Your advice pls on the Rent vs Buy, UWS

a) That's about right, though I think you could do somewhat better on rents if you try. If you are very selective in terms of finding a good rental price, I've found that you can find places that have an annual rent of 4% of purchase price. I also think that the condo/co-op market has better quality for the price compared to rentals, and given your concern about a school, you probably want a 3-year lease with your option to break, so you can amortize the fee.

b) If you think that a home's main purpose is to provide shelter, are not gung-ho about the magic of homeownership, think that NYC rental inflation rates cannot outpace national ones for indefinite amounts of time (e.g., they have vastly underperformed inflation in the past decade), and know that the market places future inflation at 2.5% (which you can trade if you feel differently), then it's pretty hard to make a fundamentals-based argument for buying from a financial standpoint.

You are no more insane than the rest of us. Lots of us here "throw away" that kind of money on rent, if not more, despite being able to comfortably buy that which we rent, if not more.

I think your analysis is right on....our family is renting a perfectly nice classic 6 in the high $6K per month area in the low W80s. To purchase would require an enormous amount of hassle and would increase our out of pocket expense to around $10K per month and tie up very hard to come by cash savings that I would prefer to leave in the bank right now.

Find the building you like in the school area you like and rent....if and when the Manhattan market stops falling and you are absolutely sure you've settled in for a ten year run someplace....then buy....maybe....

You got it, tripel. And school zoning only matters until you get both kids into K. After that, you can live where you like and there's no good zoned middle school on the UWS.

As the owner of a couple of multifamily rental properties, I am a huge fan of renting. I have posted numerous messages on this board praising renting. I'm also a real estate agent focusing on sales, and an investor of course.

The outline you're providing of your situation suggests you may want to study this question a bit more deeply.

What I want to know is, what are you doing with the difference between your rent and what you would pay for a comparable condo? Where is that money going? Are you investing it, saving it, or spending it?

If you're spending it, are you spending it on significant purchases (important travel, support for an elderly relative, tuition) or is it just kind of slipping through your fingers? .

I think you're telling us $7000 a month in rent v. $9000 a month to own for comparable places in the right schools? So, I'm also wondering also where the down payment money is right now, what that money doing.

The forced savings aspect of owning is not relevant to everyone, but it needs to be considered, not ignored.

I'm also wondering if you intend to stay in New York at least 7 years; what your time horizon is.

I think the recent financial meltdown and the real estate bubble have caused some people to go too far in the other direction, to think that all buying is bad. That is hardly the case, or billionaires wouldn't still be buying up real estate. They didn't get to be billionaires by making bad financial decisions.

There are rent-versus-buy calculators on the web that you can use to plug in numbers and see how far ahead, or behind, you are financially in 7-10 years if you buy or if you rent. I would suggest you take the time to run through a few of those calculators before you decide.

I know I'll get flamed for saying this, but I actually find the New York Times rent versus buy tool useful. (Google "New York Times rent versus buy" and you'll find it.) I say this with the caveat that you have to tinker with every single assumption. I compared a $7K monthly rent and a $1.75 million purchase price. I assumed a 20% down payment, 5.75% 30-year mortgage rate, $2200 coop maintenance (and thus $0 annual property taxes), 30% tax deductible. I assumed annual home price appreciation and rent increases of 2%. I assumed an 8% ROR on investments, and an effective tax rate of 30%. I zeroed out the maintenance/renovation and insurance costs entirely -- the default percentages they have are way higher than are normal for apartments (as opposed to lower-priced single family homes). Inflation rate of 2.5%, cost of buying a home 1.5%, cost of selling 8% (assuming a broker's fee plus flip tax here). I'm sure many of my assumptions can be quibbled with (in both directions). But with those assumptions I come up with an all-in $500/month premium to buy versus rent if you stay for ten years. I'd pay that much for the stability and control of my own surroundings but not everybody would -- whether you would is of course known only to you. The point of this exercise, I'd say, is that you have to look at the tax benefits, the fact that rents will increase (even if only slowly), and the equity building aspect of ownership before you know how you'll come out. The rent v. buy analysis is very sensitive to assumptions such as housing price appreciation and return on investments which are impossible to know for sure in advance -- and so is your ultimate real-life outcome. But there's a lot more to the analysis than "it costs $x to buy versue $x to rent, and therefore it can't possibly make sense to buy."

