Getting out to early

AR - you were in a much better place when you are were on your meds. Now it is just regressing to the same old back and forth arguements with strangers for days on end, revealing more and more info about your personal life.

Please stick to the RE topics and enough defending your decision to rent or buy or whatever...it is obviously self-consuming and can not be healthy for you or your familiy as i am sure you carry the anger your dispaly with you in your daily life.

This is sreally for you own benefit, contribute RE related topics, stay away from personal issues, no need to continue to defend yourself if you are content with your decisions and we all will be better off.

selling one's home and putting all into real estate is interesting but not a relevant comparision. The risk profile of the two investment classes are completely different. I can't imagine anyone selling their home and parking it all in comodoties.

printer, my rent is not much above what it was in 2004, and even before RS was reinstated it was well below what i was paying. believe me, i've saved. and for some reason tax and cc's have more than doubled in my old building since 2004.

but really, who cares? the issue was that the apartment was inconvenient, and i didn't feel like buying again in 2004. at the end of the day financially and personally it worked out well for us. there's more than one path to having a home, and funding a retirement.

If the apartment was not appropriate for you, then that makes selling and moving all the more sensible for you. But the question wasn't about selling too early an apartment that was inappropriate in exchange for a nice rental vs. selling too late an apartment that wasn't any good for you for an additional 6 years and missing out on the nice rental.

Simply, sell at the same price in 04 and 10. No judgment on the quality of the owned apartment or the quality of the rented apartment.

yes, but in the intervening years far less was paid. and there were plenty of areas of investment that did ok during particular time periods from 2004 to 2010. you can't just assume that someone invested in a manner that mimicked the s&p results.

hburg
i was not being sarcastic--i liked what i though your anaylyisis was:
that both RE and stox were essentailly flat 04 to 09 or thereabouts and that there was no advantage to remaining in re or swirching to stox in 04, such that if renting was cheaper, the renter fared better

and if the non-RE investment poortfolio was well-diversified, that option would have been better that flat, and renting the much better choice

so "getting out early" , sellin RE, and renting as of 04, would tend to be a breakeven at worst, and potentially a better situation

my poor reading/writing causes misunderstandings often

sorry AR, that wasn't about your particular circumstance - obviously each individual situation has its unique characteristics, I was speaking generically. And generically, yes, rents are now more or less what they were in 2004. However first they went up, sharply, before they came down, sharply.

Absolutely right I can't assume what you invested in. I have no idea. You could have invested in real estate for another 3 years and then shorted real estate for 3 years after that and made a killing. You could have sold your place and bought gold and made a killing. You could have invested in treasuries and been not only highly liquid at lower risk, but made good money. A lot of marketing timing is in play.

Interestingly, run the S&P from exactly 6 years ago to today, the result is flat. About 1170 then to 1180 now.

My point is simply that getting out too late is not worse than getting out too early and we have the ability to look at selling a place in 2004 and selling the same place today at a very similar price. I'm not throwing in extra variables like you didn't like your place which is always a legit reason to move. Or you had a place in 2004 where you were mortgaged to the hilt and then lost some of your income which would have made owning at any time not a great idea for you.

btw, by too late i meant too late. not specifically 2004 to 2010. many people who bought in 2008 and are trying to sell now are trying to get out too late. whether or not it is too late depends entirely on the need to sell. we have no way of knowing how the results will look for long-term owners who bought in 2008.

Alright.

> printer, my rent is not much above what it was in 2004, and even before RS was reinstated it was well below what i was paying. believe me, i've saved. and for some reason tax and cc's have more than doubled in my old building since 2004. but really, who cares?

for some reason, i care a lot. i find it hard to believe that with the obvious monthly savings people argue that timing it isn't worth it. that monthly savings keep on existing even today, as to buy a similar house than you currently rent you would be spending more each month on housing. as i see it you saved monthly for a better unit, what's not to like?

the opportunity to Refi is the only positive for holding on while RS offers big benefits for the tenant... as crazy rent increases are just not possible and the decision of renewing the lease or not is 100% up to the tenant. to time it and rent at a mkt rate is more tricky, but with a RS is a non-brainer imho. bet all the people happy to have hold on to their home during the crash are the ones kicking and screaming once the mortgage interest deduction begins to be curtailed, as otherwise the rent vs buy numbers are simply crazy.

