Renting vs. Buying in this economy

"there are certainly deals to be had."

Point us out a few.

According to your numbers, you are covering your interest, not your principal and not coming out ahead on that basis at all.

"not fired up in the least bit, just stating that even in this softened or apocalyptic market (wherever one is on the continuum), there are still ways to navigate the storm. What's so wrong with coming out ahead a few hundred dollars/mo and someone else paying down my principal? I'm not suggesting that near breakeven is anything to brag about right now, but if i'm looking to trade up to a 2BR, there are certainly deals to be had. Are other people entertaining the idea of sell-low, buy-low?"

Not in itself a bad idea, when values are down its cheaper to trade up.

But you seem to be discounting the idea that things might get lower.

And unlike mortgage refinancings, you can't really get the do-over. You've locked in your price.

I'm still waiting for an explanation of how barely covering your interest, maintenance and taxes through a renter is having someone else paying your mortgage.

am i not paying some principal every month (~20% of my monthly mortgage payment)? I'm not suggesting you can buy a splashy condo in FiDi or in the Williamsburg gauntlet, but if you have 5+ year time horizon, can negotiate, can prey on a seller's fear, enjoy real estate, actually see opportunity when you wake up - not paralysis by analysis - you can find a deal. I happen to think there are a few brownstones in Brooklyn that need a gut, were family-owned, not even listed on here, where you can get a deal.
I'm not claiming to know the numbers like some of you, but as someone who enjoys getting creative when the going gets tough, yes, there are deals. If you're too lazy to find them, so be it. Do I really think NYC will be in the shitter for the next 10 years? No. Will you see values double in 5 years like 02-07, no, but modest people can make modest gains in the next 5.

You really can't make modest gains in five years if you believe, as some of us do, that the market has another 30 to 50% down. When I can buy a one bed and rent it to earn 8% cash on cash, I will believe that there is appreciation ahead. Not 4.5% that doesn't even match my mortgage rate.

steve, you just regurgitated so many things that have made you look incredibly foolish for the past year.

Your "average" tax rate? What is that? You used to say effective, then when you were made to look dumb you changed it to some other concoction, and at the end you were the laughingstock of this board.

You have never shown, because you can't, how your 12x ratio includes the tax benefit. You have said it includes the benefit because it is in the price. Which is ludicrous. You just hate how the tax benefit causes all your analysis to be irrelevant.

Where in the world are LICC's numbers?

curious, if you're losing money on the deal it's a bad business. Invest in something more reliable, like penny stocks.

As an owner renting out to an unrelated third party, you should AT LEAST break even after deducting everything but principal (which is not deductible). You also have to recall that you're subject to UBT in NYC if you make any income.

Have you addressed the issue that you can't find apartments to rent anywhere as nice as apartments to buy? Once the financials are done, there are some quality issues.

I've seen some gorgeous rentals - including a townhouse offered at $22,000 a month. BTW, the "yield" at $22,000 a month was less than 3%!

Well above my pay grade though!

We are discussing comparable rentals. There are plenty.

LICC, I am horrified that you can't understand that concept of defining a ratio as price to gross rent without making a tax adjustment. There is no % down and no % tax rate that applies to everyone out there. It is tax adjusted because the ownership adjustment has always existed. Oh my goodness, oh my goodness.

Yes, Rhino, you are now seeing the glory that is LICC.

Who doesn't provide numbers because HE HAS NO NUMBERS!

"Have you addressed the issue that you can't find apartments to rent anywhere as nice as apartments to buy?"

You can often buy or rent the same unit. Ratio holds constant - 2x the price to buy.

LICC - where are your numbers?!

Does this ever stop?
Same 3 people, goading each other more than contributing.
Rhino86 we've got a homophobe with a foul mouth who has only decided to partner with Steve because of his greater dislike of LICC. He keeps telling LICC to go away and Streeteasy to ignore him, and then keeps talking.
Stevejhx who is correct today that buying isn't sensible vs. renting by a several decibels, but has so discredited himself otherwise by saying that renting is always better and coming up with such statements like the tax benefit on the mortgage doesn't count. Plus the constant yelling. Why ask LICC for his numbers if he's already determined he's not going to get the numbers based on asking 50 times previously? Does he need to hear himself post?
LICC whose points of view, seriously, usually people in a bubble have trouble seeing it, but when the bubble has burst, people usually look back and figure it out. Not you? Long Island City? Seriously?

