First place in Manhattan in $600k range

I think its still cheaper to rent, and there is still a chance of continued price declines (and leveraged, can be very substantial), and it could also just sit there for a long time.

In terms of long-term appreciation, I don't think NYC is where its at.

maint (taxes and maint exp) -- subtract that out of your monthly comparison -- and tax effect your mortgage payment

if i were paying on $1700 I would never buy...rent for a while longer...

If you are possibly leaving within the next few years, I would rent. You also have to take into account costs in and out. Between the mortgage fees, buying closing costs, selling costs (broker, possible flip tax, ny transfer taxes) you need some appreciation just to break even.

I was running the numbers since people like to pontificate without providing concrete examples.
I'm familiar with Williamsburg, so let's use 80 Metropolitan as an example.
For a comparable rental (~1770/mo = 40/sq ft for 531 sq ft), you can get a unit there for 400K:
http://streeteasy.com/nyc/sale/477669-condo-80-metropolitan-avenue-williamsburg-brooklyn

Rental case:
You stay in NYC for another 3 years.
Your rent is 1700K/mo = 20K annually = 60K
Your 200K in a short term interest bearing account at 1% = 2K

Buy case:
You put 50% down ~200K and your total monthly payment comes out to $1731 (incl. CC/taxes) using the SE 6% interest rate calculator. 62K for three years before getting your tax deductions.

So far so good.

Here's the downside if prices just remain flat:

Closing costs etc. = ~20K @ 5%
Selling costs etc. = ~24K @ 6%
So you need the unit to appreciate 11% or 44K in 3 years to break even on costs.

Good deal? Depends largely on your view of where prices are going, alternative places to put your cash to use,
and your need for a indoor swimming pool.

Thanks, all the advice makes sense. What about if i wanted to take a longer term investment horizon on the apartment, i.e. my goal wouldn't be to resell in 3 years, even if i were potentially not going to live in it any more?

Again, it depends where you think prices are going. Rather than speculate, let's say prices don't appreciate but don't drop either by the time you want to sell.

So let's say you've retired early to Monaco. You've rented out the unit for $1770 (assuming rentals remain as they are). You're still paying $1731/mo. You'll be making $40 a month on a $200K investment.

I'd also add that the buy/rent differential in most Manhattan neighborhoods is significantly wider than it is in Brooklyn. For example, I would assume that you would be tacking on at least $1000 per month in CC/Taxes to your $2200 per month P&I payment, which brings your monthly payment to $3200 per month. If you knock off say $300 per month in tax savings (I haven't done the math obviously, but that sounds about right), you're looking at a net monthly payment of $2900 per month. Having looked in the $600k price range, I can tell you that just about anything you could buy for $600k is not going to rent for anywhere near $3000k per month. As a result, if you need to move in 3 years, you need to be prepared to take a monthly loss on the apartment should you decide to rent it out. I think if you are comfortable with this, then buying can absolutely make sense although I agree with everyone else that it depends a lot on where you think prices are going and where else you can (realistically) put that $200k.

I was in the same situation you are in. I am young (25) had 200K in savings from past jobs/ventures and was paying $2400 for a studio on the UES. I found an apt in Murray Hill for $630K, spent another 70K by the time closing/taxes/gut renovations were done for a 1br with river/city views and I pay $2800/month mortgage taxes/common charges.

It's funny that on SE everyone is against buying, or it seems like to me anyway. For me it's just knowing that I own the place that doesn't have a price on it. I built the bathroom I want, the kitchen I want, floor I want, etc...

Who knows what will happen to the market in 30 years? I have a lot of time to sit and see. My payments are certainly manageable given my income. Even in the absolute worst case scenario if I lost everything tomorrow I can rent it out for $2,400-$2,600 in today's climate. Loss? Yes. Easy to cover a few hundred to make up the difference? Yes.

Also, if your argument is that home and rent prices will stay flat or decline forever I just don't buy it. If they do then there are much larger problems in the world and my condo unit has nothing to do with it. Again, that's just my opinion, which is probably different than all of SE from what I can tell.

