Am I missing something??

That same apt (probably at 200 chambers) may go for 10,000 next year. You probably got a deal because of many apts for rent simultaneously in that building. So if it goes for 10,000 next year or higher it will be a wash. Interesting to see what rents will be in 5 years from now particularly in that area.

acutally, rents are going DOWN in that building...now the same apt. one floor higher than mine is offered at 8k...and I bet you once 101 warren opens up you see the same exact thing, a lot of condo flippers that will be looking for renters...guess we'll see but those two buildings will be competing for a while I think....

"acutally, rents are going DOWN in that building.."

IMPOSSIBLE!!! Rents HAVE to go up in Manhattan. You must be lying. ;-)

Sounds like you're not figuring into the equation the $102,000 in rent you're losing every year, never to see again.

Your costs are relatively fixed (less small changes in maintenance and taxes) for owning compared with increases in rent year over year. Also, 8% is not an unrealistic appreciation; in fact it may be low compounded over a five year timeframe. Your risk is short term and the longer you own, the more likely the condo will be a worthwhile investment. Buy with a longer term mentality and you will be fine.

I've noticed this exercise a couple times on this board. I have never seen an instance where initially, monthly costs to buy were less than monthly costs to rent. That is why it is generally better to rent if you have a short time horizon and to buy if you have a longer term horizon.

If rents are going down in that building, than 1) you should be able to get a better price when buying and 2) this is a temporary issue based on a glut of inventory from flippers.

Randomguy is right, you are not figuring in any build up of equity

why is rent considered 'never to be seen again' and mortgage interest is somehow seen as an 'investment'...with jumbo mortgages up @7%, the huge amount of front loaded interest expense (and you can only deduct the first $1.1m of mtge interest)and the fact that you can get 5% muni's in some spots I think rent is a better 'investment' than mtge interest right now...

BTW, equity can go NEGATIVE just as easily as it can go POSITIVE...I think people buying in off the run neighborhoods will be learning that lesson in short order....

200 chambers street had about 50 + rentals when it first opened up and then more and more rental piled on. Lots of foreign investors buying for investments as well as flippers. Now there are only about 15 rentals left at pretty hefty prices and sooner or later they will be all gone. Just need time to digest but looks like all is well. Not sure how many flippers will be in 101 Warren Street but sooner or later all available rentals will be rented and then what?

jnetter-did you pay brokers fee to rent your place. If you did was it around 12,000.00?

actually many of the early rentals in 200 Ch. were "flipped" -- because almost every apartment for rent is also for sale, so street easy listings are a little deceptive that way . . .

15 Broad went through the same process (all of these buildings have over 200 units) and it took about 18 months to get things "cleaned up", but my guess is that at any given time you are going to have 5% turnover of some type (rental/buying) in all large buildings in neighborhoods that cater to a younger demo (ie not UES/UWS) . . .

jnetter--at least a portion of mortgage interest is recoverable. none of rent is. I'd like to know which neighborhoods you think are "off the run". Seriously.

randomguy 71...read above comment...I considered that in my calculation...only 1st 1.1M of interest expense is deductible (and if you have that kind of mtge you are in top tax bracket which I also included)...I think ny mag. did a good job of describing the off the run neighborhoods that are susceptible to downturn...and a good job of what 'hoods are 'bulletproof'...up for argument but a start...anyway, unless you have you're entire life savings in NY real estate we should all be wishing for a serious crash...who wouldn't want a lower cost of living in the best city in the world???

So jmetter why didn't you include the $12,000 fee you had to pay to the rental broker in your calculation

I didn't pay a broker fee....

It's staggering how many people on this site don't understand that the interest component of a mortgage payment rather than the principal repayment component) is directly comparable to paying rent.

jnetter's analysis is correct but perhaps incomplete; as pointed out by spunky, you need to factor in rent inflation. The truth of the matter seems to be that buying makes sense on a long-term perspective, but transaction costs and negative carry makes buying a more challenging proposition for a short-run investment, unless you are very bullish on Manhattan prices.

"It's staggering how many people on this site don't understand that the interest component of a mortgage payment rather than the principal repayment component) is directly comparable to paying rent."