fluter, billionaires don't need to consider how much they spend. they've made it. some spend relatively little, others overspend without a care in the world. millionaires need (or many should) show a bit more consideration, especially in these times of uncertain returns and incomes. maybe that's why we saw the extreme (although somewhat temporary, those perky rich people seem to be getting their real estate groove back on) decline in the upper market.

miette, your analysis is thoughtful. but i wouldn't be so certain that rents will be increasing at all in the near to medium term. and the AMT is a reality for many, so the tax benefit may be minimized.

mobility may or may not be priceless to you, depending on the circumstances.

I agree with Miette's post on the NYT calculator - it factors in such variables as closing costs, seller's agent fees etc., which are a big part of the equation, particularly for higher priced properties.

The only other thing I would add is that there are areas of NYC (such as Brooklyn) where the rent vs. buy equation is MUCH better. The unfortunate reality in Manhattan is that sales prices just haven't fallen enough relative to rents. Additionally, it seems unlikely that rents are going up anytime soon. They are almost perfectly correlated with unemployment and inventory, both of which are serious negative headwinds in Manhattan.

There's some graph by Jonathan Miller (I think) out there that shows historical rent/sales prices in Manhattan and we're still much higher than the historical average. I say "BUY" just not in prime Manhattan.

Very true about the AMT -- mortgage interest is exempted up to $1M of mortgage, and I have to admit I'm not sure how the calculation is done if you take out, say, a $1.3 million mortgage. (Am I right to assume you still get to deduct the portion of the interest attributable to the first $1M?) And I doubt the NYT tool accounts for the AMT.

Also true that rents might decrease in the near-term. So how you come out very much depends on your time horizon -- over time, I think, rents tend to keep pace with inflation unless an area is going into a Detroit-style decline. (As do coop maintenance payments -- but not fixed mortgage payments, of course.)

People should choose whatever assumptions they're comfortable with -- but if they're serious about comparing rent versus buy scenarios, they need to put in a bit of work.

And, StreeteasyNewbie, I definitely see your point regarding Brooklyn. Which is one of the reasons why I chose to buy there and not Manhattan a few months ago. (That, and I absolutely love Brooklyn.) The rent/buy analysis for the place I got still favors renting -- but you quite literally cannot rent a comparable apartment in my neighborhood so it's all theoretical. I am comfortable with the "ownership premium" in light of the wonderful set-up I now have. But I'm very much aware that that premium will most likely constitute consumption and not an investment over the years.

miette, the AMT is a mystery to me. and i'm not so slow. it seems to kick in based on income level and the amount of real estate taxes and state income taxes that you pay. and from personal experience i lost every cent of my advantage for years, and now that our income is higher we get the benefits. talk to an accountant, mine said the benefit was just about zero for most upper-middle-class taxpayers.

There is no forced savings of owning when the after tax costs of owning are equal or higher the renting. Thats forced spending.

Housemath.com is helpful for this. The problem is assuming appreciation is the defining factor. Expect negative in the near term and nothing from these levels for a long while.

"What I want to know is, what are you doing with the difference between your rent and what you would pay for a comparable condo? Where is that money going? Are you investing it, saving it, or spending it?"

So if you spend the savings of renting over buying, that is an argument to buy and give it to the seller and bank.

"So, I'm also wondering also where the down payment money is right now, what that money doing."

So if the stock market is a bad risk, you should take a worse risk in the real estate market? If CD rates are low, you should take a bad risk in real estate for too little return?

" That is hardly the case, or billionaires wouldn't still be buying up real estate. They didn't get to be billionaires by making bad financial decisions."

If bubbles teach us anything, its to follow the lead of billionaires. It is to follow the lead of others.

Fluter you are a fucking idiot.

" But with those assumptions I come up with an all-in $500/month premium to buy versus rent if you stay for ten years. "

If you stay for 10 years, arent you supposed to make money according to bull wisdom? Over 10 years that is $60k.

Also this is silly, because you can buy in two years at a lower price. You dont need to rent 10 years.

