Rent vs Buy

#1 must be a bitter owner

#2 and #3 must be bitter renters.

bitter owner?

why would anyone be a bitter owner at this point?

Is the OP the cheap Brit who thinks he is Bill Gates because he has $500,000 in the bank? Must be a Brit considering how long winded the post is.

I don't know about the OP on this thread, but that other guy was REALLY retarded - "oooo, lookit me, I have $500K and I'll tell YOU how to get rich TOO!! Stay tuned for an incredible offer after the commercial break for my set of 8 track tapes that will explain THE SECRET OF MY SUCCESS!!"

What a yutz.

to #1.

If you really believe the manhattan market cannot drop more than 20%, then its very hard to debate with you. A few points however

- you never mentioned your annual income and profession. You have to make 200k to comfortably afford the mortgage and ride out any bad job markets. Can u be sure to keep that high paying job in a downturn?
- if you do make 200k, u may be close to AMT which causes your property taxes portion of maintainence to be not tax deductable
- how the RE prices fall, if due to higher interest rates then the person holding cash is in a better position just with risk-free treasuries. That person can pick and choose RE if rates do get really high (cash is king)
- Your monthly payment is not fixed for 30 years, you maintaince is likley to sneek higher (much higher if RE tax laws are changed in NYC / bad management)
- if your apartment is a 1 BR or even a small 2BR, if you children one day u may have to sell as it becomes unliveable, if that timing co-incides with a RE downturn then do u trade mental health or financial health (family v.s money)

some things to consider...

why do people throw up these big numbers and assume they automatically work? ok hobo joe, let's take the assumptions even though they are skewed to favor the pro-housing view (8% appreciation going forward seems aggressive to me) and add a few more to complete the analysis - maintenance/cc charges = 1.5% of purchase price (half of which i assume is real estate taxes, commission on sale of 6%, interest rate of 6.5%, tax rate of 45%

after 5 years, home value is 1.175mm, total PITI is 176k, mortgage due is 578k, commission is 71k so net after tax proceeds at end of 5 years is 1,175 - 176k - 71k - 800k = 129k. keep in mind i was generous and assumed double occupants so NO cap gains taxes on sale since the tax shield is 500k.

if you invest 200k in the stock market at 10% you have $322k after 5 years, less 15% cap gains is 304k. assume you've paid 2,500/mo (can easily pay much less) in rent and that grows 5% a year, so you shelled out 166k in rent after 5 years. net after 5 years is 138k.

keep in mind, by renting you have FLEXIBILITY if life changes (who really keeps a place in manhattan 5 years? not many. obviously real estate does worse with a shorter holding period), more money saved per month and you preserve your savings so you are financially stronger and can ENJOY life, NO OBLIGATION beyond maybe a year's lease (which can usually easily be subletted) if you lose your jobless or have some other unforeseen event happen. these attributes of renting have value.

PLUS, who says 10% is the best you can get in the stock market? look at what overseas markets have returned. Brazil is up ~20% just this year alone (and yes I own a Brazil fund). Who's richer, Carl Icahn, Warren Buffet and Kirk Kerkorian or Steven Roth and Sam Zell (real estate moguls)? The point is you CAN make extraordinary returns in stocks whereas in real estate you perform as the market does. It's the difference between playing roulette (game where you cannot control the outcome) and poker (game of skill). a skilled investor has every reason to invest in stocks.

i'm not saying rent in all scenarios. i want to own and i will one day. but do the ANALYSIS before you throw up big numbers and ASSUME they work.

Many little black arrows pointing down.. Multiple price reductions occurring all over the place.

http://www.streeteasy.com/nyc/building/30-west-street-manhattan
http://www.streeteasy.com/nyc/sale/48775-condo-350-west-42nd-street-clinton-new-york

OP Here

I was hoping for a real discussion. I guess that is not possible on this board.

#2 - If you really dont care to discuss, dont read and dont reply. To follow along your vulgar language... STFU. If we want to debate rent vs buy, we can.

