382 CPW - Rent vs. Buy

Ask LIC or JM to do some creative math.

this one is pretty simple..you save approximately $2,600 per month (assuming full tax deduction) or$31 K per year by buying. how much capital would you put at risk for that savings?

Another calculation is how much cheaper will it be six months from now.

This is on Central Park West, not Riverside. The Park West condos have been inflated in price during the boom. Now things have stalled and 382 is the worst of the four condo buildings. The D apartment faces very noisy 97th Street. There are also new towers going up next to 382 and 392 which will impact the buildings significantly in terms of traffic and security. That said, the 2 bedrooms in Park West Village would be a good investment if they came down to around 650 to 750 per square foot. Otherwise, don't do it.

that is a price of 24x rent, which is above the 15-ish norm for Manhattan. That kind of valuation is only justified if you think prices will go up significantly faster than nominal GDP per capita. So its not just you.

2 bedroom rentals in those building should be around $3,000.

A lot of sellers are still far away from reality.

I rent in a condo.
The rentals on my line go for about $2900-3200 in the last few months ($3600-4200 in 2007/2008).
A unit on the same line was put up for sale @ $1.1M, eventually lowered to $900k after a few months...
Still a long way to go.

"bronxboy 2 bedroom rentals in those building should be around $3,000."

No, the price purchase price should be lower based on the asking rent, but $3500 for CPW below with 2 beds and 2 baths and a living room that big with a doorman to boot? you will not find that for cheaper anywhere in Manhattan below Harlem or east harlem and above Chambers (barring the LES). Not even close.

Columbia -- how do you get that savings of $2600 per month? You surely mean if he pays cash for the whole thing and believes his cost of cash is 0%.

Backup:

Purchase price is 998K. Lets assume for sake of argument that this buyer can finance the whole thing at 5.5%. Considering that its a Manhattan jumbo condo, this is generously low.

Lets assume this fellow is in the 40% tax bracket.

Monthly after tax interest = 998K * .055 / 12 * 0.6 = $2744

cc = $710.
after tax RE tax = $363 * .6 = $218

So this person is paying to buy $2744 + 710 + 218 = $3683 after tax

But he could rent for $3500.

So there are no savings, only cost of $183 per month.

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Plan B - he puts down cash

Then his net return (cap rate) is 12 * (3500 - 710 - 218) / 998K = 3.09%

However, he pays no income tax on this money, so it is equivalent to a taxable investment of

3.09%/.6 = 5.15%

He can buy REITs that have cap rates of 8% that will approximately match his rent growth. Note -- the REITs already have leverage so this needs to be backed out of the hedge. He could buy NYC or NYS bonds that yield 5% after tax.

The buyer could do any proportion of the two, i.e. 20% down, 25% down. The apartment investment still only yields 3.09%.

I believe the original poster is right -- back solve the math on the rent vs. own for leverage or unlevered and the price needs to be about 2/3rds the asking price to make it equivalent.

yes....was trying to make it simple. you save $2,600 a month over the rent for which you have to put up $1 million (roughly) at risk. crazy deal.

Should he rent or buy? In this scenario, I would rent before buying despite possible savings in the short term. Those 2 bedrooms are sinking fast; maybe 150K less next winter.

frankly, i wouldn't want to live in this apartment either way....lousy location, lousy apartment. much better stuff out there at this price point.