"If you stay for 10 years, arent you supposed to make money according to bull wisdom? Over 10 years that is $60k."

I spend $500 per month on far more frivolous things than the place in which I spend the majority of my nonworking hours. Maybe I'll ultimately make money off my purchase, maybe not. But I'm not going to lose any sleep over that relatively small amount of consumption. (Granted I'm talking about a family-size apartment here, not a 1 BR. If $500 were 10% of my household's monthly take-home, I'd feel differently.)

"Also this is silly, because you can buy in two years at a lower price. You dont need to rent 10 years."

Maybe, maybe not.

And maybe there's some value, if I'm so obsessed with real estate that I spend hours each week calling people fucking idiots on a real estate message board, in buying a place I like and getting on with my life.

If your comfortable with your purchase, why are you here? Isnt this board mainly useful in figuring out whether to buy or not to buy? Or is the fact that you are not that comfortable? Hahahahaha. Get on with your life then, and get lost.

Such a toughguy/girl..."I spend $500 per month on far more frivolous things" haha.

I come to this board occasionally because I love real estate. What's your excuse? You don't seem to be trying to "figure out" anything. You just spew.

I figure out plenty. What do you add by saying I dont care if
its a bad entry because I burn $500/mo on less... meanwhile your
$500 is a generous estimate. Either way, I enjoy it and I am
thanked on almost every thread in which I participate.

If you wait to buy until there's no premium at all to be paid in this city for ownership, you may be waiting an awfully long time.

Some might thank you; but I have a feeling most of us merely tolerate you, if that. I didn't come here to pick fights, though, so good night.

Rhino is a repetitive little twerp with a proclivity to have hissy fits.

I agree with most of his arguments,..... now, and as I did the first few dozen times I read them.

I stand in awe of his apparently endless capacity to cycle through the same tit-for-tat. Someone diagnosed "caeer-frustration", which seems pretty accurate to me.

Some tolerate....some thank. Who can really say more? Who thanks you? Maybe it will be worth the wait. It certainly was for people who might have had this same conversation in 1990.

Thanks Jim. When I am in the market for 600sqft in Billyberg
you can call me a twerp...or career frustrated.

Dude -- you're just boring and tedious because you repeat the same argument over and over again. And over. Other bears are more interesting because they also talk about actual things going on in the market in new york city (you're all macro), or humorous. Sorry, I'm just tired of you hijacking every thread with the same. almost identical arguments. Hence, my "repetitive little twerp" description.

Fair enough. I don't get much out of you either. I would
recommend you ignore me then. Yet most every thread someone
appreciates the points. They are new to them or they somehow
see the nuance. But seriously ignore me. And also go fuck yourself.

You also find a way to insult people all the time. That's puerile and it's just tediouos and makes the site less pleasant to use because you go into so many threads. Why can't you disagree politely?. I'm calling you a repetitive twerp because I'm tired of your act, and I doubt if I am alone in that. Again, you literally seem to have an endless capacity to revisit the same arguments repeatedly, and you never respect people that disagree with you. And you don't seem to ever discuss actual nyc micro info...so once anyone has read your arguments, little new can be gained.

Whether I buy in wmburg or not is irrelevant. I'm calling you out on pure, unadulterated compulsive repetition in about a zillion threads.And I agree with 95% of your arguments.....actually.

Again, I am thanked and commended by some. I can't recall the same for you, nor can I recall examples of your rich unique contribution. Therefore, use the ignore function. Further, twerp implies superiority, which is ironic for someone pricing tiny apartments in a marginal neighborhood across the river, respectfully.

I don't look down on people who live in what you call a "marginal neighborhood", so there is no irony.

I don't think people are thanking you for insulting other people so often, or telling people to fuck themselves, etc....that's tiresome and puerile. Sorry, it just is.

rhino...you're clever at your arguments..im just saying enough is enough...with the insults and repetition (and your digs about "marginal " hoods just fits your pattern)...the answer is not to insult me or anyone else again..

How would you describe stepping into a thread to call someone a twerp? I don't need to know your level of agreement with my arguments, nor do I need a review of my behavior....nor do I need a value assessment of my telling you to go fuck yourself vs. you calling me tiresome and puerile. Good day.

