Deals on Beat Down Condos

A few things. This article makes zero mention to New York City, or Manhattan. I'm not saying that Manhattan is bullet-proof (clearly it isn't), but it is just important to know that there tends to be a slight, if not huge difference, in United States real estate vs New York City (or Manhattan) real estate.

With that said, your question is a bit vague. To ask for 10% off isn't unrealistic, but the real question is, how much have they already taken off (if any) and how much should it really be worth in the scheme of the market? You can probably tell if something is overpriced by doing a little research on StreetEasy. Then, ask your broker, or the seller's broker if you are doing it alone, what they think the sellers will take... but ask them with a percentage. If you simply ask 'what they will take,' they will probably respond with "we will work with all offers" or give you some information which may or may not be of help. If you ask them directly, "will they do 15% off," you have a better chance of figuring out how off the mark you are (if you are at all). Then again, in some situations, the broker doesn't really know what the sellers will ultimately take, just an FYI.

Additionally, the level of negotiability doesn't really change based on price alone. The most important thing is just doing research (or have your broker do the research) to figure out what you 'should' pay for it and what the seller will take for it and hope they aren't too far apart.

Best of luck.

(Matthew Russell - Brown Harris Stevens)

The long term cost of ownership, for any property, should be no more than the long term cost of renting it. If, for example, a property were to rent for $3500/month, assuming a weighted average cost of capital of approximately 5% (the going rate of a 30 year mortgage) and monthly carry costs (taxes and maintenance) of $1500 offsetting tax benefits (mortgage interest and real estate taxes) of $1500; the property in question should sell for no more than $700,000. Paying anything more than that would mean over-paying.

MRussell, thank you.

Daredeleano - please shed some light on how you arrived at an approximate $700K purchase price. Thx.

The cost of borrowing $700,000 at 5% is approximately $3,500 a month for 30 years.

Assuming monthly tax credits (for mortgage interest and real estate taxes) of $1,500 and monthly maintenance and taxes also of $1,500 canceling each other out, you arrive at a net cost of ownership of approximately $3,500 a month

OK, I got it. With that said, in your opinion, in what range would a two-bedroom apartment cost to rent? -- And I'm talking about an apartment that is comparable to a unit in a brand new condo development (excluding Manhattan, but considering Brooklyn, Queens, and Long Island areas)?

Something that rents for $4,500 a month should cost have a net cost of ownership of no more than $4,500 a month (assuming the weighted average cost of the down payment at the same % as the APR cost of the mortgage). The monthly charges vary widely and so do the taxes. Just have a spreadsheet model and plug in the variables yourself. The key is to keep the cost of ownership to be no more than the market rate for rent of that unit.

In my opinion, Manhattan condos are still over-priced by 30-40% and should come down drastically from current levels.

I would agree with you dardelano in the case of totally generic location, where owning or renting there is equivalent. But if the location has significant value a renter will not pay up for that - while an owner will. At least I can speak for myself that this is true. And I think it's true enough for people in general that you can say that there's a location premium - in cases only of extremely desirable locations.

Any property that has a yearly cost of ownership greater than the yearly revenue it can bring from renting it out, will have a negative CAP rate and would be a poor investment choice. Sentimental reasons aside, any real estate property in the end is a financial transaction. Housing has a cost whether you pay it as rent or as a mortgage; in the end you do not own anything until your mortgage is paid off.

Daredeleano - please explain your comment above -- "assuming the weighted average cost of the down payment at the same % as the APR cost of the mortgage"

I have to disagree with dardeleano. If that were the case, why wouldn't everyone just buy instead of renting, down payment aside?

And in regard to condos still being over-priced by 30-40 percent, I would probably take it that you rent. Conservatively, the market is down 25% from the peak. And if you think it should go down 40% more then you are basically saying that pretty much every condo sold in 2008 is now worth roughly half of its closing price, which is just not the case.

"MRussell
I have to disagree with dardeleano. If that were the case, why wouldn't everyone just buy instead of renting, down payment aside?"

Well you assume everyone has a 20 or 30% down payment to fork over. And of course that became the eventual mentality....."why not own instead rent" when you had a ten year run of an appreciating asset and you could get a mortgage for your down payment.A second mortgage for your down payment! We see how that worked out in the end.

And Dardeleanos equation confirms my mantra since Ive been on this site. 200 times monthly rent is the quick formula. It represents 16.6 times rent roll. You want to play up or down 10% of that, fine. But that is the watermark.

What's manhattan's average rental price per sq ft right now? $45? I know SE's manahattan search comes up $52 but those are asking prices. At $45 for rent average, that means sales at $1051 average(source Miller Sams 2ndQ report) is still too high by 15%. That does NOT take into account "net effect" rents over the last year that made this figure even worse.
So if we are to asssume 100% apartments are no longer no fee or have month(s) free. It is still overpriced 15% today, or should average $900 per sq ft.

interesting conversation.one point to add ,real estate provides 500k cap gain exclusion for married couple and 250k for single filers,that should count for something.