"so discredited himself otherwise by saying that renting is always better and coming up with such statements like the tax benefit on the mortgage doesn't count."

Put them in context: renting is always better if you view buying as an "investment" that will yield a high return. It will not.

Mortgage tax benefit DOES count - sometimes. Not in the 12x ratio, but when it does count it needs to be put into context.

LICC poo-poos what everyone else says and posts, so he should be pressured into proving what he says, instead pontificating with impunity.

Regarding rhino, I don't think what he said (and apologized for) was homophobic. Tasteless, but not homophobic. But we've all been guilty of saying things we later regret, me included. There is no DELETE COMMENT button on this board.

Steve if in two years real estate is down 40% from here and the US stock market is up 40%, should I sell stock to buy an apartment or hold the stock and continue to rent? Assume rents are roughly same. Hehe.

If in two years knowing the outcome you can beam back in time and make the right decision, that's what I would do.

LICC?!

If I can buy an apartment for 10x rent with stock sold at 20x earnings, I don't need to beam anywhere to know what the right decision is.

Rhino86

This guy has a good take. If your 'rental return' can't cover your mortgage, there is a problem with buying. No one should buy this apartment for more than $450k. That's the lowest that matches the mortgage rate.

http://patrick.net/housing/crash.html
________________________________________

Rhino86 - Thanks for linking this site! This is a great read and I think the author is spot on in stating that lower housing prices are the solutions, not the problems.

Best quote: "The government pretends to be interested in affordable housing, but now that housing is becoming affordable, they want to stop it? Their actions speak louder than their words."

2nd best: "Salaries and rents prove that prices will keep falling for a long time. Anyone who bought a "bargain" this time last year is already sitting on a very painful loss."

"I don't need to beam anywhere to know what the right decision is."

I meant the 40% increase in the stock market. You need to beam for that.

I don't know who patrick.net is, but his words about wisdom are wise. He essentially says what rhino & I are saying in yet a different way.

EVERY equation regarding real estate gives the same result: it's still 50% overpriced.

LICC - WHERE THE HECK ARE YOUR NUMBERS?!

Juicy: why don't you help your BFF out and post some numbers and premises that support his position?

Patrick is right...but price to rents on the coasts are not 33x...But cap rates (net of maintenance and taxes) are lower than mortgage rates...Which is the correctly troubling thing. You shouldn't "need" 3-4% appreciation just to get up to the mortgage rate...mortgage rates which clearly have more upside than downside.

LICC?! Your numbers, please!

I missed Rhino85 callhim him a homosexual. How can you apologize for that and shouldn't he apologize to every one who is gay?

licc?!

LICC?! Where are your numbers?!

Juicy!? Care to lend your BFF a hand?

"This guy has a good take. If your 'rental return' can't cover your mortgage, there is a problem with buying. No one should buy this apartment for more than $450k. That's the lowest that matches the mortgage rate.

http://patrick.net/housing/crash.html"

There are some decent points in the article, but look at the guys bio. What a freakin loon...

Patrick a liberal who wants socialism. Liberalism is a wonderful thing! Everyone should be a liberal. You know what “liber” means in Latin? FREE

FREE FREE FREE FREE FREE

Liberals say that everyone should be free to live life how they want to, as long as they don’t hurt anyone else. The people dictating the conservative agenda just manipulate your feelings about patriotism and religion to get you to help the very rich evade taxes. They create fear to control you: fear that government will take your money in taxes and tell you what to do, fear that we will lose US independence, fear that immigrants will take US jobs, fear that God Himself will strike you down if you don’t play along with their entire agenda.

But there is only one part of their agenda they really care about: lower taxes on the very rich, people who get more than $1,000,000 in unearned income per year. Everything else is just to get you to vote for that one part.

The very rich pay only 15% on the millions they get without working (dividends and capital gains) while you are forced to pay 28% on the little money you actually earned through hard work. It should be exactly the other way around, with lower taxes on work, and higher taxes on unearned income. Ultimately, there should be no income tax at all, only a tax on land values.

To keep you from having free time to complain, in case you ever figure out that patriotism and religion have nothing to do with helping the very rich evade taxes, they encourage you to get deeply into debt. Once deep in debt, you have to slave away for the rich. When you are in debt, you are NOT FREE. Your slavery, my friend, is part of the conservative agenda (along with letting the very rich live tax-free), though most of the conservative foot-soldiers do not realize how or why they are being used.

