oh don't you just wish you bought at the height of bear hysteria?

fyi folks -- a nearby building 229 north 8th by the same developer, designer, rented out fully its one bedrooms of similar size for apparently 2300 to 2500 during the fall, starting in august

Thanks aboutready. I hear you!. I probably won't buy anything without outdoor space, which makes waiting a bit trickier, but I understand your caution. Worries me a bit that nyc may just be flat for a while. Apt 23 -- gotcha on the oil thing, and have been digging around some.

Joe - no way I would take on leveraged multi-unit asset risk that is personal recourse to me.

If I at some point find someplace I actually kinda like, with outdoor space(small crap concrete balcony is ok), with enough space to feel minimally ok (say 600-700sf), that is quiet, for say 400k - 450k in an area i can handle (i think i like wmburg, but it would be better to rent for a few months to be sure), i will be happy. I used to think I'd have to pay a lot more than that.

Before I ever paid 1000paf for anything I'd try to convince myself I really loved some other city (too bad DC is so very very boring).

Interesting -- you could get a renovated brownstone in a decent area in Brooklyn for $300-400psf or less and end up cash flow positive. Yet this is a highly leveraged asset with virtually no down payment that you won't consider. Yet, you are willing to consider opportunities where your larger down payment will almost surely vanish and you may not break even on a rent buy analysis
Really interesting

Jimmy. Sorry but family got in the way ;)

My dad had a saying - 'do nothing'. Sometimes the need to take action mucks up the ability of one to see clearly. Today in re., that is the mkt we are in now. The real barrons of NYC re. had the ability to wait it out and funny enough a lot of The dynasties are suffering bc the young sons/daughters in 2003-2007 thought they had to 'do something '.

Here is a little w67 crystal ball for your situation. Bf w'burg firms, manhattan re prices need to firm. In order for apt prices in manhaatan to firm we need 3 qtrs of rent prices to go up.

Anyone have an even money over/under and when we see three quarters of firming rents. Banks may hire decent numbers this year...but theres a gap in the normal flow already that wont be replaced. Plus, I'd imagine many more 'bubble families' will be making the decision to leave the city in the coming couple of years...the type that would not have been making that same decision in the boom years. Maybe I am talking my book there.

Finance will come back (already has) cyclically... I heard 2007 type bonuses...but fewer people and how many are already owners...If this market holds for two years or starts to rise...I'll admit defeat...

Joed: it makes sense that he (and others) are not interested. The market for 700k 2brs in Harlem is bigger than the market for a 1mish TH that is eligible for FHA & cash-flow +ve. That's just the nature of the beast. You should just be happy that the pool of competitors is smaller.

Rhino: I dunno about that. People I know (non-finance included) want to hang on in the city until they can't put up with space and school issues anymore. I don't think that necessarily changes bubble or not. Suburban living in areas w/ short commutes and decent schools don't come cheap either.

The only people I am talking about NYC are the people who are already to that point...first kid finishing 5th grade, second one accumulating stuff...apartment is cramped... That family is leaving whereas before the crisis, that family is out borrowing money from the bank to buy a place they probably shouldnt and writing a check for private school...This pool of people may have a change in tude at the margin. I'd bet on it. They also may have a smaller check now...or a more realistic concept of what their normalized bonus looks like.

nyc10023 - happy not to have the competition -- actually there is quite a bit for that sort of property and by people who are considerably more sophisticated than the average buyer -- they are investors.

I started out considering a classic 7 on the uws
Even with the current valuations it makes no sense and I agree with most posters here that buying such a beast would be pure folly at this time
If jim is serious about buying something at this point that he will not regret and can put the legwork into finding such a property -- may be more possible in his WIlliamsburg domain than in Manhattan, then he could make a financially viable (not necessarily sound) choice

Agreed rhino. The natural % of leavers in NYC was 70% to 80% in 80's, 90s and early 2000, but when you got paid $300k to $400k/ yr to stay in NYC with a family on top of short commute and feeling like a plazyer, I'd say it went down to 20% to 30% that left manhattan. So we are gonna have a lot of heloc families schlepping to burbs and thatz why I think the 3/4 bdrm mkt is screwed with a capital k no matter whatz been happening with the 1/2 bdrm mkt. FYI, I mentioned this awhile ago, but plenty of lemmings in 1 yr will azk themselves I coulda done a 2/3 bdrm for same price. They shot their wad, gonna be sad. For them, not for me :).