That's just my two cents--good luck in your purchase!

"Also, if your argument is that home and rent prices will stay flat or decline forever I just don't buy it. If they do then there are much larger problems in the world and my condo unit has nothing to do with it."

http://www.oftwominds.com/blogoct06/japan-bubble.html

I agree though, there are larger problems in the world and your condo has nothing to do with it.

Only took one reply to bring Japan into the picture. Not bad. I'm not gonna devolve this into the Japan Bubble situation. I skimmed the page you linked and (aside that it's over 4 years old)...

[BOLD]By 2004, prime "A" property in Tokyo's financial districts were less than 1/100th of their peak, and Tokyo's residential homes were 1/10th of their peak,[/BOLD] but still managed to be listed as the most expensive real estate in the world.

Funny they left out that last part as the non bolded part.

In any case, everyone can find an Armageddon scenario. I try to live by the norms not the extremes. If NYC real estate will drop for 30 consecutive years and never go above the price I purchased, well, sucks for me I guess. I still did get a place to live out of it and I can pretend I paid $2800 rent for 1BR over 30 years...

I didn't read the article, just came across the graph... But after reading it, hell, this four year old piece may still be applicable, lol.

Not saying you made a bad decision for your situation at all. Just saying the possibility of prices remaining flat for a while is very real. Also, the OP is suggesting he's looking at buying for investment purposes as there is a fair chance he may not stay in NYC. I'm not saying, I'm just saying...

uringanger, i for one do not think buying is a bad thing (here it comes!!!). but more important you did what works for you...
enjoy your new place!

Thanks RE2009. Yeah, it's so hard to say over the internet what is the right decision for someone. We don't know his tax and income profile, what his potential earning horizon is and so on. In the end I was doing research on places to buy for about 2 years before picking my place. I saw prices tumble from 900K to 600K and I felt comfortable at that price. If they stay flat or keep going down, ahhh well that will suck.

Freewilly: you are right. I didn't notice he wanted an investment purchase. In that case, I don't know what to tell anyone other than: buy a home to live in and enjoy; to start/grow a family and to make memories. Real estate is a good asset to own but, as always, never put all your eggs in one basket.

I fully understand what many people are saying, but the problem here isn't really about the "rent vs. buy" issue. I think OP needs to reconsider/reframe his question, comparing a $1,700/mo Midtown West studio (assuming it's not rent controlled/stabilized) with a $600k-range purchase. This is not a meaningful comparison.

There are many studios on the market in the $220k range in the area, and those would probably be the market segment OP should be comparing with his/her current rental.

Of course, a $1,700 rental would make more financial sense than a $600k purchase, if these properties were indeed comparable. However, most likely, a $1,700 rental would be closer to $220k studios--and, depending on the monthlies, down payment/interest rate, his/her life goals, future prospects, etc., purchasing might make sense.

What is your income?

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

"
report abuse 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"

Your premise is fatally flawed at the onset because you've chosen two anomalies.

***

"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."

Where do you get this absurdly optimistic figure of 0.7% for annual rent increases?

And how does that rent vs. buy equation work out with a 20-30% 5x leverage decline?

"What about if i wanted to take a longer term investment horizon on the apartment, i.e. my goal wouldn't be to resell in 3 years, even if i were potentially not going to live in it any more?"

Sounds like you'd be overpaying for that income stream. Its very tough to buy and rent it out and cover your costs...

So much math on this thread, and rightly so as it's all about the math.
SENewbie is spot on, and the short version of what he desribed is.....200x monthly rent.

Of course one can make adjustments up or down if monthlies are well above or well below the norm. But close to break even scenarios is the 200 times monthly rent multiple.
Sorry to oversimplify it but it is what it is.

its a good rule of thumb... but higher maintenance... and maybe a high/low desirability to rent can sway it a bit. But definitely a good place to start from.