It is not directly comparable to paying rent, the interest component goes down over time and rent goes up

Juiceman, you apparently have never looked at your am. schedule...on a 30yr mtge 95% of payments in first 10 years are INTEREST...has nobody ever signed a multi-year lease??? Also, because NONE OF US can afford an apt. unless we get LEVERAGED TO THE HILT a simple 10% drop in an apt. price would REALLY HURT (2mm apt. with 20%down that falls 10% in price...basically your ENTIRE EQUITY IS GONE once you factor in 6% mtge fee on the way out, closing costs AND interest/maint/taxes...WHY IS EVERYONE SO AFRAID OF RENT INCREASES WHEN OVER THE LAST 10 YEARS MANHATTAN APT. PRICES HAVE GONE UP 160% AND RENT HAS ONLY GONE UP 38%???????????????? Leverage goes both ways you're risking much more buying than renting....mabye prices keep going up forever but if they don't???

You are talking about using your apartment as an investment - how about thinking about it as a home that you will be in for this real estate cycle and at least part of the next.... If you do that, it only makes sense to buy and not rent (if you can afford it).... Trying to time the market is too risky - Any money paid to a stranger as rent is money that you can never see again. Just think Monopoly... who usually wins?

That assumes you aren't silly enough to have an Interest Only mortgage.

Why do you think it's silly enough to have IO mortgage - it's suitable for people with uneven compensation levels, those who rely on sales comissions or whose year-end bonus is a substantial chunk of annual income.

The way this country's tax and banking system is set up, I believe it is always smart to have an outstanding mortgage - I plan to die with one... But- If you are not paying back principal on a first mortgage, you will never build up equity for a second third or fourth...

If I buy an apartment today for 500K, with an interest only mortgage of 418K - what will I have in 15 years when I want to upgrade? How can you think paying down the principal is not a good thing?

Assuming that statistically people move every 5-7 years, and that most people expect positive HPA on their purchase, that's where the equity build up is coming from. If you were to compare the amort schedules on a fixed 30yr and 10/20 IO the interest portion would be comparable, but you'd have the option of lower payments as well as principal paydown with a timing that's convenient for you.

GayBreezyPointFan, i think some of us might have a better use for the cash. other securities which require cash for myself offer better potential shorter term and presumbly longer term. so some us are in it purely for the leverage. so yes i would prefer an IO. and presumalby on an IO i partake in the updside equity potential hence allowing myself to upgrade equally well as you can.

Juiceman didn't read my post closely. The interest component is exactly like paying rent - you are basically paying rent to the bank. But jnetter's orginal analysis seems to be based on an IO mortgage calculation, which keeps the analysis simple. And as jnetter points out, the first 10 years of payments on a conventional mortage are basically 95% interest anyway, and the typical holding period for a house is around 7 years, so whether you use an IO mortgage or conventional mortgage for your analysis makes little material difference, since your principal repayment over those first 7 years is so small.

I still don't get it, sorry... The appreciation of the real estate (in a 7 to 10 year real estate cycle) seems to historically be the best place to "park" cash for a few years - sure, we can all find better places to put our cash, but I would rather use other funds to gamble the higher risk/return - Not my primary residence...

jnetter, based on your use of capital letters you are obviously very passionate, excitable, or bitter about this subject. Relax. It is not that difficult if you think longer than your next rent lease. Also, if you are worried about being over leveraged, why the hell are you looking at $2M apartments? Living above your means a bit?

cmtsuk, I actually did read your posting closely and I understand what you are getting at but it is just not true. Assume a traditional $1M mortgage with 7% amortized over 30yrs. If you look at the numbers over 7 years, your interest payment actually goes down from $5833 to $5324. (Since it is under $1M, all of that interest is tax deductible - but we don't have to mention that do we?). Rent over 7 years will go up how much? It certainly won’t be $500 cheaper in 7 years. Additionally, you will bank ~89k in equity that is yours and yours to keep (assuming zero appreciation). Add appreciation and, well you get the picture.

So, how can you say that interest payments are the same as rent? You can't because it is not.

interest payments are same as rent because interest payment buys you monthly right to stay in the house.

bansalpr - I am a recent buyer, but bought very conservatively and in a condo which I would rent out indefinitely if I wanted to move out.

As outlined above - you can deduct mortgage interest payments up to 1.1m (I am more than within that as I mentioned I bought conservatively). This is a game changer for me as I had no deductions before - so I dont view them as the same. . .it will show in my tax return next year.

Juiceman - I'm not disagreeing that you have to take the tax-deductabilitry into account when comparing rent and (net of tax deduction) mortgage interest payments , and I believe that jnetter already included that in his analysis.

