Buy v. Rent

200 times monthly rent (16.666 times) like I always say.

And not be confused with investment properties, 12 times max for me.

truthskr -- why doesn't the law of one price apply?

financeG
Because one is a home and one is strictly for financial gain. Im one bear who accepts that. Basically Im saying the threshold for overpaying for a home is 16/17, and rare cases 18 time rent roll.
More than that it's silly not to rent instead.

Im sure you'll disagree and that's ok, but when it come to investments,I for sure stick to the under 12 times rent roll, which has kept me investing and happily so east of the Midtown Tunnel. :)

The law of one price is the observation that in capitalist markets, when the same thing is for sale at two different prices, someone is likely to buy it at the low price and sell at the high price, which tends to cause the two prices to converge.

RE markets move slowly and all that, but still, if the same unit is worth 50% more owner-occupied, there is a lot of money to be made by buying from investors at 14x and selling to owner-occupants at 15x. And knowing that, why would enough people be willing to sell at 12x or buy at 17x to make those prices sustainable?

The question is why you think this ordinary process of market correction isn't going to happen in NYC.

Here is a common mistake. The rental quality is not necessarily the same as apartments for sale. High end rentals with high ceilings, doorman, high-end finishes will cost $6 per sq foot at least. 1 union square south for example. For a 2000 sq foot loft, it is 12K per month. 180K per year. The same loft/apartment will be around $2.5mm. In addition, you get flexibility when you own to decorate the way you like. Most people make the mistake of comparing rental quality finishes with high-end apartment prices for sale. Rental market was an anomaly in 2009-2010. Just a price point, 300 Mercer, a low ceiling rental with basic finishes and poor single pane windows, good light no special views rents for $5 a sq foot. For 1250 sq foot 2 br, it is 7K. You can buy better apartments for $1.5mmish in the area (post war 20 east 9th, 40 east 9th. 115 east 9th).

i am renter for different reasons

financeguy, is your statement that because of this law of one price and rational behavior that all real estate is at equilibrium prices now, has always been at equilibrium prices in the past, and will continue to be at equilibrium prices in the future?

You are a complete asshole.

huntersburg, um, no, roughly the opposite.

300_mercer, the statistics quoted in the article compare median sale prices to median rental prices. There is no place in the US where these are likely to be comparable apartments. It would therefore be a complete misreading of the statistics to think that they show that *comparable* apartments sell for 26 x rents, or, for that matter, that an apartment selling for 15 x its *own* rent is appropriately priced.

I guess you are saying that this so-called law of one price then is not a law at all.

More rent vs. Buy excrement to ignore

Ratios for selling price does not consider taxes and maint costs. If that were the case, BPC would sound like a great deal.

"Here is a common mistake. For a 2000 sq foot loft, it is 12K per month. 180K per year."

Here's another common mistake: sounding like an authority without being able to do basic math. $12K * 12 months = $144K a year.

Yet another common mistake: using overpriced comps. Look at the apts in Union Square South, and compare to this boutique triplex with terrace overlooking Union Square:

http://streeteasy.com/nyc/rental/695514-condo-863-broadway-flatiron-new-york

After including outdoor space at 50%, 2700 sq ft which could have been yours for $11K. Higher-end space than Union Square South, but only $4 a square foot, not $6.

"More rent vs. Buy excrement to ignore"

At your peril.

Flmaoz. Maybe if I enlightened the financial retards it'd make more sense.

It's called 'prepaid rent VS rents paid with an annual re-up' analysis. When you have paid up front, you must account for opportunity cost of that capital. Now the less you think you will earn even though all data points to higher risk free returns in the future, the smarter you feel!

No comments by LICCdope?

BOO-HOO-HOO!

I'm not sure what the point is of using generalizations (x times) for the sake of a discussion like this.

In truth, it's not that hard to build out a spreadsheet with the pertinent assumptions (what you'll pay in rent and annual rent increase, tax rate, home appreciation, selling and buying costs, stock market appreciation- to take into account the opportunity cost of the down payment-, etc). From there you can get an idea of the likely FINANCIAL wisdom of buying (note: I just used all caps to indicate that there's more to it than just the $).

That said, at 12x, it doesn't take a lot to make a buying a net gain on a present value basis (even short term).

Manhattan is nowhere near a 26.7 ratio right now.

Old Man steve is having problems with numbers again . . .

HAHAHAHAHA!