Rhino, I second that theory. Plus people are just plain poorer. For people out of the rarified stratosphere of uber financial companies with huge bonuses, your regular joe bonus is smaller. plus most of your options coming due are underwater. when the due date hits, that money is gone forever. And there is no more credit. Many people making decisions will be a lot more flexible in their thinking than they ever thought possible.

Well there are a whole new group of people who got a zero bonus for the first time. What will be interesting to see at what three bedroom price can the flow be stemmed. Nice threes are generally probably down to 2mm from 2.7mm. I'm even speaking to 500k to 600k earners. They can afford it sure. But do they feel as comfortable as they had. Can they look at the 1.5mm house vs the 1.5mm apartment right now and choose the latter. A 1.5mm apartment remains very underwhelming. I'd look to like at price spreads of NYC to nice nearby burbs. It just seems like the spread blew out when banks spread their legs. Now they're closed.

Joedavis. I'm glad you get some lemming juice. But how does financially viable and not sound work? That's like saying a bj is not sex.

Rhino. Just a note, it's a moving comparison. Larchmont home are down 30/40% from peak and bound to go much further. At some point it gets circular. ;).

I can tell you... When I looked at 3 beds in 2007, it was with the delusion that I could pay off the mortgage in 3 or 4 years. Its also hard to look at the math correctly when you can't find the rental comps. In the end, the post tax monthlies seemed doable...but the pre-tax figures felt ridiculous. Also, we just didn't need to 'pre-buy' all that space. The rest is history... Maybe there are just a lot more well off people out there than I imagine..who can support prices double 1999 levels at income levels that are probably similar.

w67, that is true...but you are much more likely to be able to afford a lifetime livable space out there. That option in and of itself lowers your risk in some sense. Interest rates start to actually matter to your bottom line if you are there 15 years...and you can spend on improvement knowing you can enjoy them...less worry about whether or not you can get paid for them on the back end. Also the 'school asset' is something more people now have to admit matters to them... The nonchalance with which private school was assumed in 2006-2007 is probably going in the toilet for many. My view is honestly Manhattan is fine with high confidence in an unwavering $700-800k a year. If you make $300k one year, $600k the next... I just don't think that person can any longer consider (or even qualify) for the type of mortgage it takes. Back to the circularity...I think the circularity favors the burbs stabilizing sooner... We took a trip to Darien. Its tough to tell what the market is when you have homes on the market for two years... Is that house actually for sale if someone can sit on it that long. We saw a doozie for $6200/mo...also for sale $2.4mm. Ha.

i did not have sexual intercourse with that woman.

i was always taught that a bj was not sex. especially from your regular joe bonus guys.

"2) secure a FHA loan with 3.5% down ~4.5 to 5% 30 year interest - you or a family member probably need to use this as a primary residence, or at least designate 1 unit as your residence to get the best loan terms

3) check whether your rental income (net) can cover the mortgage or close to it -- if you do indeed live in the building then you need to consider that value in this calculation -- pay yourself the rent."

This idea seems interesting, like an arbitrage opportunity. However, you'd need to

1) find a place where your cap rate is greater than that 5% mortgage rate you're paying, by at least 3% I'd say to make it worth your while. I think the place he's talking about has a cap rate of ~5.5%

2) the hard part - be fairly certain that you can rent it out, and if so, that rents will hold.

This not factoring in risk that the value of your property goes down, not to mention possibility of flight to quality from the outer boroughs to manhattan.

I don't know. Doesn't seem likely to find such a place even in Brooklyn. Do you know of anything close listed here for shits and giggles?

I cant imagine there is anything out that that truly costed for maintenance can generate a cap rate greater than the mortgage rate.

Yeah, but the thing about Williamsburg is the rental demand is there for now for an interesting demographic. I can see the numbers working to buy a 1-bed, convert it into two and renting it out $1500 a piece to a couple of hipsters. Wouldn't want to live in that apartment myself though.

Thatz great but what happens when 7th and avenue a starts renting for $2000/month for a sharable 2bdrm? Where's that Leave you in wburg?

Look if Tiffany started selling 1 carat for $5k, you better not be buying $6k 1 carats from your Amsterdam wholesaler. Comprendo?

