Rent or sell?

some more details?

Mahalia:

Take it from a veteran!

Definitely RENT...!

Until the market recovers somewhat!

We're thinking of moving to Brooklyn to have more space. Right now our total expenses are $3,200, and the places we've seen in Brooklyn are about $3,000-3,500 to rent, or $800,000-1,000,000 to buy.
At what price are we better off selling?
I mean if we rent, our housing cost will be only $1,000-1,500, but there's the hassle of dealing with a rental.
Is this enough info to answer my question?

wow. 2k cashflow on your property in manhattan? keep it!

If it were my money I would rent. I would not sell in this market if I did not have to sell. In fact, with no recent comparable sales, it sounds like you're not even sure what your apartment should sell for, and frankly, my dear, nobody else knows, either.

You can hire a property manager to deal with the tenant if you really don't want to be bothered. In other parts of the USA they charge about 10% of the rent, but I don't know in NYC. Real estate agents should be able to help you find one, and only real estate agents can legally act as property managers (with some exceptions).

The only scary part about renting is qualifying the tenant. You don't want to screw that up. Once they get in it can be hard to get 'em out.

{Manhattan real estate agent.}

If you can afford to carry two in this market, definitely rent.

Caveat- Be extra careful with the tenant. Credit history top of the list. More than salary. You want a tenant especially in a NY tenant law arena, and especially in the current financial climate who has a long history of caring about their bills being paid.

A good tenant is worth a 10% reduction in rent.

Mahalia, if you can pocket $2000 per month on your place, I'd argue it's worth hanging on to it at this point. If you wait out another cycle (and admittedly, this one may be pretty long), I don't see an immediately compelling reason to sell now. Sounds like it might be a 2BR, which in my experience is a sounder investment. Good luck!

You are so right Fluter. I have no idea what it is worth. The last comps are from a year ago, pretty much nothing comparable has sold in the last 8 months, which is pretty scary in itself. The only stuff that is selling are scary but value-priced fixer uppers. The answer above about the cash flow minus the management fee sort of gives me an answer. If I had $500,000 in a CD, I would get $20,000 in income, no?

Are you saying that you have about 500k in equity in your property?
I think keeping it as a rental still puts you on top..
1) 24k income
2) part of your 3200 monthly pays for the principal of the loan (equity)
3) you can depreciate your rental property come tax time

I have a condo that i rented out using an agent. The tenants pay on time and I never have any issues. There's not really a need for a property manager if the property is already managed by a condo management company. What is their role? To cash the check for you? Your tenant can call the super like you would.

it often depends on the flexibility to rent your space by your coop/condo. time limits? approvals?

I don't completely agree. You can't assume it will be rented continuously so you will have to be willing to carry two places for an indefinite amount of time if need be (unless you move back in.) In addition, being a landlord is not fun. You also don't know what condition your apartment will be in when you are ready to sell it.

In terms of timing, it's impossible to predict what the market will do but if you are hoping to get a better price than today (albeit that today's is unknown), you may have to wait quite a while. I suspect that once activity picks up, prices will drop to an appropriate level before stabilising and lingering there for a while. The recovery is likely to be slow. Then again, look at the stock market!

If you're in no rush and can stomach the inconvenience, why not list it for sale at a price you would be comfortable with for a little bit before making a decision.

That's exactly what I want to do, list it at a price that makes sense for us to sell (ie. Better than cash flow), because I really don't want to be a landlord. I am just trying to figure at what price we would really be doing something stupid just to avoid the convenience. At last year's prices, it would be a no-brainer to sell, but we all know it's not last year anymore.
At 20% below last year, after the broker's fee, we should still walk away with $650,000.
The big question is whether we are really 20% below last summer. I can't really tell because the only sales are for cheap and nasty walk-up types. It looks like the higher end is deadish. At 30% below last year, we'd still have about $500k, and I'm not sure we should sell below that. l

Sorry I meant inconvenience.

your 2g/month pos cash flow wont mean much if your apt declines in value another chunk

and none of the renters seem to care about the opportunity cost of having you equity tied up in a risky asset

if there is a number youd be comfortable with that might actually trade, give selling a shot---

imho

If you are willing to take as much as a 30% haircut from the peak, I'd list it and see what happens.

Something does not make ANY sense.

