Renting vs. Buying in this economy

Rhino you had been warned about trying to argue with steve and now you pull out the homosexuality card. Steve being a homosexual, and making statements like "I like dick but I don't need enough of it" (which was not something that he needed to say) is irrelevant. If you wanted to attack him, you could talk about the PhD program at Columbia that he talks about but didn't get a PhD from, or other bald faced lies, or his investing lies (like how he outperformed every hedge fund manager out there with his year-in-year out returns) and other things like that. But no need to say that his arguments are wrong because of his sexual preference or status.

"You sold them at the same price you bought them, yet you have a loss"

Are you aware of mutual fund accounting, Rhino?

Why does anyone listen to a person like Rhino who doesn't even know how to control what he says on a comment board?

Rhino866 is very smart and highly educated while at the same we found his weakness. In the face of someone who is wrong but can't be convinced and in the face of somone who can out post him (in volume), he breaks and resorts to name calling. So f'n weak. I love when smart people break. I once saw Paul Krugman on TV and just as the interview was starting, I forget who he was set to debate, you could see the pain in his face and his hands were on the table clasped and shaking. I'd rather be semismart and composed than right and a big pile of Jello.

How about - in the face of someone showing data that proves rhino is full of crap, his low-class crude personality comes out and he has no clue how to conduct himself like an adult.

Allow me to summarize the 300+ previous posts:

...ah, what's the use? Nevermind.

Rhino got OWNED!!!!

Me and LICC on the same side of that line, ey, Rhino?

I looked at the other discussion betwween some obsessed dude and steve and rhino when they were friends. Now the stronger STEVEJHX has survived. Check out what rhino said in happier days when it was the two of them against the world.

http://www.streeteasy.com/nyc/talk/discussion/5548-a-final-challenge-fo-stevejhx-be-correct-just-once-in-reality-not-in-theory
"It's kind of gay of you dude to attack Steve and add nothing. I don't care to read his old shit. What I have read has been just a pretty reasonable bear case on real estate FROM HERE and buying over the last 12 months...which from what I can tell is proving correct. "

Rhino got OWNED!!! :)

I'll summarize it.
Rhino got OWNED by steve and LICC!!!

Usually the first to resort to name calling is the loser. The sex card was also a no no.

steve and I are like brothers now - we can argue with each other, but no one else better try a personal attack!

where's columbiacounty and w67th and aroubready now, BITCHES!!!

I can't say I kept up with all the discussion on this thread - (thanks BSexposer for the cliff notes version though!)

Not trying to stir the pot here, but regarding the differences that Rhino and Steve have, is it really just an issue of perspective in terms of if the property is owner occupied and owner renting to a third party? If this is in fact the crux of the issue, is it a leap to impute a rent from the asset underlying owner occupied property and simultaneously consider that investment income off the asset?

I think statutory insurance accounting (limited use, I know) does construct such a scheme to put insurance companies that rent and insurance companies that own on the same apples to apples basis when comparing expense ratios. (I am not an accountant, and only know enough accounting to be dangerous) How they do it may ultimately be arbitrary for all I know, but from this perspective, couldn't one consider owner occupied property an investment with rental income (to the left hand) and an offsetting rent expense (from the right hand - resulting in a zero sum net transaction).

If this is not the underlying issue, ...then nevermind.

My comment to Steve was inappropriate and out of line. I apologize.

Owner occupied real estate cannot be compared to traditional investments. If you want to look at your home as an investment the only thing you can compare it to is rent. If you are $1 better off after selling than you would have been if you rented for that same period, you have made a good investment. When you discuss risk with owner occupied real estate, you are discussing risk of that "investment" being better than renting over that same period. Comparing owner occupied real estate to stocks is an exercise in futility.

steve is 100% correct on this.

Apology accepted, Rhino - it sounded very much out of character for you, anyway — to compare me to LICC!

:0-\

I also understand the point you're trying to make and it is a valid one for household finances. It's just not the way economists look at the issue. Most (though not all) economists view purchasing a place to live in as a prepaid (capitalized) stream of rent payments, since in any case you need a place to live. The difference between owner-occupied housing and investment housing is not that they're not worth the same - they are - it's that a landlord gains income (just like he would if he bought a bond) whereas an owner-occupier just reduces an expense. The bottom line may be the same, but the economic effect is different.

Ha well, I guess if you accept it as valid for household finances...it begs the follow up question - aren't household finances implicit in a discussion of owner occupied real estate?

For once I agree with JuiceMan.

And yes, household finances ARE implicit in a discussion of owner-occupied residential real estate. A Regular Joe WILL often consider a cost saving to be an increase in income. I do, too - every time I get my 3% back from Discover and my 5% coupon from Duane Reade, in my mind I've saved 8%. The difference is I've had to spend to save - it's not an investment, it doesn't increase the money supply, it doesn't increase my wealth (I always had that money) UNTIL I invest the savings in something that generates income.

I have always maintained that there are multiple ways of looking at any problem, and no single way is 100% correct 100% of the time. Each one is useful within the confines of its example. That said, some ways of looking at things are entirely wrong - and I won't get into them again because LICC will go off on a tangent.

Suffice it to say that, historically, market rents are the same as owners' carrying costs, and there are many good reasons for that. Chief among them is that if they weren't, it would be impossible to build rental buildings.

