buyers & rates

I have a question for people who bought NYC RE in the decade+ of ZIRP. Somewhere between ~3% rates on mortgages, 0% rates on cash, and perhaps more on risk-bearing investments, buying made sense to you. At some cap rate. What was that cap rate?

Now we're at ~6% rates on mortgages for the indefinite future (according to forward rates anyways), ~5% on cash, and perhaps more on risk-bearing investments. What cap rate would make you a buyer today?

~5% on cash will not stay long, probably for another one-ishyear and it will come down.

The intermediary term treasury bond interest (about 4%) is probably a better indicator on the long-term risk-free return on the cash.

When I bought my apartment in 2021, I was OK with 2.7% cap rate on the 3% mortgage interest rate. It was almost a wash, but I sort of obtained "life time rent protection" as I considered this was my forever home.

Today, with 6.0% rate mortgage, there would be no apartment available for me with 5.5 % cap rate, which is the ideal cap rate to be considered as a wash.

A hypothetical example, assuming the apartment will rent for 4000, with maintenance fee of 1700.

Priced at 1 Million dollars and 20% down, the mortgage payment will be 3400, cap rate is 2.8%. The total payment 3400+1700=5100, about 28% more expensive than the $4000 rent.

If the apartment was priced with 5.5 % cap rate, the price would come down to $500,000, I don't see any apartments priced 50% down.

If only considering mortgage monthly.

Previously, 1 Million at 3% interest mortgage, 20% down , the mortgage is $3400

At 6% interest mortgage, 20% down, to have the same mortgage monthly, the apartment would have to be priced at $710,000, about 29% decrease, this seems more reasonable than the 50% decrease from the pure cap rate computation.

With the price of $710,000, the cap rate would be 3.9%., which is in line with the intermediate treasury bond interest rate.

It would be interesting to see how much of the inflation can come down for the next 2-3 years, and how the apartment price will happen for the next 2-3 years with the uncertainty of FED interest rate and mortgage interest rate

I don't think many buyers truly take yield into account directly when buying.
Indirectly they look at "what can I get with my money renting vs buying", with a strong bias towards buying as they get older/richer, for societal norms reasons.

That said, I think we are actually in the goldilocks "soft landing" phase here, which means we will not get a rate cut anytime soon. This contradicts what even a lot of professional market participants have been forecasting, with many expecting cuts to start as soon as the second half of 2023. This never made sense to me because you'd expect inflation to be defeated and/or a recession to set in before we get fuel put back on the fire.

Now the fed is talking "no cuts for a few years" in their most recent meeting, with likely more rate hikes before then, as soon as next month.

I don't think RE, and especially NYC RE, has baked in that reality yet.
Prices are barely down from pre-COVID peak, and certainly up from COVID bottom.
Given that it will now cost 1000s per month more to own, for years, it's hard to imagine prices sticking here. Only thing rescuing sellers is there aren't many of them, so theres no volume.

Thanks, Woodsidenyc. It kinda sounds like you’d want cap rate to be in the ballpark of mortgage rate, but you might be willing to overlook / fudge it to some extent.

Steve, it has indeed been interesting to see the market continually fight Fed projections on rates for well over a year, repeatedly ending up on wrong side. And the Fed continually underestimating inflation for well over two years, repeatedly ending up on the wrong side.

>> Prices are barely down from pre-COVID peak, and certainly up from COVID bottom.

In nominal terms, SE index is showing Manhattan at 9% below pre-COVID peak (Nov 2017) and 4.5% above COVID bottom (March 2021). Given the lag between negotiations => contract => closing => SE index 3-month smoothing, I’d that “on the ground” prices for the typical place have reached the COVID bottom by this moment in time.

>> Prices are barely down from pre-COVID peak, and certainly up from COVID bottom.

In nominal terms, SE index is showing Manhattan at 9% below pre-COVID peak (Nov 2017) and 4.5% above COVID bottom (March 2021). Given the lag between negotiations => contract => closing => SE index’s 3-month smoothing, I’d guess that “on the ground” prices for the typical place have reached the COVID bottom by this moment in time.

Let's see.

I am going to make an offer on a small unit in my building. Prices are sticky, so a prior offer on a similar unit was declined, as I offered less than the seller paid for the unit in 2017.... it has been for sale for a year.

Nada,

What do you think of SPX having increased mutiple despite having higher rates? The theoretical analysis will bring SPX down at least 30% (call it 20y duration) just by increasing the discount factor which is essentially what the answer to your question about real estate will result in without factoring in pre-payment ability. How do you reconcile the actual behavior and theoretical answer in these different asset classes?

Jan 2022: 10y rates below 2%. SPX multiple 22.82
Now: 10y rate 3.7%. SPX multiple 25.

Using below for SPX multiple.
https://www.macrotrends.net/2577/sp-500-pe-ratio-price-to-earnings-chart

Re: SPX

its really just a handful of names having an outsize impact

AI FOMO seems to be the catalyst

It's always interesting to me to see explanations of how it's ok that riskier investments provide lower returns as long as you add the right assumptions.

It's always interesting to me to see explanations of how it's ok that riskier investments provide lower returns as long as you add the right assumptions.

@30yrs_ Do riskier investments (stocks) provide lower returns? I thought over the long term the SPX beat property value appreciation in Manhattan. Or maybe it depends on the kind of property? Square footage, things like that.

Adding: you can't live in stocks so there's that and cap gains take a big bite out of securities appreciation. As does maintenance + property taxes from real estate appreciation. And maybe it's a case of: if anyone had a definitive answer to this we'd all be a little wealthier :D

>> What do you think of SPX having increased mutiple despite having higher rates?

I guess for me, this makes it a less attractive. You know I was a heavy buyer a ~decade ago when the outlook for returns was ~10% per year according to (say) the Vanguard Capital Markets Model, against a backdrop of ~2% in long-term rates. Now that the outlook for SPX is (again, according to VCMM) ~5%/yr against a backdrop of ~4% in long-term rates, I am not a heavy buyer.

That’s just me. Others undoubtedly have a different perspective.

>> How do you reconcile the actual behavior and theoretical answer in these different asset classes?

Pretty simply. The theoretical answer is that each individual participates in a market according to their personal preferences and outlook, forming the collective behavior. Their individual preferences and outlooks may not match mine, but that does not make mine the “theoretical answer”. The theoretical answer is their collective behavior, driven by their collective preferences and outlook. As such, I find enrichment in gaining insight to their thoughts. Hence, my question as the OP regarding NYC RE.

>> I am going to make an offer on a small unit in my building.

Is this for a parent, a future combo, or just secondary space for a (say) home office? I think you had previously said it’s the third. What’s your thinking behind that? I know MCR’s done it, but to me it’s one of those things that might seem to make sense in theory but then makes a lot less sense in practice. Sort of like a combo, but on steroids.