I think that JuiceMan and cmtsuk both are right. Its not like they're arguing the validity of a fact. They simply have a difference of opinion of view. JuiceMan is absolutely right that rent would only increase over the years. But, there is no reason to assume that cmtsuk's take on interest payments to the bank as being similar to rent. Essentially you could figure it that way since it is like bansalpr said "buying the monthly right to stay in the house."

As an accountant I can tell you that the best way to view the tax deduction from the mortgage interest and the deduction if you were smart and didn't have enough money to put 20percent down but took a piggyback loan to make up the difference between your downpayment and 20percent down instead of paying private mortgage insurance. Is to simply view it as a reduction of your yearly income or rent. Essentially to the government that is what it means, when you deduct interest from your income, your just erasing the "existence" of that income from your paycheck. The government pretends as if you never received it to help ease the cost of purchasing a home.

When people start to think of the tax return from mortgage interest as anything else than a reduction of income or monthly rent. They tend to spend their money twice as fast.

i agree on tax deduction being game changer for certain people, but it should not be looked at in isolation. On every dollar you spend on buying house, you save around 2 cents ( $1 times 7% interest times 30% tax benefit) on tax deductability per year. Thats a 2% return on your investment. If home prices appreciate 5-7% a year, your total return per year is thus 7-9%. One can argue that you could have invested the same dollar in virtually risk free assets and would have made 5-6%. The risk retrun of 7-9% on an apartments is not that rosy compared to alternative risky investments. Buying a house is better then renting environments when home price appreciates more than 10% per annum.

( i have not included cost of interest in this analysis as it has been almost the same for risky vs. non risky investments in recent years)

The missing ingredient:
Family. I'm betting most of you are single.

1) Rental Property Depreciation and Mortgage Interest are one of the few tax deductions you can take under AMT as a married couple.
2) Further if you suggested that you were going to sell and rent every business cycle, your kids would be going to a new school every few years since mommy and daddy are moving around all the time. Rough on kids (no friends, no stability).

These are factors which make real estate sticky that aren't very computable.

100 % true Aifamm!

What about if the landlord wants to move his mistress in your apt at the end of the lease. Guess what you have to do
1.Move out
2.Look for another rental
3.Pay a rental broker fee or pay a higher rent because the fee is built in-just like jnetter
4.Pay an application fee -which can run up to 1000
5.Pay a move in fee -which can run about 500
6.Pay a credit check and background fee-which can run up to 200
7. Pay moving company which can run into the 1000's
Keep doing that year after year and now we also have a quality of life issue which no one has addressed yet.

bansalpr, if your statement is correct than buying would not make sense for 99% of the U.S. population. 10% per annum is aggressive for even a hot NYC market.

i think buying should not make sense as an investment for lot of people in a stable/current home appreciation environment. Dont forget that the home ownership rates have gone up in last few years only because of easy credit and high home appreciation.( making it a prudent investment type asset). Buying home should be based on other factors such as quality of life, sense of pride etc.).

Actually home ownership rates in NY State have barely budged in the last 20 years - 1984 it was 51.1%; 2005 55.9%. Pricing increases, particularly in NYC have mitigated the growth that most of the country has seen . . .

NYC actually hit a record homeownership rate this year - at around 33% it still trails other major US cities but a milestone nonetheless (NYT had an article about this a few months ago).

I know quite a few people who would otherwise buy were it not for the fact that they are living in rent stabilized apts - professionals into their 40's who have the means.

Getting a bit off topic here but though it's worth a mention.

Define "quite a few" and "have the means" Another reason to overhaul rent control.

On average over the last 50 years, US real estate has appreciated at or slightly above the inflation rate, which has averaged 3-4% over the last 50 years. Assuming NY real estate will appreciate more than 5% per year in the future (next 1-5 years) is a joke when it's been appreciating 3-4X the average over the last 3-4 years. Real estate is a non-transformational asset class and will therefore return to the mean over time, which implies flat to negative appreciation in NY for the next several years in the face of Wall St employment and bonuses being flat to down for at least the next 1-2 years. The rent vs. buy numbers work only if you're going to own for 5+ years and the after-tax monthly mortgage payment is <120% of your rent.

totallyanonymous, I don't keep a diary on this but let's say I've met many folks living in NYC who have graduate degrees, work in law/banking/accounting, probably earning upwards of $150k/year (conservative est), are in their 30/40's and paying below market rents. Many work in a similar field to mine so I know their income/lifestyle. Most have said they'd like to buy but it's not worth it to them.