While you’re distracted pledging allegiance to God and country with your hand over your heart, their hand is picking your pocket!

As for my socialism, this is all there is to it:

Universal police and fire protection paid for by taxes! (Wait, we already have that.)
Universal primary education paid for by taxes! (Actually, we already have that too.)
Universal health care paid for by taxes! (MISSING. Universal health care is your only hope for independence from your boss and for secure retirement, and they don’t want you to have it.)
We have many other socialist policies which I say we should eliminate:

Huge blind transfers of tax money to badly run banks.
Taxpayer guarantees that force you to pay your neighbor’s unaffordable mortgage.
A mortgage interest deduction that encourages financial suicide by debt.
Federal Reserve price-fixing of interest rates.

The crux is cap rate should not be less than mortgage rate. I like that you barely touch that and then go on some rant. Great graph illustrating 'negative leverage'... Looks like we've found the key to buying well. Based on the trend, we might really see a great opportunity in the next couple of years. Compare today to 1990.

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

JuiceMan never addresses the issues. Never mind LICC!

Yes, cap rates must never be below mortgage rates. (I still think you need to include maintenance in that calculation as it's a fixed operating cost - something not contemplated in commercial real estate transactions (which produce rent)).

Yes purchase prices should NEVER be more than 15x rent (and the mean is 12x).

Yes you should be able to buy an apartment and rent it out to an unrelated third party and break even from the get-go.

Yes you need to amortize 12%-15% transaction costs.

I think maintenance is included in a cap rate....no? I realize these are building cap rates...maybe they do not include maintenance?

What's interesting its only worth buying about 1/2 the time....and 04-09 is the longest stretch going.

It reminds me of the stock market....valuations only call for new money about 1/2 the time. :) Never invest above 15x Shiller normalized eps (currently $60 on the S&P 500).

buy now and loose how much?

10% means you have to gain over time 11%

20% means you have to gain later 25% to breakeven

30% means you have to gain later 42% to breakeven

40% forget it its 67%

Well this is why these comments from people "I think I will be ok in five years..." make no sense. If one is of the mind that 30% down from here (50% total) is called for over the next two years, you don't rip up 10-12% in each of the next three to get back to breakeven.

"I think I will be ok in five years..." Everyone I come across says this. They are convinced of it, and many people are completely opposed to renting. Maybe this sentiment will keep the market from going much lower?

virtually no reputable economist has predicted 50% drops for NYC. The 50% figure is a product of the SE bears and a questionable DB report.

Peoples desire to own has always been so. That didn't stop three years of declines from 1990-1992. Ultimately, its how many people who do not own are inclined to own, vs the number of people selling. The thing about cycles is, the lower it goes - fewer people will actually want to buy...and the more people will want to sell. Eventually true 'value buyers' will buy. Of course its the non-stop topic of this board... But 3-4% cap rates on property, (up from 2.5%) is very tough to call value. Some will call it that...We will see over time how many such people exist.

Honestly, I think you are seeing the last of the finest buying right now. Remember alot of people succumbed to buying from 2004-2007 (I was almost one) because it just went up and up...and so did rents. When you are making money, you tend to see the deduction as guaranteed and very valuable at the margin. I think people who did very well might be cleaning up some apartments right now off the market. But what does the "creation" of new buyers look like over the next few years? People right now are buying with the money they made in the boom. How many fewer people will be getting paid enough over the next few years to accumulate a down payment and become 'new buyers' so to speak...to offset the natural selling and migrating out of the city, as well as absorb the newly completed condos.

"virtually no reputable economist has predicted 50% drops for NYC. The 50% figure is a product of the SE bears and a questionable DB report."

Are you forgetting Shiller, Goldman Sachs and CSFB?

Shiller on New York: We're Ancient Rome, Right Before the Fall
http://www.observer.com/2008/shiller-new-york-we-re-ancient-rome-right-fall

More Shiller...I love this.

It’s a little bit like Rome. I don’t know if you’ve ever read what Roman historians say: People in that city, I’m talking about ancient Rome, there were poets who extolled it, it must have been an amazing place. I wish I could go back in a time machine, it must have been something! The Roman Empire centralized on Rome more than the U.S. does on New York; in fact their whole country was named after Rome … They definitely had great feeling for that city, and it’s still there, and it’s still a neat city. But it went through some bad periods, if you look at history: Really bad periods when it fell into decay! So it’s kind of up and down, and I think that’s the typical history of cities. Rome has not always been expensive.

