman two-bedrooms (1.9%)

Greenwich Village— Doorman one-bedrooms (4%), doorman two-bedrooms (0.7%)

East Village— Doorman studios (2%), doorman one-bedrooms (4.6%)

SoHo— Doorman one-bedrooms (4.7%), doorman two-bedrooms (1.6%)

Lower East Side— Doorman studios (0.8%), non-doorman one-bedrooms (5.1%), non-doorman two-bedrooms (4%), doorman two-bedrooms (5.8%)

TriBeCa— Doorman studios (1.3%), doorman one-bedrooms (2.6%), doorman two-bedrooms (1.4%)

Financial District— Non-doorman studios (6.6%), doorman studios (3.3%), non-doorman one-bedrooms (2.4%), doorman one-bedrooms (4.2%), doorman two-bedrooms (2.6%)

Battery Park City— Doorman two-bedrooms (2.9%)

We reported a weakening of the market in August 2007 when, at the close of an especially strong rental season, landlords began offering the same kinds of concessions being seen today. While many were skeptical at the time, the downturn of the market is now clearly evidenced by the incentives that have been, and continue to be, provided throughout the summer of 2008.

$2,175

+0.3%
One-Bedrooms

$3,052

$2,842

-6.9%
Two-Bedrooms

$4,164

$4,019

-3.5%

Doorman Citywide Rents: July ’07 vs. July ’08

July ’07

July ’08

Change
Studios

$2,689

$2,648

-1.5%
One-Bedrooms

$3,845

$3,825

-0.5%
Two-Bedrooms

$5,763

$5,769

+0.1%

Sorry about those numbers at the end - I thought I'd gotten rid of them!

petrfitz, no Wall Street layoffs until Oct-Dec. However, if Lehman is sold, you may see a lot of heads get chopped. For me, the question is not "will there be massive layoffs on Wall Street (and law firms, accounting firms, etc...)?" but "will these people remain in NYC?". How many of these people only came to NYC to make a lot of money? What do they do when things don't pan out? Do they stick it out and wait for the rebound or do they turn tail and run. Right now, we're just passing time waiting for autumn...

I like it how sneaky pete opened this dialog with a quotation without revealing the source: The Real Deal, a real estate website, that manipulated the tregny data to come up with the answer it wanted to hear.

Typical real-estate agent deceit.

"I like it how sneaky pete opened this dialog with a quotation without revealing the source: The Real Deal, a real estate website"

Can't say I'm really surprised anymore.

Anyone with a brain knows where the market is at. Anyone saying otherwise is an idiot, or has a vested interest in trying to trick a few folks so they can get they're money out before they've lost 100%.

EddieWilson - spoken like a true renter! Thanks for the rent check this month. I used the check which represents 50% of your take home pay to put a new engine in my boat and now it runs sweet. Thanks again.

When you're losing your shirt and living in your mom's basement, I guess you have nothing but insults and braggin left. I'm sure you're the most beloved student in 3rd grade, petrfitz. I hear the Las Vegas publio school system is GREAT.

If it matters, I'm paying about half the carrying costs of the sucker who owns the apartment I'm renting. Got to love bitter bubble buyers!

"I'm paying about half the carrying costs of the sucker who owns the apartment I'm renting."

Spoken like someone who knows nothing about RE and financing. spoken like someone who has wasted $150K renting for the past 5 years.

Do you really think that landlords in Manhattan operate at a loss? REALLY????

"Do you really think that landlords in Manhattan operate at a loss?"

Most don't, but many do.

Steve - please provide 1 data point that backs up this assertion.

Here you go... Mine.

Eddie - please prove it. If you can.

Easiest thing in the world:

http://www.streeteasy.com/nyc/building/88-greenwich-street-new_york

Compare the listing prices for any apartment to the rental prices for the same apartment. (They don't publish the apartment numbers for rentals but you can basically tell by the square feet.) Do a 30-year 80-20 mortgage, add in the taxes and maintenance, and no one even comes close to breaking even on a cash-flow basis.

Steve are you so lazy that you need me to do the math? I said prove it. Showing me a link does not prove that landlords cant rent for a profit.

Also if most landlords in the city are losing over 50% on each unit per month, how do they stay in business or why are they in business?

petrfitz, stevejhx didn't exactly say "most landlords in the city are losing over 50% on each unit per month." As for how they stay in business, well, most landlords can afford to take a loss for a while, though eventually some will be forced to get out of the business and sell. This happens in every industry - not sure why it's so hard for you to comprehend. My parents have been landlords for decades now and have certainly made a lot of money from doing so, but they also spent quite a bit of time (as did I) looking at Brooklyn brownstones to rent out. In many cases, it was quite difficult to come out cash-positive. It's not as easy as you think it is - you have to find the right deals to buy and have to get the rents on a consistent basis.

bjw - i have 4 buildings of rentals. i know how easy it is. And Steve does say that all units on the market now cannot be purchased and rent for a profit. He cant even give 1 example of a landlord losing money.

