do you purchase?

Works for me.

Nice try but this does NOT work because anyone can manipulate the monthly carry to be less than the current market rent by just increasing the downpayment.

You need to consider the alternative use of your downpayment. If invested elsewhere, what would you earn on the amount of downpayment. If, after taking that into account, your monthly carry is still less than the market rent, then you should consider buying.

However, you also need to consider the amount of cash you will have left over after the purchase. In case of job loss, etc. You need to make sure you have enough cash to pay the mortgage, all monthly maintenance and taxes, and all living expenses for at least 1 year. In this type of market, at least 1 year is necessary because it takes awhile to either find a job or to sell the apartment.

interest in the bank earns 0%

If the market drops 30%, the larger down payment might be the correct choice. It worked for me.

assuming owner occupancy

do you keep a large amount of cash sitting in the bank or do you invest it for long term?? Most people do not. They find a real investment rate. Even if you buy Treasuries, you will get 3-4% yield per year.

Then ten year treasury pays 3.5% and less taxes gets you down closer to 3% Basically that treasury is giving you return-free risk.

and i need a place to live

If you charge yourself for lost interest on the downpayment in the amount of the mortgage rate, then you get around the manipulation problem of tweaking the downpayment amount to get the math to work. Then it becomes neutral to the amount of the downpayment. If it still works after that adjustment, then its conceivably okay. Personally, I'd like to see that math to work a little bit in favor of buying to push me over the edge to take the capital risk.

The mortgage rate is obviously too low to reflect the real risk/return to your downpayment... Nor am I charging you for the depreciation of fixtures...But I am not giving you appreciation either.. But I am not charging you for transaction costs... In final analysis...your cap rate should equal your mortgage rate. Right now its not there...but its getting closer.

To duplicate my $5000 rental it would probably cost $1.1mm with a $1500 maintenance. In my view, that math doesnt work. However, it would not take much of a rent increase or price decrease to make it work... If they bumped me to $6000 over two years and price stayed $1.1mm....Then that $1.1mm gets close. Assuming its still $1.1mm.

This also assumes that you can get a 5% mortgage on a coop. I havent looked lately. And if the bank wants more you should want a better return too.

I reached a point where I decided that I'd rather "live in my money" than invest it. Especially today, "risk-free" US treasuries are only yielding around 3%, and that's for a 10-year bond. Shorter maturities are yielding closer to 1%. And anything riskier than that is, well, riskier than that.

As long as you can live and lose. A 5% yielding investment is a lot less risky than a levered equity investment in a Manhattan coop. But time heals all wounds. I dont have a ten year outlook with one kid and another planned. And I actually think the 10-year outlook is about as good as the 10-year outlook on stocks was in 2001.

The ten year is the right benchmark as it approximates the average time to receive principal term on a 30 year mortgage...

That said the original premise is good. The purchase decision results in less cash outlay than rent and this advantage is reasonably expected to grow over time. Rents surely can be expected to increase faster than the combination of taxes and common charges especially considering how rents have come down these past few years. The down payment comment is fine except that guaranteed returns just are not out there.

Comparing the risk to a treasury held to term is pretty silly. The mortgage rate is a much better number. At least then youre talking about the same asset... And its generous to the buying side of the analysis.

owning a 30 year mortgage means you are short the prepayment option and the convexity that goes with it. You've left something very valuable in the hands of the borrower. And if you are talking about holding a private mortgage then you are also short the put option should the borrower not want the property anymore and default. Nobody would advocate using a mortgage as the benchmark risk free return.

Hahahahahaha. I am not calling a mortgage the risk free return. You are calling owning a coop comparable to investing in treasuries. Anyone who would advocate treasuries as the benchmark for deciding to buy a coop is essentially calling buying a coop risk free! You're the one who has it backwards.

Yet they would advocate home equity as the benchmark of risk-free rate?

Hell, in your first comment on the subject you advocated home equity being equivalent to the overnight risk free rate:

"interest in the bank earns 0%"

Rs will say black if you say white.

And without a blush advocate for white in the next sentence.

No content just endless provocation.

Its tre ironical that I am being called to the mat here for suggesting cash return should be = or > mortgage rate.

If that was directed at me, the ten year is fairly close to zero 3%? And if you are talking about the real rate of interest then it is essentially zero. So we're talking about return free risk. Rent-after tax cost of mortgage+ taxes greater than zero makes a compelling case for buying. If we were talking investment property I would adopt Cap rate approach.

RS- lets put it this way. The risk free rate has no place in this discussion. No place. That's as much as I am willing to teach you right now. Signing out.

"Nothing from nothing leaves nothing..." (Billy Preston)

2450 open houses in manhattan today!!!!!!