I believe Shiller only predicted 50% drops for the major bbble areas like CA, FL, etc... not NYC.

who is CSFB?

You writing off Goldman, CSFB as well?

Either way, there are a zillion ways to slice this. Many of those zillion suggest that -50% is feasible. Its 30% down from here and we have a lot of momentum...so really to caste it aside as a possibility seems silly.

Who is CSFB? Joking aside, are you a child? Listen, if you are a child I won't speak to you harshly, and you might just actually learn something.

IS CSFB Credit Suisse First Boston? Well excuse me, but in my arean, everyone refers to it simply as Credit Suisse. No need to include the full name.

And as far as Goldman, they did predict last year that oil was going to hit $200 a barrel.

"Many of those zillion suggest that -50% is feasible."

Just because a lot or even most people predict something does not make it reality. Unless we see a substantial increase in forelcosures in Manhattan, it is unlikely we will see 50% drops. I think we will only see isolated cases of 50% drops in undesireable areas like Jamaica and parts of the Bronx.

> I believe Shiller only predicted 50% drops for the major bbble areas like CA, FL, etc... not NYC.

Alpine, once again... do not talk about that which you know nothing about....

http://www.businessinsider.com/the-housing-chart-thats-worth-1000-words-2009-2

(yes, thats the NATIONAL chart)

No need to include the whole name? In my 'arean' some of us like to abbreviate...most of us would not suggest we spell something out 'for short'.

There are plenty of credible arguments for why would could fall a measly 15% a year from here for the next two years. Its actually the most credible argument around on price/rents, cap rates, affordability ratios....

Shiller NEVER predicted 50% drops for NYC specifically. Rhinos' "Rome" link article never once metioned Shiller predicting 50% drops for NY. And this time I am not taking yoru bait nyc10022. I'm not going to get into a pissing match with you. I'm waling away to do more important things.

Well since you have already dismissed reports from three major banks...I guess there are no economists you have made specific predictions for NYC. Riddle me this....how many credible economists in the area of residential real estate can you name? I dunno, if Shiller is calling NYC the Rome of the US...I think that's a bear call.

Shiller never predicted that NYC will fall 50%. The Rome analogy is off topic. And Roubini has made several NYC specific predictions, and he has not predicted that prices will fall by 50%.

What was Roubinis figure? What solace are you taking in the fact that you haven't come across a specific quote of 50% from an economist who's name you recognize? Get what solace you can, is all I can say.

Because analysts at banks are NOT economists.

Are either that reliable? Look at the data. I mean on face value, if you think something can triple in 10 years and can't get cut in half just because someone famous hasn't said it can...WTF does that mean? I guess if you haven't read it from the two economists you know, it can't happen. Good luck.

Just the other day, Roubini predicted a 25% drop on top of the 20% he said we are already down. And here is a hint: 20% + 25% is NOT 45%.

Yeah, its -40%, thanks for the compounding reminder. We are down 30% already. I really want to hang my hat on a guy two months behind the leading edge market. I'm done with you now. Only a fucking idiot would go though such pain to say his favorite economist predicts -40%....so everyone should just shut up and stop saying -50% because its not possible.

"if you think something can triple in 10 years and can't get cut in half..."

Got oil? Yeah, oil got cut in half from it's $145 high, but it has doubled from it's all time low.... a classic V shaped recovery.

I also think that one must consider that all the government intervention and the high risk of inflation will put a floor in home prices at a higher level than the bears anticipate.

in fact, if it were not for the bailouts, I think prices would be down 50%+ right now. Think about it: without the bailouts, there would be no Citi, Bank Of America, or AIG right now.

Oil got cut in fifth before it doubled you imbecile. It doubled from its low...to sit at less than half its high. Nice argument.

The_President: people like you win in the long run.

Huh?

PS: Inflation = higher interest rates, which is much worse for real estate than the rent impact is good.

Where in the world are LICC's figures?

LICC is getting boring relating to these maniacal newcomers, The Pres and boywonder. I mean, look at the triple from The Pres... Its like he swallowed the WSJ and started burping. First, crude has doubled....to 1/2 peak. Then, inflation is good for real estate prices. And then a comment about the bailouts. Oh and above, Roubini says Manhattan prices are gonna fall 40%, so all you guys are dumb for saying 50% or more. Classic as well - calling me aloof for 'spelling out' the abbreviation for CSFB. Rather I should have used Credit Suisse. This guy is fun for the whole family.