#5 - what in the hell is nuggit? If you dont have anything useful to add.. go the way of number 2... get off the board. Please!

#7 - I dunno who you are talking about. but I am not British, so I guess its not me.

#9 and #10, you must be #2. Learn not to double post.

Will respond to others separately....

Let's say we have 2 families. Mine and yours.

You have your family dynamic, I have mine. I relocate frequently for work, am seldom in one place for more than two years, and (oh, yeah) don't pay rent because I live in corporate apartments and have a housing allowance as part of my ex-pat package. You think I should give up this benefit, buy an apartment, sell it when it is time to move (often on a few weeks notice), buy a new apartment in my next city, sell that one, and so forth?

Just because buying suits your needs now, doesn't mean that it makes sense for everyone.

#20 - OK, you should not buy. How many people reading this board are ex-pats with a housing allowance?

Regardless.... I think there are a LOT more people in my situation (steady, good paying job in NYC, no plans to relocate) than yours (living "rent" free). A LOT more, and the percentage would be even higher when cross referenced with those that view this site.

#11 - thanks for trying to reply intelligently.

Can the market drop 20%? I dunno. I see lots of new developments, prices still going up despite increased supply. I bought five years ago, everyone told me it was crazy (I actually agreed, but was tired of paying someone else's mortgage) and the market was headed down. Well, 5 years later and the GROWTH is SLOWING. That means instead of going up 15% a year, its going up 8% a year or whatever it is. So can RE drop 20%? OK, yes. So can the stock market. Its a risk. That's life. Personally, my view is that even though price acceleration has slowed, there are STILL more people that WANT to live in NYC than there is available housing. As long as this place is bustling, relatively clean and safe, that will remain the case.

I am doing well enough thanks. I do not fear for my job, though of course, you never really know, huh? I have enough saved up that I would find another job before I have to default or something like that. Mu accountant does my taxes, as far as I know, I am still deducting my mortgage payments.

You wrote:
"- how the RE prices fall, if due to higher interest rates then the person holding cash is in a better position just with risk-free treasuries. That person can pick and choose RE if rates do get really high (cash is king) "

Huh? If I am holding treasuries paying 5% and interest rates go up, arent my t-bills devalued? I am locked into a 6.125% fixed mortgage. I am not sure what your point is. So someone who has cash now should wait for rates to go up before buying, so ... the purchase price will be lower, but they get locked into a 7 or 7.5% mortgage? I disagree with that logic, though I admit I can't properly explain why. lol.

Yes, I agree my monthly payments are not totally fixed. As you mention maintenance continues to go up. But so does rent. I assume they will balance out. I was renting before I purchased, and through 3 leases (1 yr, 2yr and 2 yr again) the rent went up almost 50%. More if we had signed another lease.

I also agree that I may end up wanting to sell at an inopportune time. But now we are moving into the realm of timing the market. Yes, with stocks you can get out more easily, but a similar risk exists.

13, 16 and 17 - why post 3 times? do you feel that strongly? lol.

*** you wrote:
why do people throw up these big numbers and assume they automatically work? ok hobo joe, let's take the assumptions even though they are skewed to favor the pro-housing view (8% appreciation going forward seems aggressive to me) and add a few more to complete the analysis - maintenance/cc charges = 1.5% of purchase price (half of which i assume is real estate taxes, commission on sale of 6%, interest rate of 6.5%, tax rate of 45%
***

the 8/10 is from a previous thread. 5/10 and I think the buy side still wins over the rent side. The maint is cancelled out by the renter's rent. Owners rent out their apts at a rate that pays for their mortgage PLUS maint PLUS profit. When maint goes up, rents go up too.

***you wrote:
after 5 years, home value is 1.175mm, total PITI is 176k, mortgage due is 578k, commission is 71k so net after tax proceeds at end of 5 years is 1,175 - 176k - 71k - 800k = 129k. keep in mind i was generous and assumed double occupants so NO cap gains taxes on sale since the tax shield is 500k.
***

Trying to follow your logic here. You are assuming that I put in 800k. I put in only 160k, and I left in 40k for transaction costs (when buying... plus renovations). Sorry, what the is PITI? To me: 1.175 - 71k sale expense - 578k remaining mortgage = 526k proceeds. Since I originally put in 200k, that leaves me with a profit of 326k. No taxes, because the gain was less than 500k. As far as I can tell, you are not being generous, your math is wrong!!!