"And Steve does say that all units on the market now cannot be purchased and rent for a profit."

There might be one or two.

"He cant even give 1 example of a landlord losing money."

I gave you an entire building.

show us the math steve

Petr: honest question: Would the buildings you own be cash-flow positive if you bought them at today's prices (and purchased them with 80% debt)? I can't help but think that they are performing well in part because rents have risen dramatically but any mortgage you put in place was fixed. That is no criticism of your investing prowess; in fact it is to your credit. But I'm just not sure the numbers would work at today's prices without future rental growth.

Sure dude:

http://www.streeteasy.com/nyc/sale/191998-condo-88-greenwich-st-wall-street-manhattan

Total monthly costs with a 30-year 80-20 mortgage at the average rate of 8% = $8484.

Similar (or same) unit listed for rent at $6,000.

http://www.streeteasy.com/nyc/rental/354751-condo-88-greenwich-street-wall-street-manhattan

On a cash-flow basis that's a lost of $2,484 per month. Not even your much-vaunted "tax benefit" can help with that one.

Then, as you must know since you're a savvy real-estate investor, you can only count 11 months' rent toward the cash flow because the apartment will be vacant at times, and repairs, etc., will need to be done.

THEN: if you were honest and bought the place with a commercial loan, the interest rate would be closer to 9%.

K?

Steve is very tricky with his hiding of information lumped into his cherry picking stats. This represents rental price increases. Plain and simple steve now read and weep.

Where Rental Price Increased:

Harlem%u2014 Non-doorman studios (3.4%), doorman studios (3.7%), doorman one-bedrooms (0.8%), doorman two-bedrooms (0.1%)

Upper West Side%u2014 Doorman studios (1.8%), non-doorman one-bedrooms (5.1%), doorman one-bedrooms (2.4%), non-doorman two-bedrooms (0.6%), doorman two-bedrooms (3.5%)

Upper East Side%u2014 Non-doorman studios (0.7%), doorman two-bedrooms (4.9%)

Midtown West%u2014 Doorman studios (0.7%), doorman one-bedrooms (2.1%), non-doorman two-bedrooms (0.5%), doorman two-bedrooms (4.5%)

Midtown East%u2014 Doorman studios (3.2%), doorman one-bedrooms (0.4%)

Murray Hill%u2014 Non-doorman studios (1.8%), doorman studios (1.6%), non-doorman one-bedrooms (0.6%), doorman one-bedrooms (3%), non-doorman two-bedrooms (6.4%)

Chelsea%u2014 Non-doorman studios (1.3%), doorman two-bedrooms (1.8%)

Gramercy Park%u2014 Non-doorman studios (4.8%), non-doorman one-bedrooms (1.1%), doorman two-bedrooms (1.9%)

Greenwich Village%u2014 Doorman one-bedrooms (4%), doorman two-bedrooms (0.7%)

East Village%u2014 Doorman studios (2%), doorman one-bedrooms (4.6%)

SoHo%u2014 Doorman one-bedrooms (4.7%), doorman two-bedrooms (1.6%)

Lower East Side%u2014 Doorman studios (0.8%), non-doorman one-bedrooms (5.1%), non-doorman two-bedrooms (4%), doorman two-bedrooms (5.8%)

TriBeCa%u2014 Doorman studios (1.3%), doorman one-bedrooms (2.6%), doorman two-bedrooms (1.4%)

Financial District%u2014 Non-doorman studios (6.6%), doorman studios (3.3%), non-doorman one-bedrooms (2.4%), doorman one-bedrooms (4.2%), doorman two-bedrooms (2.6%)

houser, you're a day late. I published that yesterday in its entirety. Sorry to burst your bubble.

And look: most of those increases aren't even at the rate of stabilized apartments or inflation. So much for "rents on the rise."

petrfitz - here's another one, even more dramatic.

http://www.streeteasy.com/nyc/sale/225865-townhouse-304-union-street-cobble-hill-brooklyn

Assuming 20% down on a 30 year loan at 6.5% (quite generous, but I'll give it to you), you're talking over $25k per month. Now we've got to rent out the units. Let's say you get $12k for the 4BR and $3k for the 1BR. Again these are generous. You're still $10k short per month.

Jumbos average 8% now.

And commercial loans are higher.

And you can only count on 11 months' rent.

Thanks steve, I know all this. I was merely reinforcing your point. You may want to check the going rate on jumbos though.

Amazing how sneaky has time to post on other threads, but not to return to this one. Perhaps I've "cherry-picked" my data again.

"Total monthly costs with a 30-year 80-20 mortgage at the average rate of 8% = $8484.
Similar (or same) unit listed for rent at $6,000.
On a cash-flow basis that's a lost of $2,484 per month. Not even your much-vaunted "tax benefit" can help with that one."

Steve, it is very misleading to compare just the monthly payments. You have ignored the two largest cash events in owning vs renting.
1. The buyer pays a $246k down payment today, which the renter doesn't pay
2. After paying their respective monthly payments for 30 years, the buyer owns a 100% paid-for apartment which can be sold for $X, and the renter owns nothing.