Pres = alpie.

CSFB was a client of mine when I was at Price Waterhouse. Nothing spectacular there.

Inflation increases rents only nominally, not in real terms. Rents cannot for long be out of whack with incomes. If incomes do not keep up with inflation, neither do rents (in real terms).

Inflation only helps people with existing debts, and in instances of hyperinflation there is no credit - for alpie, licc, that means banks don't lend - because they are afraid they won't get their principal back. Therefore what results is nominal inflation and real deflation - which is a disaster.

Whoever taught these people economics really needs to go back to Hostos Community College for a refresher.

Is it confirmed, the Pres is Alpie? CSFB may not be special...but using the label 'credible economist' to make a claim none with Manhattan will be halved is pretty lame. In terms of inflation, clearly rates spike and even if rents go up some, the rates crush prices. All the major inflationary periods are recognized strong entry points on real estate it seems to me.

Yes, The_President was Alpine292. No clue why he announced it.

Wow he seems even less intelligent in the new model. Its funny when you give someone who is not bright a little education...all the terms are in there, but their application and the logic is completely wrong, often backwards. Gonna have to reconsider PS 6.

I still want to see LICC's numbers. I've proved that his post saying he posted them is wrong, by re-posting every number he posted. He's like the Republicans of today - they don't publish their own plans because they don't have any and don't want to be criticized for not having any.

LICC has no numbers, and if he posted anything to support his "theory" then he would be proved insane. So instead he says he did, claims victory, and walks away.

I know why LICC doesn't post! Because he's afraid that Rhino & I will gang up on him!

I dunno what is so hard for people to accept about the idea that when cap ratemortgage rate, you are likely getting appreciation on the cheap.

Operational error here w/Streeteasy cutting out part of the post.

cap rate < mortgage = paying too much for appreciation.
cap rate > mortgage = getting appreciation cheaply.

now = cap rate < mortgage rate + falling rents...low banking hiring likely = continued falling rents.

I don't know why the 12x annual rent ratio is so hard to figure out, either. It's well documented in the literature.

1992 was trough. 2008 was peak. 2000 was roughly midcycle. Rents since 2000 are up at a modest rate of inflation, for a total of 15-20% (at best - remember the 2001/2002 correction in rents). So should purchases be. Values were up 300% since then. Now they are up 200%. 120/200 = -40% from here. 120/300 = -60%. This is where I agree with Steve. It is unnatural/impossible for values to outpace rents forever.

I guess where we have disagreed is that when you purchase on a downside over-shoot, I think you create an asset that can be viewed like a bond investment. People who locked in their rent so to speak in the 1990s created a perennial asset of sorts, and even after the correction, its likely those who bought before 1999 or so could monetize that asset (or not).

If you view it as a levered zero-coupon bond then I would be happier, as there is no income stream related to it.

Of course if you could live in a zero-coupon bond it would make the analogy better, but I guess not.

WHERE'S LICC'S NUMBERS?!

rhino, prices are not up 200% from 2000. That would mean prices are now triple what they were in 2000. Also, the cost of financing is 25% less now what it was in 2000.

You just have not provided sufficient supportable data for your price to rent theory. I've shown concrete data and examples that are valid and rational.

"I've shown concrete data and examples that are valid and rational."

Really? I copied every single number you posted and you posted nothing. Read the thread again.

WHERE ARE YOUR NUMBERS?!

Because at least at 350 Bleecker price are up 300% since 2000, from below $2,000 to over $7,000 a share:

http://350bleecker.com/policy/sales.html

There are figures. Post yours for the same apartment, or building.

Actually, priced had tripled, but a 25-30% reduction reduces that to a double. I don't know if it was off 200 numbers though, could have been a couple years before.

www.millersamuel.com/reports

There are lots of numbers in those reports. They all show that steve is woefully wrong again. Prices now are slightly less than double what they were in 2000.

There are lots of numbers there, LICC, but:

a) They don't show the price trajectory of individual units (the only accurate way to measure it);
b) The documents themselves state that they are skewed by extremely expensive apartments and, in general, the sample size;
c) The documents contain internal errors that render the reports less than reliable - viz. the sudden and unexplained changes in inventory numbers in recent issues.

So, LICC, the task remains: find an apartment selling in 2000 and 2007 whose price had merely doubled. Medians and means are averages, not prices on individual units.

