Sale at 10 WEA #26AB: Nearly break-even... sort of

Spotted one small error: The total CCs and RET for 39 months should be close to $100K, not $75K. That only makes the picture bleaker.

I also misspelled "principal", but that's more embarrassing than consequential.

And me and the misses were going to look at a few open houses tomorrow, suddenly I'm feeling a wee bit verklempt.

W81. That was enlightening. As I have followed all the comps listed on SE, I have wondered how all these people who have lost hundreds of thousands --sometimes millions--in their sales are going to approach RE in the future. This analysis adds a whole new level.

No matter what your income, to spend $29K per month for three years on shelter -- especially in an area without easy access to public transport or any good restaurants-- is a significant hit. Imagine the hotel room you could get for $1000 per night. Add in the two years of angst these people had trying to sell and wondering if they would ever get out even close to whole and you have to think that they will be far more circumspect about buying Manhattan RE in the future. Now multiply that by...........

Because of the of the large transaction costs associated with buying real estate, at least an 8-10 year hold time is essential to the financial component of the deal(what I call the emotional component is for another thread.) The above example, though chilling to say the least was the perfect storm of bad timing for both purchase/sale. We could easily list an example of all those that purchased in say 2000 or 2004 and draw quite a different conclusion.

I should add, as some one who prescribes to market timing when I invest, understanding that things don't just go up and spotting a "bubble" in the cycle is also essential when buying real estate. Because sometimes it's just better to rent.

When you look at this analysis, I actually don't think these sellers did so badly!

First, huge props to Fionn Campbell (who is also just a very nice guy) for selling this apartment at a "down 5%" tick in a world where we're basically "down 20%."

Second, what the F do you think it would have cost to rent that -- a new, never lived in apartment, with nice finishes, outdoor space, and oh yeah, 4+ BRs, in a building without the hassle of landlord or board approval? Even in that non-neighborhood, the owners would have been looking at around $20K to rent similar pre-crash. (The fact that it didn't go at $18K post-crash suggests to me that its post-crash rent would have been around $15K.

(To your hotel room point, 23, try getting a golden retriever into a hotel room.)

So the way to look at the loss is the original number of right around $500K -- which is, what, 13% or so per year on a cash basis? Not great, but as the cost of owning an asset which diversified them away from stocks and bonds, and might have had substantial upside potential, not crazy.

ali r.
DG Neary Realty

W81: as someone who got burned trying to do the same kind of flip, kudos for doing the analysis!

If the owners lived in the apt during the last 3 years, they do NOT get to deduct the loss against their capital gains because it is their home. If they had not lived in the apt at all, they get to deduct the loss (or carry it forward) as well as getting an annual depreciation as a deduction if they qualify or taking the interest payment as a loss against income when they sell.

Without getting into the nitty-gritty, in NYC, you need to make 10% above your basis in a new-flip condo situation to break even if you sell through a broker. And add to that monthly carrying costs. As stated previously, you get approx. half your monthly carry back as a tax loss (if you are a passive RE investor).

Apt23: as someone who was burned trying to do a flip, I have to say that the experience didn't teach me that I should never make RE investments. What I learned was, location ABOVE everything else esp. if you are targeting the $$$ market. In every market, there is always money to be made.

" huge props to Fionn Campbell (who is also just a very nice guy) for selling this apartment at a "down 5%" tick in a world where we're basically "down 20%." "....

I do not get into the anti-broker thing on here, but on the other hand, is there any evidence that that the selling price, however good or bad, is attributable to the service performed (well or poorly) by the broker?

I don't know Fion Campbell at all & I haven't been tracking 10WEA, so I can't say. But some of the better brokers on the UWS have well-deserved reputations. Esp. in a building where you can compare same-line apts marketed by diff. brokers (time to closing, price achieved) or really high-priced/sqft closings compared to other apts in an area.

Interesting. I guess I am inclined to believe that on average, generally, a broker won't have much, if any, impact, and that the general market and apartment specific issues are what really matter, plus luck (it's easy to be fooled by randomness on this sort of thing). If it's true that good brokers help sellers, should buyers then seek out apartments offered by less notable brokers.

But if the broker is key, it's one more reason to be wary of this market, because it's another sign of not being an efficient market.

Front_porch:
09/14/2009 Listed by Fionn Campbell at $4,500,000.
...
11/12/2010 Sale recorded for $3,200,000.

Initially overpriced by 40.6%, over a year on the market and the broker gets "huge props"? I don't know anything about the deal. Did he do something special, or did he just find the market clearing price by nudging the sellers down from an overly ambitious level?