Not Old Man Steve's numbers, LICC's. Official numbers.

HAHAHAHAHA!

And - they're understated.

69. IM USING ALL CAPS TO point out we just had greatest re bubble. Flmaoz

LICCdope - do it with your tax benefit.

PLEASE! I have a lot of work, I need a laugh.

Innoda, Sorry for the miscalculation. But the main point that "rental apartments quality is generally far inferior to the apartments" on sale stands. The example you provided is not a very nice building as least looking at goodle street view and also the sq footage seems more like 16-1700.

Official listed rent on steve's rental = $49,200/year (not including his free mos.)
$49,200 X 15 = $738K
$49,200 X 20 = $984K

However, go to Queens or Bklyn, and the ratios are very different.
$18,000/year is high for a one-brm in Qns; 15 X $18K = $270K.
$270K is high for a one-brm in Qns.
I do not include LIC new construction in the above.

My rent is $3,600 a month lowery. 15x = $648,000.

OH - THE TAX BENEFIT!

This multiple can't be any more fixed than long-term interest rates are fixed.

Stevejhx on your apartment have you found a similar apartment for sale and priced it out?

Steve, your rent is $4,100 a month and you were given a concession to sign a two-year lease, two months' free rent. We went through this before. Your bldg's web page lists its asking rents, including for the line that your apartment is in. They may or may not offer a similar concession to someone renting it today. You'll remember also that I predicted your renewal offer will start at $4,100 and ask for a small increase above it, you'll balk, and the negotiations will settle it at somewhere around $4,100. You won't find a comparable 20-year-old condo in Midtown for $738,000. Someone else will say that they have. You'll argue about it. You'll be selective in how you define "comparable" and they will be equally selective in the other direction. Yawn.

Mercer, I'm not disagreeing with your contention that the average rental is lower-quality than the average condo. It's best to make direct comparisons of condos for rent and sale, IMO. What I'm disagreeing with is the idea that you have to pay $6 a square foot at a high-end rental, the type of thing that sells for $1250 a sq ft. For $8.4 a square foot, you get Time Warner Center 60th floor with park views, the type of thing that sells for $3500-$4000 a square foot.

On the specific listing I had given, it is 2350-ish sq ft, and it is nicer. Higher ceilings, high-end finishes, great light. But whatever, believe what you like.

Apologies for the snarkiness on the math.

I have been trying to find a high-end rental. New Construction or prewar (no post-war) high ceilings >9 feet, mid to high end finishes (marble bath, granite counters, nice appliances), around 1300 real sq foot in Village, Tribeca, Soho. Nothing available. 300 mercer and george town plaza are not high-end. Related has some offering in $6 range, 2 cooper, 666 greenwich. All the same level. Any suggestions? Prefer a rental building so that I do not get kicked out every two years.

http://streeteasy.com/nyc/rental/696256-condop-60-e-8th-st-greenwich-village-new-york

Here is an example. Not a very pretty building but good amenities.

a renter is a glorified employee of the landlord. did I say lord? good luck to the suckers.

Mercer, not a market I follow. Maybe AR has specific thoughts?

FWIW, I like rental buildings less.

No - the posted rent was $3,900ish, not $4,100ish, & no apartments in my line have been listed in quite a long time.

Find what you think is a comparable 2-bedroom 2-bathroom 2-balcony apartment in my neighborhood for $700,000. Doesn't exist.

They are still offering 1 month's free rent, the same as I got.

And yes, I look at listings for similar apartments all the time; they're all well over a million, with carrying costs twice my rent when you include tax and maintenance. The whole "finishings" argument is a lark - I could redo my bathrooms & kitchen for $20,000, though they don't really need to be redone; they work just fine.

A 900 sqft rental in Midtown West for $3900 is not what I would call a bargain....

http://streeteasy.com/nyc/sale/499637-coop-436-west-47th-street-clinton-new-york

nicercatch: "a renter is a glorified employee of the landlord."

Does that make an "owner" with a mortgage a 'glorified employee of the bank?'

If you are intelligent enough, have enough information to make a decision, and there are enough choices, isn't the best outcome whatever makes the family happy? Sounds like stvejhx is smart enough, had more than enough information, and saw plenty of options and he is happy with his place. And others are similar but owning.

You have a nice concept of what a "comp" is, Juicy (as well as your measurement skills).