So, a comparison of monthly payments means very little without assumptions about the time horizon for the comparison and the expected future value of the apartment at the end of that time horizon.

Pretty sloppy, Steve, pretty sloppy.

> Amazing how sneaky has time to post on other threads,
> but not to return to this one

Prove him wrong, he runs away. He left curbed when folks starting quoting the blatant mistakes he had made.

"Steve, it is very misleading to compare just the monthly payments. You have ignored the two largest cash events in owning vs renting."

If you are negative in your cash flow $2,500 a month without the abated property taxes, which will be at least $1,000 a month, you will be in the red $3,500 per month.

If you use an amortizing mortgage you'll NEVER own your apartment, and here's why: for simplicity's sake, let's assume that your mortgage, maintenance, and tax payments never vary over 30 years, you invest nothing in the apartment to maintain it, and it remains rented 100% of the time at that constant rent. In other words, nothing changes. At the end of the 30-year mortgage, you will be $279,672.43 in the hole.

Why? Because you don't start paying off more in principal than your loss until your 253rd mortgage payment, which is 21 years.

Of course steve sneakily avoids the tax benefit of owning. What is the actual after-tax cost in this example. Probably pretty close to $6,000 per month. Well worth it considering you would own your apartment, while that $6k per month rent will be much higher 3, 5, 10 etc. years down the road.

"At the end of the 30-year mortgage, you will be $279,672.43 in the hole."

That's true only if the market value of the apartment is exactly equal to the current price of $1.23mm in 30 years.
If the apartment has lost $500k in value, the buyer will be in the hole by $500k more than your number.
If, on the other hand, the apartment doubles in value in 30 years (2.34% per annum appreciation), they buyer will have so start worrying about capital gain taxes when selling.

So Steve, don't forget to consider price depreciation/appreciation in your economic analysis next time.

Again, pretty sloppy, Steve, pretty sloppy.

"If, on the other hand, the apartment doubles in value in 30 years (2.34% per annum appreciation), they buyer will have so start worrying about capital gain taxes when selling."

What can you get in a money market, db?

"Of course steve sneakily avoids the tax benefit of owning."

You mean the tax benefit of losing money? That's right - every penny you lose (less principal) is tax deductible. So is every penny you throw out your window.

Read it, LICC: "On a cash-flow basis that's a loss of $2,484 per month. Not even your much-vaunted "tax benefit" can help with that one."

And that is true.

I didn't "avoid" it: as an investment property, it is an expense. You have an interest expense of thousands of dollars a month, which far exceeds your income.

Get real.

BTW I also avoided the opportunity cost of not investing elsewhere.

I avoided a lot of things to make a simple example.

"don't forget to consider price depreciation/appreciation in your economic analysis next time."

Absolutely. If you depreciate the property even ONCE, then you need to RECAPTURE that depreciation over the length of ownership. So if you buy for $1 million and sell for $2 million, you need to recapture $2 million in depreciation. Meaning you need to pay income tax on $2 million.

There is no way to make sense of those numbers. Unless LICC wants to provide me with his calculations.

You know steve is aware he is wrong when he tries to throw in every other concept under the sun that he can think of to backtrack. steve, this isn't that hard (for most people, for you, obviously it is). You calculated the monthly cost to own at $8484 (which may be a little high since you used an 8% rate, but ok. You did not take into account the tax deduction for mortgage interest payments or the federal tax deduction for property taxes paid. I'm not sure if this is tax-abated but if so, the monthly would be lower. Your actual monthly cost, after taxes, would be right around $6000. Basically the same as renting. Basically, your cash-flow analysis is garbage. As pointed out above, very sloppy steve, as usual.
You also again bring up the opportunity cost of not investing elsewhere, while ignoring the equity appreciation of the property itself, which offsets the opportunity cost. You also ignore increasing rents over time. That $6000 is not going to remain $6000 over time. Get real steve.

Dude, unfortunately I just lost my rebuttal to you when I logged in, so this one I'm going to have to do quickly.

If you rent this property out all interest, maintenance, property taxes, etc., are deductible (not principal repaid), but you CANNOT deduct any loss from your regular income because it is a separate business. Therefore, you have a net out-of-pocket loss of $34,000 per year. There is no "tax deduction for mortgage interest payments or the federal tax deduction for property taxes paid" as if it were a primary residence. Sorry dude, it doesn't work that way, ask your accountant.

I didn't take into account lots of things, like transaction costs, repairs and upkeep, the risk of a tenant trashing your apartment, the risk of a tenant who doesn't pay who can take up to a year to evict in New York City, the risk of not being able to rent it out, increasing taxes and maintenance, insurance, legal fees, broker fees, the time the apartment will sit vacant if you decide to sell it, opportunity costs, etc., on which, you will have to prove this: "ignoring the equity appreciation of the property itself, which offsets the opportunity cost."

Equity appreciation? Really? You cannot rely on that, especially in this market.

