Rent or Buy, a Matter of Lifestyle

If you wanna live in the best places, you're gonna pay the highest price for it. NYC is worth living in, it's just that renting clearly gives you an advantage.

How can this even be contested anymore for NYC? nonetheless always good fodder....

What people don't understand is that it's not a good time to buy when mortgage rates are at record low. A soon to happen rise in interest rates will put severe pressure on home price and put you underwater. And then what you gonna do? Ask for a bailout because you were to god damn stupid?

If you plan to stay in the home for a while I don't see any issue with buying when mortgage rates are low.

Buying when mortgage rates are low is really good for real estate agents since prices, and hence commissions, go up during such times. So of course they say it's a good time to buy!

Interest rates shouldn't be looked at in a silo - current price levels in conjunction with interest rates are what matter. So if you're able to get a good price now along with a low interest rate, that can be a hell of a deal. If interest rates rise (and I expect they will as well - it's just taking longer than many of us thought) and prices go down from the resulting pressure, is there any guarantee your net outlay changes all that much (smaller mortgage but more interest)? That scenario really benefits all-cash (or mostly-cash) buyers who don't really care about the rates. If you're still looking at 20% down, I'm not sure I'd be celebrating ballooning interest rates. And human nature being what it is, I can see many potential buyers looking in the same price range and looking to upgrade from what they previously considered.

When people are shoping for a house, they are usually looking at how much they can afford based on their monthly payment.

With Mortgage rates as low as they are this is very unlikely that you'll find a future rates lower than today's to refinance therefore you're stuck with your first mortgage deal for 30Years.

If you borrow $500K at 4.9% for 30Y , you'll be paying back $500K + $450K in mortgage interest to the bank. Your monthly will be $2123/month.

If rates go up to 8%, to pay the same monthly, the price of the same house will drop from $500K to $361K. A whooping 28% drop!!! The benefit in that is that you'll be able to refinance sometimes down the 30Y line to a lower rate, AND/OR if you manage to make a few extra payments a year to pay off the principal, there's a big chance that you'll be able to pay off your house at least 10 years before the 30Y period of your loan if you're willing to commit at least the same monthly payment to it as well as an xtra $4000 or $5000 a year. When rates are high, you pay more interest so you'll be motivated to do something like that so you don't end up paying a fortune to your bank in interest.

sledge, I get what you're saying. In theory, it works. But I hesitate to buy in fully because you're banking on several things panning out: 1) that interest rates rise that much (I think this is a safe bet, but nothing's guaranteed obviously), 2) that prices will drop by the commensurate amount to make monthly payments the same (this is where I'm skeptical - many sellers won't be able to swallow that one), and 3) that interest rates will drop again by a significant amount (probable, but that's a dangerous waiting game). That's basically just trying to time interest rates. I think it's much tougher in practice than it sounds. I don't mean to sound so negative about it, just trying to feel out how most buyers would regard that strategy. If you can make it work, awesome. I hope it pans out for you at least.

Don't worry , finding the xtra $4000 to $5000 a year to help pay back your principal will be easier than you think since the mortgage interest deduction will be higher due the higher interest rates, you'll get a higher tax break allowing you to have that money available.

Brokers like BJW will always tell you that now is the time to buy because they need your commission to eat. Just be smarter than that and wait. The wait is the hardest thing for New Yorker to deal with. They like everything to happen in a New York minute. Well, be patient, your money AND retirement money is at stake here!

sledge, not a broker, sorry. I've always said there's no rush to buy on these boards.

"What people don't understand is that it's not a good time to buy when mortgage rates are at record low."

Or when you can't get it together to scrape up an appropriate down payment. Which is where I'm guessing most of this anti-buy sentiment is coming from.

I'm not a broker but I tend to agree that one should consider the interest rate, price and other factors together. That being said, I don't agree that low interest rates means people shouldn't buy. I bought at 4.25% last year and even even if the value of my place may have come down since I am planning on living in my place for a while and am happy with the monthly payment which works within my budget.

"Or when you can't get it together to scrape up an appropriate down payment. Which is where I'm guessing most of this anti-buy sentiment is coming from."

Even if what you propose is true, it seems that if you had a choice between two places to live, one of which required a large up-front investment and the other did not (and was cheaper on a monthly basis as well), that would seem like a totally legitimate reason to prefer the rental option. (i.e., there's no incentive to scrape up an appropriate down payment if it's strictly worse to buy in any case)

I think the anti buy sentiment mostly come from families making less than $250K a year who witnessed a lot of American losing their life saving in the last few years after the bubble crash and don't want to be living the same nightmare.
It's time to be rational and realize than this whole Re buying frenzy is over. As Home price go down, demand is gonna grow, no question about it but you can't blame 1st time buyers who don't make a $ million/ year to be xtra careful.