All of my friends in other cities with comparable salaries and jobs own their own homes. This seems to be a NYC phenomena. Question is what's better for the economy/city as a whole - encourage greater homeownership or make housing affordable to those who need it...and luck out if you find a deal as a result.

funny. under NY law, if the household income exceeds 175K 2 years straight they're supposed to get kicked off rent control if the legal rent's above 2000 a month. Whomever you met is a bloodsucker and you should report them to the DHCR. This system has got to be changed.

btw, anyone earning only 150 in law/banking/accounting in their 302/40s in this town must have done something seriously wrong, or else work part time.

i am in a similar situation - looking to buy 2br-3br in bpc/tribeca area. Everything that is out there that is decent is 2MM+. I've saved enough and my income is sufficient where I can buy something in that range, but when I look at my current monthly outlay (I am currently renting a 2br in bpc and paying $5000/mth) - and any way I do the math, I can't justify owning. Am I missing something here?

jsmith9005 - I would have to agree with you - $5000 for a 2 br vs. paying $2mil for the same doesn't make sense if you are looking at only your monthly outlay. But owning in Manhattan almost guarantees you a very good return on your money if you are in for the long haul. Renting really is just an empty pit that you pour your $ into. Havning said that I would never put anything close to $2 mil. into BPC. Too many other areas that you could buy into for that amount of money that would be a much better investement. BPC is a hard sell to a lot of people.

It's amazing how little people seem to understand that rent is analogous not just to the interest you pay on a mortgage, but also the opportunity cost of capital you have tied up in equity. Even if you just bought a $2mm apartment outright for cash, you're giving up the $100-$120k you could earn in riskless investments (5-6%) with the $2mm. So, it's still costing you $8-$10k/month in foregone interest. And that money is gone, flushed away, or heading into the same "empty pit" that rent goes into. Of course, if the value of the apartment increases enough to make up for the difference between how much you spend in foregone interest and how much you'd pay in rent, you can come out alright. But, make no mistake about it - you're paying $8-10K/month in the equivalent of rent for the use of a $2mm asset, since you could otherwise make that amount in riskless investments.

JohnDoe--I agree all those idiots who own 2 mil apartments in Manhattan particularly the ones on Park and Madison should be renting.

jsmith2005, the initial costs of owning often outweigh renting a comparable place, which is why you'd have to look at it for the long term. Rents can go up but your mortgage payments could stay the same. Of course taxes & maintenance also rise but compared with increases in rent, that's something to look at on an individual basis.

Also, for the longer you own, the greater the chance your place will increase in value. Everyone I know who bought years ago when they though it was the hight of the bubble are sitting pretty because their living expenses are in check.

JohnDoe makes some good points, but again it really depends on your situation. This is your home, so keep that in mind when comparing to a share of stock you can trade. And stock/bond markets, just like re markets, move in ways we can't predict.

JohnDoe, also factoring in transaction costs (closing + 6% broker fee) and other fixed costs including real estate taxes and common charges, the the amount of money flushed away grows larger and larger.

Only hope is to rely on continued price appreciation. Or switch your thinking into 'housing is not an investment- it's a place to live in'.

JonhDoe - sorry to disappoint, but most of us are in fact familiar with the concept of the "opportunity cost of capital tied up in equity". But lets talk reality - how many people do you know that put down anything close to 100% on a real estate purchase? Very few of us are tying up a full $2mil. and even those who have done so in Manhattan have done quite well. The key question to ask yourself is "How long am I going to hold this asset"? The longer you intend to hold the more likely it is that your purchase will pay off. When you throw in MMafia's concept of "housing is not only an investment - it's a place to live in" - I think buying is the winner hands down.

stealth1, since the entire value of your apartment is either equity or debt, you're either paying interest or foregoing interest earnings on the apartment's entire value. And, since you can earn less than it will cost you to borrow, the $100-$120k is really a minimum annual cost on the $2mm apartment (the more you have in debt, the more you'll be paying).

Of course, this isn't the only consideration involved. And, I'm not saying this to blindly argue against purchasing. In fact, I think the buy/rent decision is a tough call right now (but, way to appreciate that this is more than a yes/no question, spunky) and, of course, extremely dependant on each individual considerations.