Dude, show me one cash flow statement that has a line that says, "Tax Benefit." You can't, because there isn't one. There is a line for "Taxes Paid," but not "Tax Benefit." It is NOT a credit. "Basically, your cash-flow analysis is garbage."

Yours is.

If you rent your apartment out, the accounting is entirely different than if you live in it as a primary residence. Learn that. Each business must be kept separate.

It's hard for me right now not to use an unendearing term for your nonsense. But what you just wrote is idiotic.

Dude, the idiocy of your post is borne out by the fact that the income you need to rent the apartment versus the income you need to buy it are astronomically different. To rent you need 40x monthly rent = $240,000 in annual income. To buy you cannot exceed 28% of gross income (and sorry, banks don't include your "tax benefit" in that) = $363,000 in annual income.

That is, you would need an income of 50% more to buy the place than you would to rent it.

My numbers are based on living in the apartment as a primary residence. Which is more important in the question of whether to buy v. rent? Nice try at misdirection steve.

I didnt reply right away because I actually have a life and dont spend all day and night on this board. I was driving to my beach house and banging my hot wife for the last day.

But its obvious that Steve manipulated his data and LIC was able to correct him before I looged on.

Face it Steve and MMAfia - landlords make money. Almost all of them do. Just because your abilities are limited and you cant figure out how to find a good property, finance and maintain it at a profit doesnt mean that there are not a lot of other people who can figure it out. It is actually very simple. Landlords make a lot of money and anyone who think that they are renting for half or less than what their landlord pays is a fool - a fool who gives 50% of their take home to someone else.

petrfitz: Not on this one. The owner is taking a bath.

http://www.streeteasy.com/nyc/rental/319258-clinton-manhattan

"That is, you would need an income of 50% more to buy the place than you would to rent it."

How is this relevant to a buying vs renting analysis? By definition this choice is only available to someone who can afford both. Pray explain.

petrfitz, not sure what your "wife" has to do with any of this, but starting to sound like your whole persona may be a parody (and if it is, kudos, but you sure have a lot of time on your hands). Nonetheless, take a look at the scenarios steve and I posted. They're pretty clear cases of being cash-negative. Some landlords make plenty of money - no doubt - but there are plenty who don't, and there are plenty of scenarios where buying a place and renting it out are not profitable right now. I'd love to see evidence out there of places that could be profitable. Please post if you find some - would make for good discussion here.

bjw2103 -- A cash-negative trade is not necessarily a money losing trade. You also need to look at how the asset value changes over time.

Buying RE on a mortgage is like buying stock on margin:
- You pay a fraction of the market price now
- You pay a financing cost for the loan and other carry cost for the asset
- You benefit from rent/imputed rent/dividend over time
- When you exit your profit & loss is equal to prevailing asset price minus the loan balance

Holding Enron through 2001 on margin and holding Google on margin since 2004 are both cash-negative trades, because there is no dividend to cover margin loan interest. But you lose your shirt in one case and make a killing in the other one. The difference is all in asset value performance.

> I didnt reply right away because I actually have a life and dont
> spend all day and night on this board.

Yes, he has to spend time on curbed and all the other boards, too!

> starting to sound like your whole persona may be a parody

I've definitely thought that for a while. I don't think anyone is really that stupid.

hvd_free, definitely appreciate your points and insight. There are obviously a lot of problems with comparing stocks to real estate, but I think the point here was to show that current rents don't even come close to covering carrying costs for a LOT of properties priced as they are on the market right now. It's a pretty safe bet that rents will rise in the long-term, but the cost to own property is probably less certain. As stevejhx constantly alludes to, that equilibrium is way out of whack, and there will have to be some stabilization down the road. As it stands though, buying RE as an investment right now is tough to do if you have short-term goals - I don't think that's what you were disputing; just trying to emphasize the thinking behind the exercise above, and dispel petrfitz' belief that all landlords are incredibly successful.

> dispel petrfitz' belief that all landlords are incredibly successful

Which is understandable, given that all of his properties are on Boardwalk and Marvin Gardens.

> bjw2103 -- A cash-negative trade is not necessarily a money losing trade.
> You also need to look at how the asset value changes over time.

Absolutely. The biggest mistake is usually made on the inverse... where a short-term cash-positive trade is not necessarily a money-making trade (long term)

I've seen more than a few folks, on this board and elsewhere, going "well, I'm making money because the rent covers my mortgage", not realizing that their asset value is eroding at a by far greater rate than any "profit" they're making on the monthlies.

Well said, bjw2103. To come up on top in a cash-negative trade, one has to have other financial means to stay solvent in the interim.

Personally I am not bullish on RE for the near future. However, that's not a conclusion one can make from simply comparing the monthly costs of buying vs owning. That's all I wanted to point out.

"My numbers are based on living in the apartment as a primary residence. Which is more important in the question of whether to buy v. rent? Nice try at misdirection steve."

LICC, petrfitz asked if I could find an example of a property that would lose money on a cash-flow basis, & I did.