>> I don't think RE, and especially NYC RE, has baked in that reality yet.

I had created a list of 32 sales about 3.5 months ago, which was whatever out there that looked most interesting to me at the time, I guess. As of now, 2 are in contract. Of the remaining 30, 22 remain while 8 went off-market. One of the ones that got pulled subsequently sold off-market. New dev, sold at 22% below the last ask (late 2022 to early 2023) and 49% off initial 2018 ask. Even at that discounted price, the cap rate is 2.x%.

>Is this for a parent, a future combo, or just secondary space for a (say) home office? I think you had previously said it’s the third. What’s your thinking behind that? I know MCR’s done it, but to me it’s one of those things that might seem to make sense in theory but then makes a lot less sense in practice. Sort of like a combo, but on steroids.

So we have a 2/2 where one room is a home office/extra storage/guest room for parents / in-laws to come visit. We are converting that room to baby's room. We would love to buy one of 850 sq ft units next door, on either side, and combine to create our forever home in Manhattan. Others in our line have done it and the result is gorgeous with a great flow. One kitchen has to go, but it can become a laundry room or another bathroom (which the coop would permit), and since maintenance in the building is quite low, the combined maintenance is very reasonable, probably around 4k, for the size of the unit (over 2k square feet).
Unfortunately, neither neighbor is selling right now, but possibly in the future.
We would love to rent the extra space in the building, but this is tough to do because the coop discourages rentals (thought there are a couple of sponsor units still). We are thinking to buy a small non-adjacent studio for that parent visit/home office/storage purpose. There are a couple of units on the market at $900-1100 per sq ft, various degrees of renovation. I am estimating the cap rate on these is about 4% at ask and ~5% at where I want to bid. Considering Apple savings account is paying me 4.15%, and outlook for SPX is what you posted above, this idea does not seem terrible. If an offer at 5% cap rate is accepted, I am confident a small unit is liquid in the future when I need the $$$ to buy the neighbor's unit when it becomes available. Luckily, I don't believe my board is picky about the price.

Of course, I might not want to stay in Murray Hill forever, now that I know that Murray Hill is a school desert post elementary, and the baby might go to school on UES or UWS or Downtown (if can get into G&T or Magnet).

I am not willing to sell and buy a bigger unit in another building right now because of 1) transaction costs (having purchased only 2 yrs ago) and 2) rate under 3% locked in 3) school uncertainty.

So am I making sense, or is this really dumb? I do think Manhattan RE market might drop in the future, and this move means taking more of a risk that I already have a lot of exposure to...

Hard to say, so much of this is based on personal preferences. MCR might have thoughts about non-adjacent / different-floor apts. I just don’t know if I’d personally get much use out of one. Part of the thing about a home is being able to flow freely from one room to another without thought or friction, which you lose once you cross the threshold.

There’s also a lot of uncertainty in your permanence here. You say “forever home” at the top of your post but then question “forever” at the bottom. You also have a kid coming, which will introduce changes to your life that are hard to anticipate. Why not wait to see what those look like? Another apt in the same building will have you doubling down.

Personally, I’ve had a hard time committing to RE. For a long time, it was a matter of “Maybe I’ll want something bigger/better in a few years”. It was yet another argument atop financial ones: “Not only does it not pay to buy long-term, I probably won’t want this in a few years”. I’ve now reached the end of the road of bigger/better and should ostensibly no longer care financially. Nevertheless, the itch for continual novelty and change remains. Nothing exists that makes me say “Ohh, this is going to be my forever home!” I can’t even bring myself to 10 years. It’s always, “Yeah, this looks fun for a few years…”

If you have that sorta itch, it’s helpful to recognize it.

There are a non-insignificant amount of New Yorkers who have bought/sold their homes every few years, and with transaction costs burned through a lot of what looks like profit/gains.

As Nada noted, we bought one of the maid's rooms in our building a few years after trying to live without a washer and dryer. It is perfect for washer/dryer and (room is 10 x 15). Taking laundry between the units is not ideal, but it was pretty easy to get used to in the NY scheme of things. We had the same need for a guest bedroom for in-laws and friends that Krolik has, and for that purpose we kept our interest at The Phillips Club. Capital outlay there was something like $250K for the exec 1 bedroom line and maintenance is $1K per month. We have gotten tremendous use out of that purchase; it works well for everyone with more interesting location for visitors, the Reebok Club included, and housekeeping. I hate houseguests and do not want to maintain a bigger apartment in NY so this is money well spent for me. I have not run the numbers on whether it makes more or less financial sense than buying a studio for the same purpose.

Just one observation here, but I'm getting a lot of "price improved" emails from brokers. One just came thru as I typed this. We renegotiated our rent down -8%, so it's really hard to find a compelling reason to buy in NYC at today's interest rates and yesterday's prices. The only way to justify a cap rate of <5% is to believe in a lot of price appreciation which I just don't see in NYC in a WFH world and with Democrats in control (taxes are only going higher).

>There’s also a lot of uncertainty in your permanence here. You say “forever home” at the top of your post but then question “forever” at the bottom.

Well I am acknowledging the unknowns. But we know that we want to be forever in Manhattan or at least NYC (as one of us does not drive).

The current place is well-located (before we consider schools). The large building has low-ish maintenance, doormen, and a helpful super. The layout is fantastic, and there are lots of closets. Without a baby it is enough space for us and our numerous toys and belongings. I could see one day upgrading to a place at a certain specific Sutton Place building that has more amenities and a view, but without a baby, we don't really have to. We don't have laundry in the unit, and it doesn't bother us that we have to go to the basement. I would rather have an extra closet.

The current place does not necessarily work as a forever home with a child or two, unless we combine with the neighbor's unit. A 4br / 3 ba home is normal elsewhere in the country but in Manhattan I feel like I am asking for too much, almost feel guilty. But that is the amount of space required to be comfortable. I know one of the neighbors units will become available in the next few years, so it is a question of getting by until then.

With a baby, the current place is going to be tough. I need to vacate a room, and have nowhere to put a desk and a several book cases, as well as a guest pullout couch.

We thought about renting a studio in a nearby building for in-laws to come and help with the baby, and to put the extra stuff, but it would be really much easier if they were just a few floors up or down. I think my building is one of the best deals in town in terms of prices and maintenance, so might as well try bidding at 5% cap rate for units that become available.

I am reminded of an internal company post from a few years back. Some recent grad was looking for a tenant for their studio. It was described as the most perfect studio, bought less than a year prior as their “forever” home, but then some rather uneventful stuff of life came up. “I met someone” or some other totally predictable thing like that.