I just think we need to bea little clearer about the costs on each side and, it often gets lost on people here that there is a significant cost to owning, analogous to rental costs (in that it's foregone money for which you don't receive anything in return), which is actually higher for purchasing at this point in the NYC real estate cyle, REGARDLESS of how much money you borrow. If you look at comments like JuiceMan's above, you'll see this point isn't one that everyone here appreciates (the point being that a decrease in explicit interest payment because of increased equity is accompanied by an increase in the implicit cost of foregone interest on that equity).

JohnDoe, understand what you are saying, for every $ that coverts from interest to equity, you have an opportunity cost on that equity. Ok fine. Based on that logic, take every rental dollar you have ever spent and apply that same opportunity cost, forever. Would it make sense to forgo 4% on some equity so that I can get it back one day? Put another way, if you where paying $12k a month in rent would you be happy if your landlord put $2k in a non interest bearing savings account and gave it to you when you moved out?

Ahh to be single. Life was so much simpler when it was just me myself and I to worry about.

I'm thinking about redoing my kitchen and the cost is about 75,000. Should I spend the money knowing I will enjoy my apt even more or put the money in a Muni's. I'm also thinking about going on a nice relaxing vacation and it will cost me about 15,000 or should I put my money in CD's. I am also thinking about buying a Porsche for about 100 G's or should I just put my money in a money market. I am also thinking about adopting a kid. All the paperwork will cost about 50,000 or should I just put the money in an mutual fund. Should I just put all my money in an interest bearing account instead of getting all these things. Am I missing something here?

Spunky,

Under Bernanke & Co. your saved dollars will be worth less next year than this year (low interest rates; under-reported inflation). So, if you can afford to you should buy lots of stuff. Whether that stuff is gold, other hard assets and commodities or depreciating assets like a car, I leave up to you.

And... real estate is not a hard asset???

I did not mean to exclude real estate.

I rent because I want to earn 4% on tax fee investments on the equity I would normally put into buying. That way I can save money and rent a bigger place someday so that I can earn 4% on tax free investments on the equity that I would normally put into buying a place. With all the money I continue to save by not buying, I will ultimately move into a very large rental property therefore making all the owners I rent from, extremely rich.

uptowngal, I realize that ownership is a long term game, but my question is why does there seem to be such a big gap between renting and buying (at least for my situation)? The breakeven point in my analysis is 12+ years down the road (with realistic assumptions on early rent increases, home price appreciation, etc.). In the last 10 yrs, I've lived in 3 different places in (I guess that's average) - and that's no where close to how long I have to stay to come out ahead. Before everyone says I'm a bitter renter, I have owned before, but don't remember the buy/rent gap so high as it is now?

NY-Times had a buy vs rent calculator earlier this year, when I plugged my numbers in the breakeven was 19 years (even allowing for 3% capital appreciation per year).

I agree with a number of these comments - especially those from the many brokers posting. I mean, was there opportunity lost on all those Lexus lease payments? Those weekly tanning salon appointments? The headshot sessions for the D'Agostino's cart inserts? Those aren't free folks.

BA_DA_BOOM, if you have a one bedroom that you are paying $3000/ mo for in the UES and are comparing it to a one bedroom new build in Soho, the numbers are never going to add up. Point is, a rent vs. buy analysis can only be accurate if you are comparing like apartments, locations, and amenities. 19 year breakeven tells me you are comparing two uncomparable properties

Another point, is that rent can not increase faster than income, landlords wont takeon renters who are spending more than xx% of their income on rent, so when income goes up by y% rents will rise a up to a cap y%.

On the other hand, sale prices can rise at 3 times income, as buyer are leveraged. Their ability to pay is generally calculated as a multiple of income.

This might explains the increases in rent (38%) vs buying (160%) in the last 10 years. Actually a quick calc and assuming income rise of 3.5% over the last 10 years, and buyers leverage of 2.9x, I get 41% rise in rents and 162% rise in purchase price.

So what is more likely to restore rental yields to historical norms, incomes and rents rising or prices dropping?

>>buyers leverage of 2.9x, I get 41% rise in rents and 162% rise in purchase price.

correction: I get a change of leverage from 2.0x to 3.8x, basically buyers have gone from 33% to 20.8% downpayment.