Also, Front_Porch, I think you're off on the pre-crash rent. #24A and #24B rented in early 2008, asking $6000 and $7900 respectively. Put those two units together, and you have the same apartment as #26A. I know there's a big-apartment premium, but even at the height of 4BR fever, it wasn't 50%.

buyerbuyer - the market isn't 100% efficient. "Best" priced properties are those which have been passed from broker to broker, initially mispriced, etc.

buyerbuyer, the market isn't perfectly efficient because the goods aren't perfectly substitutable. Being a broker includes an element of being an art dealer as well as an element of being a car salesman.

west81, I don't know what the 4/5 BR premium is either, because I haven't done one of those. But I do a lot of "nice" 3s, and $12K -$15K got (and still gets) you a lot less apartment than the apartment we're talking about.

ali r.
DG Neary Realty

The contract date on the unit was November 2006, so the price drop is actually very much in line with SE's stats Nov 2006 to present once you adjust for the fact that the buyer had to pay the sell-side taxes as part of the original purchase.

FP, would you really steer a client wanting to rent at $15K towards this property? If so, you'd be doing them a great disservice IMO. Apt 25B (which is more than half of this unit) was listed for $5500 this year, and even there it took close to 3 months to rent; in early 2008 it was listed for $6500.

For $15.5K, there are options like this 1850 sq ft w/ direct park views from living room and all bedrooms on the 58th floor of the Time Warner Center:

http://streeteasy.com/nyc/rental/672298-condo-25-columbus-circle-lincoln-square-new-york

The 10 WEA apartment sold for $3.2M. The apartment in TWC 6 floors up is listed at $8.8M, probably overpriced, but probably would sell realistically at $6.5M. Yeah, I know the TWC is 30% smaller, but are these two places really in the same league?

W81st, FWIW, I find that the big-apartment premium is offset in the rental market by the high-rent discount. The higher in rent, the better the deals you find, IMO. I think the pool of people willing to pay $200K in annual rent is much smaller for whatever reason as compared to paying, say, $75K in annual costs plus tying up $6.5M cash so as to save the $125K difference, not to mention the $65K annual cost of amortizing the transaction costs over 10 years. For some reason, the former seems insane while the latter seems like prudent investing to many.

Inonada. My bad on not responding on the rental side. Busy setting up two finance companies at the moment. But Thnks for taking Ali to the sheds. I almost barfed my coffee when reading her post and those even remotely supportive of this lemming seller.

Most ppl are clueless about comps, lost opportunity, leverage and risk. Obtw, Ericho my favorite money manager notes gold/euro/copper/equities are up significantly.

Finally, ill tell you the stupidest rationale for doing this lemming trade and being okay with it. It goes something like this. 'if I didn't lose it on this trade, I would have lost bigger on another trade." insanity of a lemming.

Flmaoz. 99% car dealer 1% art dealer => so basically can be replaced by $50 software, like fleabay.

Nada you're kidding me. You would put a client for a 4-5 BR in a 2 BR? Where would you put their kids?

Ali

FP, that sounds evasive to me. My point was to give a sense of what could be had for $15K, not to fulfill the needs of some hypothetical clients in a market segment you've never deal with. If you ask me, those hypothetical clients with lots of kids looking to spend $180K a year aren't exactly looking in that neighborhood either.

Here's a classic 8 on RSD at 90th set up as a 4 BR plus an office. It has direct views of Riverside Park and the Hudson that unlike 10 WEA don't involve looking past a parking lot, construction, and a smokestack. Kitchen seems fancy (2 dishwashers, fatty-looking stove, etc.), the apartment seems in very good condition. I think we can all agree this is a much better location and is an imminently pleasant neighborhood, expecially for families. It's probably 10% or so smaller than 10 WEA, but on the whole superior to 10 WEA IMO. Asking rent is $12K, been on the market for 5 months with 2 of those months at the current ask. That means you can get it at $11K without much effort, maybe $10K if you drive a hard bargain. (It's still on the market -- SE has trouble with "no longer available" on some listings; just click through to BHS).

http://streeteasy.com/nyc/rental/655246-coop-180-riverside-drive-upper-west-side-new-york

Given this apartment on the market, would you really think you've done well by the client to have them pay $15K for 10 WEA?

w67th, I agree with the bizarre rationalization of "If I didn't lose it on this trade, I would have lost bigger on another trade."

These folks are out somewhere in the range of $500K under the rosiest of pictures ($16.5K monthly rent on average, no empty months) and $700K under something more likely ($12K monthly rent on average, a couple of empty months). That's close to a 100% loss on the $700-800K of equity they put up. Hell, had they put that equity in the stock market on the day they committed to the risk of this home/investment, they'd only be down $60K. Had they done half stocks, half long-term bonds, they'd be up $60K.

