Great Time to Buy (Famous Last Words)

I think now is an excellent time to lock in a two year lease.

And why would anyone listen to a real estate agent working on commission with not working in a fiduciary capacity? I'd sooner take advice from Goldman hawking a credit default swap.

always comes back to those evil cds.

The best time to buy anything is when money is expensive and multiples are low.

The best time to buy is when everyone is convinced the right thing to do is sell.

Yeah, but why rent and give your money away to your landlord when you can own and pay yourself? Can't afford to buy?...you can't afford NOT to. Just buy a starter home now, and with the increased equity you can buy a larger place in a couple of years. How can you pass up the tax deduction?...it's the government paying YOU instead of the other way around!

Instead I should take a big mortgage and give me money to the bank...and put 20-30% of $1mm-$2mm to work to generate a tax deduction that barely brings me in line with rent. Sounds great.

Show me something where I can put 25% down, and my pretax payment would be equal to rent. Then your argument that the tax deduction is paying down my principal will mean a damn thing.

Given that we've just been through a time period that a 10-year stock market investment sucked...Why should it surprise anyone so much that 2003-2012 might turn out to have been the time to rent?

After tax cost of a mortgage may be as good as it ever gets. If you're after-tax cost of purchase is equal or less than renting and your budget allows. Buying makes a ton of sense.

Buying makes no sense. If you're buying on after-tax cost and ignoring transaction costs and opportunity cost...you can delude yourself into anything...Just put more down and earn a generous 3% on your money in this shit market.

Its so enticing to pay $400-500k for a tax deduction that only brings you into line with rent. What an opportunity to enjoy the fruits of low mortgage rates. Do not miss this. The American dream = have a big enough mortgage outstanding for a long enough time to 'enjoy' these generous tax deductions. Awesome.

yeah, Rhino, and the bigger the mortgage balance the better, because the bigger the mortgage, the more of a tax deduction!

Its great if the mortgage is so big, that even after the deduction its more expensive than renting. But its a good investment. Never mind that these kind of valuations are a recent phenomenon...and that everyone who bought at these valuations is underwater, unless they flipped. There is no historical record of appreciation for people who buy at 3% cap rates...because there had never been 3% cap rates...Just like there had never been a stock market trading at 40x earnings before 1999. Hmmmm...lets see here.

Rhino86 - Do you ever tire of convincing yourself?

Perhaps he doth too much, methinks.

Nope, Rhino likes to hear himself talk. He says the same thing over and over again. Sometimes if someone disagrees with him, he threatens violence or shouts an epithet.

MUST REPEAT SELF OVER AND OVER AGAIN
MUST REPEAT SELF OVER AND OVER AGAIN
MUST REPEAT SELF OVER AND OVER AGAIN
MUST REPEAT SELF OVER AND OVER AGAIN
MUST REPEAT SELF OVER AND OVER AGAIN
Threaten people who disagree
MUST REPEAT SELF OVER AND OVER AGAIN
MUST REPEAT SELF OVER AND OVER AGAIN
MUST REPEAT SELF OVER AND OVER AGAIN
Shout epithet
MUST REPEAT SELF OVER AND OVER AGAIN
MUST REPEAT SELF OVER AND OVER AGAIN
MUST REPEAT SELF OVER AND OVER AGAIN

lol, he's like George Frasier, he'll tire himself out.

Of course I appreciate the benefits of owning. And yes, I do think
its sad that the securitization/credit bubble continues to make it
a tenuous proposition. You are right it does take discipline to
know what is too high a price to pay for the right to renovate.
It won't be tempting again to buy until rents start rising, for me
anyway. For those who can afford their lifetime place and want to
keep a big mortgage out there for a long time, buy away.

I figure its late 2007 in the stock market....I can wait till 2003.
What's tough to resist is 2000 rents / paying my landlord 3%
carry.

Market timing is not possible.

That's always the retort. Understanding value is different than
market timing. 18-20x rent or more is just not a good investment.
That's not market timing. If you think the benefits outweigh the
risk, go right ahead. Just don't pretend understanding value is
the same as market timing. Was Buffett market timing when he said
he didn't understand why tech stocks were valued the way they were
and stood aside? I think you know he wasn't. You just choose to
deny the analogy is valid.