WTF r we talking about today? Rent, cap rates, time horizons? Flmao. 2450 open houses an extremely elevated number of selling doing their song and dance for a month, as opposed to 9k for sale listings in NYC as per urbandigs. A little more than 25% of listings having an open house one month running.

And some here want to know where it makes sense to rent? Omfg.

The reason there is 1% yield is that deflation is effectively giving you 7% to 10% yield right now. In my case, a 599 gtb is 30% off since last year, my big island trip is 40% off from 2 years ago, and my dream apts are down 30% in 2 years, don't even grt me started on a leveraged basis what that equates to. Flmao. Top of the day to all.

Now here is a little kicker. Does 2.5k open houses mean a disproportionate number of sellers are having open houses or does it MEAN the TRUE # of listings is much much greater than 9k listings? If we hold % of listings having open houses constant, that 2.5k open houses probably equates to 16k(?) actual listings? Flmao.

Deflation when we have $1250 an ounce gold. People have been brainwashed into thinking that the CPI is inflation. It's just an index that allows the government to pay out less Social Security benefits.

Wouldn't it have been better to rent the yacht and the Porsche especially if you don't use it every day like the Rolex.

Let's say gold is the real standard and that's your personal base currency. Let's say a goldcent is 1/100th an ounce. A few years ago, you'd go down to the local Duane Reade and buy a roll of Charmin for 2 goldcents. Now it only costs 1 goldcent.

Woohoo -- deflation!

R u schooling me?

Let's see when the bubble was pumping, say 2001 to 2007, and ppl spent 1/3 if not more of their take home, and CPI went up 3% annually, I.e you were underpaid on a treasury paying 5%. Flmao. Do you get that?

No a bunch of gold bugs wanna push up gold? I wonder what type of investments happen whme a bunch of ppl pump a product? Oh yeah another bubble and that's you 'inflation' gauge? Flmao.

"Does 2.5k open houses mean a disproportionate number of sellers are having open houses or does it MEAN the TRUE # of listings is much much greater than 9k listings? If we hold % of listings having open houses constant, that 2.5k open houses probably equates to 16k(?) actual listings?"

That is an impressive extrapolation. I would love to see any financial models you've put together.

@inonada. Some ppp just don't get it.

Bjw, you know your excel spreadsheet you update you net worth every month. Put a big f'king ? On your 'home' line.

Flmao, modeling? Really? I've found most modeling is an exercise in futility. Most $ decisions are based on ppl, not some pretty financial model.

Flmao xlime the Stuyvesant town model? Ffffflmao

http://www.merlehazard.com/Merle_Hazard/Legal_Tender.html

w67th, thanks for the tips. Excel doesn't like "?" in its sum formula, so what should I put? "Lemming"? -9m? "Flmao"? Oh wait, I don't include my home in my net worth. Sorry. So you base your financial decisions on "ppl"? Hope that works out for you. Flyao.

I consider my home a level 3 asset and don't depend on it's valuation.

So that means you don't care what it's worth?

w67, Excel models are in fact very useful in justify a decision. Of course, it can be used to justify totally different conclusion at the same time by putting in the "right" parameters or giving more emphasis on the "right" one. If that still doesn't work, add another parameter by "enhancing" the model to account for 'current market conditions'. It's magical!

History will say that excel and power point represented the beginning of the end for American business.

cc, if that's true, then some might say the Bible and the like represents the beginning of the end of the human kind.

Seeing the analysis in excel can be very useful, but only if you understand the assumptions. In today's society we have so much information and not enough understanding of what the information means.

columbia, they're financial tools (Excel, etc, not the guys on Wall St, at least not all of them). Use them at your own peril obviously, but there's no denying that they can be very helpful in a variety of financial decision-making. "The beginning of the end for American business" (ignoring the overreaction for the time being) was due to "ppl" more than software.

Reminds me of CDO'S and mark to model. Not enough people questioned the assumptions.

Well, of course. It's always about the peeps. Having said that, I have been in far too many presentations with excruciatingly long decks and endless spreadsheets based on nothing.

"I have been in far too many presentations with excruciatingly long decks and endless spreadsheets based on nothing."

Can I add that to my resume? Hilariously true.

I dont care if people dont care what their home is worth...My problem is when they dont care about the price before they buy it.

My home is a level three asset...from the guy who brought you the risk free coop.

"Seeing the analysis in excel can be very useful, but only if you understand the assumptions."

Right, like when you use the risk free rate to benchmark a risky investment. Then you have analysis that is worth shit.

So what's the appropriate benchmark for the risk free opportunity lost on the down payment?

You really are a hopeless idiot. Your down payment is obviously not risk free.