If the people on this board are any indication, I'm pretty sure the owners think they broke even net-net.

BTW, w67th, I want a sail on that yacht of yours.

nyc10023: You're right about the capital loss (assuming the apartment was owner-occupied). Thanks.

inonada: Your comp at 180 RSD introduces the wacky topic of coop rent-buy math. #9F would sell quickly for over $3MM, yet it can't find a tenant at $12K per month?

inonada, you can reach me via aboutready.... welcome aboard on a three hour tour... three hour tour... :)

"w67th, I agree with the bizarre rationalization of "If I didn't lose it on this trade, I would have lost bigger on another trade."

Someone actually said these very words to me, I had no response as it caught me off guard. This guy manages a lot of money...After essentially losing his dp on a new construction condo he told me the money would have been in the market and he would have lost it there, at least he now "owns" a new home.

Ginger or Mary Ann, w67th?

West81st, I'm not that surprised by the rent vs. buy there. You find that relationship in the condo market, and usually there is a coop discount for buying, but I think there's also a coop discount for renting. I don't know about this place in particular, but most coops have a 2-year limit on subleases (which they'll waive for the right tenants perhaps, but you never know). Then there's the board approval, the worst part of which is that as a renter you have to get a lease about 2 months before you're ready to move, and then spend a month in limbo. So maybe this place sells for $3.3M as a coop vs. $4M as a condo, but it also rents for $11K vs. $13K.

Keith, I heard something like that once, but at least is was in the depths of the 2009 stock market bottom. It was from someone who walked away from a deposit in new construction. More a realistic assessment than a rationalization, however. More like, "I take solace from the fact that I would have put it in the market and lost half of it."

When you heard this, were stocks at their bottoms, or did the person apply a mythical worst-case trading where they sold at exactly the wrong moment?

nada, I can't tell if you truly think these apartments are identical or if you're just yanking my chain.

The RSD listing would be awful for entertaining, with no FDR and the kitchen a mile from the living room.

That's roughly what one of my clients would say, even before we got to "it's a co-op and would require a board process." I may never have done a 4, but I've done high-end 3s, and I do know the general desires of this customer.

And I'm with Keith on "if I hadn't lost it here, I would have lost it there" - something a Wall Street client said to me in early 2009.

ali r.
DG Neary Realty

Ali: Give me a 600SF LR/DR overlooking the Hudson, and I'll figure out how to entertain in it. In that tax bracket, the hike from the kitchen is a problem the caterers can deal with. (Besides, it's not much longer than the butler's pantry in a nice Park Avenue nine).

I completely agree about the coop aspect. It wouldn't bother me, but the likely 10 WEA tenant won't like it.

no one is yanking anyone....

inability to comp => sure sign of financial lemming.

Sometimes it's not wise to purchase exactly what your heart desires. Or rent.

Just because you really, really like something doesn't mean you should choose it.

No, I don't think they're identical. But they are very comparable.

One is in a really crappy neighborhood. The other is in a beautiful neighborhood. One has views that are pretty grimy. The other has views that are pretty high on the scale of views one could have. Would this "high-end 3s" customer of yours really want to live at 59th and 11th?

Also, both have crappy layouts for entertaining. The one on 10 WEA has its living space broken up between one 20x20 room and a 20x12 space, so 640 square feet. That living room is not very gracious for that size apartment. The one on RSD has the same size of entertaining space in one big room. You don't get a separate dining room, but it is a lot more gracious. Both layouts are awkward: the separation of the living room from the kitchen and dining room by an entry hallway in 10 WEA isn't exactly ideal, now is it?

It seems to me you are saying "I have clients who are looking for a new development 4-BR condo with a crappy mashed-together layout in a marginal neighborhood with views that need to be grimy; they would never consider anything else." Uhhh, OK. If I give you anything outside of those exact specifications, are you going to say that "Oh, but that's not what my client is looking for"?

On the coop vs. condo thing, it's all reflected in the prices. Just as a buyer gets a benefit for the downside of a coop (paying $3.3M as a coop for what would be a $4M condo), the renter gets a benefit to: paying $11K for what would be a $4M condo. You put up with the pain, you get compensated. Easy enough.

Holy crap Inonada, that was one vicious sarcastic post. I'm gonna have to hit the 'report abuse' button.

In other news, pope says aokay to use condoms if you have aids. Sadly no apologies for the 5millions Catholics infected while the popes mulled this over.

No, only if you're a male prostitute who has AIDZZZZZ.