Meantime, he's "banging his wife." Lovely.

Lovely since he claims she's a Shakespearean actress, runway model, singer, songwriter, puppeteer and god knows what else. You'd think he'd speak about the woman he loves with more respect, especially since she's such a trophy.

"But its obvious that Steve manipulated his data and LIC was able to correct him before I looged on."

You mean that I planted those listings? Come on!

"Face it Steve and MMAfia - landlords make money. Almost all of them do."

That's quite the backpedal from your prior comment, that they all do.

"A cash-negative trade is not necessarily a money losing trade."

Okay fine. Throwing your money out the window isn't necessarily a "money-losing trade," either. Nor is housing a "trade."

"You also need to look at how the asset value changes over time." Right! Which can go up, or down.

"Buying RE on a mortgage is like buying stock on margin"

Except the leverage is much higher, and if you rent your house out for less than you're paying for it, you can easily wipe out any "profit" to be made. As far as I know if you buy Google on margin beyond interest you don't have to pay google or anybody else a monthly premium to keep it.

Steve,

Looks like that in trying to keep your "model" symple, you are missing the big picture.

Let's say that I buy the unit for 1.23MM and rent it out for 6k.month in the first year. You claim that I will be "$279,672 in the whole" in 30 years, making it a bad investment.

Your monthly mortgage payment stays the same (if you don't refinance for better terms), but if you think that in 2021, for example, the rent will be 6k or less, you are fooling yourself. If you think that in 2038 the apartment will be worth 1.23MM or less, you are fooling yourself yet again.

Also, why does your model "stop" after 30 years? What happens with the 361st rent check? How about the 362nd? For example, I am 31 years old, and I definitely don't plan on dying when I am 61... Oh, and yes, I am 31 but I can afford a 1.2MM place (just like a lot of other people my age), so I am not on here asking hypothetical questions...

There are people with actual net worth, you know... Not everyone is putting their life savings into something like this (as well as they shouldn't) and not everyone is pinching pennies to make that mortggae payment. You didn't explicitly say that people did, but it seems to me that you are implying it.

Right or wrong, there is plenty of folk out there who believe that the Manhattan RE market and/or rental market will be either higher or a lot higher in 10 years (let alone 30 years) and whose income affords them to be $2,500/month "in the hole" just so that they can own an "indefinite" call on both of these markets. But the $2,500/month gap will likely close way sooner than the loan is up (even in the worst case scenario, it will close in 30 years), so they will get to own the call for free AND get positive cash-flow from it. Speculative? Of course. Best investment you can possibly make? Probably not. But why does that make it necessarily "bad" or "wrong"? This can be a great part of a balanced protfolio.

Oh, and finding a Manhattan apartment that's cash-flow negative isn't nearly as impressive as it sounds. In fact, if you can find me a listing for a condo in a luxury building in Manhattan which is cash-flow positive in the first month (assuming 8% 20/80 30-year fixed), please shoot me an e-mail. I will close on it in 3 weeks.

if you are negative in your cash flow $2,500 a month without the abated property taxes, which will be at least $1,000 a month, you will be in the red $3,500 per month.--Stevejhx

Stvejhx you forgot one minor point -rents have been increasing and guess what over the next 5 years they will be higher than they are today. Next 10 years they will be even higher. If you have a 30 year fixed mortgage your monthly remains the same yet the tenant will be paying higher rents YOY.

BGaria sorry about that didn't read you last post

How about this scenario:

Listed price 1.295M for a comparable unit (exactly the same unit, just one floor higher)
Rent @ $3500
CC and Taxes $1400/month

With prices in a downtrend why would somebody want to buy one now or in the forseeable future?

I totally agree with Surdy. You can also marry for all the wrong reason but after 30 years of unhappiness discover you've learned to tolerate your wife. So what? For most normal humans paying a mortgage plus CC and taxes in NYC is a steep challenge, so why in the world would you want to get into one at the stupidest possible time? Yeah, if you manage not to default, lose the property and ruin your credit, after 30 years you'll be doing great as a landlord... so? You can just rent, wait and buy the same property 2 years later for 30% less.

surdy that is a ridiculous example. How bout someone who bought a one bedroom in 2005 for 500,000 and is now renting for 3800 per month. It's easy to cherry pick examples like "should I buy an apt for 5 mil or should I rent the same one out for 4500 per month". and go on to prove ones case that renting makes more sense than buying. Silly and dopey examples are fun to play with but doesn't prove anything.

"Stvejhx you forgot one minor point -rents have been increasing and guess what over the next 5 years they will be higher than they are today. Next 10 years they will be even higher. If you have a 30 year fixed mortgage your monthly remains the same yet the tenant will be paying higher rents YOY"

Rents haven't increased faster than inflation, and recent numbers show many are DECREASING.

Plus, you're wrong anyway.

> your monthly remains the same

So, rents will go up but taxes, common charges, maintenance, heating, blab bla, bla, those are somehow staying the same?

We kidding with that?