If PITI is referring to the mortgage plus maint costs... those costs exist even you are a renter. You have to live somewhere!

Where can you rent for 2500 a month? Sorry, maybe that was not you. I thought somebody said you should be able to rent for 2500 "easily". That made me laugh out loud. Yeah, if you want to live in a studio!! Whoever that was.. check the prices on this board...

You (13/16/17) also wrote:

***
if you invest 200k in the stock market at 10% you have $322k after 5 years, less 15% cap gains is 304k. assume you've paid 2,500/mo (can easily pay much less) in rent and that grows 5% a year, so you shelled out 166k in rent after 5 years. net after 5 years is 138k.
***

Oh, it WAS you. Where can you pay 2500 for a 1 BR apt in manhattan? Please do not point out places on 159th St. The renter, for the comparison to be fair, should live in a place similar to what the buyer lives in. (1 BR, doorman building) I am assuming the renter pays the same as the mortgage plus maint of the buyer. (In fact, I think the renter pays more, because most owners charge a premium when they rent a place out.)

I think I am being generous on this point, because 70% of the buyer's monthly payments are tax deductible, while the renter's rent is... zero percent tax deductible.

My point is this... due to (a) leverage (b) tax deductible housing expenses and (c) 500k tax free gains (for a couple, or 250k for single home owners)... the market has to outperform the RE market by 3-4 X to keep up.

#21, the point is that we all have our individual family and financial dynamic. To suggest that because the best course of action for you is right for everyone is insane.

I would never tell you (someone I know nothing about) that your investment portfolio should look like mine. I don't know you...how could I know if you were better invested in emerging market funds or ELKS?

If you want to buy, go right ahead. But don't insist that it is the best course of action for everyone.

Stocks are easy to get out of? How many smarty pants got out in time of the '01 crash. Come on. If RE "crashes", you think your stocks are safe? And if you think both are not safe, then u want to get that "great" 5% money market rate which barely beats inflation after taxes? Bottom line, diversify.

>> Where can you pay 2500 for a 1 BR apt in manhattan? Please do not point out places on 159th St. The renter, for the comparison to be fair, should live in a place similar to what the buyer lives in. (1 BR, doorman building)

Exactly. Some of these people are comparing crappy rat infested, no doorman walkups to luxury doorman buildings.

i pay 2500 for a large 1 br in east village. no doorman but its got a gym and laundry and is a pretty nice building.

I have money in both the stock market and the real estate market. I have made more money in Real Estate but that is partially because I bought when it was very cheap, in the early 1990s. The real estate I bought for $367,000 now sells for $1,600,000 to $1,700,000 million. I put 50% down, and have paid off the mortgages from the rental income. My stock has not gone up that fast.

However, I think real estate is high right now. Why? Because when I bought you got 1% of the purchase price in rent each month. Now, I certainly don't get $16,000 in rent each month!! I get less than half that.

You have to look at yield. There is down risk with both investments. And while you can always sell stock TODAY, you may have to wait months to sell Real Estate. I have had real estate on the market to sell for as much as three years before finding a buyer, even at 10% below what was alledgedly the 'market.' Real Estate is not liquid.

#32--all these "you're a bitter renter" parrots will learn when they try and dump their pads on the market all at once and find that no one wants it.

why do all these analyses look at a 5-10 yrs time horizon to justify their cost of ownership when the reality is a small minority of people actually stay in their current home for that length of time??? THink about it - where were you 10 yrs ago, 5, even 4 or 3? I bet that a majority of people were living somewhere else. Now I'm not saying every should then go and rent, but don't try to justify your purchase by assuming you're going to stick around in your apt for 10 yrs - you probably won't.