Then - PUBLISH YOUR NUMBERS proving your case regarding why it's not still twice as expensive to buy as to rent:

1) Price
2) Mortgage
3) Tax benefit
4) Opportunity cost
5) TRANSACTION COSTS

We've been waiting for days....

LICC, I used 200 as a base for current because prices are up 100% since 1999-2000. They peaked up 200% (300) and fell 1/3rd to 200. I gave you a specific example, my 2001 rental. It now asks 13% more than I paid. I don't think you would argue that prices are only up 13% since 2002. Further, I showed you a graph from urbandigs, showing the relative price increases of coops, condos and rentals since 2002, showing a huge divergence.

Steve, I can buy bonds to fund my rent...Or I can buy a place. I can't be any more clear. I am the CFO of my domain...literally. Buy my location or rent my location vs. my other options for investing cash.

The funny thing is if both of you read back through this whole thread, you'll find numerous people defending each of my arguments, and not a one to support either of your arguments vs. me. Not including the public outrage.

"you'll find numerous people defending each of my arguments, and not a one to support either of your arguments vs. me."

What other people do, rhino, is of little interest to me. Nonetheless, I've granted you the practicality of your argument, though not the technicality. If you insist on claiming that bonds are the same as owner-occupied housing then I think you might lose your CFA. Bonds are debt instruments that pay interest based on a nominal rate and a discount. Owner-occupied housing is not a debt instrument, and it does not pay interest. The fact that you can use the income stream from a bond to pay for housing is irrelevant: you can use an inheritance to buy a house to live in, as well. The source of the funds has no bearing on the underlying economics. That money is fungible does not mean that all applications of money are such.

I support steve, therefore numerous people are taking steve's view v. rhino.

As I said, I don't care who supports my view.

I do care to see LICC's numbers, as multiply requested.

Not the same... Stocks, bonds, a home...uses of cash...investment alternatives. Sometimes that potential provides for better use of cash vs. alternative investments. A home replaces an expense. I view it a recurring expense reduction as similar to a recurring income stream. You are right, I don't make a big distinction between eliminating a necessary periodic expense and buying a bond. It doesn't matter to me that the accounting is different. It doesn't matter to a CFO deciding to do with cash, either. Its exactly the same as a rent/buy decision for a corporation.

"A home replaces an expense."

Not "replaces," but I generally agree.

"I view it a recurring expense reduction as similar to a recurring income stream."

There economics has you wrong; read about income effect and price effect. Investments are not "consumed"; housing is. You cannot consume a bond, only the income from it.

The bottom line, nonetheless, is the same.

"It doesn't matter to a CFO deciding to do with cash, either."

Sometimes it does, as certain expenditures and investments bring with them externalities that may not be quantifiable. Sometimes the accounting is material.

Take vacation pay: vacation is accrued as a liability throughout the year, whether you take it or not. Companies force you to take vacation because they don't want that liability to accrue, even though in some sense it's contingent (on your taking vacation).

"Its exactly the same as a rent/buy decision for a corporation."

It's similar.

How is a purchased home consumed? For practical purposes, it has an infinite life if maintained.

If I purchase a home at a price equal to fifty years of rent discounted at a rate appropriate to the risk (6-8% say)...At the end of my life its has not been consumed... Its part of my estate. Depending on the entry point (think 1999), that is a much better use of cash or 'investment' than buying stock. Riddle me this...will a dollar put into the stock market at the 1999 peak outpace the return of a dollar put into a primary residence in our lifetime? Maybe I'll run the numbers... Its been 10 years and one of those dollars is down 40%...the other is up 100% (excluding leverage impact).

In one sense it has been "consumed" - used. But it has not been depleted. There is no depletion allowance for housing.

It is part of your estate, but with each transaction the consumption cycle starts over again. It's the difference between tangible fixed assets and intangible assets. If you depreciate the asset (as a business would do), when it is sold the depreciation is recaptured and taxed. Depreciation is the accounting equivalent of consumption.

I understand perfectly what you're saying and from one perspective it is true, but it's not how economists and accountants look at it.

Or businessmen. Let's say you're a business and buy a plant. You expect tax rates to double within 10 years. You expect to hold the plant for 15 years. It makes no sense under those conditions to take a depreciation expense at a lower tax rate than the recapture rate. Therefore you don't depreciate the property.

Or, if it's not a fixed asset, you acquire it under a financial lease.