Here's what is 1114 square feet:

http://www.nybits.com/apartmentlistings/6572260e504d7b602e027aef85fc2eb7.html

As the dimensions of each one of the my rooms is bigger (except the kitchen), & the stated living room dimensions are at the narrowest point (excluding the alcove & foyer, I'd say you have a good fit of right around 1200 square feet.

The JuiceMan square foot measurement is about as accurate as his buy-rent ratio: multiply reality by the JuiceMan Factor, to get whatever result suits JuiceMan's ego.

HB: It took me a year of looking to find this apartment - it was by far the best rental value out there, and far better than anything you can buy.

Including JM's "comp," compared to this:

http://www.ellingtonnyc.com/18_28_c.html

I even get to see the Macy's Thanksgiving Parade, with a Big Gian Float of people who bought real estate at the peak, with "DUNCE" stamped on their backs.

The JuiceMan Float.

Mercer, this is going in the wrong direction from your 1300 sq ft at $6 in that it gets you more size for the same price rather than a lower price, but I thought I'd post in anyways. TriBeCa loft in what looks to be boutique rental building, 2000 sq ft at $4. Appears to have been high-end gut renovated in the past 5 years based on pics and building sale date/price, though light is obviously is not going to be great as it's a classic TriBeCa loft building (on original block that was TriBeCa) & not top floor.

http://streeteasy.com/nyc/rental/721773-rental-39-lispenard-street-tribeca-new-york

Steve, you have forgotten that in the month or two following your move into your rental, I clicked on your building's web page and found the exact same floor plan as yours and it was advertised at the time for $4,100 per month. There was some back and forth on a thread about this, and your answer was that yes, indeed, the monthly rent put on the face of your lease was $3,600 based on having prorated the landlord's concession of free rent, so that rather than get a free month and then pay the nominal rent the other months, you pay every month what some term the "effective" rent. This allowed the landlord to continue to post on the internet that that line of two-bedrooms was available for $4,100 per month. If they haven't had anything in that line available for a long time, then that would tend to support my prediction that you are not going to be offered a renewal lease at $3,600.

The comp offered for steve's rental is not comparable in my eyes, and I couldn't even link to the floorplan. Steve's building is a doorman lux building with porters, etc. That "comp" probably does not even have an elevator, and if it does, it's probably one of those tiny things that are useless for moving in and out. It looks like a converted walkup tenement and is probably less square feet than steve's apartment, which he claims is 1,100 sq ft and his landlord probably claims is 1,100 as well, but is probably less than what the landlord claims. There is no way in hell anyone is going to buy a two-bedroom coop or condo in Hell's Kitchen, even if it's only the size of a large one-bedroom but split up into smaller rooms, for $3,600 or $4,100 per month. But Steve will continue to overstate his arguments and others will continue overstatement their arguments.

I don't know people find these arguments so much more productive than just comparing rent vs. sale prices in condos where owners are looking to EITHER rent OR sell the same unit, or where one unit is for rent in the same line as another unit is has recently sold.

Thanks Innoda. The apartment looks very nice and well priced. However Lispenard is too commercial and close to china town/canal. The condos on this street only go for 1000 per sq feet (except for 1 york which in my opinion is too high prices for the location). In general when the square footage get bigger than 1500 sq ft, the rent per sq ft drops. Also, you can not rent many of these larger apartments for a long time say 5 years as the owners want to move back in or sell. This is why you have to look for a rental buulding. Nothing in prime village, union square, tribeca, soho, noho. Try a search for 2 br 2 baths between 5-7K. Please keep in mind the rental brokers tend to overstate the sq footage even more than the selling brokers.

Low, I've always said that I got a great deal on my rental - but the advertised rent was around $3,900 a year ago. The rest of what you say is true. Today's price would be higher, but not much because after a good spell they've had trouble renting again.

I don't know what rent I'll be asked to pay in a year's time. I'm not that good a predictor. But since I pay every month on time they won't mess with me: I'm a zero-risk tenant.

I've lived in a 900-square foot rental before, two bedrooms & two baths, and an 800-square foot two bedroom one bath. When I moved here I had to buy a large amount of furniture to fill the place. 1100 to 1200 is approximately correct. There's nothing like it for sale at the price I pay, and if you consider that maintenance and taxes alone would likely be at least $2,000 a month, it's unlikely that there will be for a long time, till we fall back down to the 15x annual rent level, as opposed to the 30x where we currently are.