> How bout someone who bought a one bedroom in 2005 for 500,000
> and is now renting for 3800 per month

Wow, now you are COMPLETELY missing the point here.

You might be cash flow positive, but if the asset is losing money, you are exactly what has been noted as a problem... cash positive but money losing.

EW, I said "your monthly mortgage payment remains the same", not "your monthly remains the same". Big difference.

As far as the real estate tax going up, isn't that a function of the value of the property? God, I hope my real estate taxes triple next year!

Yes, your CC will be going up every year for the foreseeable future, but if you mean to tell me that FiDi rental prices haven't kept up with inflation over the last, say, 10 years, then I just don't know what to say to that... That's simply not true.

I couldn't find the listing you were talking about, Surdy. Not sure if it's real or just an example. In any case, going with the numbers... If the rent is $3,500, I would have to assume that you are talking about less than 800SF (possibly as little as 650-ish). Well, if one is going to buy a studio or a 1-BR at $1,600-2,000/SF in that building, then they are just asking for it...

In my first post, I didn't mean to say that any and every buy makes sense. To follow up on Spunky, yes, if you can rent a 4-million dollar place on Park Ave (CC: $2,700/month) for $1,195/month, you should rent and not own...

But let me ask you this, Surdy. .. Going with Steve’s example (a 2-BR at 88 Greenwich, 1,213SF, CC of $1,264/month, for rent at 6k/month), but let’s disregard the list price of 1.23MM for the moment. Let’s say you paid for it cash and own it outright. It doesn’t (or rather, it shouldn’t) matter how much you paid for it and when. What would be your list price if you had to put it on the market tomorrow? It would help if you show your reasoning if not your “math”…

Do you promise that RE will drop 30% in the next 2 years, Trompiloco? I mean, do you REALLY promise me? 'cause if you do, I will wait on buying...

"So, rents will go up but taxes, common charges, maintenance, heating, blab bla, bla, those are somehow staying the same?"

Now that's funny. My maintenance on my condo I'm renting went up about 100 per month over the past 4 years. Heating guess what I don't pay for heating. taxes guess what they actually went down. Blah blah blah that too went down. Rents on the other hand have gone up about 25% over the past 5 years. Good try EddieWilson

> How bout someone who bought a one bedroom in 2005 for 500,000
> and is now renting for 3800 per month

Wow, now you are COMPLETELY missing the point here.

"You might be cash flow positive, but if the asset is losing money, you are exactly what has been noted as a problem... cash positive but money losing."--Eddie Wilson

Same apt in building sold two weeks ago for 925,000.

Nice try EddieWilson

Notice how the biggest bears (Eddie Wilson and steve, and dco sometimes) always make the dumbest, most inaccurate claims to back their arguments. A couple of the bulls (if you want to call people who think the market will stay flat or decrease slightly short-term) may exaggerate a little here or there, but mostly the bulls have reasonable, intelligent logic and realistic numbers behind their arguments. Eddie really tried to argue that increases in rents are offset by increases in common charges? Ridiculous.

BGaria and Spunky

I was looking to buy in Manhattan as late as early June but thank goodness I saw the writing on the wall when I made a trip there.

The example I gave above is not of a landlord in distress but of a real estate investor worth tens (if not a hundred) of millions who knows what is coming. And the tenant is me. So it is not a ridiculous example. It is reality and people who wake up from their dreams sooner won't have to face a nightmare later on.

And spunky, its not 2005, its 2008. Wake up! Totally different set of reality and 3 years in between. Preservation of capital is what will matter most in the next couple of years whether it be real estate or the stock market. That is the name of the game for the banks and the investment cos and the developers. So are they on wrong path or you?

Having capital on the sidelines is prudent in 2008, it was not the case in 2005. And that is not because of hindsight. Nobody was talking of a recession in 2005 or had banks failing. This is the new reality in 2008.

> Same apt in building sold two weeks ago for 925,000.
> Nice try EddieWilson

And if it would have sold for $1,025 in 2007, then holding it was a money loser for the past 12 months.

Making decisions with only a fraction of is generally what causes stupid decisions...

"Notice how the biggest bears (Eddie Wilson and steve, and dco sometimes) always make the dumbest, most inaccurate claims to back their arguments. A couple of the bulls (if you want to call people who think the market will stay flat or decrease slightly short-term) may exaggerate a little here or there, but mostly the bulls have reasonable, intelligent logic and realistic numbers behind their arguments"

OH MY LORD. LIC HASN'T USED A FACT OR PIECE OF DATA IN HIS LAST 100 POSTS. AND HE'S GOING OFF ON OTHERS? Show me ANY of the "reasonable intelligent logic and realistic numbers" you have used? All I've seen from you is "u are stoopid" and other shit kids say in 3rd grade.

Oh man, get a life already. I'm sorry you got fucked by buying in LIC, but posting nonsense isn't going to make it better.

> Eddie really really tried to argue that increases in rents are offset by
> increases in common charges? Ridiculous

OH MY LORD. Now you're even LYING.