Ok. Well assuming owner occupied real estate is purchased such that pre-tax carrying cost is lower than rent, then logic does suggest you have upside return potential to equilibrium. That is an investment of sorts (or it at least funds investment that would not have otherwise been possible). I never disagreed that equilibrium is owner costs = market rents. Now when we swing below that equilibrium and family X decides its worth selling stock to use as a downpayment...I kinda think that's an investment decision.

On another thread what I thought was more interesting was that in the last trough, cap rates exceeded mortgage rates at the trough. If mortgage rates are 6% or so here...with an upward bias... Cap rates on coops seem to have already improved to 4% or so from 2.5%... Taking them to 8% (coincidentally = most peoples perception of equity return)....would cut us in half from 70 cents... 35% of peak seems scarily feasible.

"then logic does suggest you have upside return potential to equilibrium."

Yes. My point has always been that, over long periods of time, that "upside return potential" is nearly 0 in real terms. Only recently have people begun to think of houses as banks.

"35% of peak seems scarily feasible."

We're already at 30% off peak by most estimates. I think 50% off peak is equilibrium (as that would make it where most market rents = owners' carrying costs).

Take this listing:

http://www.streeteasy.com/nyc/sale/342481-condo-100-west-58th-street-times-square-new-york

08/15/2008 Listed in StreetEasy by Prudential Elliman at $1,357,000.
09/17/2008 Price decreased by 12% to $1,195,000.
11/04/2008 Price increased by 14% to $1,357,000.
02/14/2009 Listing is no longer available.
02/28/2009 Re-listed by Prudential Elliman.
04/07/2009 Price decreased by 15% to $1,160,000.

for:

Down Payment $232,000
Mortgage Amount $928,000
Mortgage Payment $5,269
Total Monthly Payment $7,352

The city equates this building to The Ellington. Here is an almost identically-sized apartment at the Ellington:

http://www.nybits.com/apartmentlistings/f01e4c01d9419b3024d0e3b8b3fb6c0c.html

for $3,595 + 1 month's free rent.

It still needs to fall by 1/2 to equal market rents.

And if LICC says "THE TAX BENEFITS," I'd ask him to post all the transaction costs for the average 7-year stay in a dwelling, and tell me how much "THE TAX BENEFITS" are really worth.

Nothing.

Do your cap-rate math Rhino, tell me what you think.

"Yes. My point has always been that, over long periods of time, that "upside return potential" is nearly 0 in real terms. Only recently have people begun to think of houses as banks."

This is different than using it as an ATM. I am also not concerned with long periods of time per se. There isn't time enough to make a 1999 purchase of the stock market good, nor a 2007 purchase of real estate. In my view a dis-equilibrium creates opportunities that qualify as investment in either. Further, the average staying period of 7 years makes the long long timeframe somewhat irrelevant.

Christ.... If I subtract maintenance and taxes from that $3600, I get a cap rate under 2%.

Also....when I say 35% of peak....I mean OF not OFF....I mean -65%.

Saying return expectations and using it as an ATM was ridiculous is different than saying it is or isn't an investment. Return expectations on stock were ridiculous in the late 1990s. People thought that 15%-20% was a reasonable expectation out to their retirement age.

Oh - sorry! Thought it was a typo.

I think on the ATM and related matters we have come to an agreement; we were just looking at essentially the same thing in different ways. Of course there are short- to medium-term fluctuations in property prices when they go above and/or below more volatile market rents, which can be exploited. I've done it myself. Just, they don't really happen too often historically, and they're not that large (historically).

If you want to do the real cap rate for any property in NYC, go here:

http://www.nyc.gov/html/dof/html/property/property_condo_coop_comp_rental.shtml

And look up the rental building it is tied to for property-tax purposes. NYC uses imputed rents to assess multifamily dwellings. JuiceMan can say whatever he wants, there is no arguing that these two buildings are equivalents.

steve, you are just sleazy the way you try to manipulate the comparisons. You want to compare a Candela building off 6th Avenue a block from Central Park to a building right off Broadway on 52nd? The exact same building on 58th has a bigger apartment for rent listed at $4800.

Your after-tax cost on 58th street place would bring you right to the rental number. As I stated earlier, your transaction cost "cover" argument is invalid. If you want to amortize those costs and add them in, then also add in price appreciation on the unit.

You don't need to use comps to show that asks still imply very low cap rates....Many of these buildings list the same units as rentals and sales. The one bed luxury condo market looks absurd. Banking hiring is down 70% this year. Rentals command $3500 and lower while charges are like $2000. They all seem to still ask $900k-$1mm+. The holding periods are inherently shorter. It will be interesting to see how this resolves itself.

I also just noticed that the same apartment in the 58th street building one floor below is listed at $995k. Why didn't you use that in your ratio?

Appreciation is valid. However, the point the bears are making here is that appreciation potential here is akin to buying the NASDAQ at 4000 on its way down from 5000. When is that 4000 purchase of the Nasdaq going to average out to a 6% return? We are under 2000 and its been 10 years. I don't feel like doing the math, but I have a hunch it can't happen in a human lifetime...its too far behind for too long.

It really boils down to whether or not you believe the real estate heights were ridiculous. There is a defensible argument they were. 1.5% cap rates on condos is some support for them being ridiculous.

