buy to rent... is it still a good business?

Every apartment is different, you need to do the math. I suspect you'll find more examples of this working outside of Manhattan than in Manhattan. You need to do the calculation....

Monthly rent less mortgage payment less common charge less real estate tax. If the number is positive then its worth discussing.

numbers don't typically work in NYC, execpt in the bronx.

True, and the condo investors can never really compete with the Equity Residentials of the world.

It is possible in Manhattan with 40% down payment and the right property.

This describes some non-u.s. investors. they are looking to diversify away from their home country and start a nest egg. real estate is something they trust. they believe it will be here in the future and don't concern themselves with market price but rather the expectation that over time rents go up.

I agree that 40% down makes the rental math work for some condos. But wasn't this figure 30% down a year or two ago? If I'm right, this does not seem to be a healthy indicator.

it is very tough to make any money on a buy and rent in manhattan. My wife and a friend bought a place about 7 years ago in the UWS. It was an investor friendly building so they had to put 50% down at the time. They are probably clearing around $400 per month now, but prior to having to lower rent that was $150 higher.

but the economics were better, the apartment they bought was a $180k studio. Now that same apartment is at least $270k. If everything was done the same, they most likely would not be getting any cash and would only get the tax loss. Considering we earn to much to take the loss, it to me would be a waste of money to invest.

If you can take the tax loss then it may work out in your favor as the apartment appreciates and rents go up. But for the most part it is hard to make money investing in real estate right now.

Its also bad for buildings when too many units are investor owned. The banks penalize it.

Oh, the financial illiteracy of making an investment property (or your own home purchase) "work" by simply increasing the size of the downpayment?!?! There are so many threads on this. To all the above, what return would you expect to receive from a an equivalent equity stake in a 60% levered, extremely illiquid, undiversified security? I would probably require at least 20% .

The equity is assumed to earn the return of the asset. Think of the mortgage as carry oost.

OK Riversider, then why not put 100% down, the math looks great. Adjusting down payment size to make this work is really twisted logic. Real Estate should go up with inflation in the long run

dcorreale.
Leverage is a double edge sword. Increases returns and losses. At the end of the day you are exposed to real estate. There is no single answer.

Just like with multi-family investment properties, the profit is when you sell it. Don't forget to have some reserves ready to pump money in, in case you have to for any number of various reasons....

I understand the risks in leverage. My point is you cannot just ignore the down payment, it has to be in the calculation, along with whatever appreciation (or depreciation) you expect from the property. And real estate is a very risky asset, due to illiquidity. You must include the opportunity cost of your down payment making money. You can try to simplify it by saying that appreciation on house will offset return on down payment, but that is a risky assumption, especially if it is all of your life savings, as if often the case with a house purchase. You now have an illiquid, nondiversified portfolio in an asset that has run up several 100% over the past 15 years

dcorreale.
In today's market the opportunity cost is very low due to zero fed funds and record low treasuries. But I do agree one must be careful to take into account one's need for liquidity.

While fed funds rate is at ridiculous and irresponsible levels, punishing savers, that is only part of the equation. Your opportunity cost needs to be a return with the same characteristics as home ownership. So essentially, the buy to rent is based entirely on where you think rents and prices are headed.

You can always adjust your down payment so the rents pay off the mortgage plus operating costs. But the more you put down, the more you can lose (and I would argue the higher your opportunity cost since it takes money to make money, the more money you have, the easier to get into certain asset classes and earn higher returns). Granted, the reverse is the less you put down, the more leverage.

So if rents and prices stay flat over your investment, you essentially earned zero on your downpayment. If they go up with inflation, which is historically true before the last 15 year run up, you have earned inflation, plus any additional rent over mortgage and additional operating costs less transaction costs

Yes, opportunity cost is the next best investment. If you think this is stocks, that becomes highly subjective. I guess you could add an assumed risk premium.

its quite a feasible scenario that rents stay flat and taxes/maintenance go up - which means that the whacking 0% return you thought you were getting on your highly risk equity bet, just went negative. Hell, lets pour more money into this thing!!!

The absurdity of the no opportunity cost down payment trick is that with 100% down, there is never an "undesirable" real estate deal. Let the race to infinity begin.

The absurdity is that the ten year treasury is 3% and the one year at 0.3%
We would not be having this discussion if we had normal interest rates.

Riversider's mistake is assuming an alternative to buying a manhattan condo is savings account, a t-bill, or a common equity, that is incorrect.
a much more comparable investment is say a reit

And a REIT has diversity which lowers the risk. Also less transaction costs
If we had normal interest rates, rents would remain where they are and prices would go down

"Oh, the financial illiteracy of making an investment property (or your own home purchase) "work" by simply increasing the size of the downpayment?!?! There are so many threads on this. To all the above, what return would you expect to receive from a an equivalent equity stake in a 60% levered, extremely illiquid, undiversified security? I would probably require at least 20% . "

agreed. downright wacky to ignore the cost of the downpayment.

"OK Riversider, then why not put 100% down, the math looks great. Adjusting down payment size to make this work is really twisted logic. Real Estate should go up with inflation in the long run"

lol

-350K condo
-100K down payment
-mortgage (15 years) taxes = 2.5K
-rent=2.5K

conclusion?

Why not just give me your 100K? It's much less work, and you can expect to make the same amount of money, with no risk of a market correction back to pre-bubble ratios costing you more than your downpayment, or of a recession that reduces rents and leaves you cash-flow negative.

-350K condo
-100K down payment
-mortgage (15 years) + taxes = 2.5K/month
-rent=2.5K/month

conclusions:

1) I get an apartment for only 100K in Manhattan
2) I do not have to pay anything else (no debts, mortgage and taxes are paid by rent)
3) and after 15 years, I start getting some profits

How much lower can go a market correction or rents?
I think 2.5K is a pretty safe number.

Thanks

Virtually every bubble reverts to the mean. Estimate the increase in prices during the bubble. Subtract how far the market has fallen since the high (4th Q 2007 ?) That is your risk. As finance guy pointed out -- You are certainly at risk.

It works great with 100% down. You can earn as much as 4% on your money.

You cant rent a $350k condo for $2500/mo keep dreaming.

To answer your question, generally no, owning someone else's home is not sensible for the investor, just as renting out someone else's quarters is rarely long-term sensible for the resident. Home ownership happens to represent one of the best investment alternatives for families today, just as it is the preferred state for the American family. With job losses and unemployment at record highs today, families that bought sensibly including making realistic downpayments instead of using their money on risky assets like stocks or high-priced gold, and who borrowed using traditional mortgage products, are ahead of the game because they have prepaid substantial portions of their future living expenses.

The best bet overall is for fewer buy-to-rent type of purchases and greater encouragement of the benefits of home ownership for families which means greater stability at home and greater stability in the communities including here in New York.