What arbitrage. Put up three walls and get $4500, damn. Where do I get me some drywalll.

i don't know Brooklyn so not clear that I can offer a prospect in an area considered decent -- not even sure what that would be -- however, I looked at Park Slope, Prospect Heights, Midwood and Williamsburg at SE and there are 2-3 family houses available between 500k to 1. million
If these can support a rent of 3000 to 6000 respectively, then the cover is there
Financially viable -- meaning one can handle it w/o too much stress
may not be financially sound -- meaning there may be other opps that are better
I was clear that finding such places may not be easy.
However, FHA goes to 1.135 million loan for a 3 family. Go calculate the payments at 4.5% interest and add taxes etc for Brooklyn and see if it covers the rental income....
Assume a 2 floor duplex 2000 sf and 2 floor through units with 1000 sf each
seriously doubt that it will work for a condo with maintenance, but will most likely work for a renovated brownstone with J-51 or 421a tax exemption
Can issue this as a challenge to the ever eager SE discussants to find or determine that it is infeasible.

LOL! Thx for the reality check guys. Good thing I didn't mention my plans to knock down the wall and pitch some indoor tents:

http://www.nbcnewyork.com/around-town/real-estate/Women_Needed_for_Bushwick_Tent_City___We_are_artists_living_in_a___-64753647.html

If they don't bite, I'll start renting used trailers for $590 a month:

http://gawker.com/5431831/bushwick-artist-communitytrailer-park-is-brooklyns-new-hipster-hell

Joedavis. Hmmmmmmm, you forgot the next best alternative. Do nothing buy the $1mm to $1.5mm in 1-2 yrs for $600k to $1.1mm. That gives you plent of cover when rents drop an additional 20% in that time frame. I don't see how someone making such an enormous leveraged financial asset buy does not think of option 2 AND terminal value in their cash flows or do you plan to live forever? ;)

Joe its hard for me to believe theres a 14x rent for-sale multifam out there. Where am I buying a 2 family for the asking price of a 600 sqft Williamsburg condo?

I'd be happy to look if I knew where to look.

Remember that a 5% cap rate was the low before the credit bubble....now its a stretch target to a bargain. Something wrong with that picture.

http://www.economist.com/opinion/displaystory.cfm?story_id=15213157

w67 -- I started looking in 2007 so that automatically puts me at a significant disadvantage -- psychologically -- I have only seen the peak and am looking downhill from there
actually I looked in 2000 as well and gave up then and missed the greatest bubble in history

I would love to believe that we'll be at 600k in 2 years for a 1 million apt today
Have preached this off and on to folks for the last 2 years

Prices have come down in many segments in the last year. Still, I am not able to find a decent 3/2 which I thought was a classic 6 and learned was a classic 7 in the UWS for my target price and indeed in that range the selection is oddly no better today than in 2007

So I started looking at other options, and have successfully executed on the parameters I described for Jim -- and know several others who have as well.

If I look forward, I am not sure what probabilities I put on different prices for things I would consider buying. Likely much higher on a decline than on an increase. So, I agree with you there.

However, stagflation is a distinct possibility for the next 1 or 2 years.
so if someone can cover all property costs with rent and live in the place as in my example, and put minimal down payment, it is a financially viable strategy
Is it sound -- one would have to wait and see.
Can I buy a $2 million classic 7 in the UWS
Yes
Would I buy it today
No

Joe. I don't disparage the feeling of looking forever. But I would like to point out one item.

Stagflation is measured in terms of a basket of goods. to go back to the same vehicle from which this bubble was created as a safe haven for the resuling stagflation is odd at best and completely devoid of any financial logic at worst. But let's see how it plays out in the nex 2 yrs.

try this one
(not in Brooklyn)
http://streeteasy.com/nyc/sale/181105-multi-244-west-123rd-street-central-harlem-new-york
This fellow has not sold at 935k and will likely take 800k or lower
4 floor thru 1 br apts rented for $1200 each -- say $1k now --
does it work?

6% raw yield? Hmmm I got 2.25% savings acct backed by govt and I can sleep at nite.

Stress test it with 1 tenant non payer for 2 yrs dragging you to court. Or rents down 5% for year compounded for 5 years. You say 0% prob, I'd say 10 to 20% prob this will occur in all of NYC.

Look I look to buy when it's already worst case scenario, with a raw yield of 10-15% for the unexpected. Maybe I'm overly cautious but I know when it goes south it goes south very quickly.

agreed
if you find it ok to live in such a place then you have a 4000 sf brownstone for $4-5k per month -- no comp for a UWS classic 7 -- recognize that these are rather different products and not comparable
however for a family they are lifestyle choices

disagreed w. w67. agreed w. joedavis.