Its a risk appropriate to the investment....not the risk appropriate to the alternative you choose. If you would have used the $$$ to pay off 12% credit card debt, would you use 12%? No, because the right rate is not a function of YOU. Its a function of the investment. Investment in real estate is risky. When I say 5% or the mortgage rate, I am if anything going easy on the buy side of the decision.

I am not even getting into the part of the lesson where you can lose more than you invest.... The fact that you choose to ignore down payment risk... I mean really. I can see the argument that its a bond not an equity (assumes you never sell)...but even the bond holders here (the banks) demand a 5%+ return on a Manhattan coop. If you assume a 10-year lockup... I dont know maybe the right number is an on the run mortgage bond yield. One thing I do know, its not treasuries...thats just silliness.

Let's see I could invest in a home, I cold pay off my 12% credit cards or I cold buy a 3% treasury. Paying off the credit card does not add risk, and is a guaranteed return so that works. And there was nothing stopping you from assigning a risk adjusted rate of return to the home not that I would recommend that since homes are not liquid and really are a home. There are two things you don't do business with, your wife and your home. But if you want to sell your wife, please go ahead..

The fact that you choose to ignore down payment risk..
If i had risk free alternatives hat enabled me to earn 5% or more I might be more inclined to agree...
Of course you could have invested in BP, FRE or AIG and found yourself in a worthless investment. The value of one's home is far less likely to decline to zero and if the cost of carry is less than the cost of rent then in time others will realize this value.

So now you've made two bad comparisons....a coop to a treasury and a coop to your wife. You need to understand how to value something you pay for...you seem unwilling to understand. You are essentially the problem. You think the value of something relates to what you would have done with the money. There is no logic in that. Right now the market is telling both of us we are wrong. The cap rates on Manhattan coops are higher than a treasury and lower than the mortgage rate for a coop loan.

You dont have risk free alternatives to earn 5%. You have risky alternatives...and you are highlighting one (a coop)...and benchmarking it against risky alternatives....because you're financially illiterate.

No investments are compared against the risk free rate of return. Bonds are quoted as spreads to treasuries or swaps, not other risky bonds.

Please tell me you know this is gibberish. Please.

watch for increases in property taxes and maint and assessments -- most people are know are getting crushed by these things (as an analysis of rent vs buy)

Wow..yet another risk.

watch for increases in property taxes and maint and assessments -- most people are know are getting crushed by these things (as an analysis of rent vs buy)

There is that possibility and I don't totally discount it, but I don't see the city going there again for some time.
Home owners were hit pretty hard the last time. Assessments are another matter. Too many coops prefer to lie about the true operating costs of a building and just rely on semi-permanent assessments.

How do you assess the risk....wait let me guess...you either use treasuries or your wife.

http://www.youtube.com/watch?v=8JdurdBeE-M

Wife = 50% LGD?

I was going to keep my cash under a mattress...so in theory I'd pay just about anything for a home. Oh wait I did keep it under a mattress and now it buys 30% more home. What was my opportunity cost?

"I dont care if people dont care what their home is worth...My problem is when they dont care about the price before they buy it."

Agreed, but I thought that much was obvious. And it's not that I don't care (I am relatively indifferent though); it's that I see no compelling reason to factor it into net worth.

You have an economic opinion on the value of a home, which is quite different.

So should anyone writing a check.

Talk about happy horseshit. For most people their home represents at least ten percent of their net worth and in many cases well in excess of that. If the bottom line is that you're so wealthy that you don't give a shit, great for you but hardly relevant to any real discussion.

You have to give Riversider credit for comparing house to wife. 50% LGD for both is not too far off.

I don't know what a home is worth. I may know whether one home offers better relative value versus another home. I may also know that the cost of financing , common charges and taxes is more favorable than renting a comparable home, but what the hose is worth? No not really.. Nobody does.

10%? Isnt gross home value more likely a multiple of NET worth?

I was trying to be generous.

I would venture its less than 1% of homeowning Americans who have a net worth greater than the gross value of their home. Isnt 1/4 Americans upside down on their mortgage?

Who goes out and says, I am going to spend 1/10th of my net worth on this house. I would guess only one in ten millionaires owns a house worth less than their net worth.

Again, I was trying to be generous. Of course you're right and the thought that it's value somehow doesn't matter is absurd. But everything that RS posts is absurd. I should know better.

Net value of their home. The bank owns the rest..

And thanks Sunday!

Maybe someone can get hit by a bus?

When referring to 'house' and 'net worth', isn't 'equity in the house' used instead of 'gross value?'

nycmatt.. whatz the deal?

bjw... hmmmmmm.....hmmmmmm....hmmmmmm... you are on SE 24/7 and you don't have a line item on your balance sheet for "home", not even an imaginary one that you plug in once a year?