Do you want to punch Riversider because of that retort?

alanhurt.... Your an idiot.

Rhino, I agree with you 100% regarding "market timing." I have that term thrown at me numerous times regardless of how much time and detail I give in explaining the approach I use in determining when to buy/sell stock, real estate, etc...

Let me understand, Shitcomm. You log in and out in various guises to be a douche. Sweet. Kiss a girl yet? Not your mom.

I'm gonna pay 25x rent for a condo cause market timing is impossible. Let me get back to that.

My an idiot?

Why rent when you can own?

Alan, I reread your post above. You weren't kidding?

If you weren't, explain to me what you're paying yourself with when you borrow at 6% to earn 3%.

Rhino86
12 minutes ago
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Let me understand, Shitcomm. You log in and out in various guises to be a douche. Sweet. Kiss a girl yet? Not your mom.

Oh good, I'm not on ignore by everyone.

I ignore you, but when you name yourself for me, I can't resist. Signing off. Buy away people rates are low low low!

hfscomm1 is named for you?

When you own, your home is your castle.

King of the castle, King of the castle...

yeah, rhino, I wish I could get a mortgage for so much that I pay NO income tax!

These market questions are interesting, so long as the reasoning put forth is interesting and bears thinking through, either pro or con. Rhino talks about cap rates, steve and others talk about rent/buy, some talk about intangibles and finishes and flexibility to renovate, etc. Since the peak, rents have gone down and resale prices have gone down, but I haven't seen an analysis of where the buy/rent differential or premium is heading, if anywhere at all. If it has remained a constant (owning costing x% more than renting comparable unit) over the past two years, then it isn't bearing out the argument that the market's natural inflection point is going to be when rent=buy. If that is a law of the universe, then prices have much further down to go. Imagine how confused all of us will be if rents start going back up, while sale prices keep going down? Confirmation of the buy-must-equal-buy law? Or buyer sentiment turning? Or more high-end finishes in rentals?

"Imagine how confused all of us will be if rents start going back up, while sale prices keep going down?"

That may very well happen - and I think in 2-3 years it's the likely scenario. Prices still have 50% to fall to equal rents, but prices are sticky downward, which is one reason why real estate cycles are so long. Market rents, on the other hand, are very flexible, and show a truer picture of the market at any given time.

We have years to go before this cycle ends and prices stabilize. But Professor Shiller showed that over the long-term - he went back 350 years - the market always returns to the mean, which does not change materially as prices MUST be correlated to incomes. When leverage gets out of control - which is what happened - then prices will rise faster than incomes, but leverage can't remain out of control forever.

alanhart is a sarcasm master

On a less sarcastic note, I'm not financial enough to really understand whether inflation and mortgage rates are fairly well correlated (although I have the amateur's expectation that they are). Assuming so, and assuming that in the next few years we'll see lots of inflation (relative to what we're used to, anyway) does that mean
a) rents climb with inflation
b) sale prices fall with higher interest rates
?

If that's the scenario we have to look forward to, will there be a golden moment prior to that when it makes sense to buy, and how obvious will it be that the time is right?

In any event, I'm not saying that now is that time.

wishhouse, are you being sarcastic? I don't see a winky-face next to your post. ;)

Could Rhino86 please repeat his point?

alanhart, won't that depend on how fast income grows relative to inflation? Even if individual income growth can catch up, what about overall income growth rate which is negatively impacted by unemployment rates which is expected to be high for a while?

yeah remember all those times in History where those who didnt own and rented were the most powerful and wealthiest Americans?

Oh yeah it never happened and never will....

perfidiotz, are you saying that the most powerful and wealthiest Americans own not because it makes financial sense, but because it's a vanity that they can afford, and they're going to blow their money on something, so why not trophy homes (like LES tenements, for example)?

Then you're correct, for once.

petrfitz, how many people actually say owning a place in general is a bad thing? Most people here are talking about whether it's a good time to buy/upgrade now vs. later... Some people just have more patience than others.