In a buyer's market, any additional costs are borne by the sellers. Flmaozzzzzzzzzzzzzzzzzzzz

No wonder you live in billlyburg. You aren't smart enough to own in manhattan. What's your sat, GMAT

I'll take the large up-front investment and slightly higher monthlies knowing that the monthlies are going towards my OWNING the property rather than directly into a landlord's pocket, never to be seen again.

Bubba67th, you ninny, if you have to ask, I was 99th percentile in both math/verbal on the GRE. You?

i agree w matt...if u compare numbers its only a fraction more to own...in some cases it may be the same. rents will increase but a fixed rate mortgage will stay exactly the same. plus u call the shots.

"Or when you can't get it together to scrape up an appropriate down payment. Which is where I'm guessing most of this anti-buy sentiment is coming from."

I suspect that source of anti-buy sentiment is stronger in places like Phoenix where rent vs. buy points towards buying. In places like NYC, I suspect a lot of it comes from people like me. I've got the money, but why the hell would I want to pay the same amount of money for half the home? I prefer living in a place twice as "good". To the extent that market sentiment at this point in time has many of my peers preferring to pay the same amount as me to live in lesser places, that's fine by me as their financial irrationality makes things cheaper for me.

Here's what I find very interesting about this forum. Generally, the most bullish owners here are quite snotty about the status they believe is bestowed upon them. However, as one pieces together the details of where they are actually living, they've got pretty mediocre setups (by Manhattan standards, of course, not absolute standards).

Disagree with Mattie - OWNING the property also gives you the right to pay maintenance and taxes every month. It's not quite the free and clear deal some would have you believe. I think there are definite advantages to owning, but there are definite advantages to renting as well. To beat a dead horse, much depends on your personal situation and preferences/needs.

wow 67 u really are a sad ignored hater. u must be really ugly to be so pissed off. no wonder u dont live in willyb. ur too uncool!!!& u know it & it gets u mad.....

NYCMatt: I know the math will never sink in for you since this discussion has been tread dozens of times, but any amount you pay over the amount of equity you've built is gone forever too. If the (total amount of money you pay for your mortgage minus equity you've built) is greater than (the total amount of rent you would have paid minus the returns on the alternative investment you could make with the downpayment), you're sending even more money into the bank's/previous owner's pockets, also never to be seen again.

"Ask for a bailout because you were to god damn stupid?"

Oh yeah, our government would NEVER do that..

Why u b in bburg? Prices are determined by ir in which direction will prices go when ir goes up? 99%, so Fking what. I know homeless people with phds from Harvard and 99.99999% on all their stds.

This is manhatttan, where u can be a garbage collector, but you better be the best picker in the world.

Blowjobmatt. Go fk your borker and ask for 6%. The biggest tool on SE.

nada, agreed. Mattie can be quite snotty, yet he lives in Washington Heights. I have nothing against the neighborhood, but by Manhattan standards, it is indeed kinda mediocre. Maybe you put me in that snotty camp, but I fully recognize there are plenty of renters with better setups than myself. It's pretty much bullsh!t to look down on anyone because of their ownership status or where they live, but people can't seem to help themselves on the internets I guess.

Bubba, "so Fking what"? Why'd you ask then? I b in bburg because I like it. Strongly considered staying in Nolita but prices didn't make sense to me. Also like the East Village but never found anything as appealing there. I know some people hate the 'burg, but it works for me.

Btw, I'm pretty sure prices are determined by a bit more than interest rates. But you know this.

Well, I wasn't meaning the comment to be directed at individuals on this thread specifically. You are most certainly do not come across as snotty here, but then again you do not come across particularly bullish either.

Dunno, I was outed as a broker earlier in this thread!

That's because you talk like one!

Explain further...

To clarify what I'm saying, I've been able to roughly piece together the setups of some folk here & look at the correlation to the amount of financial bullishness of ownership. In the neighborhood of $1M (as in you own something in the range of $500K to $1.5M), there's a lot of positive sentiment from the people in general. In the neighborhood of $2M, there's some. In the neighborhood of $3M, there's little.

Do you find the same?