I think businessmen do look at it this way. I don't think businessmen try to predict tax rates. The most valid comparison I can come up with again is this. A CFO has cash. They can either buy their currently rented building, they can buy back previously issued bonds, or they can buy back stock. They will look at earnings accretion/dilution. The real estate deal can be the best investment. Obviously there is no accretion/dilution for a family on the stock alternative...but there is on the bond alternative. As far as stocks for the long run, there is a simple rule analogous to your 12x....Its 15x trendline EPS. No new dollar is rightly invested in stocks over bonds when the market is trading above 15x normalized eps. Yes, it can work...but its a momentum play, just like buying real estate in 2004 and selling in 2007. Neither is a valuation supported long term investment.

Neither stock over 15x normalized EPS nor real estate over 12x, that is.

Current normalized EPS according to Shiller is $60 on the S&P 500. New dollars probably not a good risk reward here relative to bonds.

Wait, Rhino86, now call stevejhx a homosexual to really get your point across. Come on, do it, do it now.

Ha.

"I don't think businessmen try to predict tax rates."

Really? You need to get a job at one of the Big 4 accounting firms.

Your "theory" is based on the fact that money is fungible. It is. But all applications of it are not the same.

LICC - WHERE ARE YOUR NUMBERS?

LICC - Numbers, please!

LICC - you can start new threads and comment more nonsense, but NO ONE WILL BELIEVE YOU until you post your numbers!

It is ok to talk about renting if only you consider that in Manhattan in the good areas the rentals just aren't the same as the coops. You can look at downtown where there aren't traditional coops or traditional family neborhoods and more room to build a rental but it isn't the same. The only execption to the neborhoods downtown is Greenwich Village and that is an excellent example of where the rentals are so inferior to the places you can own.

Implicit in any rent vs buy discussion is comparing equivalent apartments. You can find them. Granted, you can't always find your very best favorite finishes. Either way, it is undeniable that from 2002-2007 cheap money took the relationship of values vs. rentals to previously unseen heights.

Steve, are people who work at Big 4 accounting firms businessmen, or are they accountants? What is it about accountants and labels? Listen, I have a dollar, I have to decide to apply it to something that can reduce my expenses or increase my current or future income. What's the difference how I want to account for it. For accounting, I'd depreciate an apartment...yet if I bought it well, it should appreciate. Accounting often obscures economic reality. They spend a lot of time in business school showing you how to look through it to get to the heart of the matter. Lemme ask you this, do you really think buying should only be compared to renting, or should the risk/return characteristics of bonds or shorts also be considered? I would think so. I think one argument against buying right now, if I were to try to explain this to a friend...is that cap rates are lower than yields on NY munis. Granted to can't use leverage to buy alternative investments... However, we've already established earlier than leverage at these levels is negative because cap rates are less than mortgage rates.

That is always a problem with steve. He views everything through the prism of accounting terms and loses the forest from the trees and reaches bad conclusions from an economics standpoint. Not to mention his biases severely affect his analyses.

And what's your problem? At some level, do you appreciate the impact of the credit boom on the relationship between the cost of owning and renting in say 2004-2007? You are pathological in your denial of this. I like the poster above who rubs it in your face and calls me the winner based on the example I gave you from my own renting history at 215 W 95.

Anybody can call you anything, the facts are that you do not have strong source data to back your argument and my supporting information is broader and more reliable. You remember a studio similar to one you rented 9 years ago and that is your proof of your argument about the general market? I sourced reliable information on surveys, listings and reports showing prices and rents over different points in time. You remember a studio from 9 years ago.

LICC, you are a disingenuous piece of shit. Here is why. I posted two graphs of price to rent history from Manhattan. I posted a link to an article from Urbandigs, which contained a chart of rents price changes to the price changes of coops and condos in Manhattan since 2002. As well, it contained a quote from Noah, that price to rents remain 'out of whack' here in Manhattan. The saddest part of all is the inflation of real estate nationally is at the center of a crisis that nearly brought down the financial system. Yet, here you sit, acting as if nothing unusual happened to the price of residential real estate. Its amazing to think about. As well, multiple people here posted their own stories of purchases they made in the 1990s at single digit price to gross annual rent multiples. Yet here you are, suggesting 18-20x rent is the normal price for a NYC apartment. Are you that stupid? Are you that lazy? Are you that ignorant? Are you that sadly in denial? Or is it some combination?