Sunday actually you are wrong most of the tools on this board like Steve and Somewhereelse say that owning at any time is moronic. The rest of you are market timers. Either way keep it up because all you tools pay me 50% of your take home pay each month. I pay off my buildings and get richer every year.

So yeah I agree - renting is a smart financial strategy. By renting from me I actually lose money each money so have pity on me and keep giving me 50% of your money each year. I dont mind taking all your insults for owning as long as you give me $60-70K each year in rent for a crappy 1 bedroom.

Alanhart - do you even know who made their money and how much money people have made own LES tenements? Ahh some of the biggest names in NYC RE over the last several centuries.

petrfitz, I don't know if you're right about whether most people here think owning is a bad thing in general. As for me trying to time the market, 'yes, I am, but I'm doing it with an educated guess based on research, patience, and a clear understanding of risk/reward.' Btw, I currently own the place I'm at, so you're not getting any rent from me. I'll upgrade to a bigger place when prices are more inline with income.

perfidiotz is so bad at math that he thinks he's getting $5K+/mo. for his crappy slum tenement walkup LES cold-water tub-in-kitchen 1BR flat!

No wonder he thinks his instaghosttown green-pool "investment" in the desert wasteland outskirts of Las Vegas is a good move.

"experiential learning" at its finest!

not trying to time the market here - but if bottom feeding investment opportunities present themselves within the next 5-10 years I'll be interested - if they don't, well, no big deal......

You renters dont get it at all. Pterizitz is correct you are wrong. He is worth $500 million when you live in your mothers basement, so how can you say anything to him to be right?

I think anyone who rents does not understand finance. It is always a right time to buy an apartment in NY because the prices will only go up.

Petrifixt - you were the one at my open house? You are quite tan. Your wife was with you. She was not tan - fat, a mole on her chin, sideburns? It was good to meet you and I would like to have a discussion around your investment success. Your wife was very lovely, good to meet her as well. My very good friend is a skin doctor can help your wife with her problem, and with hair removal. Not cheap but worth it. I will call you.

So I want to buy in Las Vegas and remeber you bought a house in 2007 I think on three lakes. And Celine Dion came to your house before your development went bankrupt or maybe I'm confused. But I think it has to be a better deal now!! Count me in. My only question Did they shut off electricty after your development went bankrupt? Important. That I need.

The rest of you keep on renting. Ignore Petrifutz and lose money as always.

now thats funny

"like Steve and [...] say that owning at any time is moronic."

I never said such a thing. In fact, I've always said that owning CAN be a good idea, at times (when it's cheaper than renting).

A tool would be one who said that owning at all costs is good.

Hmm....

call me any name you want. Criticize my multi million dollar properties all you want. But pay your rent on time. Give me 50% of your take home each month or I will ruin your credit rating.

Correct petrifitz. Renters are worse loosers than being homeless. Do you live most of the time in Las vegas?

No matter how you slice it, renting is ALWAYS financially more beneficial over time than owning.

Let's make some financial assumptions that are borne out by decades of empirical evidence:

1) Real property prices and rents decrease 30% per year adjusted for inflation like it did in the past 12 months.

2) The S&P 500 increases at a real rate of 70% per annum like it did in the past 12 months from March to March

These being true, it is ALWAYS better to rent property than to buy, if you invest the down payment in the S&P 500. Watch:

Say you make $100,000. This implies that you can spend up to $2,333.33 per month in total housing expenses (28%).

An 80/20, 30-year fixed $375,000 mortgage at 6% gives you monthly mortgage payments of $2,248.31.

Assume that taxes and common charges amount to a VERY CONSERVATIVE 10% of total mortgage payments, or $224.83 per month.

A $375,000 mortgage implies a purchase price of $468,750, and a down payment of $93,750.

If rented an apartment for the amount of the mortgage payment, you will have paid $903,455.33 in rent over 30 years if it increases 0.7% per year.

If you invest the down payment in the S&P 500 for 30 years, $943,374.08 at the end of 30 years, for a total net profit of
$39,918.75. To that, however, add your yearly maintenance and tax payments $2,697.96, increasing 0.7% per year and accruing 8.0% per year over 30 years, and you will have earned an additional $330,084.36, making your total profit $370,003.11.

