Owning costs 30% less. Renter = sucker.

oh, and for you math-inhibited... that is a 19.5% decline (or 20% if you round)

"Changing the topic already?"

Nope, just entertaining myself while you dig further into a hole. Still waiting for you to produce something to support your claims.

That about sums Wbottom's contributions to this board

The current discussion seems pretty silly in light of inonada's analysis, which seems like an extremely useful way of looking at the issue.

Wow, so no response on the condo data.... surprise, surprise.

I think I'll just keep renting in Manhattan. For now.

"The current discussion seems pretty silly in light of inonada's analysis, which seems like an extremely useful way of looking at the issue."

Agreed... inonada usually comes up with good stuff.

Is it better to own or to rent?

"The current discussion seems pretty silly"

Pretty much

Still waiting swe

You can argue both ways...

1. If you don't have a secure job, keep renting!

In manhattan, it always costs less to rent. If you care about monthly out of pocket expenses, it'll never make sense to buy. The economy is getting worse and there will be massive unemployment. Why risk your life savings when you can by laid off any time and default on your payments?

2. If you have a secure job and plan to stay in NYC for 5+ years, it's time to buy!

Provided you put 20$ down, inflation adjusted mortgage payments today are comparable to what you'd pay in 2000. If you do the math, even with inflated prices today, the TCO over 15 years is the same as 2000. In these turbulent times, it's hard to find a better place to spend your life savings.

> Still waiting swe

me too, juice...

> "The current discussion seems pretty silly"
> Pretty much

And yet he continues with it...

Yes I continue, because your only reaction has been to spin and distract. Either acknowledge your errors or post something that shows you are right. Pretty simple.

What's funny is I tried to let you off the hook by saying we were both right, but your arrogance got the best of you. Now it is just fun watching you attempt to spin your way out it.

Let me off the hook, now that's funny. You were wrong, and haven't stopped trying to argue otherwise.

And you still haven't answered the condo data either...

Talk about spin. Now that's funny.

"Either acknowledge your errors or post something that shows you are right"

This, from Juice.... I LOVE IT!

Juice, still waiting for you to admit you were wrong on the market crash in the first place. We've been waiting a coupe years now.

Come on, Juice, ask everyone else to do it... how about you?

PRECIOUS.

Gee, one trip to Fire Island and I miss more JuiceDrivel than has been posted in months!

"The opportunity cost associated with home ownership equals the risk free rate plus an additional risk premium to compensate for the higher risk of owning versus renting. On the other hand, the authors point out that owning a home serves as a hedge against future rent changes, which eliminates much of the risk associated with owning compared to renting."

That's exactly true, Juicy: EVERY interest rate is calculated based on the risk-free rate PLUS SOMETHING, aka the "risk premium." That means that the risk-free rate is the base rate. Since you're not so very bright, think of it this way: when you go to Home Depot to pick out your aubergine paint for your overpriced co-op that can only be sold to the Irish Carpenter, you start with a can called "the base." That's the color that they use to make all the other colors. It's like the risk-free rate: paint your house the base color, and it won't offend anybody. But then, when you go to the counter and ask them to mix up your aubergine paint, they add gobs of blue and red into it, and maybe even a touch of yellow, shake it up, and voila! Aubergine!

That is the risk: the risk that you're the only one who wants a room painted aubergine. But since it's YOUR ROOM - because you bought that overpriced co-op on the UWS - you can live with it, and later sell it to the Irish Carpenter for a 3000% profit in a year.

The meaning of the paragraph you posted is that if the risk premium is 6% and the risk-free rate is 6%, you'll be paying 12%. If the risk premium is 6% and the risk-free rate is 1%, you'll be paying 7%. That's all it means.

Now then, about the hedge against future rent increases: that is also true to some degree, which is why, if you purchase, for it to be a better economic transaction than renting, the NPV of your future stream of interest + principal + taxes + maintenance + transaction costs, etc., MUST BE LESS than the NPV of your future stream of rent payments RISK ADJUSTED, because the risk of ownership is far higher than the risk of renting. Beyond adjusting for risk, you must also subtract the risk-adjusted opportunity cost from your rent stream, assuming that you will invest that money in another income-producing asset, and the tax benefit (at your average tax rate) from your PITI+ payments.