$5200 rental income equates around $1.7-2mil apt.
Home equity of 500k means 1.5mil mortgage. This means the monthly payment on it is 10-12k/month with CC/RE.

Stop feeding the troll.

What doesn't make sense is your value vs. rent valuation and your mortgage assumption. Math-challenged people are not helpful in co ancial discussions. Do you really believe all the people who own have 10% in equity?

with that kind of positive cash flow, keep the place. Also your lucky since you don't have any time limits on renting.

You might have missed the boat on selling... BUT, you lose the tax deduction on the capital gain if you aren't living there (you need 2 years residency). If you're planning on selling at some point, you should really just run the numbers.

You had had home equity of 500k or 650k so it looks like your the one who is mathmatically challenged.

Nyc10022, how do you run the number? What assumptions should I make to figure it out?

are you going to live out there for more than 3years? if so, put those additional tax deduction amout to your rent payment vs your rental income. Simple stuff.

depending on your view of where future prices are going. If you foresee prices falling further (which is most likely - in my opinion), price little below comps and sell as soon as possible. And rent a bigger space in brooklyne for about 1-2 years or even more, and then buy at a cheaper price with the money you recouped from selling today.

That's what my colleague did. He needed larger space with growing family, so he sold his apartment few months ago and will rent for a while till he can buy a bigger place at a cheaper price. People are being strategic these days.

It's another story though if you don't think your place can be sold. and be easier to rent it out. ($5,200 is pretty high for a 2bedroom these days? don't know) but if you are not going to price below your competitors to get it off your hands quickly, and you think it will be easier renting it out, renting might be smarter way to at least get that monthly cashflow coming in, rather than having cashflow going out till it sells.

> Nyc10022, how do you run the number? What assumptions should I make to figure it out?

ba hit it basically.

I just mean put the numbers on both sides. And be sure to factor in the value of the principal you get back. Cash breakeven is great, but if you have $1mil in equity, you have to factor in its value. I wouldn't keep $1 mil tied to to clear $1k a month.

ba - why do you think $5200/month rental equates to $1.7-2mm apartment? that sounds extraordinarily high - if she could get $1.7mm vs. $5200/rent, selling would be a no-brainer.

non-new condos in average manhattan area for 1.7-2mil apts go for $5-6k/month these days, especially if he can find a renter in 4 days.

no way. stupid people may be asking $1.7-2mm, but no way are they selling even remotely close to there. $5-6k would get you a large 2 bed or a v small 3 bed. and those are selling in the $1-1.25mm range.

if Mahalia thinks she can get $1.7mm for a place with a FMV rent of 5200, she should sell it ASAP.

printer, have you check the rental market lately?
One of my condo was rented out at $5000 2 years ago. It was recently rented out for $4000 after being on the market for 3months. It's a large 2BR, newly built, godly amentities.

depending on area, $4k for a large 2br sounds reasonable - sounds like east 80s, bet 1st-2nd. that same apt probably sells for $800k, maybe $850k. at peak it was maybe $1.1mm.

Mahalia: The way to do this, presuming you know to use excel or some similar spreadsheet, is to model it like a basic lease vs buy decision: Do one spreadsheet showing all the cash flows if you rent it out and rent a new place. You should assume some vacancy and all the other issues to do with renting. Pick a time period - say, 5-10 yrs. You should assume you sell and buy a new place at the end of it (i'll explain why in a second). Discount those cashflows back to today (you can use the NPV function in the spreadsheet). THEN, do another spreadsheet, with an exact same time frame (5 to 10 yrs or so), only in this case, you sell and buy a new place now. To make the two comparable, you need to do over the same time period, and you need to assume the same transactions in both -- that is why at the end of your "rent" scenario, you sell at the end of it. Whichever of the two scenarios has a higher NPV is, theoretically, the right answer.

I can tell you from experience that what will drive your decision is of course the future price of real estate in Manhattan. If you think has bottomed, you should theoreticaly buy the new place now but hold onto your existing place until prices recover (if you can swing it). If you think prices will fall some more, sell your place now and buy the new place in a few years.