I probably don't keep as detailed a set of notes, but I've gotten the same sentiment in some cases. Suspect it's some kind of insecurity or wishful thinking but who knows? Once you're uber-wealthy, I'm not sure any of this chatter matters as much (but I ain't wealthy enough to know for sure!).

i think wburg is a great place to hang out, to even live, as a renter--possibly the worst place in NYC to buy, if holding onto your money is a concern

Bottoms, wrong thread. Again. I happen to disagree with you though.

bj, you moron broker, check the thread title:

Rent or Buy, a Matter of Lifestyle

where's the "i should have stayed in nolita" thread

Where is Leonhardt getting 29 from as a rent/buy ratio for New York? The one investment property I own, my Midtown condo, I think it's somewhere in the range of 20-22.

I've racked my brains, and I can't think of any Manhattan market sub-segment where it's 29 -- anybody?

ali r.
DG Neary Realty

" knowing that the monthlies are going towards my OWNING the property rather than directly into a landlord's pocket, never to be seen again."

You see your taxes again? You see your maintenance again? You seeing your interest payments again (outside of the deductibility)?

Completely illogical to pretend that the bank or government getting your money is somehow smarter than a landlord... especially when you have to pay *more* for the privilege.

29x? Can't figure it out? It's not divisible by 6.......... Hahahjajjajaaaaaaaaaaaa.

Much depends on personal preference. As i feel like if im going to pay 3000 in rent, I would like to make that same payment to own my own. Yes you pay taxes and maintenance or even common charges but if i own it free and clear, making oayments for taxes and maintenence arent so bad. i dare say its like having a rent stabilized apt. but i own it.

Yeah but rent stabilized ppl have $0 invested. Fking re math. FLMAOzzzzz

Here b a dunce cap and some unicorns.

"I've racked my brains, and I can't think of any Manhattan market sub-segment where it's 29 -- anybody?"

Using the Miller Samuel definition of the word, the "luxury" segment (top 10%, say above $4M) is easily there on average with outliers tipping towards 40x.

I would daresay that for most people, the intrinsic benefits of owning outweight the intrinsic benefits of renting.

The question becomes how much are those intrinsic benefits of owning worth. For me, I started to look at buying when our total monthly outlay would be within 110-115% of the cost to rent. In the end, we timed it right and our total monthly outlay is about even with what it would cost to rent, maybe less now that rents seem to have risen back to pre-bubble levels.

I'm just not sure we'll ever see own-to-rent ratios of less than 1:1 in the absence of an even bigger, even more prolonged capital crunch. Some people may only be willing to enter the market if the ratio is 1:1 or lower, but I suspect that the tipping point is higher for most people. (Again, given availability of adequate financing.)

Nada, really? It's 23.6 at the Porter House, which is for sale at $5,100,000 and for rent at $18,000.

ali r.
DG Neary Realty

i dont agree that in rent vs buy, rent wins. here is an example from battery park city. it has to be one of the worse areas of the city in the buy vs rent scenario. taxes and maintenance are very high.

http://streeteasy.com/nyc/sale/590160-condo-30-west-street-battery-park-city-new-york

it is listed at 1.1, and will probably close below that. but lets assume 1.1.. you can rent it for $5300/month.

right now you can get a 7/1 at 3.875 with no points. you put down 20% and take out a mortgage of 900k. your monthly payment is $4200. taxes (1500) and maintenance (1000) bring that up to $6700. over the course of say 5 years, you average about $32k in interest payments and 17k of principal annually. 32k interest + 18k in taxes = 50k of deductions. at 35% (federal + state + city. not taking the highest tax bracket), you are saving around $1400 a month in income tax. your total out of pocket is now $5300 (same as rent). over the course of 5 years you will have also paid off around 90k of principal.

ofcourse you will also have closing costs, and when it comes to sell, you dont know where the market will be. But this is battery park city. one of the places where it is better to rent than to own, and yet the numbers are very close.

Why do you suppose the 7/1 arm is cheaper than the 30 year fixed?

i see the 30 at 4.7. are you seeing it below 3.875?

i think i read the question wrong. are you asking why the 7/1 is cheaper than a 30 year? if thats the case, do i really have to explain?

if you look, i gave a 5 year time frame. you have security for 2 extra years after that. it will reset at a higher rate. but it can not be above 8.875. no one can see the future. but i have a feeling that prices will have higher in 7 years than they are today.

I got 12.6 for my place. thats being conservative on rent as well.

marco, 12.6 is rather impressive. Don't tell bottoms though, he'll go apoplectic.

the initial rate on the ARMs are always going to be cheaper than the Fixed. Once it adjusts is where you're going to be gambling. But with everything, timing is key to getting the best rate. you can be quoted a rate today but that rate might not be there when you lock.

but even based on the 30 year fixed rate in the high 4's, i think the cost over renting is worth owning.