Again, I did not ask for your advice. This board has a useful option called ignore. Seriously twerp, step.

But you do need it .....lol....

My points are repetitive...okay so now go buy your condo in Williamsburg.

What is it that I need? My points are repetitive, you agree with them, yet they haven't sunk in. Now go buy your place, ignore me and have a good night.

Im glad they took Rhino off the global ignore list, but I understand why he was on it.

That's cute, twerp. I hope someday, you will not only agree with my arguments, but that you will also understand them...and realize that $400k for 600sqft you can rent for $2000/mo in Williamsburg is not a good deal just because savings accounts pay 1% or less.

Rhino, my friend, I hear you. Rent/buy is not as out of crazily whack in wmburg generally as in manhattan (i dont know about other areas of boroughs, but have impression also not as bad as manhattan). But the rent market there is in transition I think with a lot of new supply coming (a lot more than in the sales market actually), so who knows.

Okay so enjoy. So in summary, you don't appreciate my repetitive
agenda and attacking style on this board. I don't see much of
interest or value in your contribution. Move along.

But if you think the rent/buy is equally bad everywhere I think you're wrong. Maybe you're just manhattan centric.

i'm trying to stop because I've made my point,,but THIS is too rich : rhino refers to "my attacking style "...

attacking style?....it's school yard smack-down, stupid insults, basically a hissy fit often...i'm not objecting to substantive disagreements, i'm objecting to the puerile way you often up...as in "go away", you often say to people, apparently oblivious to the irony that you could go away

AH-hem...

tripel asked a legit question and got some good responses. Sorry, tripel, that your question inspired attacks.

This StreetEasy discussion board used to be more useful before it became so nasty. Kind of like Congress, I guess.

Jim the point is that you said you have a problem with me...don't appreciate my posts, etc, etc. Therefore, yes it is you who should ignore me, go away, etc. I didn't reach out to you out of nowhere. You reached out to me to reprimand.

"tripel asked a legit question and got some good responses. Sorry, tripel, that your question inspired attacks."

I agree that the question was legit and is certainly similar to the dilemma that I currently face and is therefore of value to me. However, Rhino86 originally attacked you fluter, by calling you a "fucking idiot". I find nothing of value in disrespecting someone's opinion whether or not I agree or disagree. I happened to disagree with fluter's billionaire comment, but it didn't inspire me to insult them. It's just ENTIRELY unnecessary.

I have been pondering the same question of buying a 3br on the UWS vs renting at $7K/month for a similar size apartment in a similar neighborhood and after pondering all the tax deductions, round-trip expenses, lost opportunity costs, inflation assumptions and principal repayment, I have discovered that break-even occurs after 7 years assuming that my resale is flat to my purchase price. Is 7 years historically high given the price disparities between buying and renting?

Miette, I think you make a fair point on whether or not $X is going to make a difference to a person. However, I think there's a lot to quibble over in your assumptions.

First, assuming zero for upkeep and maintenance is not right. I know that things don't show over a year or two, but they certainly do over a decade or more. Let me put it this way. Have you seen a $1.5-1.75M coop that hasn't been touched since 1980? Would you think that $250K is a reasonable amount to bring that up to standard, not to mention the few months of time that you can't live in the apartment? That works out to about 0.5% a year. Whatever resale values work out to, they do include all the improvements done over the years to maintain an apartment rather than let it completely fall apart. This adds $750 a month.

Second, you can't just pretend insurance is non-existent. Even at 0.25% of home price, it works out to $350 a month.

Third, you can rent a $1.75M place for less than $7000. As the OP points out, $1.75M was for places in Manhattan Valley vs. $7000 for places in the 70s/80s. A rent of $6000 for a $1.75M is findable, and $6500 is easy. There's another $500-$1000 a month.

There are other smaller things I'd quibble about, I think your $500/month overpayment estimate is more like $2500/month.

The real problem with the analysis, however, is the "price appreciation" assumption. The 2% appreciation rate in home prices assumes this -$2500/month difference is "steady-state" in inflation-adjusted terms. I.e., the state of affairs is "normal" and will continue. While I'm a big believer in the fact that markets can stay irrational for prolonged amounts of time and can concede that some will have the viewpoint of the current state of affairs is rational, two things that go strongly against this.