The argument that prices will depreciate in the near future due to economic conditions is a good argument. The argument that prices must come down even if rents do not because ownership costs have been way above rent costs is not a good argument.

"The argument that prices must come down even if rents do not because ownership costs have been way above rent costs is not a good argument."

If you look at price to rent ratios, they are still high...and the difference in interest rates is not enough to normalize it. If we have 6% rates now, and 8% rates then...its not enough to explain it. Also remember mortgage is only about 2/3rd of the cost of owning, and maintenances have done nothing but rise. The ratio is out of whack. Its out of whack because the market was paying too much for appreciation potential...and continues to do so.

Honestly, this argument is not whether the market pays for appreciation or tax benefits...its what the market usually pays for them. Prior to the credit bubble, it paid very little if anything for them.

Rhino, the best way to analyze that is to take two absolutely comparable apartments that are for sale and for rent, and analyze the costs. Pretty much every time we have done that on these boards, the costs have been in the same range. Now the comparison has to be a good one; you can't compare two buildings where the location or the building quality explains a difference. That doesn't mean now is a good time to buy, but the reason is because of the job market and economic conditions, which brings both rents and prices down.

That is fine and good. The issue is that on average, the cost of owning - if you exclude opportunity cost and include tax benefits as you like to do - has been much lower than renting. Owners have been compensated for risk. If it only nets to equal..no compensation for risk.

Renting has risks as well. The risk of increasing rent. The risk of being forced to move. Ownership also has intangible benefits that people are willing to pay more for.

I don't know if historically the cost of owning has been much lower than renting. It may happen during some market anomaly periods, but otherwise I question that.

"you are just sleazy the way you try to manipulate the comparisons."

Call me whatever you want, LICC, and call the city whatever you want, but you're DEFENSELESS on this one:

WEST 58 STREET MIDTOWN WEST R4-ELEVATOR
123 WEST 44 STREET MIDTOWN WEST D7-ELEVATOR
260 WEST 52 STREET MIDTOWN WEST D6-ELEVATOR

That is the building in question, and 260 West 52nd is The Ellington. That is how the city determines property tax.

Sorry. You lose.

"Your after-tax cost on 58th street place would bring you right to the rental number. As I stated earlier, your transaction cost "cover" argument is invalid. If you want to amortize those costs and add them in, then also add in price appreciation on the unit."

Okay. Give us your numbers, tell us what they are. Add in your price appreciation if you want to. Show us what you think it will be.

"I also just noticed that the same apartment in the 58th street building one floor below is listed at $995k. Why didn't you use that in your ratio?"

The Ellington apartment I chose is on the 18th floor with unobstructed views. Pick any other one you want, but just to make you happy, here's the math on 8G:

Down Payment $199,000
Mortgage Amount $796,000
Mortgage Payment $4,520
Total Monthly Payment $6,849

Makes ZERO difference.

"Pretty much every time we have done that on these boards, the costs have been in the same range."

Really? I haven't seen one. Show them to us, and ADD IN THE TRANSACTION COSTS.

"Now the comparison has to be a good one; you can't compare two buildings where the location or the building quality explains a difference."

That's EXACTLY what the city does. You are now arguing, LICC, that on top of every economist in the world, you know more about every building in Manhattan than the Department of Finance?

Please!

And here's the actual RENTAL for the same apartment:

http://www.streeteasy.com/nyc/rental/419738-condo-100-west-58th-street-times-square-new-york

StreetEasy History

10/03/2008 Listed in StreetEasy by Brown Harris Stevens at $8,250.
10/30/2008 Price decreased by 4% to $7,900.
12/04/2008 Price decreased by 5% to $7,500.
12/11/2008 Price decreased by 8% to $6,900.
01/11/2009 Price decreased by 7% to $6,400.
02/24/2009 Previously Listed in StreetEasy by Brown Harris Stevens at $3,500.
03/24/2009 Brown Harris Stevens Listing rented.

Yup. $3,500. EXACTLY what The Ellington rents for!

Sorry, LICC - you lose on EVERY account.

And when you start going around looking for functionally equivalent apartments to buy or rent, make sure you refer to this, LICC:

http://www.nyc.gov/html/dof/html/property/property_condo_coop_comp_rental.shtml

It's the city's list, and you can cross reference it if you want. That eliminates the, "This apartment is better than that one" argument, because the city has already settled it.

So now steve is trying to say that an apartment on 52nd off Broadway is the same as a Candela building on 6th one block from Central Park, because of NYC tax assessments. You can leave on the red nose and big shoes steve, because you have now officially become a clown.

How can you try to argue that using a comparison of a different building in a different area is better than comparing an apartment IN THE VERY SAME BUILDING? Wow.

"So now steve is trying to say...."

Steve isn't "trying" to say anything. LICC, your denial is obvious to all but you. Those are the city's values. The city uses imputed rents to determine property taxes. Here's what they say:

"Finance is required by State law to value condominiums or cooperatives as if they were residential rental apartment buildings. We use income information from rental properties similar to the condominiums or cooperatives in physical features and location. We apply this income data to the condominium or cooperative and determine its value in the same way we value rental apartment buildings."

So according to the city, the OUTPUT VALUE (rent) of those two buildings is the same.

Buildings challenge property taxes every year through petitions for certiorari; apparently, the courts agree with the city, as well.

In fact, EVERYBODY agrees with this, LICC, except you.