I’m not sure if I was more perplexed by a “forever home” running it’s course in less than a year, or this upwardly mobile professional just a year or two into their career considering a studio the “forever home”.

Alls I’m saying, avoid becoming one of these people:

>> There are a non-insignificant amount of New Yorkers who have bought/sold their homes every few years, and with transaction costs burned through a lot of what looks like profit/gains.

So when we bought this place, it seemed like way more space than we needed (we started out looking for large 1brs). But now we just really like having all the extra space. Some friends in Manhattan have multiple kids in a 2br/ 1ba. We just have more stuff than other people, I guess. Had we bought a 1br, we probably wouldn't be having a baby :-)

The thought crossed my mind, but 3brs were unaffordable to us then (and mostly are unaffordable to us now) There is very little supply of 3brs in Manhattan compared to demand. I think my unit combo strategy, considering neighbors on both sides said they will consider it in a few years, is not too bad. I am trying to manage the losses by not overpaying and selecting a low maintenance building. Time will tell. The biggest mistake was a $50k+ renovation. Probably could have gotten away with doing less and saving more.

The backdrop to all this is a potential recession, which is always just 6 months out, leading to price declines in Manhattan.

@Krolik, re: "Well I am acknowledging the unknowns. But we know that we want to be forever in Manhattan or at least NYC (as one of us does not drive)."

Honestly that was my wife & me for 15 years, until COVID hit and we got to experience some nowhere again. Everything has its upsides. Life can change on a dime.

>Life can change on a dime.

Self-driving cars could change things for us. But I do think that is still many, many years away.

>> We renegotiated our rent down -8%, so it's really hard to find a compelling reason to buy in NYC at today's interest rates and yesterday's prices.

When was the prior rent set, in 2022 or 2021?

Krolik>> Considering Apple savings account is paying me 4.15%

Why don’t you put your cash in T-bills or a T-bill fund? That should yield you ~3% after-tax rather than ~2%, ostensibly with less risk as most people believe the US Treasury has lower default risk than Goldman (Apple’s bank) / FDIC.

The point on taxes is a great one. In that vein, I previously tried purchasing some municipal bonds for even higher after tax yield. Problem is I hate dealing with my broker which makes it really hard to buy treasuries in smaller increments. Most transactions have minimum sizes of hundreds of thousands. So I can't sweep some cash there every month as this broker pays me nothing on cash.

I have less than 250k in the account, so not worried about Goldman's default risk. I have never thought of FDIC's default risk, assume there is no scenario when it is not bailed out.

For T-bills, you should consider the BIL ETF. Its fees are low (13 bps or so), and it solely holds treasuries (meaning 100% of yield is exempt from state & local taxes). Buying & selling is rather painless since it’s traded like a stock. Depending on how you’re set up, cash becomes available in your bank account somewhere between immediately and a couple of days after sale. That said, if you’re subject to approvals & holding periods through your work, it’s not convenient for on-demand cash flows.

Vanguard mutual funds are another low-fee option (10bps or so). Their t-bill fund (VUSXX) used to be 100% treasuries, but this year has increasingly become repos (close to 50% now). The problem with repos is that they’re not exempt from state & local taxes. I have no idea what pushed VUSXX into holding those. Their NY money market (VYFXX) is another option. It’s triple-exempt, and their after-tax yield tends to run slightly higher than t-bills, corresponding to the increased level of apparent risk. Setting up a Vanguard account and linking it to your bank account is pretty painless. Using their ACH transfers (no dollar limits), a sale put on Mon before their cutoff time (3:45pm?) hits my bank account fully clears on Wed morning. Because these are mutual funds, approval & holding period may not apply, making them convenient for cash flow needs.

Of course if you prefer longer-duration bonds, options exist for those as well. I hold large amounts of cash, so 1% after-tax ends up being a lot of money. But really, I hate the idea of banks not paying me market-rate interest: these days, my average daily balance runs less than a month’s worth of expenses.

Thanks so much for this, will look into it. I don't have restrictions on buying treasuries directly, or mutual funds, but my broker (which I have to use) has a limited selection, and I am not able to open a Vanguard account.

You might have access to GABXX, which holds T-bills at low fee. Not as large as Vanguard or State Street, so that might be a risk, although you might really care more about the custodian. So another option for you to consider.

@Krolik: You can hold vanguard mutual funds in a non-Vanguard account. Unless it's some special type of broker-dealer, tell him to get his act together.

VYFXX was an awesome idea. Unfortunately, it is restricted on my broker's platform. And they don't care what I think about this, I am a captive customer. But I was able to buy MUNXX which looked similar (but with a much higher expense ratio). Also BIL was fine.
Thanks!

@Krolik, I’m glad that was helpful. I had not known about MUNXX, thanks for sharing. 20bps net expense ratio is not bad, assuming they stick to it going forward. VYFXX’s is 16bps.

@Aaron2: I have accounts at virtually every large brokerage. Only about half allow investment in Vanguard funds. I imagine Vanguard is unwilling to pay anyone a sales commission. Some (most?) charge a transaction fee for Vanguard funds.

> but my broker (which I have to use) has a limited selection, and I am not able to open a Vanguard account

@Krolik

Not understanding the reason that you are not able a (personal) vanguard account? It is due to your work that restricts where you can open accounts or something else? Are these restrictions legal?

Can you explain?

The general reason is often the sales commissions, and I was thinking of ETFs being universally available, not the funds. My bad.

Separately, I have issues with the whole sales commission model for funds, and the various broker restrictions - I do think it's worth complaining about, to whomever made the broker choice. They really should be able to say why they think restricting your investment options is a good idea. But yes, if you're working for a b/d, they can, and will, often for no more reason than their compliance department is too lazy to get statements from other brokers for surveillance purposes.

@WoodsideNYC,

I have similar restrictions to Krolic. Most people who have account restrictions are because they work in the securities business. Finra requires that broker dealers track the trades of their employees to prevent front running. My firm doesnt allow me to trade securities issued by my clients and requires me to preclear all other trades. These preclears can be denied because of information my firm has even if I am not privy.

I own the BILS (3-12 month) instead of the BIL (1-3 month) ETF because it has more yield for only slightly higher duration risk.

>. Most people who have account restrictions are because they work in the securities business. Finra requires that broker dealers track the trades of their employees to prevent front running.

@WoodsidePaul It makes sense. I was only thinking about the money markets and mutual funds. I forgot that people can trade individual stocks at Vanguard brokerage.

>> I forgot that people can trade individual stocks at Vanguard brokerage.

