Renting studio $114 a month more than owning..

let's mix it up with this one :)...let the defense lawyer spinning begin.....there's a mountain of evidence over here but...."no, no don't look there, look here and focus on this meaningless area" devilishly says the defense attorney.

What was the time period of the purchase?
On the rental, is that the current rental price or the rental price at approximately the time of purchase?

What about the 200K you lose when you sell in 5 years.

c'mon apt23 stop the nonsense..you mean the 200k plus 25k loan reduction in 5 years..

200k appreciation of course! please provide VALUE to the discussion son, value.

For $114 dollars a month the renter has the peace of mind knowing that they can move whenever they need to (taking lease terms into account), the cost of leaving is zero verses a 6 % commission and any "flip tax". Rent may be going up, but so are interest rates - the return on investment for the renter will increase - cannot say the same about the renter.

I plugged your numbers in the NY Times rent/buy calculator; your advice works if the value of the apartment goes up by $350,000 in 6 years. If the value goes up by 1% (barely beating inflation), it will take 18 years just to break even.

And if the value of the apt goes down 2%/year for, let's say realistically 7 years before it starts to appreciate 1 or 2% a year? How long before your downpayment goes up in smoke and how long before you break even?

By the way Steve, your rent appreciation fantasy don't scare us. My rent has been the same since 2007. Why? Because my landlord's building is paid off. The only Landlords who will feel obliged to rise rent are the ones who overpaid during the bubble and havn't factored any increase of their yearly expenses in their business plan ( a bit like you) and think they can recover that from their tenant by jacking up rent. Unfortunately for you, there are a lot of apt to chose from and you will end up with an empty overpriced apt instead.

Think about it: Let's say you break even at $2000/month but your expenses increases 5%/year. Now you feel like jacking up your asking price to $2100 month while you can rent the same apt for $1900/2000 from someone else. Then nobody bites at $2100 for 2 month. Are you gonna rise your asking price again to factor the 2 month rent lost on having the apt empty for 2 month? What's next SteveF, tell us? Will you ask $2100+$350( $4200/12) to rent your studio? Ahaha! Funny guy!

> The $388 is not used down payment money earning safe 5%

Wrong. Again. (as usual, we are talkoing SteveF).

Given the risk of a 5x leverage investment, sorry, 5% just 'aint the equivalent.

Try again, toots!

Also, what is the value to the renter of possibly being able to buy the same apartment for 10% less in a few years...

btw, show us the listing where you have this choice...

Please someone link to a studio that will rent for $2300 per month, that is for sale at $500K.

Or please point out a safe 5% return investment.

I have been searching for both of these things.

This is why I needs advice.

And even with the made up numbers, this points out buying the studio to rent out was a COMPLETE bust.

swe you are on ignore honey. However, please continue taking your medication. Everytime I post your blood pressure/pulse rate/toxicity levels go through the roof. So you'd better stock up on the meds b/c I'm not going to stop posting!!..ahahahahaahahahah..hahaha(Vincent Price Thriller laugh) :) full disclosure: I luv trashing swe, it's so much fun.

sledge scare? I don't mean to scare anyone. I could care less what u do. I'm just posting the facts for all to learn.....and to get swe to start foaming..lol

As an example, the studios in London Terrace rent for about $2,000-$2,500 per month and tend to sell in the mid to high $400s. Maintenance is a bit high there, though.

"Everytime I post your blood pressure/pulse rate/toxicity levels go through the roof. So you'd better stock up on the meds b/c I'm not going to stop posting!!"

From the guy who ran away CRYING twice... nice!

Please don't stop posting, we get SO MUCH AMUSEMENT from it!

SteveF...this post is for me...I'm paying $2200 for an alcove studio...I can buy a studio for approx. $450-500k with $100k down..my problem is the maintenance which can run up to $1k a month....in the long run I'm spending almost $27k a year on rent and it's going up so something has to change i just don't know what.

Julia - The maint in Steve's example was $800/mo which seems reasonable ($1.60 psf?)

julia...get on the L train..go to Wmburg...check out tax abated buildings (i know...not in manhattan)

Julia, u have to just crunch the numbers.
Why don't u try this: Act like u bought a studio last january and u owned if for all 2010. Now go to turbo tax and do your return(it's free unless u file) and see what your refund will be with owning the apt vs what your refund or your amount due is now while renting. Then crunch the numbers using your income tax benefits. Add evrything in and I'm sure you'll be pleasantly surprised. Then finally, look at the mortgage amortization schedule to see how much your loan drops evry month. It's beautiful.

So, an investor, assuming no tenant difficulties, grosses 2300, pays 800 in month taxes/cc. Investor needs to plan on a 50,000 renovation every 20 years or so, which comes to another 200/mo. That leaves 1300 mo net. So expected return on investment is 3%, before transaction costs and so on. Even if you assume that the apartment will last forever without repairs, the expected return is only 3.6%. If investor leverages up at 5.5% as you suggest, net return is negative. This is not a good investment: equity investors should expect to make MORE than senior secured lenders, not less.