"How can you try to argue that using a comparison of a different building in a different area is better than comparing an apartment IN THE VERY SAME BUILDING?"

I didn't. Look above:

"02/24/2009 Previously Listed in StreetEasy by Brown Harris Stevens at $3,500.
03/24/2009 Brown Harris Stevens Listing rented.
Yup. $3,500. EXACTLY what The Ellington rents for!"

You can't compare an "asking" rent to an actual rent, and the city's rental equivalents are CERTAINLY better than a real estate agent's or private owner's "wish rent." Take the example above: originally listed at $8,250 (to cover someone's cost, I presume?) when it actually rented for no more than $3,500.

Exactly what the city says it's worth.

And both are in a neighborhood the city calls "Midtown West."

Sorry, LICC - you are COMPLETELY owned.

I'm not the one acting like a clown trying to argue it is better to compare two different buildings in two different areas rather than apartments in the same building, because of NYC tax assessments.

If you want to assume a below-ask rent, you must assume a below-listed price for the apartment.

Funny how it works both ways steve.

"Funny how it works both ways steve."

Funny how it DIDN'T, LICC.

This is an example of how you act when you lose (which is always): confronted with real evidence of real properties and their rental values ACCORDING TO THE GOVERNMENT, you say, "Nonsense!" and then walk away.

Lame.

Then you claim - "rather than apartments in the same building" - which is WRONG, because I did, and walk away.

Lame.

And again: "If you want to assume a below-ask rent" which I didn't (as the figure is from StreetEasy).

Lame.

When asked to provide your own numbers, you (lamely) decline.

If I'm wrong, prove it. Otherwise, YOU'RE OWNED.

Every two-bedroom in that building is listed at $4500 or higher. One-bedrooms are listed at $3500.

My numbers - 8G would cost approximately $5200 per month after tax, assuming purchase at the asking price. That is right in the range of rents.

I'm still laughing at your trying to compare two unrelated buildings, in two different areas, based on NYC assessments!

"is listed at $4500 or higher"

Listed, schmisted: they haven't RENTED! The one that RENTED rented for $3,500.

"My numbers..."

Lay them out, LICC:

1) Principal
2) Mortgage
3) Taxes
4) Maintenance
5) TRANSACTION COSTS

and rent, less:

6) Opportunity cost.

So we can see them.

"I'm still laughing"

Laugh away! "Finance is required by State law to value condominiums or cooperatives as if they were residential rental apartment buildings."

A much better source than YOU, who makes things up!

So - LET'S SEE HOW YOU PUT DOWN YOUR NUMBERS SO WE CAN SEE YOUR ASSUMPTIONS!

All of them!

Its interesting that everyone has their own one-way discussion on here.

LICC - no one denies that if you exclude transactions costs, opportunity costs, and include tax benefits the price of owning can approximate the current rental market. I'm sure if you put a big enough downpayment, you can make that true in any market! The data is clear. Even if we assume 1999 was 'normal', 1992 was 'trough' and 1H 2008 was 'peak'.... the ratio is high. Most markets afford the buyer some compensation for transaction costs, some measure of the tax benefits for "free". Its actually scary that after falling 30% the best you can do is say owning = renting, after tax ex transaction costs and opportunity costs. Until this recent bubble, that would have made people cringe. The market has 30% to go to get to normal and 50% to get to a historical trough type of valuation.

Rhino, those two apartments are prime examples of what's wrong with Manhattan. One is an affordable rental, the other is an overpriced purchase.

It's not possible for owners' carrying costs to long exceed market rents, because if you were to rent a property out you would at least need to come close to breaking even.

LICC won't put down specific numbers because it will prove how silly they are.

Rhino, you can include projected amortized transaction costs and opportunity costs, but then you also have to include projected rent increases and price appreciation. You are moving past actual concrete numbers and into factors that require assumptions and projections.
I would like to see the same analysis for actual comparable apartments from 1999 and 1992, because otherwise we are speculating.

steve, you do this all the time. You take a source that does not apply to the situation, misapply it anyway, then proclaim that your information has an ironclad source, but in reality you look completely foolish. NYC tax assessments???? I'm still laughing at you.

What did I make up? I looked at the numbers on streeteasy from the building that YOU selected. And you wonder why even bears on this board get fed up with you.

This is a circle jerk. LICC, I will not add appreciation because I don't think there will be much from this point over a 10-year holding period. Why don't I think so? Because price to rent ratios remain out of whack and interest rate risk is skewed to the upside.

At a 1.5% cap rate, how much appreciation and rent increase do I need to put in to make it not a shit purchase? A lot. Besides, appreciation and rent increase are kind of one in the same concept.

I will not do the legwork on 1999 and 1992 price to rents. I feel as though I have already done it. You don't have to accept it.

I'll be willing to entertain anything that LICC says, as long as he backs his numbers up with something.

He has proclaimed himself the Grand Pooh-Bah of Manhattan real estate, lives in Long Island City and denies that the appraisals made by the NYC Department of Finance are valid. Despite the fact that that's what property tax is based on, and those appraisals are routinely challenged through petitions for certiorari. Rather, he'd prefer to use figures that anyone anywhere can just make up - asking rents - rather than the actual rents for which apartments rent.

Amazing.

LICC - PUT DOWN YOUR NUMBERS. ALL OF THEM. You know where I got mine from.