Now do the same thing for your house. If your $468,750 home appreciates at a real annual rate of 0.7%, at the end of 30 years you will have a home worth $577,863.68, for a profit of $109,113.68. Add to that the original loan of $375,000 - the rest of the equity you will have built - and you get a gross profit of $484,113.68. But you would have paid $434,393.21 in interest, so your real profit is $49,720.47. In addition, you will have spent $90,343.15 in tax and maintenance, making your GRAND TOTAL PROFIT a whopping NEGATIVE $40,622.68.

That's right! You rent for the amount of your mortgage, all values go up linearly in line with historic data over time, and you will wind up with a total profit of $370,003.11. Whereas if you buy a home you will wind up with a loss of $40,622.68.

This of course excludes special assessments and all the transaction costs associated with owning real estate: brokers' fees, conveyance tax, etc. It also ignores the tax effect on dividends. But dividends and capital gains tax rates are currently the same (and can't be predicted in the future). The only further benefit from owning is the $250,000/$500,000 tax exemption. But it is doubtful that $410,625.79, which is the absolute value of the difference between the owner's loss and the renter's gain.

Guys, it's indisputable: renting is FAR better in the long-term than buying. All the figures and assumptions I used are real and verifiable. Do your own calculations: rent for the price of your mortgage payment, invest the down payment and maintenance and property taxes in the S&P 500 at the real rate of increase of 8.0%, increase your property value, rent, taxes and maintenance payments at the real rate of 0.7%, deduct the mortgage interest paid, and you will see IT IS ALWAYS MORE BENEFICIAL TO RENT.

Do your own calcs, or criticize the model. I'm waiting....
http://streeteasy.com/nyc/talk/discussion/3410-real-estate-is-a-bad-investment

Ridiculous assumptions: Real Estate is not likely to decline 30% YOY

"Give me 50% of your take home each month or I will ruin your credit rating."

If you accept tenants who pay 50% of their take-home pay each month, they're ruin your credit rating far faster than you'll ruin theirs.

That's right, exbreezy: bring it up again, I stand by what I said. IF YOU CONSIDER OWNER-OCCUPIED RESIDENTIAL REAL ESTATE TO BE AN INVESTMENT as so many people did during the boom years, you're in for some bad news: stocks are ALWAYS a better investment.

That's what I said in that thread, and I stand by it. Owner-occupied residential real estate is NOT an investment; it is a capitalized expense.

Sure, but if you rent, you can't paint your bedroom pistachio, can you? Well, can you?

No.

Buying is always better than renting.

Pistachio!

alanhart - Its all clear now - what I have been missing in my rent v buy analysis all this time was the missing element: pistachio!

Definitely need a winky face for that ;)

exbreezy ur wrong. ur estimates are way off. you should be using at least 2-3% for inflation. that being said over a 30 year period buying will always beat renting. thats just keeping most variables flat. if you can get on a bloomberg, use the ROB screen and you will see that.

In NYC alone, a one year lease is guaranteed to go up 5% yoy for the same leasee. assuming no bear market conditions which as much as i hate to admit will end.

Alan, again too many sidecars.

They're even better with some grated lemon rind in the shaker.
If only I had some pistachios to chomp between sips ...

Renting is not ALWAYS better than buying, that is retarded. Plenty of people have made out like bandits by riding real estate bubbles.

RIGHT NOW in NYC, specifically manhattan, it might be better to rent in most areas. But certainly someone who bought in Sand Diego in 2000 with 5% down and sold Jan 2007 did WAY better then there neighbor who rented.

on one property that I bought in 2001. I put down $80K and made over a million in realized equity in 5 years.

What stocks did that?

Many stocks have done that. Should have bought Google or microsoft or apple and the list goes on.

actually, many stocks did WAAAAAAAAAAAAY more than that if you include the same leverage.

Perfitz also "forgets" to mention is 100% losses (again, same leverage). Lake Las Vegas, ho! (perfitz bragged about this purchase, and then it went bankrupt)

Stocks bought with borrowed money FOH SHOH.

"yeah remember all those times in History where those who didnt own and rented were the most powerful and wealthiest Americans?"