Indeed, investors are likely to be interested only if (1) they imagine they can make up their losses by selling to someone who will be willing to take bigger losses (i.e., return of the bubble), (2) they imagine that rents are likely to double soon, while taxes and cc remain steady, or (3) the price drops by over half.

What about an owner-occupant? A cash buyer has monthly costs of 800 plus 200 for the expected renovation in 20 yrs -- 1000/mo. So the cash buyer is saving $1300/mo on an investment of $500k, again omitting transaction costs, etc. That's an implied return of 3% on a risky investment that, based on fundamental value analysis, is highly likely to drop in value. Leveraging up at 5.5% makes the numbers worse, even with the tax subsidy for borrowing.

Note that inflation doesn't help at all. Say we have 10% inflation for 5 years, so rents, ccs, taxes and the expected renovation costs all go up by 75%. The rent will then be 4025, the taxes/cc will be 1400 and an investor would net 2300. An all-cash owner-occupant would then be paying 2275 (nominal) or 1300 (real) less than the renter before interest. The levered owner will now be just breaking even on a cash basis, making profit essentially equal to the loan paydown -- maybe 5 or 6%. Of course, if inflation is running at 10%, TIPS will be over that, so this 5 or 6% is a disaster.

For the owner to be able to sell and break even price in real terms, the condo would have to be worth 875k, again without transaction costs or interim repairs. But if inflation is running at 10%, even an investor who -- like Steve F -- sees condos as as safe as US government obligations would want an expected return of as much as s/he could get with no work by buying TIPS, which suggests investors won't be willing to pay more than $250k or so -- a drop of 50% (nominal) or 75% (real) (more likely $200k or less, since after a 50% price drop, even SteveF will recognize that condos can be quite risky and will want to be paid for the risk). Even homeowners using SteveF's calculation and happy to give the tax subsidy entirely to the seller wouldn't be willing to pay much more than $300k.

For the cash buyer, owning will have cost something like 2500/mo more than renting over 5 years. The leveraged buyer will be in far worse shape, with a mortgage larger than the value of the unit and no way to move without saving two downpayments.

I hope it is a pretty nice studio to be worth that much more than itself.

"Julia, u have to just crunch the numbers.
Why don't u try this: Act like u bought a studio last january and u owned if for all 2010. Now go to turbo tax and do your return(it's free unless u file) and see what your refund will be with owning the apt vs what your refund or your amount due is now while renting. Then crunch the numbers using your income tax benefits."

Make sure you add in the major market drop, the medians dropped since then.

And, don't repeat Steve's bad math, putting in a 5% cost of down payment capital is downright stupid.

fg...your being a defense attorney, sir..... 50k in renovations? says who? Most of my tenants have paid for their desired improvememnts themselves and I haven't had a pink room yet.

Also what's with the preoccupation with declining values? That is statistically irrelevant. Over the long term, history tells us that prices will continue to go higher.

I can't read what you're saying swe but I'm sure it's holding me in the highest regard....Please just wipe the foam off your monitor.

"Also what's with the preoccupation with declining values? That is statistically irrelevant. Over the long term, history tells us that prices will continue to go higher"

Wow, how many things can SteveF get 100% wrong in just one paragraph?

Clearly steve doesn't know what statistical relevance actually is.... and history tells us the opposite of what he has claimed.

whoopsie!

swe is ignored. I ignore w67 too. He's a little strange and I don't get much from his posts. He basically just gets in the way. No offense w67.

Shake, shake, shake, stevora, shake your party line
Shake, shake, shake, stevora, shake it all the time
Work, work, work, stevora, work your party line
Work, work, work, stevora, work it all the time

My girl's name is Stevora
I tell you friends, I adore her
And when she posts, oh brother
She's a yahoo in all kinds of weather

Jump in de line, buy your apt in time, OK, I believe you
Jump in de line, buy your apt in time, OK, I believe you
Jump in de line, buy your apt in time, OK, I believe you
Jump in de line, buy your apt in time, OK, I believe you

http://www.artproof.org/host/BBC/blogfiles/DailySketchHaHa/023_BeetleJuice.gif

> swe is ignored

Wouldn't be the first time steve ignored the truth, facts, or logic... in fact, it is the rule.

Perhaps if he wasn't so ignorant... he wouldn't have lost his shirt so badly.

oh man...help!

Don't go off crying again now, Steve. I know you feel pain, I know you lost your shirt.... but don't go running away to hide like last time...

This is just getting fun....

SteveF you're right..the numbers do look better to buy...the only exception would be if I had to spend $100k on renovations...some of the studios i've looked at were dreadful and needed everything done, including new floors.