Oh - maybe Juicy would like to chime in on the opinion of his BFF.

Steve why convolute a basically correct argument with assessments? Price to rents remain high even after this correction. Isn't that the end all? Cap rates are low, in absolute terms and relative to history or current interest rates...and price to rents remain high (=2004 which was higher than ever previously recorded).

So 24 hours later, the same people are arguing the same thing, no one has shifted sides on their opinions or on their sexual preferences.

"why convolute a basically correct argument with assessments"

Because assessments in NYC are different. Property tax for multifamily dwellings is assessed on the rental value, not the market value. The city looks at all condos and co-ops, identifies comparable market rental buildings in the same neighborhood, adjusts for differences (control, stabilization), and comes up with a hypothetical psf rental price for the building. Therefore, it is an extremely good way of comparing what the market rents would be for any particular co-op or condo IF it were a rental.

The two apartments I picked are approximately the same size. One is a few blocks closer to Central Park, the other is a few blocks closer to restaurants and the theaters and the subway. One is a modern high-rise with excellent views; the other is an older Rosario Candelaria building cut up into pieces.

The city weighs this every year. It is extremely reliable as every year it gets challenged in court.

Just look here:

http://www.nyc.gov/html/dof/html/pdf/condo_coop_comps/mncondos2009.pdf

and here:

http://www.nyc.gov/html/dof/html/pdf/condo_coop_comps/mncoops2009.pdf

Where it gives you quite plainly:

Boro-Block-Lot
Condominium Section
Building Classification
Address
Total Units
Year Built
Gross SqFt
Estimated Gross Income
Gross Income per SqFt
Full Market Value
Market Value per SqFt
Distance from Condominium in miles

It is amazing that steve thinks everyone else is so stupid to not see that this tax assessment charade of his is just another misleading angle he is trying to use to cover up the fact that he lost another argument.

LICC, back to your old ways, are you?

Here are the data:

Address: 100 WEST 58 STREET
Total Units: 103
Gross Square Feet: 121,921
Estimated Gross Income: $4,876,840
Estimated gross income psf: $40.00
Full market value: $24,500,007

Address: 260 WEST 52 STREET
Total Units: 217
Gross Square Feet: 190,289
Estimated Gross Income: $7,178,824
Estimated gross income psf: $37.70
Full market value: $36,000,000

"steve thinks everyone else is so stupid to not see that this tax assessment charade of his is just another misleading angle he is trying to use to cover up the fact that he lost another argument."

What's your estimate of the full market value of The Ellington?

LMAO.

Notice that LICC refuses to post any numbers of any kind or hire his own appraisers to figure out what things would rent for. Rather, when confronted with reality, he resorts to ridicule.

LICC, where's your market appraisal of The Ellington? Where are your appraisals of rents psf? Where are your numbers and assumptions proving your points?

THEY'RE MISSING, LICC?

Maybe you can get JuiceMan to help you.

I don't waste time with your irrelevant misdirections steve. My numbers are above. Those are on point and show you are wrong, again.

You are not fooling anyone.

LICC: LMAO!

No numbers, no sources, no nothing, just - "HERE'S WHAT IT'S WORTH TO ME!"

LMAO LMAO LMAO.

You are OWNED.

OWNED OWNED OWNED.

Lets be clear. The point LICC thinks he has won is that after-taxes, without opportunity costs or amortized transaction costs...it costs about as much to rent as to own and that is true-ish...with what, a 25% down payment?

What LICC seems not to care about is whether or not that is normal or not. If 1999 was roughly between the 1992 trough and 2008 peak....prices were 1/2 and rents were a lot closer to current levels than that...Maintenance per square foot was also much lower. Seems self evident that his way of looking at this is not an average or equilibrium of any kind. Can't spell that any more clearly than a graph of cap rates and price to rent ratios.

I haven't been paying too much attention to this argument, but just to be sure....

steve, you know the city uses 45% of the market value calculated using the cap rate when it lists the "market value", right? (I don't even know if that figures into the argument, as I said, I haven't been paying attention to the nuts and bolts of it).

One of the many problems with this analysis...is if you put enough money down anything is cheaper to own than rent. At peak it was cheaper to own than rent if you put 35% down and included all the tax benefits, excluded all the transaction costs and opportunity costs.

The great "investment" of home ownership traditionally that your payment was equal to rent before taxes and the deductions were a return on that investment...if not equal to rent including principal repayment. LICC is not a bad person, just doesn't realize the role that the credit boom played in the value of things....Most people didn't - this is why they got smoked last year across the board.

30yrs the nuts and bolts is that LICC thinks this is 'normal' pricing relative to rent current market. Steve thinks your home is not an investment to be judged vs. alternative uses of cash. I think it is. Steve demands LICC charge himself opportunity cost and amortization of transaction costs. LICC refuses and demand Steve add in appreciation. These two debates are intertwined, as I continue to prattle on about how prices remain too high relative to rents to expect much appreciation from here over a reasonable holding period.

stevejhx:
LICC: LMAO!
No numbers, no sources, no nothing, just - "HERE'S WHAT IT'S WORTH TO ME!"
LMAO LMAO LMAO.
You are OWNED.
OWNED OWNED OWNED.