Here is an example of high-end rental in prime location. Around 1050 sq ft at 7250 with only one bath. Assuming they discount, still 6500.
http://streeteasy.com/nyc/rental/692391-rental-2-cooper-noho-new-york

real two bedroom 1200ish sq foot. High-end. 10K. Assuming you can negotiate a lot, $8k. Still more than $6 per sq foot.

http://streeteasy.com/nyc/rental/716462-rental-2-cooper-square-noho-new-york

300, you picked the most expensive rental on the market, vastly overpriced over everything else listed, just about.

1200 square feet in a decent nabe, from $4k to $6k, tops. Even 20 Fifth Avenue, 1500 square feet, is OFFERED for $8k

http://www.nybits.com/apartmentlistings/164574.html

One of the great things about streeteasy is the available history. Here is a thread where steve is speaking about an apartment that is "generously 950 sqft" and when compared to steves's apartment, it is actually bigger.

http://streeteasy.com/nyc/talk/discussion/20204-they-didnt-get-the-memo

Can't make this stuff up

Steve, I'm not sure of the exact number, but the reason I remember the exchange was that I suspected when you said your rent was $3,600 you were averaging 11 months' rent over 12 months, which is what I did when I had a similar deal in a rental. Your response back then was that no, the lease was written with the effective rent spread over 12 months equal payments. Regardless of whether they charged you $0 one month or evened out the effective rent, you leased at an opportune moment when the market was weak and you were smart to take the two months. I can't comment on size. You were a zero risk tenant in your prior apartment, and that didn't prevent the LL for raising the rent to where you thought it was unacceptable. You've been priced out of Chelsea, and have moved into a less expensive neighborhood because you get more bang for your buck. This is exactly what people do when they make tradeoffs, some of which you think are ridiculous, like buying in LIC.

About the $4K to $6K for 1200 sq ft, I'm not so sure. See this:

http://www.theanthemny.com/current-availability.php

Sometime tells me the 2brms in that bldg are 1,000 sq ft or less, that only the 3brms are 1200 sq ft, but it's just a wild guess. You've looked at enough I'm sure, but the rent market has improved since your deal.

Absolutely right, JuiceMan - generously 950 square feet. Because the measurement of the living room is given at the widest point, not the narrowest, whereas in my apartment the measurement of the living room is given at the narrowest point, not the widest.

That alone makes up the difference, and it's very easily proved because if you look at the picture of the living room, they can barely fit a small round table with small chairs - no way that's 12" wide. It's 8" wide at the most.

Never mind that the two bedrooms are much smaller, as well, and the bulk of that apartment - irregularly shaped, is a long & useless hallway.

I have a 6" dining room table and 6 chairs in the dining area; the width from the wall to the entry door (where the "C") is, is 15", not the 12'3" it states. The distance from the alcove wall to the window is 16", not 12'3". Add that in, and subtract out the extra square footage in the other apartment's plan, and there you have it.

You've been owned, but if you don't believe me come on over with a tape measure - I'm here working all day. Bring LICCdope, too, so he can take a picture of my 21st floor wall-to-wall windows, and stand on the balconies and take snaps of the view.

You can't make this stuff up!

"I can't comment on size. You were a zero risk tenant in your prior apartment, and that didn't prevent the LL for raising the rent to where you thought it was unacceptable."

They didn't raise the rent -- they lowered it, just not enough for me.

I haven't been "priced out of Chelsea"; I happen to love where I live. In fact, since they put the Trader Joe's right across the street from my old apartment, I'M DELIGHTED TO HAVE LEFT! Living anywhere near a grocery store is deadly: delivery trucks all day and all night long.

I've been in that building, lowery - it's not bad, very hotel-like though. The two bedrooms they display are about 900ish square feet. You can find a range of rentals, and the market is stronger than when I rented (which is why I took a 2-year lease), but I checked on the prices before I made the post.

Hey Juicy - bring the Juicelet along when you come with your tape measure. Me & Digs can't wait to meet him.

everybody is an employee of the banks. President included

"They didn't raise the rent -- they lowered it, just not enough for me."

Six of one; half a dozen of the other. You didn't like the rent, so went for a lower one.

"I haven't been "priced out of Chelsea"; I happen to love where I live."

uh...... yeah, right. You're not willing to buy or rent in Chelsea, so therefore you just happen to like somewhere else instead. Okay.

"I've been in that building, lowery - it's not bad, very hotel-like though. The two bedrooms they display are about 900ish square feet."