#33 + #34 = bitter renters.

Hey #34 - I've lived in my NYC home for over fifteen years. Look at post #32 as well. Just because we're not flighty-don't-know-what-I'm-doing-with-my-life-moving-every-two-years-with-a-crappy-job-and-emotional-committment-problems-loser like you, doesn't mean you should be so angry. No wonder you're a bitter renter! We don't need to 'dump our pads' - they're largely paid off, all we basically pay now is maintenance, we have MASSIVE equity, and don't have to worry about our homes - we OWN them.

How's about you, bitter renter?

barbreader, good to hear from a long termer.
However, you can find rents that high. I know of a 2BR condo in tribeca that recently rented for 16K per month. Worth about 2M now but bought for less than 1.5M two years ago.
The right product in the right hood not only sells for a high price but rents for a high price too.

A lot of your numbers are valid and we appreciate you math. But there are a few points that everyone should consider. An $800,000 apartment is a one bedroom apartment in Manhattan. This one bedroom apartment rents for about $3500 per month. Interest, RE tax and maintanence will run you about $5000 per month. Tax deduction? What's that? If you are borrowing $640,000, you are probably earning about $200,000. If you are earning 200k, you are probably affected by AMT which means your deduction are useless. Comparing to the RE market is one way of looking at it, but if you buy treasuries at 4-5%, this is riskless. The RE market in the next five years at best will remain flat and today, it is cheaper to rent. When this changes, or if you have more money to put down on RE then buying might make more sense. Buying a one bedroom apartment isn't even liquid. The problem is affording to be able to buy a 2-3 bedroom apartment for 1.8mm to $3mm. That the current problem. We all need to save more money to be able to afford the liquid real estate.

#35 & #36 = insecure owners

#13 here.

first, i only posted once. streeteasy somehow 3'xed my post. no explanation for that

second, ok, let's do the math again, just to be clear. 8% house appreciation, 200k down payment, no renovations (not sure why op made that assumption), 6.5% interest rate, 1.5% maint/re taxes split equally (and not assumed to increase, which they invariably would, .3% insurance, 45% tax bracket. all reasonable assumptions.

in 5 years, 1,175k - 800k is 375k. ignore taxes for now. after 60 months, interest paid is 189k, maintenance is 30k, re taxes is 30k, insurance is 12k, commissions is 71k. let's say closing costs roundtrip is 6k. so you have 37k. now let's add back the tax effects, which is 45% of 189k+30k = 98k, so the total cash you have after 5 years is appx 136k, give or take. it's a little different from what i had before, mainly because i made the numbers more precise by going to a monthly analysis whereas before i did an annual. that's the analysis. nobody has really contradicted that. run the numbers and see what you get.

the stock example is unchanged and you have 138k.

op says 2500/mo is not possible. well, i pay 2200/mo for a true 1BR, fulltime doorman & elevator building 1 block from the subway in midtown. i live on a high (double-digit), floor. it's not the plaza, but it is a very very good building. i don't care if you believe that or not. i know what i pay and too bad if you can't find as good a deal. even so, i assumed 2,500/mo and i think you can find a very decent place for that if you try.

and the fact remains renting has optionality attributes owing to flexibility that have value. you can't dismiss that.

sure the numbers seem like owning is way better. how could a place go up 375k in 5 years and you not outperform stocks? run the numbers for yourself and even if you come out with something different, a reasonable analysis will find the two are pretty close. consider the carrying and transaction costs and you will find that it is not a slam dunk! that's all i'm saying. just do the work. don't be lazy and don't try to rub your ill-conceived conclusions in peoples' faces without having a factual basis. why did the OP even start his thread? just to thump his chest? who gives a damn what you think? well, suck on the truth. don't respond unless you have hard analysis to back up your statements, no wild assumptions please, cuz i'll just go to town on it again.

37, while u have some good points, your treasuries comment was inane because after AMT, that becomes maybe 3%.