No, I didn't, you moron. I simply said that carrying costs can increase with inflation. I didn't say they were more or less than rent increases.

MAN, ARE YOU THAT STUPID, OR THAT DESPERATE TO PUMP UP THE SHITTY NEIGHBORHOOD YOU BOUGHT IN?

Got to love that LIC is doing the same whining on a bunch of other posts... with not a fact in sight.

http://www.streeteasy.com/nyc/talk/discussion/4366-lic-sucks

He wouldn't know a statistic if it broke into his condo and paid his mortgage for him.

"In fact, if you can find me a listing for a condo in a luxury building in Manhattan which is cash-flow positive in the first month (assuming 8% 20/80 30-year fixed), please shoot me an e-mail. I will close on it in 3 weeks."

That's the whole problem. Historically, those figures have been identical. Go back 5 years - as spunkster says - and you will see that they were.

You may be right - rents may go up or down in the future. But if a $1 million property loses 20% in value, that's $200,000. At $3,000 per month, that's 5.5 years' rent, not to mention all the ancillary charges. Amortize that over the life of the loan, add in the other business you conveniently forgot (the profit from investing in another asset class), and you're permanently in the hole.

Sorry.

"A couple of the bulls (if you want to call people who think the market will stay flat or decrease slightly short-term) may exaggerate a little here or there, but mostly the bulls have reasonable, intelligent logic and realistic numbers behind their arguments."

= "They agree with LICC."

Ha.

I'm still waiting for the guy who complains about factless rants to make a post with anything resembling a fact.

steve, so is it your opinion that an apartment that sells for $1 million today will only be worth $800,000 in 2013? Let alone what it will be worth 10, 15, 30 years down the road?

Eddie, you are considered a joke by just about everyone who reads these threads. The comments I see about you from others basically say "What is with this dumb Eddie Wilson and his douchebag comments?" Your opinion really doesn't count for much.

steve, what is your basis for saying that historically, investment condos in luxury Manhattan buildings have been cash-flow positive since day one of purchase. If that were the case, buyers would rush to purchase, thus creating demand and driving the price up. It would be an arbitrage-type situation that wouldn't last. You should expect investment properties to not be cash-flow positive on day one based on a 20/80 purchase. Maybe BGaria has some experience with this, I would like to hear his view.

"steve, so is it your opinion that an apartment that sells for $1 million today will only be worth $800,000 in 2013? Let alone what it will be worth 10, 15, 30 years down the road?"

I don't know what anything will be worth in 2013. I do know that it has happened before that property prices sank in NYC, and I do believe that it will happen again.

"Eddie, you are considered a joke by just about everyone who reads these threads."

Learn to speak for yourself, LICC.

"The comments I see about you from others basically say "What is with this dumb Eddie Wilson and his douchebag comments?" Your opinion really doesn't count for much."

I have yet to see that from anyone but you and perhaps petrfitz. I'm beginning to think you're one and the same.

"steve, what is your basis for saying that historically, investment condos in luxury Manhattan buildings have been cash-flow positive since day one of purchase."

First I don't know what an "investment condo" is per se. Condos are for sale, not for rent. That said, who in his right mind would buy something knowing that he would lose money from Day 1?

Do the math, go back in time, and you will see that, historically, it costs the same to buy as to rent.

"If that were the case, buyers would rush to purchase, thus creating demand and driving the price up."

Why?

"It would be an arbitrage-type situation that wouldn't last."

Arbitrage in an illiquid asset? You've got to be kidding.

"You should expect investment properties to not be cash-flow positive on day one based on a 20/80 purchase."

Then you should expect to lose money from Day 1? Why would you invest in something knowing that it will cost you out of pocket from Day 1, and you may never be able to recover your costs?

Steve, your whole argument is based on RE going down at least 20% in the next 2 years. If one accepts it as "fact," then of course it doesn't make sense to buy now. You might still do ok in the long run, but it just doesn't make sense to buy right before an imminent decline. I don't accept is "fact."

It is possible to be cash positive in the first month. Just not now, not in Manhattan and not if you assume that you have to take out a mortgage. I don't get this whole cash-positive argument and the obsession over it though. If I buy for cash an average studio in the UES at $2,200/SF and rent it out for 2k/month, I am immidiately cash positive, but I can't possibly argue that it was a good purchase. Conversely, if i get a mortgage, I can be a couple of hundred bucks cash-flow negative in the first month but get a steal.

Steve, let's say that you could buy the condo you gave as an example way up the thread. Let's say that you could buy it today at 30% discount to prevailing prices for that building/neighborhood/apartment size/etc... But you are not allowed to flip it. Would you?

LIC, I think your comment about "arbitrage" is incorrect. Investors buy real estate that is cash-flow negative on a leveraged basis only when they believe thay are in the middle of a relatively rapid run-up in rents or values (or when there is an opportunity to renovate or reposition the asset). There is not an arbitrage opportunity in general because there is risk to the equity in a normal environment. Values could fall, rents could fall or stagnate, unpredictable capital expenditures could be necessary, apartments can go vacant, etc. The positive cash flow is just the payment for the risk to equity (in addition to any appreciation). No investment can be a "growth" investment forever. At some point, it has to become an income-producing asset. This is true of all real estate, whether residential, office, hotel, industrial, retail, etc.