hey, "tax and cc's have more than doubled in my old building since 2004" why is that? imho we will see blood in Harlem as tax abatements for condos expire. why do owners/landlords seem to take for granted that those cost increases are easily transferred to tenants during a long recession? that's beyond me...

well those "lucky" enough to have rent stabilized or controlled apartments always have a benefit which by the way runs to the detriment of the building owner who gets a sub-par return and renters not as fortunate who have ot pay higher due to the bi-furcated market. Of course with all this comes a downside..

http://nyc.everyblock.com/locations/neighborhoods/stuyvesant-town-cooper-village/?only=crime

http://stuytownluxliving.com/cgi-bin/mt-search.cgi?blog_id=1&tag=Crime&limit=20

> well those "lucky" enough to have rent stabilized or controlled apartments always have a benefit which by the way runs to the detriment of the building owner

not necessarily. most of the new developments done on empty lots in Harlem owned by the city got a great deal on the land in exchange for renting units under RS. these units were added to the supply thanks to this incentive. so it's exactly the opposite as the cliche that RS rises mkt rates, lowers supply of rentals and the like.

Yeh riversider. It's like when they give healthcare to pregnant teens wo healthcare, and then the govt taxes the shit out of the newborn after it gets a free public school, clean water, unleaded toys, protection from Nazis, and subsidized MD program. I mean we as taxpayers should just be greatful that the new born is a productive member of society. How dare we tax that kid, teabaggers.

You are correct. The 80/20 buildings are a very different situation. There the developers received a benefit in exchange for building rent stailized housing. It was a win/win for all involved.

And yet those SS chks keeps on going on and spent.

I don't understand. If AR sold in 2004, and we are down to 2004/2005 pricing, how is that selling too early?

Princes were much higher in 2006. The original premise was the HPA of the NYC area from 2004-2006

Hard to see how RS harms anyone except landlords seeking to cash in on monopoly power.

New construction, unless it is subsidized, comes in at market rents or market prices.

So IF RS increased market rents or market sales prices, it would make market construction more profitable. Over time, this will bring supply up, until market rents and prices drop down to exactly where they'd be without RS.

What RS does is transfer monopoly profits from landlords, who have no claim to it, to tenants, who would get it if absent monopoly. In a fully competitive market, when the neighborhood improved or tenant incomes went up, competition would give those benefits to customers. But in real estate, competition is limited on both the supply and demand side -- building is slow and tenants are invested in particular units. So landlords can expropriate value that ought to go to tenants, by charging rents that are higher than replacement cost. RS simply takes that monopoly rent, which is not a reward for anything landlords did or an incentive for them to do anything useful, and returns it to the tenants who would have gotten it in a more competitive market. RS is just a crude solution to the complete failure of the residential real estate market to produce a parallel to the standard long term, cost-plus commercial lease which protects commercial tenants against landlord expropriation of value the tenant (and city government/taxpayers) produce.

Riversider, if you want to find government subsidies distorting the housing market, they are easy to find. But they aren't RS. They are the tax subsidies for mortgage borrowing and the tax subsidy for implicit (owner-occupied) rent and the tax subsidies of accelerated depreciation and the tax subsidies of real estate tax abatement and the tax subsidies for coop real estate taxes, and the direct government subsidies reducing the price of gasoline and roads, and the failure to charge full price for the environmental damage caused by global climate change gases.

Oh, and I forgot the biggest distortion of all: government bailouts of bankers and traders who bet that the real estate market would not go down until they were safely ensconced in their Park Avenue coops.

financeguy, true last post and prior last para!!

never seen a subsidy that benefits the weak and/or powerless

Banks clearly have an asymetric risk profile. The same cannot be said for builders. Limiting rents can only mean less new rental housing(all other things being equal). Since when has price controls ever encouraged more supply of anything?

financeguy:

Why do you say "monopoly rent"? If I arrive to New York seeking a 1BR apartment, I have lots of choice. There are choices of landlords, neighborhoods, building types, etc etc. It's difficult to identify major area that are inefficient in the rental market.

You write -- "But in real estate, competition is limited on both the supply and demand side -- building is slow and tenants are invested in particular units."

In your view of prices, RE is a free market with elastic supply. New developers will build and landlords will convert until prices move into to equilibrum.

Why different for rents? If landlords are able to expropriate value by charging rents above replacement cost, then why don't new builders come along and build at replacement cost until we reach a similar equilibrium?