When you run the numbers, you see it can be pretty good both ways, but you should try to diversify. Using the OP's example... thus if i had 400k, wouldn't it perhaps be smart to put 200k in RE and 200k in stocks?

... and actually if you combine the two strategies, eureka, you make more money on the stock side too!

my point was riskless investment. i completely understand the after tax affect on my treasuries. and btw...i own muni's.

re:#39---closing cost are much higher than your estimates. at least 5% in NYC. 800,000 on the way in could be 40k for a condo. on the way out with relator it could be as much at 8%.

btw.. if anyone cares, i lived the situation. i bought, RE went up 50%, i sold to an investor and cut my living cost by 40%. when i bought it made sense to buy and now i rent which makes sense.

to OP #1. Its probably as simple as this:

Do you earn 200k a year and have very little debt outside your mortgage? And will continue to do so for the next several years on a 30yr fixed mortgage??

If yes, who cares what happens to prices.. up or down.. u have a place to live and can afford it and can ride out any downturn.

If you don't.. good luck to you.. hope u can weather any downturns in RE and in the job market.

#35--- I am #33, a so-called "bitter renter" am 32 years old and made $280,000 last year(will do over $300,000 this year) and have approaching 400,000 invested currently in liquid assets (cash/equities). No I am not rich but neither am I bitter or a loser as you profess all renters to be. My job is not crappy nor am I a commitment phobe as you highlight. Thats about me, asshole. Better hold on to that apartment, cause something tells me you're not terribly bright and have a peculiarly limited universe of thought.

I wouldn't buy right now. The market is getting to a point where it is very volatile. It's really only a matter of economics. The cost of housing in the city has outpaced everything by a wide margin. We'll either see a slow down or a sharp increase in inflation due to the cost of living rising so much.

I am sure if you hang onto it for 10-15+ years you could be OK or maybe even cash in. I don't think that many New Yorkers fall into that realm though.

to #45. As a fellow 'so called' bitter renter, I had to chime in. I was surprised to see your age/financial information as its almost identical to mine. I make the same, but have considerably more in in liquid assets plus I own a home in Europe outright which I bought when prices were reasonable in 2000. I'm not bitter, I'm just not stupid enough to overpay for something that is stupidly overpriced!

No sane person should be one is arguing that RE is not a good investment long term, but to overpay but to overpay by so much is not smart at this time...

I am new to these posts. I am renting in the city - 3 bedroom owners duplex in a townhouse on east side. Just finishing up a divorce and will buy soon after its final. To get a sense of the market, over the past 6 months or so, I looked at around 10 resale condo/coop/townhouses and several new developments in midtown east. With one exception, all the resales I looked at are still on the market. I looked at M at Beekman, overpriced and not selling. Every resale I looked at the agents point blank told me that the owner was willing to signif negog on the price. So maybe the market is softening a bit.

#37--AMT does not negate r.e. deductions in their entirety for all persons subject thereto. interest attributable to cash out refinanced mortgages is not deductible but straight mortgage interest deduction is still deductible under AMT, albeit subject to possible reduction.

#37--AMT does not negate r.e. deductions in their entirety for all persons subject thereto. interest attributable to cash out refinanced mortgages is not deductible but straight mortgage interest deduction is still deductible under AMT, albeit subject to possible reduction.

All the owners are gleeful in their significant price appreciations, and they should be. However, its the so-called "bitter renters" who comprise a large portion of the potential buyer pool in this town. Sure, we are not all potential buyers, but we are many of them. Therefore, trepidation amongst us with respect to buying into the market at this lofty level should be a cause for alarm for you happy owners, not a cause of joy. The sad truth is that the frenzy has vaulted prices into a space which is no longer justifiable. The stock market has crept back so the smart money is there, not going into real estate. yes, the smart money of 1999-2004 was going into real estate, but now its fleeing. If you do not know or realize this, sad for you because in tbe time I took to write this diatribe, your equity just dropped another.0125%.

Little Black Arrows, #35. They fall for thee.

Little Red Rental Arrows, #52. They rise for thee.

Wonder whatever happened to the British OP?