Vanguard had mutual fund accounts as of a few years ago. I know because I had mine converted to a brokerage account at that time. So if you are allowed to hold a non-brokerage account, Krolik, that could be another route. Although your MUNXX solution seems just fine…

Couldn't find the non-brokerage acct on Vanguard site, but it probably exists. Given MUNXX is available with my broker, I am probably better served having my things in one place. One interesting point here is that I am really not allowed a lot of fancy investments, so my return hurdle is a bit lower than that for someone with fewer restrictions. But it is certainly not 3% or 0% like some NYC sellers LOL

What are kinds of investments are you disallowed from making?

Vanguard got rid of non-brokerage account option a few years ago. They force converted us to a brokerage account even though we don't trade individual stocks at all. No idea why and it had no impact for us, but I did wonder what their business reason was for doing this.

Thanks, MCR. Perhaps that’s why my account changed too, then, rather than me initiating it.

>What are kinds of investments are you disallowed from making?
A long and hard to interpret list of restrictions likely driven by compliance being lazy at this firm (prior firms were more flexible). Not allowed: single stocks and bonds (or narrow ETFs/mutual funds), any trades on a non-approved platform, new rental properties, questionable assets (crypto). Require special permission: most private investments (funds, private businesses).
Allowed are broad ETFs and mutual funds, some commodities, CDs and govt securities. A workaround is to have a wealth manager/managed account, but I feel not wealthy enough for that yet.

Which of the “not allowed” list do you consider “fancy investments” that reduce your hurdle rate? I’ve certainly had interest in single stocks over my personal investment life, but not rental properties or questionable assets.

Question for all of you who understand the myriad financial products out there: Do you use a financial advisor to access alternative investments or do you only participate in those you have direct access to? We have one actively managed account that has not outperformed my beloved VBAIX for the past 8 years, but the financial advisor is constantly trying to push us into various alternative investments. I balk at the placement fee up front (sales commission to the advisor).

@krolik. I'm in the finance business, and my company's restrictions aren't that dissimilar from yours.

@mcr: I've participated in one small alternative investment outside of my managed account, and haven't liked any of the options my IA has mentioned. Or, more accurately, I have not sufficiently understood the cash flows and risks of some of the options offered, so am unwilling to get into them.

@Aaron2 - Thx for the response. It's a given that I don't understand the various AI vehicles that our financial advisor is pitching to us; makes me feel better that even those in the industry find them opaque. I told our guy that I'd give him more to manage if he performed, but he is implying that AI is the only way he can outperform VBAIX over time. I put that in the "no thank you" pile because verification of that performance would not arrive for 10 years per the terms of the pitch, and it is too great a leap of faith for me.

@MCR As a person denied by some not particularly fancy Sutton pl coop a couple of years ago, I am clearly too poor to be a candidate for direct alternative investments. I have all sorts of theoretical knowledge though :-)

To outperform VBAIX, you could just take on more risk. Lever up or invest in risky ventures. But this strategy could also backfire. Many PE and VC funds delivered outsize returns in the past, but this is partly driven by leverage (PE funds) and early stage venture risk (VC funds).

Your question on how to evaluate the funds is a great one. Check out this study that attempts to figure out whether performance of funds by the same manager in the past can be used for this purpose: https://www.nber.org/papers/w28109
The paper concludes that VC returns tend to be sticky, while PE returns, not so much.

I don't think the paper provides an explanation, but i I believe the mechanism for VC returns stickiness is based on the power of brand names some of the managers have built up: brand name funds have a choice of best early stage startups which want most prestigious funds in their cap table as a vote of confidence (but note that for PE funds, companies do not choose investors based on brand names). Top VC funds are hard to get into (maybe your IA has access?).

For Hedge Funds, there are very many strategies to be examined individually, so the only thing I will mention is that aggressive AUM growth sometimes causes performance to deteriorate.

None of this is investment advice :-)

>> Do you use a financial advisor to access alternative investments or do you only participate in those you have direct access to?

I don’t have a financial advisor because I don’t need their advice, so anything I do is direct. If I were to need a financial advisor, I’d only consider fixed-fee fiduciary I’m paying to advise me, not a salesperson working for a commission.

>> It's a given that I don't understand the various AI vehicles that our financial advisor is pitching to us; makes me feel better that even those in the industry find them opaque.

If it makes you feel any better, I’d wager the financial advisor doesn’t really understand it either. In my youth, I’d converse with financial advisors. My overarching impression was that they had a pretty basic understanding of investing. I think it’s a profession ripe for displacement by ChatGPT and the like. A lot of repeating of the same ideas & mantras out there, but without much in the way of structural or analytic understanding. The most useful part of the conversations, for me, was learning about the existence of the different types of products out there. Especially those that deviated away from investment and into insurance, trusts, etc., because I knew nothing about them. The conversations served as an introduction of areas for me to research myself, to determine their suitability.

BTW, what sort of investments has he put your account in that has underperformed VBIAX over the past 8 years?

I think primary doctors also could be replaced by ChatGPT. They typically don't dig too deep into anything, and closely follow guidelines that a robot could do just as well. The problem with a robot of course is that they do not have a license and a malpractice insurance.
I think tax advice and knowledge of the variety of products out there is the main value add of IAs. In addition, they take on some of the admin work that at some point a wealthy enough person might not want to do themselves. If I do get wealthier, I might get someone at some point just because it helps get around some of the employer restrictions.

> Which of the “not allowed” list do you consider “fancy investments” that reduce your hurdle rate? I’ve certainly had interest in single stocks over my personal investment life, but not rental properties or questionable assets.

Theoretically, single stocks or bonds, or narrow groups of stocks or bonds, or investments in private companies and funds, or real estate properties - all the areas I cannot touch. Any positions held less than 30 days are also not allowed. I am left with broad index funds and some commodities which are all macro-type investments, not matching my skill set all that well.

My rental property in a red state has actually been a good investment. It is cash flowing, or at least breakeven, has appreciated since then (as it was in an undervalued, quickly developing area), and has allowed me to take advantage of low interest rates in 2021 and allowed me to learn about buying single family houses not in NYC. I understand that real estate is also very tax-efficient. Most importantly, at a previous employer, it was not a restricted investment.

One other thing I did for fun/learning few years ago (but cannot do anymore) is invest into certain early ventures via a crowdfunding platform. Anything later stage and more well known on that platform came with sky high upfront fees like the ones MCR mentioned, so I stuck with "Regulation Crowdfunding" investments that had lower fees.

I don't own any questionable assets either, they don't make sense to me :-)

I'm sorry your PCP doesn't appear to be much use to you. I first saw mine over 30 years ago, he gives great care, gets me special treatment at specialists, is reachable fairly late at night and on weekends, rarely have to wait >24hrs to see in person, remembers most of my personal history (even though he has my 4"thick file in front of him), got me Paxlovid within 12 hours when I got COVID, Tamiflu within 2 hours, recommends of label treatments when appropriate, etc.