Steve, since you just learned the term "Owned" yesterday, may we kindly suggest that you ease into it. No more than one "owned" per post for the first week, and please only use initial caps rather than all caps. Good thinking though on combining your LMAO term with it as that did make it a bit less stark although you might wish to also use a LMAO after your use of Owned, again just to EASE into it.
BITCH!

I don't know about the other points, but agree with "prices remain too high relative to rents to expect much appreciation from here over a reasonable holding period."

Ok, I just read most of this thread. I take back everything I said about steve being smart.

can you explain the origins of the name JuiceMan?

Rhino, we are talking about 20% down, which is a historical norm.

I still haven't seen source data that the ownership cost to rental cost ratio in 1999 or other years were starkly different from now. The charts you referenced are not source data. The best source data we had was the information I cited on a different thread, which showed the ratios were not that far off.

Also, I don't refuse to add in opportunity costs or amortization of transaction costs, but I refuse to project costs unless you also project price appreciation.

Oh JuiceMan, it lasted such a short period of time!

Rhino, you're right: if you pick and choose which factors you include in your analysis, which you exclude, start with your expected result and work backwards, not provide any numbers, and LICC can "prove" anything.

"Also, I don't refuse to add in opportunity costs or amortization of transaction costs, but I refuse to project costs unless you also project price appreciation."

I said go ahead. Include anything you want. Just put down all your assumptions so we can see them.

LICC, rancor aside, I still don't understand how two graphs of price to rent ratios do not qualify as source data. I realize they are pre-tax, and pre-financing...But if you see below that before 2004 the range was 4x to 12x, and that we peaked at 17x in 2006... And that it was 9x in 1999. It is very very difficult for me to understand how you could imagine that the difference in interest rates between now and 1999 could account for the different between a 9x and a 14x ratio. This is data. Stop insisting that I haven't shown you data.

http://www.realestatechannel.com/news-assets/GraphC.jpg

Rhino, it isn't source data because the chart doesn't detail what numbers are behind those ratios. The only pure way to review it is to know what actual prices, rents and rates were in those years. I cited the best data available to provide that information and it disputed the ratios in your chart.

You are using a circular argument. You say that you won't account for 10 year price appreciation because rent ratios are abnormally high, but that rent ratios are abnormally high because there will be no price appreciation to account for.

steve is talking about picking and choosing factors to manipulate the result you want? He sure knows all about that . . .

Oh I see. A graph is not data because its not numbers. I recall your rents were from one source and the prices were off the top of your head. Then you back filled a price source. The problem with using two sources is you have no idea if the mean/median is comparable across the two.

I defy anyone to make sense of your second paragraph. No, I say cheap money drove prices up powerfully without a corresponding impact on rents. Cheap/easy money is now a thing of the past, and people will find out what normal is...and then they will find out what trough is in the face of a condo supply glut in a weak economy.

Rhino, it's useless. LICC & Juicy will pick and pick and pick and say, "This doesn't include that, that doesn't include this, this includes that, that includes this."

No matter what you do.

I've offered to entertain LICC's "theory" (for which he provides no data) if only he'd post it in full: price appreciation, tax benefits, opportunity cost, transaction costs. Not only won't he do it, he will deny any REAL data, such as, oh, let's say tax appraisals for like buildings in the city, the fact that real estate brokers charge 6%, the fact that the average person stays in a home for just 5-7 years, everything.

He'll say, "You're wrong, you're a clown, you don't know what you're talking about, we all see through what you're doing," all the while never posting a single cogent proof of what he thinks is true.

And his BFF Juicy thinks that Manhattan is exempt from the very same economic laws as Albany, or Wayne, New Jersey.

"steve is talking about picking and choosing factors to manipulate the result you want? He sure knows all about that . . ."

I'm offering you the opportunity to pick and choose your own, LICC.

His creative accounting for the current market bothers me much less then his bold faced denial of where the cost of owning vs. renting was in 1999. It seems pretty easy to me, given that rents are very close, and prices are double...maintenances have gone up a lot, and the cost to borrow could never be big enough to outweight all that...especially if you demand to look at it after tax.

I am realizing though...even if worked through a specific example, he would demand proof that 1999 wasn't an anomaly.

I gave Miller Samuel reports as a source for prices. If you want to research the sources for the date behind the ratios in your chart, and the exact methodology for the ratios, then we can analyze them.

You said above that you won't include price appreciation when determining rent/buy ratios because you don't think there will be appreciation. The basis for you not believing there will be appreciation is that ratios are high. It is a circular argument.

Your last point is valid. If the cost of financing goes up, prices will have to adjust down relative to rents. No dispute there.

steve - all my relevant numbers are in the posts above. Don't get cranky because I call you on your manipulative, misleading arguments and show how you are wrong.

Rhino, who says rents are very close? You have not provided support for that statement.

The methodology is price divided by (monthly rent x 12). It is across all apartment types. You would like to calculate it a different way, thats fine. Its like you telling me you dont like the way P/E is calculated. I am not sure you know what a circular argument is. Price to gross rent is a commonly used metric. You do not include appreciation. Appreciation is always implicit.

Signing out good luck.

Will leave you with a quote from Noah of Urbandigs and include the link to the full story.

"Affordability ---> price/rent ratios are still out of whack and with rents declining, the fall in property prices on this ratio is muted"

http://www.urbandigs.com/2009/05/contracts_continuing_to_be_sig.html

Another quote from same, graphs available at link.