JuiceMan: http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?_r=1&oref=slogin

breakeven 22 years

rent: 2,800
homeprice: 700,000
down: 20%
mortgage rate: 6.25%
taxes: 1.35% (default)
Annual home price appreciation: 2% (default)
Annual rent increase: 4% (default)

changing the tax rate moves it from 22 years to 12 years, but the chart is still $70,000 loss after one year vs $15,000 gain after 30 years.

If the rent of 2,800 appears low for midtown, this might be because i have been in the appartment for 4 and a bit years, and benefited from below market rises, but thats how the rental market works - commercial landlords dont price out existing tenants prefering reliable returns.

>> Another point, is that rent can not increase faster than income, landlords wont takeon renters who are spending more than xx% of their income on rent, so when income goes up by y% rents will rise a up to a cap y%.

You're kidding right?
Tell that to ppl who've seen 10-15% rent increaes for back to back years...
They will take on renters with more then x% of income on rent, they just need someone to guarantee them or a higher deposit.

Interesting BA_DA_BOOM. As you would expect, the model is highly sensitive to home apreciation. It makes your decision pretty straightforward. With a five year timeframe, you would need to bet on 5% apreciation for buying to make sense. Would you make that bet? I would. I do think you are enjoying below market rents, but good for you.

Although income is important I beleive what is really determines the rental trend is availability of rental units in Manhattan. The present credit crunch that's making it more difficult to buy an apt in the city for people who want to may create a build up of renters. This may in fact have a impact on inventory. Landlords will try to push their rents to the limit. Keep in mind it was only 2 years ago a one bedroom was going for 2200-2600 a month now we are at 3000-3600 per month. This increase had virtually no impact on the market with vacancies still at extremely low levels. Will the vacancy rate go up if for example the one bedroom started to go for 4000 per month. I think not I think their will be still strong demand for rentals and I see further rental increase in the coming years. As long as the the sales market in the city slows due to credit tightening you will see more people opting for rentals and demand will remain strong. Conversely if the housing market picks up and mortgages become more easily available for buyers than you will see a downward effect on rentals. It's all about supply and demad.

For you number crunchers, this is a more sophisticatd rent vs buy calculator than the NY Times calculator:

http://www.housemath.us/

Understand what you are saying spunky but how would explain the last two years? Mortgages were readily available, rates were great, housing experienced a boom, and rents still rose 40-60%.

It may be that prices skyrocketed in the last two years thus causing people who were renting to pause and wait it out, as well as preventing some renters to buy because the prices were outside their afford ability. Now we are in a dilemma again ( much stricter lending standards) thus rental prices are moving up yet again. Most people think that a housing slowdown in sales will also be good for renters as well. I differ in line of thinking.

Rents still rose because there were/are still a lot of people on the sidelines. Everything depends on the local income. Place your bets. If income remains high, people will stay in the city and rents will rise closer to "calculator" comparisons. If jobs go away, people will move away from the city, putting pressure on rents.

cmtsuk, i used that calculator before I bought my place a few years ago. While it does a better job then more calculators, it doesn't (and probably can't) capture all the factors. It only tells you from a numerical perspective what the equivalent rent would be, nothing more. It doesn't tell if you could rent something comparable for that price. So use it with a grain of salt like everything else. At least it's not as naive as the other calculators though.

Oh and if you're waiting for Manhattan to trigger a "buy" on a buy/rent calculator then you'll be waiting a very long time. That's like saying I will only guy a high growth stock like apple or google if the PE drops to 5-10. Yeah ok, by that time its too obvious and you should be in something else.

errr not *too obvious, rather *something is wrong now.

Although I may be wrong I don't see a slowdown in job growth in the Manhattan marketplace in 2007 and 2008.

you're right. you may be wrong.

aifamm - a rent/price ratio is a good measure of whether or not RE is overpriced and right now by all accounts every buy/rent calculator for Manhattan RE is shouting "DO NOT BUY RIGHT NOW - YOU WILL LOSE MONEY"

With respect to the comparison to high growth stocks, you need to look at what PE ratio other stocks in its peer group are trading at and what PE they've historically traded at. If google is trading at a higher than average PE for its peer group or historical average then perhaps you should wait to buy it....Real Estate is hardly a "high growth" type of investment historically (the true value really is a multiple of the rent it can fetch and this goes up generally at the rate of inflation).....and the rent/buy calculation for Manhattan RE is way out of whack...

anon3, your answer for the PE's is just not true. Google was trading at a ridiculous PE (60+?) when it IPO'ed, yet its now 5x what it IPO'ed at. Clearly there is something wrong with your logic? Or is it that there is more to it then just PE ratios and rent/buy calculators?