MY BULLSHIT METER is OFF THE CHARTS... FLMAO.. .keep telling yourselfz that

In any case, for the middle class, the house definitely represent more than 10% of net worth. I wouldn't be surprised if it represented 50% or more.

Still for many measures of wealth the primary residence is excluded and for good reason. When considering if someone is an appropriate investor for hedge funds primary net assets of $1,000,000 is often a metric and it is exclusive of primary residence. The primary residence is often protected from unsecured creditors.

And I agree with Sunday, for most Americans the home is their single biggest investment they will ever make.

So...as usual your contribution is that...

It is and

It isn't.

Thanks for the insight.

Rhino86
about 2 hours ago
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"Seeing the analysis in excel can be very useful, but only if you understand the assumptions."

Right, like when you use the risk free rate to benchmark a risky investment. Then you have analysis that is worth shit.

this really made me laugh. thanks rhino. you are often very amusing when you are all fired up.

Riversider, which one has a higher net worth?

1. $1mm in the bank and a house with current market value of $2mm, with only 20% equity.
Or
2. $1mm in the bank and a house with current market value of $2mm, with 80% equity.

What's point is your 3rd grade math example trying to prove?

Riversider, it proves that it makes a lot of sense to include equity in the house when calculating someone's net worth.

What I see are two examples with different costs. The first owner is closer to paying off his mortgage and lowering his monthly expenses. The additional 60% equity is meaningless if I am not planning to sell in the near term..

w 67:does it MEAN the TRUE # of listings is much much greater than 9k listings? If we hold % of listings having open houses constant, that 2.5k open houses probably equates to 16k(?) actual listings?

careful w 67, when i suggested the other day that shadow inventory was probably still very high in spite of the spate of spring sales, posters came after me with baseball bats. and although I can argue that there are 190 units at 400 fifth avenue that are not showing on any inventory chart ---not one of those units is having an OH so you are way, way off the SE reservation. good luck to you. just remember hyperbole cannot be charted even though it can help define the argument. You can show the technical charts of why microsoft is a very good buy but it just doesn't matter to the rabid chartists that apple is cleaning msft's clock. how's the phone?

Riversider, the second person can take out another loan and turn that 60% equity into cash if necessary.

This sort of financing did no work out for a great many people. And if you can't support the debt load it results in forced sales, foreclosure and bankruptcy.

Sunday, Lets just say I agree with your math. I just don't believe it's correct to assume the primary residence is a liquid asset that can or will be sold or easily liquidated for various reasons and for that reason for many if not all metrics it is better to exclude when calculating one's personal wealth.

Riversider, are you defining 'net worth' as how much someone has right now or does it include future earnings and expenses? If it's the latter, then there's not enough information provided to drawn any conclusion. However, if it's the former, then, person #2 clearly has a higher net worth.

Apt23, I am most pleased with the new screen. That plus my wife just craiglisted flip and old digi camera for $300, makes my iPhone $0. Now thatz brains plus deflation.

On the question of shadow, it's hilarious that ppp think 25% of listings having open houses week in and week out is somehow a tea leaf in the 'homeowner' excel spreadsheet. Itz itz itz just insanity to hear the borkers and even ud try to spin this as anything but a sign of a major major leg down. Enjoy the ride apt23. I knowz I AM.

W67. Well it may have cost you $0 but you will never get those 5 hrs back.

If there are 2500 OH's every week there will have to be new brokers hired to man them. They will all get insider deals and then RE will go up. Self fulfilling.

New iPhone screen kicks ass, you read SE on the old one and wonder how we ever could live like animals like that.

W67th, who you calling nycmatt and why? What's up with ukrguy's account being disabled? Who shot JFK?

Rhino, you missed this thread but should go read it to get a sense of asome people here:

New iPhone screen kicks ass, you read SE on the old one and wonder how we ever could live like animals like that.

W67th, who you calling nycmatt and why? What's up with ukrguy's account being disabled? Who shot JFK?

The thread:

http://streeteasy.com/nyc/talk/discussion/21163-price-to-rent-ratio

Maybe all we learn here is different people live at different price levels.

"If the bottom line is that you're so wealthy that you don't give a shit, great for you but hardly relevant to any real discussion."

Eh, not really. The only real difference is between myself and someone who rents is that I parked my down payment on the apartment and am simply not factoring it into net worth. The whole point is that I'm treating my home as pure consumption and not an "investment." I think that's far wiser than the alternative, so no need to be so aggressive about it.

"you don't have a line item on your balance sheet for "home", not even an imaginary one that you plug in once a year? MY BULLSHIT METER is OFF THE CHARTS... FLMAO.. .keep telling yourselfz that"

w67th, I couldn't care less if you believe it or not. There's no imaginary shenanigans, but I do think all that unicorn dung you keep around seems to have confused your bs meter. Flyao.