One word of caution as to all the know-nothings saying "Don't sell now, keep it!". They presume the market can't go down another 20%. I believe it will. Last year this time, I saw the SAME time of advice - "Don't sell it, keep it!". But you would be very happy today if you could have sold at August 2008 prices. ALL the bubble cities in the US - Miami, Los Angeles, Las Vegas, Phoenix etc - have corrected much more than NY. NY is a little late to the crash party. But we boomed as much as those places. I think we have a ways to fall yet.

printer,
Actually the opposite, UWS
Don't think there are any new development condos in east 80s on 1st 2nd.

Thank you DP, great advice. I'll try different assumptions of price decline and hopefully it will help me figure out a bottom price where it stillakes sense to sell.

You must sell Immediately...Holding 2 properties is a DEATH STAR proposition Major Price Chops coming after Labor Day.. Dont listen to the Brokers on SE...Talk to anyone who is an owner in the Hamptons THEY are shakin in their boots too ..

You can think of it like this....

Sell it now and get $650K and have to pay taxes on $150K.... walk away with about $575-600K.

Move and rent it, wait and sell in 5 yrs, just an example, with $800K... walk away with about $400-528K.

What makes more sense?

What about the 5 years of rent? That would add about 200k, assuming rents go down to 3500 over that time, and we lose a month every other year.

ok... you make $2K X 60 months = $120K in 5 years if the property will be rented without gaps. how much will it cost you in 5 yrs to bring the apartment back to the same condition as you left it? 5-10K or much more? and what about the carrying costs when you are selling? the apartment will have to be empty...

you seem like you can fit in your place now. put it on the market and if you go into contract and the people pass the board, you can find a rental in Brooklyn.

i'm actually in the same boat as you... just for me, the board part is coming up in a few weeks time.

Thanks for the analysis. I think with declining rents and somewhat declining values, it seems to make sense to sell if we can, that is. Through friends of friends' anecdotes, it looks like there are data points all over the place. Some have been able to sell in 3 months for pretty much what they hoped for, and others have been listing then delisting only to relist at a lower price, without any bite. It doesn't look like there are any rhymes or reasons, just the luck of having the right buyer at the right time.

ab_112118 said "Sell it now and get $650K..Move and rent it, wait and sell in 5 yrs, just an example, with $800K"

BWAHAHAHAHA!!!

So, the New York market is going UP 25% in the next few years, eh? LOL. Whatever you are smoking, I NEED you to share it with me!

Based on prior corrections, here's what I think will happen: NYC will continue to decline a bit -where to, I can't tell you, but I would guess another 20-25% or so. DESPITE WHAT SOME OF YOU NUTCASES THINK, IT WILL NOT GO UP IN "V" SHAPE IMMEDIATELY THEREAFTER! It will be more like an "L" shape. It will decline, and STAY there for 3-5 yrs or more.

So, instead of going from $650K to $800K in five years, it's more likely going to $485K...and staying there a while. Like Nasdaq 5,000, it will be 10-20 years before you see 2007's highs in NYC real estate.

My two cents.

to defend ab, I think he was talking about my walk-away money (sale minus transaction costs and remaining mortgage), so part of that "increase" is just the result of 5 years of mortgage payment.
Besides, he was trying to make the point that even with a best case scenario, it wouldn't pay to rent for 5 years, after the capital gains tax.

the mortgage shouldn't much impact your scenario; you're going to have a mortgage either way - if you keep the place, or if you sell and buy another.

the best case is likely sell now, buy in three years.

DP, please take a drink of the wine or sit closer to the AC. I did say "just an example," knowing that the bears will go crazy :-).

Examples are just that. I would think that in a bull's head, that would occur. Even with that view, there will not be enough benefit.

On another note, I've been seeing some properties in South Brooklyn, houses, going for 2007/08 prices in the past 3 months. There seems to be some people who feel very comfortable with the economy stabilizing and ready to dish out their money. Just craxy.

Thing about the spread sheet --which btw, is the only way to come up with an answer-- is that it can't account for any disaster scenario. Say, your tenant stops paying rent and you can't get them out without extended legal action. You must have a very big cushion to take on the risk of two dwellings in this environment. I think that you can't get hurt putting you apt. on the market at a price that gives you a reasonable profit and see what happens.