First, rent/buy ratios are still off the charts compared to historical numbers. We are currently at gross yields of 4-5%, and we used to be at gross yields of 8-10% a decade ago. Even adjusting for mortgage rates, which have come down by around 2%, we are still way off the charts.

Second, the Fed and treasury are distorting the steady-state at the moment in a very strong and publicly-acknowledged way. They have been artificially pushing down rates by buying $1.25T of agency debt over the past year and change. Just to put that number in perspective, if you take all the home sales that happen in the country over a year, it's on that order. You have dozens of other ways that the housing market is being supported ($8K tax credit, foreclosure programs, etc.). When these programs go away sometime over the next decade, what happens?

Suppose these actions amount to a 2% subsidy on mortgage rates that needs to equalize over the next decade. If that's the case, then your 2% home appreciation rate becomes 0% (which I think is what the government is targetting since people are less likely to walk away as long as equity doesn't turn negative, despite a large negative carry). If this is the case, you're talking about another $3000 a month.

In the end, your $500 a month ownership premium looks more like $5500 a month with my quibbling. That makes it a much tougher nut to swallow on what should be a $6000-6500 expense.

BTW, here's that chart from Miller Samuel on rent vs. price trends in Manhattan:

http://www.millersamuel.com/charts/gallery-view.php?ViewNode=1249522147RFeuS&Record=1

Inonada: On the renovations point, what I did (when I did the analysis for myself) is to add everything we were going to do to bring the apartment fully up to date and to taste into the sales price number (I increased the downpayment percentage accordingly). If you move into a fully updated place (or update it yourself and add that to the upfront like I did), it's unlikely that you're going to end up with a steady drag of $750 per month for renovations -- and I think making that sort of assumption really distorts the analysis if you're looking at, say, a 10-year timeframe. (Few people redo their kitchens and bathrooms twice in a decade -- and those who would, you probably already know who you are!) And I would also only add in what you think you'd do to a place you own up and above a comparable rental -- if you're the type of person who repaints your rental to suit your taste, for example, I would just net that cost out.

I personally think a 2% yearly housing price assumption over ten years for prime NYC is not unreasonable. It's half a point below the inflation rate I was assuming. And the predicted NYC population trend over the next decade would support some increase (granted, the population trend will be affected by to what extent the finance sector recovers). Others may disagree, which is fine -- like I said in my original post, people just need to do the work based on their own assumptions. I'm certainly not taking the stance that there will be no further decline in the market -- I might just have a slightly more optimistic long-term view. Though optimism is all relative -- I certainly don't think anyone is buying in this market under the assumption that the price of their home will double or triple in ten years.

Miette, while I agree that you're not going to actually spend $750 a month on renovations, or even do an update once at the end of 10 years when you sell, it is a "steady drag". Let's put it this way: how much of a premium would you be willing to pay on a spanking-brand-new-renovation place today (to your taste) vs. one that was renovated 10 years ago (again, to your taste)? I'd argue that something like a $80K premium on a $1.75M place is reasonable while a $0K premium is not. In 10 years, the market will have the same mix of renovatedness that we have today. However, your place will become the 10-year-old-renovation place in the pecking order rather than the brand-new place. This will create a drag on your place relative to the market. If you don't agree, consider what would happen in 20, 30, or 40 years compared to the market if one were to never renovate.

In terms of "up and above a comparable rental", that is somewhat baked-in. I live in a place that was gut-renovated a couple of years before I moved in, has an uber-fancy kitchen, new floors, etc. Like those who lease a new car every few years, I am willing to pay a premium for newness and consider places of equivalent quality. At some point, owning a 10-year-old-renovated place is "below" what I'd prefer to rent, so it works both ways. I personally don't care about paint, but in this place and many others I've seen, the owner will paint to a tenant's preferences and shows the apartment in a painting-needed condition. In fact in one place, the owner had even left up a bunch of wall-sized mirrors and said he would remove as desired by the tenant.