"Notice the first chart showing the widened gap between condo & coop prices and market rents - now that rents are falling too, it makes the down move in prices more muted for this ratio of valuation premiums and affordability:"

Also to the yahoos that say supply is not rising, there is a graph at the bottom of this article on new condo units on the market. That is SUPPLY.

"steve - all my relevant numbers are in the posts above. Don't get cranky because I call you on your manipulative, misleading arguments and show how you are wrong."

Really? Here's every number you posted:

"In general, $525k is a good price to buy if the same apartment would command $3500 rent. The price-rent ratio is a current day analysis, so other factors regarding future price movement should be considered."

What support do you have for that?

"Ah, steve's analysis is full of holes. Shocking.
Brokers are taking a full 6% nowadays? I don't think so.
Buyers pay transfer taxes? Nope.
Legal fees 2%? Not quite.
All mortgages have points? Wrong."

So - what are YOUR figures?

"Your statement that buying a place is the same as renting it to yourself is also lacking. If you made an agreement with your landlord to lock the same rent payment for 30 years, with minimal increases to account for building maintenance, and for the landlord to give you the apartment after the 30 years, maybe it would be comparable."

Show us how YOU would do it!

"ok steve, let's fix your numbers. You overstate legal fees and brokers' commissions, probably by about $20k-$25k. Let's assume a modest annualized 3% rise each in property value and rents for 5 years, and let's very conservatively assume a comparable year 1 rent of $4000. Over 5 years, you will save $38,226 in rent INCREASES alone (if you look at actual rent saved, you are looking at almost $280,000), plus you have $200,000 of increased property value. And as you pointed out, each additional year you own, the more the numbers work in your favor."

This one's not a number, but I love it:

"steve, keep ignoring the numbers I posted earlier and yelling to post numbers. You look very rational doing that."

"Rents are higher now than they were in 2000. Prices are not triple now what they were in 2000. Double, probably, but not triple. Rents are likely not double what they were in 2000, but mortgage rates are considerably lower, so the ratio for carrying costs to own or rent are not far off. This is the point rhino misses."

"I don't think real estate is guaranteed to increase by 3% every year. Over the long term, 10-30+ years, there is an extremely high probability that real estate will increase in value, and we were looking at a hypothetical assuming price appreciation."

"steve - see the post from 23 hours ago."

This one I like, too: "Owner-occupied real estate is both a substitute for renting and an investment." But how it fits in with "Your statement that buying a place is the same as renting it to yourself is also lacking" is beyond me.

"steve, you are just sleazy the way you try to manipulate the comparisons. You want to compare a Candela building off 6th Avenue a block from Central Park to a building right off Broadway on 52nd? The exact same building on 58th has a bigger apartment for rent listed at $4800."

"I also just noticed that the same apartment in the 58th street building one floor below is listed at $995k. Why didn't you use that in your ratio?"

"So now steve is trying to say that an apartment on 52nd off Broadway is the same as a Candela building on 6th one block from Central Park, because of NYC tax assessments. You can leave on the red nose and big shoes steve, because you have now officially become a clown."

"Every two-bedroom in that building is listed at $4500 or higher. One-bedrooms are listed at $3500.

"My numbers - 8G would cost approximately $5200 per month after tax, assuming purchase at the asking price. That is right in the range of rents."

"Rhino, we are talking about 20% down, which is a historical norm."

****

Okay, LICC, that is EVERY post in this thread wherein you used a number. You say, "steve - all my relevant numbers are in the posts above. Don't get cranky because I call you on your manipulative, misleading arguments and show how you are wrong."

What exactly do these posts prove, and how do you think they do it?

"In general, $525k is a good price to buy if the same apartment would command $3500 rent."

This kills me - LICC's "numbers" prove exactly what I've been saying all along: it costs twice as much to buy as to rent.

You can get a nice 2-bedroom 2-bath apartment in a new building in Midtown West for $3,500 a month. Find me - LICC - just ONE that you can BUY for $525,000.

"You can leave on the red nose and big shoes steve, because you have now officially become a clown."

LMAO!

"can you explain the origins of the name JuiceMan?"

Can you clarify the question?

So Juicy, while you're laughing, can you identify that $525,000 apartment that commands a $3,500 rent?

steve, I don't know if you intend to be deceptive or if your thought process really is that muddled. You effectively are agreeing with me that if you can buy a comparable $3500 per month apartment for $525k, then you got a good price and should buy. If an apartment is comparable to $3500 per month, $700k to $750k could be a good price to buy, depending on other factors.

You are really falling off a cliff on this discussion. You should quit now while you're way behind.

I see, LICC - first you say that a good price is $525k, then you up the price by 50%, to $700-750k - nowhere in your prior arguments - it's still a good price.

W.O.W.

So which is it, LICC - $525,000 (what you initially said) or $700,000 - $750,000?

And (since you obviously haven't) put up your numbers to support your case.

Hey Rhino - see why arguing with LICC is so great!?

Nothing further from LICC?

Obviously he put up no numbers b/c I copied all the numbers he did put up, and they say nothing. Then he changes his mind by 50% about a "good price" for an apartment. Then he accuses me of "falling off a cliff."

Juicy, wanna lend your BFF a helping hand?