I find him of great value.

I am not saying this is not great service, I am saying ChatGPT could do all these things, and be available instantaneously and at a lower cost. If only it had insurance and license...

>I'm sorry your PCP doesn't appear to be much use to you.

I don't use PCP for the same reason why inonada does not use investment advisors. As a very sophisticated consumer of healthcare, I already know all or most of what a PCP would say, so most of the time it just makes more sense to save a trip and go straight to a specialist with any specific issue. I tend to obtain medical records from any visit for my personal file, given lack of coordination between providers in the US.
I realize my preference for no PCP might change with age, as at some point when I am old enough, someone would need to mind and help resolve any potential conflicts between multiple medications and conditions.

Who does your annual physicals and/or reads your blood work, or do you skip them? A good PCP also has a network of known-good specialists who will see you quickly, if needed, based on the referral. So your difficulty with receiving good medical care may be related to the lack of a good PCP.

FWIW, it’s not that I know what financial advisors are going to say. It’s that I know more than them, and if I dig deeper into whatever they are suggesting, it usually becomes clear they are pretty superficial in their understanding. I wouldn’t characterize my PCP, or doctors he’s referred, as such.

> it’s not that I know what financial advisors are going to say. It’s that I know more than them, and if I dig deeper into whatever they are suggesting, it usually becomes clear they are pretty superficial in their understanding.

Right, I feel similar about IAs on most topics except insurance and tax, and I basically feel the same of most primary care doctors. I do see value in getting a PCP when I am older, and my partner has one now, but at the moment I don't have a need one, because there is no need to orchestrate complex care.

>Who does your annual physicals and/or reads your blood work, or do you skip them?

Oh no, I don't skip anything, I get lots of tests all the time :-) When I go for my annual OB/GYN check up, I get bloodwork done in the same visit, and both OB/GYN and I read it.

This week I felt some signs of pregnancy anemia, so I requested by email that my OB/GYN sends a script for bloodwork to labcorp, went to the lab to get blood drawn (walk-in), and then got my results a day later via electronic medical record. My results show anemia, like I thought. Don't need a special license to compare your result vs normal ranges and vs your typical values, especially since any abnormal values are highlighted in red.
The OB/GYN still has not called me regarding the results and what they suggest I do about this, and it has been two business days.

>A good PCP also has a network of known-good specialists who will see you quickly, if needed, based on the referral.
This does not necessarily hold. My very esteemed OB/GYN referred me to a few specialists, but I still am not able to get an appointment quickly.

I think its a testament to how overbooked/unnecessarily competitive everything & anything in NYC is that people in this thread are comparing how much "juice" or "pull" their PCP/specialist has, lol.

Sounds like people talking about their guy who can get them into 1OAK on short notice.

Steve,
Indeed. Is 1OAK still going strong?

Howver, there is a genuine shortage of doctors in the city post covid. Anecdotal reasons are older doctor's retiring during covid due to higher risk, doctors moving away from the city or limiting their in-person hours due to practicing tele-medicine and increaed pent-up demand for medical care post covid. I have also heard that residency positions haven't kept up with aging population.

Here's an example:
When I fell and broke my wrist in April, NYU ER orthopedic intern told me I needed a follow up visit with X-ray in 1 week. But the 3 specialists they referred me to had availability between 3 weeks and 2 months. Yet somehow I was able to score an appointment exactly 1 week later with a top hand specialist.

>> I think its a testament to how overbooked/unnecessarily competitive everything & anything in NYC is that people in this thread are comparing how much "juice" or "pull" their PCP/specialist has, lol.

I think “esteemed”, “pull”, and “juice” are probably not the right language. It’s more a matter of basic job function. Once a PCP determines you should see a specialist, they refer you to ones in their network who they have deemed both competent and available. Available does not mean they will see every rando within the next week. Doctors need to fill their schedules, so they do so well ahead of time. It means upon understanding the issue and its urgency, their staff will find space and squeeze you in. There’s always a cancellation. If a specialist regularly cannot accommodate such cases, the PCP will remove them from their referral list. Not because the specialist is doing anything wrong, but rather that (for whatever reason) they are too booked. The PCP will then find another specialist for their list.

If you think you learned & know as much about medicine as a PCP and do not need their medical guidance, that’s one thing. But then you also need to replace the demand-smoothing function they provide with specialists with even more of your time.

Given present circumstances, I think it is fair to say OB/GYN is acting as my PCP, as they are coordinating care, and no one would do or prescribe anything without their sign off anyway. I am already visiting a doctor every other week at least ("geriatric" pregnancy = a lot of appointments), so there is no room for a PCP in that schedule.

Also, some of the extreme wait times are actually for doctors I have visited before - so I would not say I am some "rando" as I have an existing relationship. Some of these doctors have a waitlist and I did make sure to get on it. If a doctor is too unavailable and I have an urgent matter, I look for alternatives on Zocdoc, where you can search by availability and reviews/ratings. This aspect of PCP's job (if one believes that was ever a part of their job) is being automated by technology. It does take a bit of extra time to click some buttons, but it is not as time consuming as having to go to extra appointments with a PCP. The shortage of doctors in NYC is real, and while one can try solving these issues in creative ways for themselves personally, but there is still an acute problem at the city level.

By the way, I have academic training and work experience in an adjacent field, so it is probably way easier for me to pick up healthcare topics, than for an average person.

Krolik,
Why not self-Medicate if you are confident and comfortable diagnosing yourself? Most meds can be obtained on the web shipped from a foreign country or within USA with telemedicine.

Personally, I just pay cash to a specialist to see me out-of-network if I am in a rush. Any MD allowed to practice medicine is better than my self-diagnosis from Google search . Doesn’t mean Google search results don’t help me articulate my issues better to the doctor and if I am not cured or satisfied I can always seek a second opinion from an MD rather than from Google search results of Mayo Clinic or other similar reputable hospitals.

I have done self-pay out of network doctors too. That is what New Yorkers have to do sometimes to be seen quickly, if they don't have time to travel to Westchester for an appointment.

It's not just specialists by the way that have long wait times. Urgent care centers in Manhattan are very crowded. I don't remember being seen without a 30min to 1.5hour wait. And I have been turned away from several urgent care centers because they were too busy. At NYC emergency rooms, I have always had to wait 1-2 hours to be seen, and my dad once waited 4 hours. Contrast that with the situation in other states - in Colorado I have been to ER twice (several years apart - skiing accidents) and both times did not have to wait more than 5 minutes. No wonder NYC rich and connected residents have an arrangement to skip lines at hospitals: https://thehill.com/homenews/state-watch/3786877-nyu-emergency-room-accused-of-providing-special-treatment-to-schumer-vips-report/

For simple situations, I think telemedicine is great. My insurance also has a free 24/7 telemedicine line, which I called a couple of times, including when I had COVID and did not want to leave my house and infect others, or the time I found a tick on myself while vacationing Upstate. The telemedicine doctor sent an antibiotic prescription (to prevent Lyme infection) straight to a local pharmacy, without having to go into any office.
By the way, just because I don't have a need for an inch-deep PCP, doesn't mean I don't want expertise from a specialist.