Sounds about right, hotel-like and 900ish. But your price range is not exactly perfect, since there are buildings where 1,200 sq ft will cost you $7,000, not $4,000 - $6,000.

But you don't have an argument from me on it costing more to buy than to rent. It does.

26.7x for Manhattan sounds high..unless your talking strictly new development condos. On the UES in PS 6 where we are, its starting to look like we can duplicate our $5500 rental for about $1-1.1mm in a condo. Our landlord will argue market rent for our apartment is more like $6k. In coops, it doesnt feel like we're too far from 15-16x. Issue is the maintenances have gone up so much in the last 10 years while the rents have done nothing. So I can 'save" $4000/mo by putting 1.1mm to work...Still seems kind of weak. Lower risk ways to make 4% after tax return over 7-10 yrs.

I love it when people - like lowery - project their own problems onto other people - like me. That I was priced out of Chelsea after living there for years, paying the rent for years, and then they lower the rent, & suddenly I'm priced out.

Makes sense to me.

And it makes sense to me too, Steve. Have a good holiday and a Happy New Year. You don't fool anyone, but I agree that buyers in this past bubble have not stopped to think for a minute of how much more they're paying over the long than if they just rented.

And you are indeed priced out.

okay, lowery, whatever.

300_mercer, I think 2 Cooper is having a lot of trouble moving it's inventory with pricing like $10K for that unit. As something to compare, there are 3 2000 sq ft new construction condo lofts available in this converted church in the West Village, all asking $10K:

http://streeteasy.com/nyc/building/novare-condominium

Seems like the type of situation where you could hook yourself up with a 3-year lease if you want longer-term. A price like $9000 seems like a no-brainer to negotiate, and you can likely do better: 3 of 8 units in the building are for rent at the moment. So, $4.5 a sq ft or better for places that sold for $1250 or so.

"Also, you can not rent many of these larger apartments for a long time say 5 years as the owners want to move back in or sell."

I absolutely disagree with this statement. Do you have actual experience here? I do. When I see a place, I always check to see if the owner would be OK with a longer-term lease, 3 years in my preference. I'd say 70-80% of the time, the answer is yes.

inonada, thanks for the tip on Novare. I have burnt by crazy increases in rent at 300 mercer. Went from 3800 to 5200 in 4 years for a 2bed, 1.5 bath 1050 sq feet high floor apartment with views but with low ceilings and 20 year old bathroom and kitchen.

sorry to jump in, but one of the side effects of being a troll is the inability to bump threads. So let let interrupt this fine specimen of rent/vs.buy to wish bullz/bears a merry xmas. Welcome back Rhino!

Inonada, I'm pretty sure I could get that unit for $7K, prepaid for 6 months. 2 yr at $7K, with a third year at $8K at my option and $9K on the 4th yr, of course at my opton. What's funny is, after the first 2 yrs if the rents continue to fall, I'd go back and negotiate again after yr 2.... but such business acumen and negotiating skillz are lost on most most most people. That would almost put my kids in middle school, where we'd probably make another move, no?

OBTW, $3K on nutcracker, $1K on rockettes, $1K on messiah tkts, $40K in xmas gifts.... etc etc etc over the last week in nyc.... just to let you know, where and whence I wanna be, I can be a financial imbecile.

I almost forgot, FLMAOZzzzzzzz.... Tis the season to RENT.

300_mercer, I think modus operandi by large rental buildings is to push above-market rent increases on existing tenants. You rent a place at $3000, the next year $3100 is proper but they jack you up to $3200. Big song and dance about how the market is up to $3200, you ain't gonna move over $100. Next year, they jack you by $200 again rather than $100. Five years later, you're at $4000 when market is at $3500. Standard practice, you love it as, say, a REIT investor as it maximizes revenue.

That's why I don't really believe in the idea that you can get a long-term rental in a rental building. Sure you can stay for 5 years, but you're doing 1-year leases where above-market increases are the norm. In condos, it's much easier to start with a 3-year lease. Even beyond that, condo owners don't fuck around with above-market increases as they don't have an already-paid leasing staff to deal with vacancy churn.

W67, I'd be impressed at $7K. I think $8K is doable. Why don't you go and see what you can get for sport? We'll make a little bet on it with the line at $8K, our standard amount: $1.

Yeesh, $40K on gifts??? What the hell are you buying -- 1-year rentals for privacy when you and your wife need it?