When you don't apply any analysis to your purchase...$525k? $750k? What does it matter? Imagine if you had some perspective on say a simple metric like price to rent? If someone asked you, "What do you think of an apartment I can buy for $525k or rent one like it for $3,500?" You might be able to answer them intelligently. "Well that 12.5x sounds low for today's rental and purchase market. Are you sure $3,500 is the right comparable rental price?" And go from there. They might say, "You are right. I can rent a piece of shit like this for $2,600 right across the street." You might say, "Yes, 17x rent is really no bargain, just because people were paying 20x rent for an apartment like this 10 short months ago".

What if you are paying all cash? How does this change the analysis?

If you are LICC, it changes it. After all the arguing on here...I think my feeling is cap rate is the way to look at it. Cap rate vs mortgage rate. Any cap rate under 5% is treacherous time to buy.

LICC, you've had a FULL DAY to post your numbers! Where are they?

Juicy - how come you haven't come to the rescue?

We know what his numbers are. No opportunity costs. No transaction costs. After tax monthlies = rent. This is ok because it was all the same in 1995, 1999 or whenever. In his view cost of owning vs. renting has been pretty stable.

Here it is
Buy a place, put 20% down, mortgage the rest.
30 year mortgage at 6%, assume full tax deduction of interest expense, bringing the 6% mortgage to 4% after 1/3rd tax.
On your 20% down, you demand a risk premium, after all, you come last in the structure after the bank, and you demand a premium to compensate for the other investments you could put the money in. Assume that premium is based on long-term returns in the stock market, so 5% in addition to the 6% mortgage.
On an average basis, 80% at 4% and 20% at 11% gets you about 5.4% blended average.
Your $525K house should produce rent of $28.4K per year PLUS the cost of maintenance. I'm not quite sure what the cost of maintenance is, but how about we put it at $500 per month or $6000 per year. So the total to rent should be $28.4K + $6K or $34.4K per year or $2866 per month.
So the house that is listed, either the rent should be $633 lower per month, or the house is under-priced.
Play with all of the assumptions there, especially the monthly maintenance, and maybe adjust the exact mortgage rate and your rate of tax deduction, and also to a lesser extent what you might demand as an investor in real estate for your 20% down.
There is otherwise some simplifying here. And I definitely didn't account for brokerage costs and such so when you move, if you move frequently, that will count against the buying, so a bit of thinking of your personal choices comes into play with a lot of moving or if your life will be changing (having more kids for example) or if you are single or whatnot.
This also assumes that rent and prices generally go in the same direction by about the same amount. There is no way to predict this at the outset, BUT, the interest rate on the mortgage, because it is long-term, takes into account, in theory, the market's best guess on direction and timing of changes in interest rates (which will be what changes the difference in renting and buying the most other than just general supply and demand) in aggregate.
Hope that helps, and don't let every every little detail get in the way of choosing a good living situation for your personal situation because even if you refine the assumptions to be more exact about some things, you can't predict everything and why not just come to the best conclusion and be happy about whichever direction you go.

Here it is
Buy a place, put 20% down, mortgage the rest.
30 year mortgage at 6%, assume full tax deduction of interest expense, bringing the 6% mortgage to 4% after 1/3rd tax.
On your 20% down, you demand a risk premium, after all, you come last in the structure after the bank, and you demand a premium to compensate for the other investments you could put the money in. Assume that premium is based on long-term returns in the stock market, so 5% in addition to the 6% mortgage.
On an average basis, 80% at 4% and 20% at 11% gets you about 5.4% blended average.
Your $525K house should produce rent of $28.4K per year PLUS the cost of maintenance. I'm not quite sure what the cost of maintenance is, but how about we put it at $500 per month or $6000 per year. So the total to rent should be $28.4K + $6K or $34.4K per year or $2866 per month.
So the house that is listed, either the rent should be $633 lower per month, or the house is under-priced.
Play with all of the assumptions there, especially the monthly maintenance, and maybe adjust the exact mortgage rate and your rate of tax deduction, and also to a lesser extent what you might demand as an investor in real estate for your 20% down.
There is otherwise some simplifying here. And I definitely didn't account for brokerage costs and such so when you move, if you move frequently, that will count against the buying, so a bit of thinking of your personal choices comes into play with a lot of moving or if your life will be changing (having more kids for example) or if you are single or whatnot.
This also assumes that rent and prices generally go in the same direction by about the same amount. There is no way to predict this at the outset, BUT, the interest rate on the mortgage, because it is long-term, takes into account, in theory, the market's best guess on direction and timing of changes in interest rates (which will be what changes the difference in renting and buying the most other than just general supply and demand) in aggregate.
Hope that helps, and don't let every every little detail get in the way of choosing a good living situation for your personal situation because even if you refine the assumptions to be more exact about some things, you can't predict everything and why not just come to the best conclusion and be happy about whichever direction you go.

Guess what...the first post on this thread states the maintenance is $1200. I think the other problem with your analysis is you reward the person for using more debt. Whether you put down 0% or 100%, you still have the same exposure. Lets say the cap rate should be a couple percent higher than the mortgage rate. 8%. Even if this piece of crap rents for $3500 a month less $1200 in maintenance, that is $28,000 in 'income' per year. Capped at 8% that is $350k. Capped at 6% that is $470k. The problem here is that an apartment asking $525k in this market is not comparable to a $3,500 rental. Which is why...drumroll....PRICE TO RENT IS STILL OUT OF WHACK.