To me I read all the above as "I get a great PCP in the city so they can do the legwork to get me to a baseline competent standard of care that I would otherwise be able to get in any nearby rich suburb".

Speaking of displeasure, I was reminded why I've slowly been moving all my regular doctor/lab/scan appointments out of the city. Just booked a pretty routine exam through the doctors portal, selected routine appointment / existing patient option.
They can take me 1 time slot next week, or the week of Labor Day, or October, lol.

I did notice if I selected any of the more discretionary/cosmetic/$$ options, they suddenly had lots of appointments available very, very soon!!

I've thankfully not had to go to an ER or any urgent appointment in some time, but the stories from my friends with elderly parents in the city give me great pause.

I think outside of make-or-break stuff like going to MSK for cancer, it's not clear to me any of the "renowned" doctors are worth the hurdle vs just having available doctors.

That is - we all like to think we are special, but for most people most of the time, care is pretty routine.. it's probably more important to have accessible doctors & frequent visits, than it is to have the alleged top 1%.

I think a lot of Manhattanites conflate "the doctors are really expensive and busy" with "they are the best". I'm sure they are good, I'm not sure we even have the objective measures to tell us they "are the best".

And don't get me started on vets..

Take this for whatever it's worth/with a grain of salt, but I'm kind of unsurprised that on the internet in general which seems to eschew expertise, and this forum in particular which seems to think brokers with 40 years experience and being qualified as "An Expert in the Practice of Real Estate in New York" by a Federal Court are meaningless because "all brokers are equally incompetent so you should just use the cheapest one" to see opinions that it does

Take this for whatever it's worth/with a grain of salt, but I'm kind of unsurprised that on the internet in general which seems to eschew expertise, and this forum in particular which seems to think brokers with 40 years experience and being qualified as "An Expert in the Practice of Real Estate in New York" by a Federal Court are meaningless because "all brokers are equally incompetent so you should just use the cheapest one" to see opinions that it doesn't matter what doctor you use, or that you don't even need one because your own opinion is just as good .

In my experience there are vast differences in outcomew

Take this for whatever it's worth/with a grain of salt, but I'm kind of unsurprised that on the internet in general which seems to eschew expertise, and this forum in particular which seems to think brokers with 40 years experience and being qualified as "An Expert in the Practice of Real Estate in New York" by a Federal Court are meaningless because "all brokers are equally incompetent so you should just use the cheapest one" to see opinions that it doesn't matter what doctor you use, or that you don't even need one because your own opinion is just as good .

In my experience there are vast differences in outcomes depending on the quality of your doctor. But it's one of those things you'll never be able to convince someone of when they've already made their choices due to economic reasons.

If you are walking into an ER under your own power, despite your own opinions, it may not be that urgent, given what else may be going on in the ER. And, if you're the 10th wildfire smoke breathing asthmatic to show up in the hour, you may well have to wait. They'll put you in a chair where they can keep an eye on you though.

That said, far too many people use ERs for their primary care, for economic or intellectual reasons that are rooted in the structural deficiencies of providing health care in this country. ERs and 'urgent care' facilities are overcrowded because they're viewed as a last or only resort by many people with limited options (e.g., who don't have medical plans that include telemedicine).

>Take this for whatever it's worth/with a grain of salt, but I'm kind of unsurprised that on the internet in general which seems to eschew expertise, and this forum in particular which seems to think brokers with 40 years experience and being qualified as "An Expert in the Practice of Real Estate in New York" by a Federal Court are meaningless because "all brokers are equally incompetent so you should just use the cheapest one" to see opinions that it does

Don't know if this is how I came across, but I am not saying that I don't value expertise, quite the opposite.

I personally think the cheapest broker that adds no value might not be worth it at all, and I am better off doing things on my own. On the other hand, an expert does add a lot of value.
For example, if I am buying a cheap apartment in my own coop building, where I already know the process, the board, the financials and all the comps, I really don't need a buyer broker. However, if I were doing something more complicated (foreclosure, building with a difficult board, or any kind of hairy or unfamiliar type of transaction) OR if I were new to real estate, I believe I would be best served hiring Ali or 30yrs to hold hand and educate.

Similar story with medicine. When I was looking for an orthopedic surgery, I made sure I got the best doctor specializing in the specific procedure (and got a second opinion to make sure this exact type of procedure was the best option). However, when I just needed a preventative antibiotic after a tick bite, the telemedicine option with a random doctor worked great.

>Just booked a pretty routine exam through the doctors portal, selected routine appointment / existing patient option. They can take me 1 time slot next week, or the week of Labor Day, or October, lol.

My partner has to book an appointment with his PCP three months in advance! This PCP is great, but would hardly help him get in front of a specialist more quickly, given using a PCP means there are two layers of waiting for an appointment. NYU Langone doctor's do not give their phone numbers to patients. You could leave a message with the front desk, or send a message to the provider via EMR system, but I wouldn't count on those to be returned.

The best PCP I have ever had was a nurse practitioner that worked on-site at one of my previous employers. She was very knowledgeable, and I always could get a same day appointment in the same office building that I worked at. Availability is one of the main selling points of a PCP, and since a lot of PCPs in NYC have long wait times, I am not sold.

> far too many people use ERs for their primary care, for economic or intellectual reasons that are rooted in the structural deficiencies of providing health care in this country.

I think mostly it has to do with PCP model changing as most of them do not want to be on call and accommodate fluctuations in demand by staying late at the office. A lot of walk-in appointments have shifted to Urgent care and ER, because when something happens out of the blue, most people are not able to get ahold of their PCP in a reasonable time frame.

Though I wonder why over-crowded ER /Urgent Care is such a NYC-specific problem (as ERs in other states, such as Colorado, are not crowded at all in my experience). And I am certainly not imagining it. This article confirms that New York state has one of the worst ER wait times (and I would guess the issue in the city is much worse than that in Upstate) https://www.usnews.com/news/best-states/articles/2020-03-17/10-states-with-the-longest-emergency-room-wait-times

>I think outside of make-or-break stuff like going to MSK for cancer, it's not clear to me any of the "renowned" doctors are worth the hurdle vs just having available doctors.