First, BGaria, I would never buy that condo b/c it's in the Middle of Nowhere - the Financial District.

Second, even with a 30% discount you'd still be losing money on a cash-flow basis (mortgage + common charges = $6318 versus rent of $6,000 (if you get that) plus you can only count on 11 months' rent per year on average (as the bank). Third, I don't know what the property taxes are but if they're abated they only have one way to go: up.

Fourth, it is HIGHLY UNLIKELY that they are going to get anywhere near that rent. Here are the market rentals on nybits.com for the financial district:

Apartments in Financial District:
$3,362 2-Bedroom at 71 Broadway
$3,973 2-Bedroom at 71 Broadway
$3,975 2-Bedroom at 71 Broadway
$4,255 2-Bedroom at 2 Gold Street
$4,375 2-Bedroom at 45 Wall Street
$4,385 2-Bedroom at 99 John
$4,475 2-Bedroom at 2 Gold Street
$4,580 2-Bedroom at 2 Gold Street
$4,665 2-Bedroom at 2 Gold Street
$4,795 2-Bedroom at 45 Wall Street
$5,150 2-Bedroom at 2 Gold Street
$5,250 2-Bedroom at Historic Front Street
$5,300 2-Bedroom at Historic Front Street
$5,450 2-Bedroom at 45 Wall Street
$5,737 2-Bedroom at 71 Broadway
$6,150 2-Bedroom at Historic Front Street
$8,250 2-Bedroom at Historic Front Street

So $4,500 is a more probable rent for that apartment, especially when you consider that the ones above have no broker fee.

No, I would not buy it for less than 50% of what it's listed at because that would give me monthly income of approximately what it would cost to rent ($4,800).

You wore me out already, Steve. After your last post, I just have nothing to say. I would be arguing for the sake of arguing. Nothing you said makes any sense to me, except for RE taxes going in effect (and going going up), after 7-8 years.

Good luck investing in RE. See you around in 2 years when you are buying at 30-50% below current prices. Will be the first one to congradulate you.

Suit yourself, BGaria. You said, "Let's say that you could buy it today at 30% discount to prevailing prices for that building/neighborhood/apartment size/etc... But you are not allowed to flip it. Would you?"

And I told you precisely why I wouldn't.

You seem to be in the camp that thinks that real estate can go up 40% in 2 years, but can't go down 40% in two years. Well, that's just not the case.

"After your last post, I just have nothing to say."

Of course you don't - the numbers are right there, they don't lie, and they're not cherry-picked.

why in the world would anyone argue with stevjhx. I think he's under an illusion that people actually read his posts. He probably got beat up as a kid quite often but now is acting at his fantasy of becoming a bully on these blogsites.

houser, that was one of your more helpful posts, I must admit.

Whom, precisely, did I "bully"? I was asked a question and I answered it directly. Those are the numbers. Refute them if you can.

Isn't Eddie Wilson the guy who said prices would be down 80%?

Above is a good example of steve's consistent misapplication of data and concepts, and overall nonsense, contrasted against BGaria's intelligent, sensible comments.

"contrasted against BGaria's intelligent, sensible comments."

Which ones are they? That if you buy an apartment all-cash that you will cash-flow positive? That's novel.

Or, "Conversely, if i get a mortgage, I can be a couple of hundred bucks cash-flow negative in the first month but get a steal."

Without showing a single example of how this can be done?

Or, "Steve, your whole argument is based on RE going down at least 20% in the next 2 years. If one accepts it as "fact," then of course it doesn't make sense to buy now. You might still do ok in the long run, but it just doesn't make sense to buy right before an imminent decline. I don't accept is "fact.""

Fine - don't accept it. Come up with one economic indicator that would support prices at the current levels.

See, LICC: there is no "BGaria's intelligent, sensible comments" because he made comments without supporting them with anything. That is neither intelligent, nor sensible.

Just as there is no "steve's consistent misapplication of data and concepts, and overall nonsense"

BGaria, do you know how to add and subtract? How can you say that Steve's argument doesn't make sense or bores you? You started the debate. The whole thing is just clear cut and math based. Sorry for your bad investements.

Another reason they won't get $6k for it:

http://www.streeteasy.com/nyc/rental/369879-condo-88-greenwich-street-wall-street-manhattan

$5500 list, maybe they got $5,000. Maybe.

> Isn't Eddie Wilson the guy who said prices would be down 80%?

Uh, no. Nothing like it.

So, is this all the bulls have left? Denying they said anything would go up, and then lying about what the folks pointing out the obvious have said.

> "contrasted against BGaria's intelligent, sensible comments."

I love it!

I'm still waiting for LIC to find out what a statistic is. I think that comes in 6th grade.