It is hard for me to see how your price model assumes an efficient market under law-of-1-price. Whereas your rent model assumes landlords have monopoly power. Why is housing supply fixed to a greater degree in one than the other? Or am I missing the point?

RS, limiting the price of EXISTING supply while leaving the price of NEW supply free always encourages more supply. That's basic.

"Limiting rents can only mean less new rental housing(all other things being equal)"
But all things *aren't* equal.

Didn't you see the Great Oz curtain pulled back to reveal the lying right-wing "economist" behind it -- the one who masks the fact that new non-subsidized rental housing isn't subject to rent stabilization?

Seg: Once a tenant moves into an apartment, the landlord has clear monopoly power: no other unit can offer the same sense of home, the same ties to neighbors, the same comfort to children and other conservatives who don't view any other apartment as the same. Moving is never cost-free for tenants. Moreover, tenants who wish to improve the property (as AR did and commercial tenants do routinely) must worry that the landlord will expropriate the improvements by charging a higher rent based on the tenant's improvements. Many tenants who'd be happy to pay once for improvements will be reluctant to pay twice. These issues are central to every commercial lease negotiation and are the main reason why more affluent NY tenants first began to buy their landlords (i.e., form coops).

The difficulty of building increases this landlord power, allowing landlords who do NOT build to charge tenants for scarcity value that they neither created nor fix. RS simply takes that scarcity value and gives it to tenants, mimicking the economic effect of coop ownership of the landlord.

Since RS does not apply to new construction, it leaves incentives to build new construction unchanged. Once the new construction is in place, market rents will adjust downward and the excess monopoly profits RS moves to tenants will be competed away. If the RE market were perfectly elastic -- if building were instantaneous -- which it isn't, RS rents would never be below market and landlords would never receive scarcity rents.

In fact, the NYC RE market **is** sufficiently elastic that most long term studies show that RS rents tend to track the market, reasonably closely in the boros and with a lag during rapid increases in Manhattan. And rents tend to track cost of building, as theory would lead one to expect. Thus, the basic impact of RS on rents relative to the parallel 'market' rents seems to be to stabilize them -- they go up slower during booms, down slower during busts, than 'market' rents, which is, of course, good for both tenants and landlords. This almost certainly makes landlords and developers less risky and therefore more profitable and therefore increases total supply of housing. Moreover, by reducing the problems of long term tenancy, it also makes renting attractive to many tenants who otherwise would be forced to own, thus tending to increase the size and profitability of the rental market on the demand side as well. Without RS, we'd probably have fewer units for sale or rent, far fewer rentals, higher prices and a significantly weaker local economy.

inanceguy
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Seg: Once a tenant moves into an apartment, the landlord has clear monopoly power: no other unit can offer the same sense of home, the same ties to neighbors, the same comfort to children and other conservatives who don't view any other apartment as the same. Moving is never cost-free for tenants. Moreover, tenants who wish to improve the property (as AR did and commercial tenants do routinely) must worry that the landlord will expropriate the improvements by charging a higher rent based on the tenant's improvements. Many tenants who'd be happy to pay once for improvements will be reluctant to pay twice. These issues are central to every commercial lease negotiation and are the main reason why more affluent NY tenants first began to buy their landlords (i.e., form coops).

financeguy - thank you for so clearly outlining the benefits to owning vs. renting, and the reason why people are willing to pay a premium for it.

"Since RS does not apply to new construction, it leaves incentives to build new construction unchanged. Once the new construction is in place, market rents will adjust downward and the excess monopoly profits RS moves to tenants will be competed away."

Hypothetically what happens when the developer -- who put its capital at risk -- completes his building and we fast-forward 10 or 15 years later. Suppose the developer now owns the same building in a strong market. So now what is supposed to happen? If in 2020, the developer/landlord is collecting rent far above his original cost of construction, due to basic market forces, then is this landlord also "expropriating value that ought to go to tenants"? If so, will you be advocating a retroactive reclassification of the units in this future building to RS status?

If not, then why do you believe that a new developer, starting today, should be permitted to earn a future market return (positive or negative) on his invested capital?

Printer --

Yes, we agree that the free market in residential rentals doesn't work very well. In most of this country, it fails completely for the middle class. This dramatic market failure is a real puzzle for believers in deregulation and free market economics -- they strain to explain why problems that the commercial real estate market, the car leasing market, the airplane leasing market, etc. can solve remain so problematic in the real estate market.