Robert Schiller this morning said that the market will most likely be flat for five years. If so, there is another leg down in the NY market. There are still a lot of unreasonable prices out there and there are (imho) uneducated buyers out there that are paying them. People get 10% off an inflated price and can't wait to get the deal. Maybe you won't get top dollar but no one ever loses by taking a profit. If you rent, you can take your time to evaluate your next move. Even though many people disagree about the future of the market on this site, no one thinks there will be another bubble anytime soon. So chances are when you decide to buy again, reasonable prices will prevail.

I didn't see this asked yet (maybe i missed it?):

How fancy is your renovation and how "high maintenance" is it (no Coop fees, how much effort to keep it in the condition it is). Depending on how hogwild you went, you could lose a lot of the rent you collect in putting the unit back into pristine condition. If I had to totally re-paint my apartment it would probably cost me $15,000. And that's just in painting.

"no one thinks there will be another bubble anytime soon"

No one ever thinks there will be a bubble. Just idiots who are too dumb to notice when prices double or triple or quadruple, as a % of disposable income. They have a reference point bias, see today's price higher than yesterday's price, and conclude "its just gonna keep goin' up and up forEVER!". True bubbleheads. How appropriate they get screwed when the "bubble" bursts (asset price bubble, not their head!)

after the 80s bubble popped, tons of people said that there would never be another bubble and things like "reasonable prices will prevail." How did that work out for them?

"after the 80s bubble popped, tons of people said that there would never be another bubble and things like "reasonable prices will prevail." How did that work out for them?"

..wait, so are you talking about the current bubble that started forming "10+ years" after the 80s bubble?

there will always be bubbles, especially the way US (and other coutries) is printing currenciese these days. It doesn't mean it will create a bubble in real estate anytime soon. Things are still going down. be real President, too early to talk about any real estate bubble. not for many years to come.

30 years, that is one of the reasons I am afraid of becoming a landlord. To maintain everything, you are going to have it empty at least 2-3 weeks in between tenants to get the walls and the floors redone, and that's assuming nothing else is broken. I am certainly not fooling myself it would be a walk in the park. I am just trying to find a "floor" where it wouldn't make sense to sell.

Mahalia,
If it is a nice place that is well maintained I would consider selling. My view (in all asset classes) is that after a bubble prices correct first by differentiating between quality. Low quality assets drop first and most significantly. Over time all prices will adjust to an appropriate value, which it is fair to say (based on historical price/sq ft) will likely drop lower. (the counter argument to this is the significant drop in the very high end, but I think that is almost a separate bubble in itself, with price/sq ft at ridiculous levels). By selling now you are certainly mitigating risk, and beating a wave of supply that is still in the shadows and coming onto the market, as the building boom will still see new developments opening through 2010. No new developments have dropped their listed prices yet, but that will certainly happen, as one, then the next are taken over by banks. Even those that can have the financials to hold off banks will be beaten up by the price competition.

You should also consider tax implications of the timing. If Obama raises taxes, now would be a better time to sell.

"Thanks for the analysis. I think with declining rents and somewhat declining values, it seems to make sense to sell if we can, that is. Through friends of friends' anecdotes, it looks like there are data points all over the place. Some have been able to sell in 3 months for pretty much what they hoped for, and others have been listing then delisting only to relist at a lower price, without any bite. It doesn't look like there are any rhymes or reasons, just the luck of having the right buyer at the right time."

there's always something to that. Put it up at the price you want and let the market decide for you...

> 30 years, that is one of the reasons I am afraid of becoming a landlord.

Actually, Mahalia, you might have answered the question for yourself. Forget the numbers for a sec, being a landlord is essentially a job, with risks. If you're not ready to do that, perhaps you have your answer.

"after the 80s bubble popped, tons of people said that there would never be another bubble and things like "reasonable prices will prevail." How did that work out for them?"

Well, they got their reasonable prices, so those people probably bought. That was a good time to do that.

You can make mistakes on both sides of things, the mistakes of the last few years were just all on YOUR side...

But, in the end, if people were stupid in the 80s, that doesn't make the people who were stupid in the 00s any less stupid.

"Actually, Mahalia, you might have answered the question for yourself. Forget the numbers for a sec, being a landlord is essentially a job, with risks. If you're not ready to do that, perhaps you have your answer."

Holy crap - nyc and I agree on something 2 days in a row. I expect Satan will be ordering his first heat pump any minute now. Seriously though, this is dead on - if you're worried about being a landlord, don't do it; it can prove to be much more time-consuming than you plan for.