So there is additional risk on an ARM. And what are your payments in year 6?

ekartash, getting a 7/1 seems a bit nuts to me right now. Run the numbers with a 30y fixed - it ain't good. Those taxes are nuts. Given the location (and I know BPC has some fans, but still) you could really do much better looking in Brooklyn Heights.

malthus, year 6 is same as year 1. year 8 is where it gets dicey.

taxes are nuts. but atleast they are deductable. i looked at One Brooklyn Bridge, and those taxes are not too far off BPC. i like the idea of living on the water, as well as all the playgrounds, parks for kids. that is whats drawing me to BPC.

Sorry, meant to say year 8. Point is that you are coming to your conclusion by taking additional risk and using a beneficial time frame. Assumptions have to made but if you plug in some other scenarios you will come up with another result.

I'm also not sure that BPC is the way you say it is. The pilot charges are no secret to most people and the uncertainty over them may already be counted in valuation.

Well numbers are going to differ from locatino to location. the payment in year 8 is going to either be higher or lower depending on the prime rate. I only recommend ARMs to people who know they wont be in the property for more than a certain amount of time whether it be 1 year or 10. For those who look to own it long term, the fixed rate is the way to go. Also remember the interest paid on your mortgage can be written off from your taxes.

how did 15 become the right multiple anyways ?

"it has to be one of the worse areas of the city in the buy vs rent scenario. taxes and maintenance are very high."

The high monthlies are baked into the prices, so I don't think there's anything special about BPC in terms of buy/rent ratios.

FWIW, I renting in a condo. Looking in recent transactions in our building (where both the rents and the purchase prices are pretty reasonable) it looks like the ratio is about 18 ($900 psf vs. $50 psf). If you were to look at asking prices instead, the ratio would be higher, probably more like 22. (It's also possible that the $50 psf for rentals is high; we live in one of the nicest units in the building and that's what we're paying, and there's some evidence that others may be paying as low as $40 psf--looking at that versus ~$1100 psf asking prices and you get up to a 27.5 ratio.)

"Shockingly
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Well numbers are going to differ from locatino to location. the payment in year 8 is going to either be higher or lower depending on the prime rate. I only recommend ARMs to people who know they wont be in the property for more than a certain amount of time whether it be 1 year or 10. For those who look to own it long term, the fixed rate is the way to go. Also remember the interest paid on your mortgage can be written off from your taxes."

FLMAOz. So owning only works if you stay a short time and take an ARM. And a mortgage borker/re borker too... WOW, you mama must be proud. FLMAOZZ

jordyn, where do you live, and how do you like it?

W67th. i missed you. so renting only works if rents dont go up?

ekatash... I am purely here to yell at ninnies.. but feel free to laugh along. :)

Shockingly...... PRIME RATE
1) can go lower
2) go higer
3) stay the same
4) None of the above
5) all of the above
6) RE NEVER GOES DOWN
7) I AM AN ASSHOLE
8) MY MAMA DIDN'T BREAST FEED ME ENOUGH.. .so I am retarded
9) MY TOES NEED A GOOD SCRUBBING
10) SOMEONE, ANYONE PLEASE TAKE OUT A MORTGAGE
11) LET ME LOOK AT THAT AD FOR A CAR SALESMAN
12) IS IT TOO LATE TO GO BACK TO DEVRY?
FLMAOZ

13) culinary school

"Nada, really? It's 23.6 at the Porter House, which is for sale at $5,100,000 and for rent at $18,000."

Yes, FP, really.

There are plenty of places that sell for more and rent for less than that. Like all things well-priced, they don't linger on the market, and once taken they are gone for years at a time. So perhaps someone like you who's main goal in life is not to serve long-term rental clients misses them.

Regardless, 23.6x is 23% away from 29x. And my favorite outlier at the Time Warner Center is around 40x, or 38% in the other direction. So, I think there are large variations from the average.

I would imagine that in that segment, the average asking rent of what is on the market at any moment is 25x. However, the average rent of what is actually rented is probably around 30x. Does the occasional 25x place get rented every once in a while? Sure. But they also the ones that are vacated every year, spend 4 months unrented each time, etc. The ones at 35-40x are held several years at a time, and when they do turn over, they are done in a month.

FP, case in point on your rent vs. buy exmaple:

http://streeteasy.com/nyc/rental/754742-condo-66-ninth-avenue-chelsea-new-york
http://streeteasy.com/nyc/sale/598612-condo-66-ninth-avenue-chelsea-new-york

From what I can gather, this place has been on the market since October 2007, so 3.5 years. During that time, there was one 1-year stretch when it wasn't on the rental market, and two 0.5-year stretches. During one of the 0.5-years stretches, it was listed for sale. So it was rented for 1.5, or maybe 2 years, out of the 3.5 it was on the market.