By the way, MSK is an exception to all of this waiting nonsense: they move fast. One of my parents got diagnosed with cancer over the winter holidays, saw a specialist at MSK a week later, and had the surgery completed within one month of the diagnosis. Customer service is superb as well. Gotta give credit where it is well deserved!

MSK is superb and deserves their reputation. Family & friends have gone through treatment with them and it's all universally positive feedback.

Re: "given using a PCP means there are two layers of waiting for an appointment"
I often feel this way.. if ultimately I need a specialist, my PCP takes a week or month to see me, then I enter the 3 month queue for the specialist. It's an entire season and wardrobe change before the thing in question is being treated, it's bananas. Not to mention a lot of specialist initial visits feel like meet & greets at which point they then prescribe some scans/labs, which you enter yet another queue for. Initial "feels off" to "getting some actual treatment" can quickly turn into a 6 month affair.

These double/triple queues also mean even well insured end up overusing urgent cares. I can be guaranteed to be seen today, and they'll probably refer me or prescribe me something on the spot, why not. Even though its a miserable experience and they kind of suck, the other option is sitting at home untreated a week/month.

I had a great PCP for a while but she only worked 2 days a week, did nothing electronically, and she also bothered my wife by constantly asking her when she was having kids (in her 20s). Also she had no nurses, so she did zero bloodwork on site.. everything required another trip over to Quest.

> I had a great PCP for a while but she only worked 2 days a week

So many doctors work part time!!! Especially the women (30% work part time, per official statistics I've seen). My parent's female PCP is part time as well. As was my dermatologist (I had to switch away from her to another doctor).

>Not to mention a lot of specialist initial visits feel like meet & greets at which point they then
prescribe some scans/labs, which you enter yet another queue for.

Totally! What I've been doing is scheduling a specialist appointment right away, and then asking the same-day available nurse practitioner PCP (when I had her) for a XRay/MRI/bloodwork that the particular kind of specialist would require, so that my first visit to the specialist is really like my second visit.

>and she also bothered my wife by constantly asking her when she was having kids (in her 20s).

By the way, I am sure this was well-intentioned. "Geriatric" (over 35) pregnancy is no fun and carries 7x higher risk of maternal death.. but the risks are often downplayed and women are (softly) told to build careers and put off having kids until Partner/MD status is achieved (while our junior and mid-level male colleagues have baby after baby with no career consequences).

>even well insured end up overusing urgent cares

I think urgent cares are okay, they are designed for this! Recently, I went there for flu and strep throat tests (I did a rapid COVID test at home). I normally wouldn't be seeking treatment for a sore throat, but because of pregnancy, I have to be very careful (pregnant women have an immune deficiency as a nature's way of making sure our immune system does not attack the fetus). Where else was I supposed to go? OB/GYN office and infect other expectant moms? And do they even have strep throat tests at the OB office? Wait a month for a PCP appointment? Go to Westchester with a fever to see a PCP sooner? I think this is the perfect use case for the urgent care center two blocks away, I really don't think there exists any better option.

But I have been turned away from urgent cares in the past when they were over capacity (they tell you to go to ER in that case, as ER legally cannot turn anyone away). I think Manhattan needs more urgent cares.

NYU is a cancer. They are taking over everything and after they do the standard of care plummets. An example is 275 7th Avenue. It was a Cardiac/Pulmonary group practice on one side and individual practitioners on the other - my long term PCP included. Then NYU took over. They kicked my PCP out because he wouldn't join NYU. The cardiologist practice went from good patient care with reasonable appointment scheduling to ridiculous wait times and treating patients like cattle.

And when I got totally negligent care from a pain management doctor after spine surgery (even another doctor in the practice practically admitted he gave inappropriate care. He runs a mill where he sees patients for consults for a couple of hours in the morning and then gives everyone the exact same procedure in the afternoon). When I complained he blackballed me from seeing new neurologists at NYU (this was confirmed twice after I made appointments, waited, and then when I showed up, went through screening, waited in the waiting area, etc when I finally saw the doctor got "I can't see you because you are Dr X patient).

I will say that if you do have to stay in a hospital, the rooms in the Kimmel Pavilion on 1st Ave & 34th St are about the nicest I've seen in NYC though.

Well, my experience w/ NYU-Langone is completely different: After my Weill Cornell PCP retired after 20+ years of seeing me (not *because* of me!), I got my NYU-L PCP as a referral from a friend who has used him for 10+ years. I had a cardiac concern a couple of years ago, and got specialist appointments booked within the week (since they decided the likelihood of my falling over right then and there was low enough). All the labwork was done as part of the PCP or specialist visit, and results available shortly afterwards - one exception is the more complicated tests and scans, which they were quite prompt about scheduling. I have my PCP's cell phone. I'm seeing another specialist on a different topic next week, and was able to schedule within 2 weeks of my PCP visit (the delay is due to my schedule, not theirs - there were earlier options).

>Personally, I just pay cash to a specialist to see me out-of-network if I am in a rush.

After weeks of trying to find a certain type of specialist with near term availability, I just booked with a specialist that does not take any insurance at all. It will be $650 cash for a zoom consult. The doctor called me within 20 minutes of sending an email to his practice and will fit me in for a consult this week. These NYC providers know we are desperate.

The OB recommended this person to me after I said that the previous persons they referred me to had no near term availability. She said certain more rare specialties are available at large hospital systems only, and she has no pull with them to prioritize an appointment. She said for herself and her kids, she books an appointment super far out and then calls daily to check for cancellations.

>Well, my experience w/ NYU-Langone is completely different
Some aspects and select providers within NYU Langone are good. And I applaud the administration for trying to finally embrace MyChart (a self-service app from their EMR provider Epic). Frustrations are with 1) providers not involved with administrative aspects, not accessible, and working very rigid set of hours 1-2 days a week per location, and 2) each physician office has own policies making NYU Langone hard to navigate. For example, some providers will allow you to book online, some won't, some allow only for follow ups, some allowed in the past, but stopped, some will allow but don't have availability before 2024. There are also lots of disconnects. The billing department goes through the motions of sending you the bill, but is unable to answer any questions about it because the questions need to be directed to the practice, which will in turn direct you to billing. Most scheduling calls are directed to a call center, where the persons answering the call are unable to accommodate any exception to a narrow of rules they are given, or sort and prioritize by urgency.

Returning to the topic of the thread…

Here’s a fresh example of how cap rates have changed for the high end. In 2017, this went for $9.55M and $7800 in monthlies:

https://streeteasy.com/sale/1243883

A comparable rental at the same time had a last ask of $25K, taking a few months to find a tenant. Let’s call it $24K, which would put the cap rate at 2.0%.

