Sorry for asking this....

I don't think it works like that - I could be totally wrong but I think the rental market dictates the price, not the sales market. That is why 10 years ago, you could buy an apartment and immediately rent it out on a cash flow positive basis - but for the past 8 or so years, you couldn't. At least not in Manhattan - not sure about other places.

You look at comps.

now you've done it. what i've learned from watching the shouting matches over this question is that there are in fact many formulas, each of which, oddly, is in fact the One True Formula. i suggest you duck while the authors of the various One True Formulas instruct each other about how right they are.

sniper must just be trying to bait another back and forth argument. He has been on these boards enough to know that this issue has been debated to death.

I agree that there are plenty of formulas. The biggest problem, is that most formulas the investors were using was price/gross income for multi-family dwellings. The issue with coops/condos is that there are a lot more expenses that go into the properties and some people look at those as, will the rent cover maintenance+taxes+mortgage (with at least 30% down).

Those are the basic ones, there are plenty more.

I agree with Riversider - comps are the only way to determine the market price.

Well, I in fact have recently looked at many condos for sale AND for rent, and while last time I looked (in 2007) asking rents were 5% of home value, now (in 2009) because sellers are more resistant to lowering sales price versus lowering rent, I have found many that were more like 3-4% net effective, inclusive of concessions.

So a "million dollar condo" had an asking rent of $50k per year (or 420o-ish per month) actually would end up renting for $2500-$3400 per month, net of broker fee, free months, etc, etc.

Yes, it hurts.

And these are both owner-rented and sponsor-rented ones, and not just in fringe areas - in Lincolnd Square, Chelsea, Lenox Hill, etc, many of these condos for rent languish for months with death by a thousand price cuts before finally being taken.

Coops are even lower because you cant keep them for more than a year.

Hope that helps.

i am not trying to spark a debate. i am lazy and trying to get a quick answer to this.
as some of you may know i am actually looking outside the city these days. i am not looking to buy yet and i found a house that i like and the broker said the owners might be open to renting or rent-to-own. she asked what my "rental range" was. i would like to be able to say to her: this house is priced at $799,000 and based on blah, blah, blah i would rent it for $xxxx.

that is it. simple and innocent. not looking to start any trouble.

I should add I am about to move out of a condo that sold for $800k in 2005 and an exact comp sold for $960k in 2007, and what do you know I was paying $4k a month in rent (and this was fairly in-line with what I saw everywhere in 2005-07).

Cash Flow God says "PV of rental stream over your time horizon" + (Terminal Value) = Purchase Price

Note: Rentals are headed down, Terminal value is headed down... the key at this point in the rate of decline over time.... like in valuation models, assumptions on Terminal Value makes or kills the deal.....

Like it or not, comps do rule.

That said, "in today's market" I think you can probably get about a 4% "gross" yield based upon your estimated "market" price.

Many people on this board would agree, though, that that is a pretty crummy "gross" yield by long term historic standards. The only way you can be content with such a yield is "if" you are convinced that rents will say rise 5% or more per annum over the long term.

Comps is the correct way to go, that said if you have a formula that provides good ballpark numbers no harm. .Reminds me of the rule of 72 in finance.

so...house is $799,000. let's call 5% of home value $40,000. you think $3500/month is a good starting point?

for what its worth...have a buddy with rental property in swanky connecticut town....he just signed lease for $3,200 on property that was easily worth $900-$950K maybe two years ago....he had previously gotten $3,500 and sweated it out for four months before landing this tenant. problem for him (and for this comp) is that he has no real idea what the place would get today.

based on this sample of one, seems like you're in the ballpark. assumes that you'll pay all utilities and yard maintenance.

sniper... that formula goes out the door, if the owner's perception of his home is $1MM, or if the owner views his/her home as $300K and has no mortgage.... but to make a run on a rental, COMPS.... :)

No, LICC - it hasn't been "debated to death": we're still waiting for you to publish your numbers with your assumptions, so we can all see how crazy you are.

Just checked out a 2-br 2-ba high floor at the Ellington for $3,200 a month. Nearby apartments similar size monthly costs $9,000. Do the math.

Tax benefit, anyone?

LMAO.

stevejhx, no one (ok, very few) doubts there are tons of apartments that are way overpriced. But aren't you seeing some places that can be had with carrying costs close to rent by now? They are out there.

All real estate is local.

I live and own in Connecticut and market "yields" are a good deal higher than in New York where I rent a pied-a-terre. And that is an important reason why I do own in Connecticut and rent in New York.

I could get a gross yield of about 8% in Connecticut. I think a 5% yield is a real stretch in New York and 4% is much more realistic. As an fyi, my New York landlord has the building up for sale with a "net" (after expenses) yield of 3.4%.

are we talking darien or bridgport?

Stamford

> stevejhx, no one (ok, very few) doubts there are tons of apartments that are way overpriced. But
> aren't you seeing some places that can be had with carrying costs close to rent by now? They are out
> there.

I see places whose prices came down enough to close the gap to the rents.
Of course, since rents also tanked, they still have a bunch of gap to make up.

Its a ratio, if declines in the top are matches by declines in the bottom, the ratio doesn't really change...

"They are out there."

Document some for us, will you please?

yes! we're teetering on the brink of a rent vs. buy hijack. so predictable. which way will it go? inquiring minds want to know.

10022, i assume you've been around SE long enough to know not to respond to steve's invitation. the way this works is that someone proposes an example and then steve dismisses all of their assumptions and concludes that the apartment really costs 50-100% more to buy than to rent. it really doesn't matter which apartment it is; the movie always ends the same way. my advice: don't be an extra in the movie.

"Well, I in fact have recently looked at many condos for sale AND for rent, and while last time I looked (in 2007) asking rents were 5% of home value, now (in 2009) because sellers are more resistant to lowering sales price versus lowering rent, I have found many that were more like 3-4% net effective, inclusive of concessions."

I'm not sure this valid because the number is based on what the property actually sells for, so using inflated asking prices because "sellers are more resistant to lowering sales price versus lowering rent" skews the analysis.

I can only go off of the asking price, and fairly consistently (probably because the asking price is 25-30% inflated) the asking rent is 3-4% versus the bubble-year 5%. Seems perfectly reasonable to me.

Topper you sure of that? I have seen $5000 rentals in Rowayton asking $1.8mm.

Bullshit aside....12x annual gross rent or a 7% cap rate aint bad as a place to start.

Oh sorry, if you are going in the reverse? Right now the market seems to be asking like 16-17x rent...divide the value by that... Or rent at like a 4% cap rate.

Here is a buy vs rent calculator from the NY Times. Hope it helps.

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=2

that is a great calculator but i KNOW that i want to rent. i am just looking for proper back-up when i propose my rent offer to a homeowner (i am talking homes, not apartments) that might not have been considering renting. most sellers overvalue the sales price of their homes even while they have been on the market for 6 months or more and they only receive offers well below their listing price.

If you are going to do a rent to own deal, you'll have to agree on a sales price. You might offer the owner what your after tax cost of carry would be if you bought the house with 25% equity. Assume a 5% mortgage and find out what the taxes are. Remember you cant deduct rent but you would be able to deduct taxes and interest.

that is a fair point. as i am sure you know, a rent-to-own comes with the option of "not owning" at the end and that is likely what i would choose do to the fact that i think prices will be done in a year and any price i agree on now would not be a good deal for me.