To put that in perspective, at $18K/month that's $400K in lost revenue that will never come back. Had they put it on the market at a more reasonable (but not cheap) $14K/month then I'm pretty sure they would have been full no-problem for the entire 3.5 years (probably with the same tenants) and netted $175K more than they have over the past 3.5 years.

Poor extraction of revenue from an asset, IMO. But whatever, it's their choice.

Nada, I guess the point that I am trying to make is that a market snapshot needs to be real-time sales vs. real-time rentals. That's why I started with the property that I own, because I know what it sells for, and I know what it rents for.

By the (I know, anecdotal) measure of "data I feel comfortable with because I can kinda confirm it," the buy/rent ratio is tighter than it's being portrayed.

I'm trying to think about the $5mm+ market, but I'm not sure how meaningful the data of an aspirational sales price is when compared to an aspirational rental price ... and if a condominium property has been on the market for 3.5 years, can't we call that an aspirational sales price?

I'm going to look up your TWX Center example though.

ali r.
DG Neary Realty

The takeaway is. You cant do math, but you 'feel' the force....... Excellent for a Jedi. Not so good for a borker.

Run along and run that abacus. Carry the two, divide the 5 then you get 'we had a massive re bubble and we ain't done deflating'.

Excellent my 4 yrs to do simple math Harvard loser.

Wow, an ape who can use an abacus. Or is it more technically correct to call you an orangutang?

FP, I think your assessment of your investment property's 20-22x is right: I think that's typical of what I consider the bottom end of the Manhattan market (ex-Harlem & whatnot). I was just responding to your question of whether's there's any Manhattan sub-market at 29x, and I think it does once you go up 10x in terms of price from that sub-market. It shouldn't come as a surprise, really. If you look geographically at aggregated stats, higher-priced markets have higher price/rent ratios pretty uniformly. If you ever delve into one (and I have done so for a few markets, though none as detailed as Manhattan), you will find the same pattern. It shows up even when comparing, say, $100K home to a $500K home in Phoenix.

Why? Who knows, but I'm guessing there are only so many "idiots" willing to "flush money down the toilet" eyes-wide-open at exceedingly higher rents given their peer group. In Manhattan, it's about $3750 a month for a $1M place vs. $15000 a month for a $6M place. What kind of idiot flushes $180K down the toilet every year? In Phoenix, it's about $1000 a month for a $100K place vs. $2500 a month for a $400K place. Incomes are not as high, but it's the same story: what kind of idiot flushes $30K down the toilet every year?

The beauty of homeownership is that you can stick your head up your ass in dozens of ways. Do you think the owner of a $6M place is thinking they are flushing $360K down the toilet every year, which in my estimation they are? Not likely.

FYI, below is the TWC example. You have to triangulate to get the sales comps, but however you do it you'll end up well into the 30s.

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

Nada, those are last fall's prices, but I'm willing to say it might have sold at $8MM, so I'll concede your 30s and even give you as high as 43.

ali r.
DG Neary Realty

"Building Wealth Through Renting
By DAVID LEONHARDT

I replied:

Yes, building equity is a good thing. But the advantages of it are exaggerated.

For one thing, how do you know you’ll be building equity, as opposed to making an investment that will lose money? People who bought in Florida, Las Vegas, Phoenix and much of inland California in 2006 thought they would be building equity. I interviewed some of them. But they did not. In many cases, they lost all of their equity. There is definitely some downside risk in the New York market today.

Second, by buying a house, you’re making a decision to tie up your capital in a specific sector — real estate. It’s entirely possible that the money you spent on a down payment would have earned more money in the stock market, for instance.

Finally, buying also involves throwing thousands of dollars down a hole: in mortgage fees and interest, in property taxes, in repairs and renovations, in tens of thousands of dollars of closing costs. Renting doesn’t involve the huge up-front costs that buying does. Owning also involves some continuing costs (e.g. repairs) that renting does not.

Living somewhere is always going to involve costs, just as education, health care and food involve costs. Financially, the decision to buy is basically a decision that your investment will increase in value by an amount sufficient to make up for all the additional costs of buying. (Put it this way: you’d never buy an apartment if you were staying in a city for just a week, in an effort to build equity. You’d rent — a hotel room.)

Sometimes — often — the decision to buy works out. But it does not work out far more often than is commonly understood."