FWIW, I do agree with your statement that 2% appreciation in home prices is reasonable in general long-term. I'd even argue for 3% myself, which is a number that has economic backing fundamentally and has been correct historically over long periods. However, you're ignoring the rear-view mirror: in the past decade, NYC has appreciated 9% a year even after the recent drop. I.e., that $1M went up to a peak of $3.2M and has dropped to $2.6M. With a 3% long-term rate, it should be at $1.35M right now; in 10 years, it should be at $1.8M. Your expectation of 2% gains over the next decade says that we'll be at $3.2M in 10 years, which amounts to 6% annual appreciation over 20 years. There's no economic argument or long-term historical data for home appreciations outpacing inflation by a factor of 2-3.

Stated another way, there's good economic argument and data for stocks appreciating ~10% a year (maybe 8%). Using that argument in the middle of 2000 when NASDAQ had dropped from 5000 down to 3500 would've been disastrous, however. Even at 3500, it amounted to a 22% annual appreciation from 425 level from a decade prior at 1990. Today, it's at 2150, or about 9% annual appreciation (including dividends) since 1990, roughly in line with economic theory and historical data.

I'm afraid that's the type of story we're looking at w/ housing over the next decade. Markets can stay irrational for very long periods of time, but they come back eventually.

Correction on my wording above. When I said "economic argument" above, I meant "fundamentals-based economic argument". There is, of course, plenty of economic theory about the sources of "irrational" prices and rates of appreciation.

RENT RENT RENT Owners to SUFFER IN 2010 !! CHOPS TO MANHATTAN Coming 10% by MARCH ALONE !!

You want to put your money where your mouth is, sunclaus1? If prices fall more than 10% in the next two months, you win. If they fall less than 10% or go up, I win. You name the published metric and amount you'd like to wager. Happy to make the wager a "gentleman's bet", or that you simply stop using all-caps to scream nonsense.

Inonada....nailing it on all fronts. I have to admit I never really thought about depreciation of fixtures and appliances. And the stock market analogy is spot on. The problem is you can average into the stock market, but a terrible entry on real estate is life changing.

Bottom line: unless you have some truly one-of-a-kind situations, it is folly to enter the RE market now on the UWS.

just got a chance to check back on this forum -- wow, what a lot of great info, thanks for all the replies (i even enjoyed the spat!)
Need to dig back in again and spend some more time with these insights. The calculator and historical charts are very interesting & helpful.
Been just saving up in cash, so haven't fleshed out the plans for the $$ if staying in rental, and yes, could even be just a 2-3 year proposition, so could re-evaluate then.
Sounds like though, top-line that renting makes sense, even if upwards of $7k seems crazy to be throwing down a hole.... i get all the other considerations, and am not convinced of the appreciation prospects.
Will check back in a while,
thanks again for all the intel & opinions,
cheers,

tripel: are you aware of the rental history of your example apt? it is bizarre. there must be an error.

STREETEASY HISTORY
03/05/2009
Previously Listed by Saldo Properties at $2,000.
06/08/2009
Saldo Properties Listing rented. Last priced at $1,850.
12/21/2009
Listed by Rachel Realty at $6,500.

yes, i did notice that ...odd, must be a typo.
there are a lot of similar and interesting rental options on that Rachelrealty site ...need to get out there and check some of them out.
PS. anyone familiar with the overcrowding and re-zoning issues in District 3 schools? IE mid-UWS, right where I'm looking? It's a realy pain in the butt, and the cynic in me is temped to get even more irritated at the rich Wall St. dinks who caused this larger mess; now cluttering up the good public schools as they pull their kids outta private as their multi-millions in salary/booty are getting pinched..
Also looking downtown, Tribeca area, as I'm told there are good schools there, but rents/costs even higher there...

plus they are rezoning in tribeca. the decision might have even happened by now. it was due about now. imagine buying one of those pricey condos in tribeca to put your kid in those great schools only to find you are zoned out later. tempers are apparently on fire down there.

they came to a decision downtown, but it is my understanding that they will have to go through the process again in a year.

Tripel: it ain't the Wall Streeters who are clogging up the public schools. The swell in the population comes from the segment of the pop. that would have moved to the burbs by now but are trying out K in the meantime.

Remember, the rent/buy equation also assumes that prices appreciate.

If you expect any real possibilty of continued loss, the option to rent now and buy later has an definitely value.