"raw yield" of 10-15% is not coming anytime soon. maybe when the martians invade and civilized people decamp to alpine new jersey. keep dreaming of the late 70's

Seg. What everhappened to the segways. Aren't wesupposed go be zipping Riund them all day?

you guys go ahead and buy it. You do know we were on the verge of a complete financial meltdown not even a year ago, and you guys are jonzying to get back into the vehicle by which lehman and bears went under? Hahaahahhaahhahhahhah. Here I am smoking weed and you guys are free basing on escobar's primo stuff.

w67 -- I did a scenario analysis before buying
In the scenario, I considered a fair assmpn as to a 30 year fixed interest rate 2 years out at 8%
Let's say that this is a median forecast -- I would say the range will be 6.5 to 10%, with a 90% probability coverage
Then I computed how much the property value would have to drop for the monthly payment to be equivalent to my current (proposed at the time) monthly payment at 4.5% interest.
The answer is approximately 40%
So, interestingly this is close to your 1 million place becomes 600k place in this scenario.
However, note that these are financially equivalent.
I decided to put down 5% now. I tend to doubt that the same property could be purchased with 5% down in the New World that is emerging over the next two years.
In any case financially, the two scenarios are tied, and they differ in that I would be making rent payments over the next 2 years
Having gone through this scenario, if I could be offered the same terms for a 100 unit complex today and could get it for a similar price scenario analysis, I might do it.
Obviously, this is not realistic, but the combination of spotting a multifamily at a 30-50% discount over 2007 and the interest rates leads to a rather interesting quandry.
The challenge is to find such places.

jdavis, just a hypothetical. what happens if those fha loans disappear? mid-development?

and, guess what, i'm not sure bernanke really wants the dems (particularly grayson) to do so well in the midterms, so all sorts of shit may be going down over the next few months.

but buy away. no better time. why think about waiting? buy now. now. now.

ar -- not sure what you mean by fha loans disappear mid-dev?
sorry
if you secure the loan now, you are done --
are they likely to disappear -- probably -- at least with the current terms

the 1st house I bought in 1981 was purchased with a negative down payment -- assuming a VA loan at 11.5% when the market interest rate was 18% for a 30 year loan

The FHA loan is assumable. SO, if I am forced to sell in 2 years when the market has tanked 40%, but can offer the same monthly payment with little to no down as compared to someone who is selling without the assumable loan, and a 20% down requirement, then I have a fair shot at selling quickly and with the most downside being the 5% downpayment (3.5% + some of the closing costs financed)

Look, it is generally not a smart time to be buying. However, there are niche plays if you can work them, and this started with Jim's question and a suggestion to him as to how he could do something if he was intent on buying.

there will be people here who will debate a variety of aspects of anything, and I am happy for them to have fun doing so.

If someone is asking a question as to how/what they should buy, there may be an answer other than go rent yourself

Rhino: I don't think there has been an empirical study of just who is buying those 3br+ apts and whether they were doing it on 300k, 400k or projecting their 600k income into the future.

My "analysis" is really anecdata from the 'hood. Assuming that potential buyers are sending their kids to preschool, I think I have a pretty good grip on the "average" family in my neighborhood based on what I see and hear. First off, most families do not rent or own 3br/3br+ apts. Most are in 2br apts, and most rent. Even in the middle of '07, at least half of the families of my acquaintance were talking about heading to burbs when it became unbearable to stay. I don't know where you're getting 20% from. From my vantage point, it's always been about 20% "die-hard" Manhattanites.

It wasn't my 20%. My sense and opinion is, however, that attitudes about spending money have been impacted by this crisis....and on top of that, banks won't lend the money necessary to buy a 3 bed like they used to. Therefore, I believe the price will need to fall and step the outflow. I have no proof. Just a lot of anecdotes. Even if attitudes have not changed, the crisis blew some holes into a lot of income histories that would otherwise have been qualified to buy these 3 bed apartments. Down at the low end, there is the shattered myth that the only way not to be priced out of a two bed is to buy a one bed today. Whether the percentage is 20% is not the point. I will tell you, whatever the percentage had been in the 1990s, it must have risen to take prices to the heights that they were taken...and whatever the percentage is...its going down.

"fall and stem the outflow"