But, of course, that's not an argument against RS any more than it is a reason to believe that the law of one price has been repealed. Even if the government subsidizes homeownership and even if non-RS rentals in NYC are poorly regulated, investors will still build/convert/renovate to increase the supply of condos and coops so long as they can make a profit doing so.

And if you're going to reiterate that "market rents will adjust downward" and that "RS rents tend to track the market", I'd like to see the evidence. What of all the stories of, for example, RS C6 units all over the UES and UWS rented by the same tenants for years and years at fractions of market rents. On an anecdotal basis, I don't see much convergence.

So what is the incentive for a building owner with legacy property under rent control/stabilization to keep up the building beyond the simplest measures (that which is punishable under the law)? Basically the incentive is to do as little as possible. If you regulate rate, the incentive is to skimp on upkeep.

I don't think the free market in rentals has failed. When times are good, rents go up. When they are bad, rents go down. If people are unwilling to take risk that rents will move up and they get priced out, they can own. not very complicated. you need to get out of your idealogical tunnel that keeps you trapped in (very long-winded) circular logic.

Seg --
Developers are entitled to earn a market return because that is how we encourage them to develop. That's how capitalist markets work when they work the way we want them to.

If the market is highly competitive, your hypothetical landlord won't be able to charge monopoly rents, because new construction will bring rents down to the cost of construction. The old building will have to charge rents reflecting its age and the cost of renovations. Even though landlords may be able to exploit old tenants, new tenants will refuse to overpay, and that will limit the degree to which landlords can exploit the old ones. So the monopoly rent problem is unlikely to be large.

If the market isn't so competitive and real shortages drive up rents without evoking new building, then your hypothetical landlord is collecting monopoly rents. No one has a moral or economic right to economic rents in a capitalist economy. From an economic perspective, we should feel free to restructure the market to encourage more competition so they disappear, or to let the landlord keep them, or to tax away the monopoly rents, or to change the rules of bargaining between tenants and landlords so that they split them differently, or, if we can do it in a way that will not discourage future investment, to extend RS to transfer the rents to tenants.

Riversider: The RS law offers guaranteed rent increases for capital improvements. If that doesn't work, which it often doesn't, surely the speculative increases of the 'free' market won't either.

"From an economic perspective, we should feel free to restructure the market..."

Unless I misunderstand, I take this statement to mean that nothing should prevent future governments from enacting policies to change rent structues away from the market returns that afforded to developers at the time of construction. You give developers the right to earn a market return today, but you may very well take it away from them in the future if they end up making too much money.

This is a slippery slope. If the market believes that the ability of developers to collect future market rents is in jeopardy, then their cost of capital increases and they become less able (and willing) to build. I don't disagree with a lot of what you're saying, but some of this is circular.

The SE pig has a "bauble" property upstate.

OINK, OINK, YOU PIG!

Gee..anyone no this thread pedantic. God forbid you ever get corned at a cocktail party.....

no = on

If you bought something you can afford, and it meets your needs, you should be fine in the long run. The people, who stretched to buy more home than they could otherwise afford, primarily motivated by rising prices, may continue to be challenged. I feel sorry for others who owned something viable, but sold in 2003 or 2004, anticipating a downturn, because they sold too soon. Prices remain elevated from those years and sellers have lost six or seven years of amortization--that 20%+ of the time of a traditional 30-year mortgage.

some people are happy spending their lives in very little space, or spending larger amounts of their hhi on housing.

i feel sorry for people who have lost their jobs. i feel sorry for people who are slaves to their mortgages.

ar, people living in smaller spaces may become a trend of necessity. But for me it was a choice that offered financial security. Every month I continue to save compared to current market rents and since it's not income, it's a real financial benefit that's not taxed. I'm also not driven out by the historical rise in rents. To me that is living large. If you get a deal to buy at PCV at an insider price, and you can borrow at a rate sub 5%, do yourself a favor and make the commitment. It may not be your ideal neighborhood, but as you say, it has some distinct advantages, works for you, and it is very serviceable.

pmg, i know. and i don't ridicule your decision. i agree entirely that financial security is priceless (pun intended), but how each individual attains it may vary.

nothing's certain yet, but i would guess that this compound will convert, and from what i've heard it will likely be on very favorable terms. yes, if it does occur i will partake in what will be a NYC real estate equivalent of winning the lottery.

corned??