I certainly remember the time when those the most screwed were those who bought..

"Sunday actually you are wrong most of the tools on this board like Steve and Somewhereelse say that owning at any time is moronic."

Putzface is not only the dumbest poster on the board, he's a liar. I've said the exact opposite.

> I pay off my buildings and get richer every year.

Yeah, he's got $2 now.

> So yeah I agree - renting is a smart financial strategy.

You're finally learning. You'll also notice that there is an entire business based on renting capital items. Its MUCH smarter much of the time for successful businesses.

> By renting from me I actually lose money each money so have pity on me

We do pity you. You lost a LOT.

> I dont mind taking all your insults

All evidence to the contrary... you come back over and over again trying to "convince" us of your success.

If you had any, you wouldn't be here.

Sorry, toots.

You come here all the time to express how smart you are. The only one who says the same thing more than you is Rhino.

I thought you were worth more than that from the prior company you sold.

Petrfitz: The only reason you have not lost money on your foolish Las Vegas purchase is because you have not sold it. Let's not use semantics. Do be real; as many have pointed out repeatly, all you need is one evil tenant who throws you under the bus and makes you miserable trying to kick him out to make you see how much power you really have. And I hate to point it out, but I'd imagine many of the people who pay $1500-2000 a month for your crap-tastic apartments probably have shitty credit scores by now anyways.

parkside obviously you know nothing about being a landlord and you are clueless in regards to the power that a tenant has versus the landlord.

I notice you didn't deny my first statement. Also, having been a child of privilege that slummed it for a couple years in less nice places, it will be interesting when you decide to mess with someone you think is poor, but is actually the child of someone much wealthier than you (and can hire better lawyers.) LES is quite trendy right now, so who knows, you could already have a few.

Petrifitz - you have to explain something to me. You have only $12 million? I was for sure you were much richer than that. But that is no problem if you are still interested in the apartmnt.

I have been lookng at huoses in lake las vegas. It is amazing how cheap the houses are!!!! I think I may buy one. The weather is nicer. But why is there no grass in the devlopment? Is there a plan to have grass?

Wow! Exbreezy, way to play out a joke to completion... I am impressed with your stamina.

"David Rosenberg: You Think Housing Is Recovering? Check Out These Charts"

"The NAHB housing index dropped two points to 15 in March despite government
resources that have been expended to put a floor under the residential real
estate market. This attests to the view that the problems to the sector are more
secular in nature than they are cyclical."

http://www.businessinsider.com/davide-rosenberg-you-think-housing-is-recovering-check-out-these-charts-2010-3#comments

> Market timing is not possible.

With stocks, perhaps. Definitely some strong cases made.

With Manhattan RE, thats just a cop-out.
Not saying one can time it perfectly, but there are certainly more attractive times than others to buy.
The market is not liquid and moves slowly enough that there is ABSOLUTELY excess gain (or loss) available to those who do research (or ignore it).

"the power that a tenant has versus the landlord."

Which further proves that pertrzitz is not a landlord! In NYC, the tenant in default has the upper hand - ALWAYS. Rent laws are strictly constructed in favor of tenants, and any misstep by a landlord in an eviction proceeding inures to the benefit of the tenant.

And any landlord who would rent to someone who pays 50% of his take-home pay in rent is just moronic, and waiting for default.

Owner-occupied residential real estate is NOT an investment.

unless you have two loans you cant afford and the value you purchased at is dropping off fast then buying is the way to go. the monthly payments you are making will then be called equity and not rent. when you sell you stand to get much of that back if not more. I say much bc in this market values have dropped. Be mindful of your costs etc and use your head. If you are not financially savy which the majority of the country is not then ask a savy friend. Dont listen to re agents and think they have your best interest at heart. They want you to close and they want to get paid.

> . the monthly payments you are making will then be called equity and not rent

Another person who just doesn't get it. You can call it whatever you want.... but if you pay MORE and end up with LESS at the end, thats not a good thing. If you overpay for "equity", that doesn't make it a good thing. If the ratios are off, that is what you have.

> when you sell you stand to get much of that back if not more
Recent evidence to the contrary...

Whatever you do, don't listen to this person.