The unit recently closed at $7.2M with $8800 in monthlies:

https://streeteasy.com/property/8658764-madison-square-park-tower-48a

There are no direct comps that rented post-2020, but based on smaller units in the same building I’ll guess rent at $29K. That would put the cap rate at 3.3%.

To me, if 2% cap rate was acceptable during ZIRP, then being able to get 4+% on a government bond would make me want 6% cap rate now.

I don't have to paint the bond, or worry about them skipping a month. Round transaction costs on the bond are also approx $0 instead of 10%.

Doesn't seem like we've found a logic bottom, though I doubt we will.
My other observation is that I haven't seen the neighborhood price differentiation I expect on the way down. For example, UWS/LIC/WB/Bushwick all trade illogically close in my mind.

>> To me, if 2% cap rate was acceptable during ZIRP, then being able to get 4+% on a government bond would make me want 6% cap rate now.

While I don’t intend to disavow you of your hypothetical desire to get a 6% cap rate now, at the time of this purchase we indeed have ZIRP but also 2-3% on govt bonds in the 5-30yr range.

Fair point.

Still don't know why people would consider things an investment when they require maintenance but yield less than the risk free rate. So let's say 4.5% or so should be the current floor.

In general neighborhood price differentiation contracts on the way up and expands on the way down. It's my personal opinion that we have a psychological dam that may or may not burst on pricing.

Steve,

How do you adjust for income taxes on risk free when comparing to cap rates?

>> Still don't know why people would consider things an investment when they require maintenance but yield less than the risk free rate. So let's say 4.5% or so should be the current floor.

Nada,

How do you explain investment decision of this one?

Paid above ask $1.55mm. Via what seems investment LLC.

https://streeteasy.com/building/georgetown-plaza/26d

Rented right away with listing price of $6850.

Appx 2% cap rate with some allowance of insurance and upkeep.

And look at the rent history of this one.
https://streeteasy.com/rental/4106719

@30 - I completely agree, its a bubble & bust phenomenon... however the price convergence has been far stickier for far longer than usual, to my eyes.
I don't think we've had a real location divergence bust since 2009.

@300 - sure theres obvious tax code biases towards RE investment over stocks&bonds..
I'd imagine no matter what games are played, eventually if you want to take the cash out you do indeed pay some tax somewhere.
I wonder what % of that gets eaten up with sweat equity / illiquidity / transaction costs / maintenance costs / actual risk (concentration / empty carry / non payment / damages) etc?

Treasuries are hit with federal tax only, not state&local.
So max 37% rate, on 4.5% risk free => 2.84% risk free taxed rate.

So offered the choice between 2.84% in whatever size, fully liquid, no transaction cost.
Vs 3.3*% with nonpayment risk, illiquid and 10% transaction costs

*with some lower delayed tax rate applied at.. some point

This is the key. Call it low 3% risk free with no inflation protection vs IF you are going to live there at 2.5-3% cap rate with partial inflation protection and some tax breaks.

>> So max 37% rate, on 4.5% risk free => 2.84% risk free taxed rate.

Buying an apartment to rent out makes no sense unless your property has ridiculously low taxes and no doorman as is the case for some 3 family townhouses in BK. And buying to rent has all the friction costs you mention.

On the tax rate, most non ultra luxury buyers may be 30 percent tax bracket on interest income including 3.8 percent surcharge.

@300 -
>> Buying an apartment to rent out makes no sense unless your property has ridiculously low taxes and no doorman as is the case for some 3 family townhouses in BK.

Nonetheless we know a number of people who own doorman condos they bought as investments to rent, it always surprises us. We personally don't have the temperament to deal with temperament to deal with all the tenants/brokers/boards/maintenance guys you need to keep happy for it to work.

My main takeaway is if you are in financial services (they all do) and can't trade equities on margin, then rolling RE equity forward into more and bigger loans over 10-20 is.. the closest you can get? Seems incredibly dangerous as you read about all these flippers who do better and better until they finally blow up at the end when the market turns. Some of the ones we know aren't even doing it through LLCs.

So what about buying to live in which probably drives 80-90% of the purchases in NYC.

Right, buying to live in, in NYC is probably.. 50% emotional, 25% "how does this compare to the rent I would pay instead" and 25% "I got a good bonus".

Don't think ROI or yield or anything else really factors in most.

So right now we have down/iffy comp, high monthlies from high mortgage rates .. and on the emotion side no one seems super pumped about RE right now?

If I may add, emotional is really “freedom premium” of not having to move and customizing your home to your liking.
The richer you are, the higher the “freedom premium”.

>> How do you explain investment decision of this one?

No idea. I’ll leave that to people who have first- or second-hand experiences with such investment decisions. Steve? 30yrs? As for me, I’ve taken up the serenity prayer:

God, grant me the serenity
to accept the things I cannot change,
the courage to change the things I can,
and the wisdom to know the difference...

>> This is the key. Call it low 3% risk free with no inflation protection vs IF you are going to live there at 2.5-3% cap rate with partial inflation protection and some tax breaks.

I’m with you on inflation protection, but what tax breaks? RE taxes are effectively no longer deductible for all intents & purposes. Mortgage interest still is, on the first $750K… borrowing at 6.x%. So for the first $750K of financing, you’re almost offsetting the cap rate but still losing 0-1% to the spread. After that, you’re losing 3-4% to the spread.

What am I missing?

@300 - and yet I think NYers overestimate their "freedom premium" given you need to deal with boards, approvals, paperwork & bylaws to do anything in your own apartment

inonada (and others), how would you analyze this trade:

2018 transaction:
Buy at 3% cap rate
Finance at ~3% at 70% LTV (don't remember the exact rate)
Refi in late 2021 at 2.375% 30yr Fixed (shaved 50bps based on AM relationship discount)
ROE (ex any tax breaks) of ~5%

July 2023:
Market value of apartment is lower. Estimate -10%, with a high confidence range of -7.5% to -15%
Miller Samuel says rents are up ~20% over these 5 years (lmk if you think this is wrong)
Resulting cap rate now ~6%
Resulting ROE now ~8% (ex tax breaks)

Was this a good trade? On the balance I think not. Certainly not compared to buying equities, but that has been the case for nearly 15 years now

On the other hand-- it's hard to say my equity is out of the money today. I think the mortgage is in-the-money to a greater degree than the asset value is out-of-the money. With 2.375% locked in for the next 28+ years, this is bound to gradually build wealth over the long-term (degree to which TBD), assuming no need to move (this is a coop).

On the balance, would have been better off renting and investing in stocks. But the pertinent question here, at current market value how does 6% cap rate and 8% ROE look today if the assumptions above are correct?

Ha. I have to remember this.
--------------
God, grant me the serenity
to accept the things I cannot change,
the courage to change the things I can,
and the wisdom to know the difference...