Wow it'd be easy if all I had to do was plug in some numbers and a calculator would tell me if I should buy/sell stocks or real estate.

anon3, do you honestly think that Manhattan the way it is will trigger a buy on a buy/rent calculator?

aifamm, Google is now trading at a LOWER PE than when it first IPO'ed (50.82 today)..though there isn't much history to that particular stock. If RE was selling at a historically low price/rent ratio then I'd say it would be a pretty atractive investment.

No, I do not think the current Manhattan real estate market will trigger a buy on the buy/rent calculator b/c it is, quite frankly a terrible investment at these prices when you look at historical averages.

Attached is an interesting market analysis from 2004 that is worth a read. Study predicted 10% appreciation till 2007 and 5-8% till 2010, and average sqft predictions pretty close to where they are today. Many interesting tidbits on why it makes sense to be bullish and, contrary to anon3's statement, states that historical averages show that Manhattan continues to be undervalued.

http://www.millersamuel.com/pdf-tank/1096034424rIMRe.pdf

These fundamentals have not changed (see pgs 36-39), small fears (credit crunch) in the market will go away and Manhattan real esate will continue to move full steam ahead.

ahhhh....I've been monitoring and not chiming in about this wonderful stretch of posts...bravo! Seems like we have a very nice bull/bear discussion, but nobody wants to take the middle ground...well, that's why I posted in the first place....I think the likelihood of manhattan real estate in good neighborhoods going down appreciably over the next 5 years is low...although I find it interesting that all the bulls are willing to make the most leveraged speculative bet in their life without once mentioning the fact that a terrorist attack in our great city is clearly NOT priced into the market...this, of course, is painful for all of us to think about...but it has to be part of your investment decision...I bot on greenwich street, north of reade, in a 'new' building for 580 bucks a sq. foot in late 2001...sure, things are different, but if you are like me and are thinking that prices at best remain stagnant over the next three years (and at worst we sprial into an inflationary recession that'll throw real estate under the bus) than it pays to just rent...I think, if anything, this stretch of posts has 'proven' that....I know that 'spunky' exists in all of us...I owned 2200 sq. ft in Tribeca and made over 70% in 3 years...but you have to be logical about any investment...especially when you're making a wildly leveraged bet on an asset that can very quickly become illiquid with one geopolitical event....every studio has been dragged up in price by the bid for 2-4 bedrooms from people like me that want to be in the city with a family...that game is over when some dope blows himself up in Grand Central....sorry to be a realist and I know this will illicit a lot of "that's not gonna change the way I live" but tell that to a guy that's raising two kids in the city who can buy 2 acres in Greenwich Ct. for 2mm and only pay 10k in taxes and he'll be outta here faster than you can say "Spunky".
This was my first and last post on Streeteasy, enjoyed the commentary....Juiceman, are you 'effing kidding me sending a BROKER report on manhattan real estate that saids it's going to go up forever?? Gimme a call I think I have couple of bridges sloshing around in my retirement fund I might peel out of....hasta la vista.....

I agree completely jnetter - the one thing that will tank the Manhattan market is some sort of terrorist event - and I hate to say it but it is just around the corner.

anon3, just because Google's PE is lower now, doesn't make it a more attractive investment now. I would argue that you should have bought google when the PE was higher. And then where was the rent/buy signal for manhattan in 2001?

jnetter, the manhattan market skyrocketed after the 911 attack. You can't buy 1 acre with 2M in greenwich and even then, enjoy the commute. Time is money too.

jnetter, if you took the time to actually read the pages I highlighted, it outlined both the bear and bull points of view including your terrorist concerns. Nothing has changed, and the estimates are quite accurate. Enjoy Greenwich, with the 70% you made on your Tribeca space, maybe you can rent someone's carriage house.

aifamm --

There actually was a computer that you could punch a few numbers into and it told you EXACTLY what stocks to buy -- and was right 99% of the time. Ed Thorp devised it in the mid '70s and made hundreds of millions on it (before Black-Shoales became common knowledge and used Michael Milken to execute his trades). A great story -- highly reccomended: FORTUNE'S FORMULA: http://www.amazon.com/Fortunes-Formula-Scientific-Betting-Casinos/dp/0809046377

sold way too soon Frank
http://www.streeteasy.com/nyc/closing/14430