In that case - and only in that case - is buying a good idea. Otherwise, renting is a better idea.

This because buying a property is the functional equivalent of capitalizing a future stream of rent, and amortizing it over the time you live in the property.

Does that help you, or are you still confused?

I was asking about which neighborhood in Chicago because back in the mid-to-late 1990's the developers were over-building and over-converting.
There were quite a few converting big former warehouses. All of those units in each couldn't possibly be sold.
Unlike here in N.Y.C., where we had the population.

OBBP? Then and now.

nada, good point about stocks being not such a bad investment if you consider dividends. Bought some today in my retirement account. Norfolk is good value as the demand for large family size high end apartments in that area is not very good. We looked very hard in village/tribeca close to the subway, nothing less than $5 per sq ft.
Boughtin2011, Think we found a place to buy for $1100 per REAL sq ft in a prime area in excellent condition. Might compete with you for the ID if we finalize.

nada, paying $5200 for 1000 sq ft with views but nothing else special. Rent used to be $3800 7 years back.

Buy low - sell high. Rent. Buy low - Sell high. Rent.

It is NOT binary -- but for now -- it is cheaper to rent than own and the prices will continue to decline for sometime. I know that some feel your "home" is not an investment -- to those who have so many assets that several million dollars does not make a difference one way or another --- lucky you. For those that have lost a decade of investment opportunity costs -- Mistake!

It is not emotional -- it is money.

But streeteasy index shows that they are up Month over Month and Year over Year. Where is the decline in prime manhattan. I suspect there may be some stuff at york avenue or close to columbia on the west side still at 2009 lows but nothing in prime manhattan. I have been looking but all deals are gone.

Every person and household has a different situation, and these differences can swing the rent vs. buy decision heavily.
All things being equal, I think renting should command a slight premium because of the option value to pick up and move as soon as your lease is up. However, that option value is less valuable to people whose lives are more stable (families, school-age children, etc.) and more valuable to others whose lives are at a more volatile stage (those with less certain job prospects, changing household situations e.g. expecting to get married, have kids etc.).
I rented from the early 2000s until 2009. I looked on and off at properties during this time, but not very seriously because prices were just too high (at least from 2006 to 2008) and my life situation had not stabilized. Then I got married a few years ago, and when my wife announced she was pregnant, I started looking in earnest and finally bought.
I have a very extensive buy vs. rent model in excel but the bottom line is that it comes down to what assumptions you are making that drive the buy vs. rent decision. I list the major ones that factored into my decision below:
Purchase price - 2,500 sf 4BR/3BA full floor co-op loft in the Financial District. Including full gut renovation costs, it cost me around $2,000,000 ($800/sf). To rent an equivalent apartment (same area, space, loft ceilings, high floor, windows all around, high end finishes) it would have cost me anywhere between $10,000 to $14,000 per month ($40 to $56/sf per year).
Mortgage financing cost - I used a different amount and rate, but for the sake of example, let's use 75% down with 5/1 ARM with Interest-Only option at 3.500%. So $1,500,000 mortgage and $500,000 equity. Resulting interest expense is $4,375 per month and you get back $1,530 in lower tax payments at 35%, so net cost of $2,845 per month.
Transaction costs - Around 1.2 to 1.3% on the buyside for me. The seller used a broker and I would estimate his fees to be around 4-5%. So total "round trip" costs of around 5 to 6%. As this cost is amortized over the lifetime of your ownership, the longer you live there, the lower the cost per year. I plan to live here for at least 5 years, so I amortize over that period. That comes out to about 1% per year, $20,000 or $1,670 per month. (For condos, these costs would be somewhat higher, given things like title insurance and mortgage insurance)
Co-op charges - $3,750 per month. About 50% tax deductible, so net $3,140 per month. (For condos this would be separated into property taxes and common charges)
Depreciation - I calculate depreciation at about $1,200 per month. There is a complicated formula for this based on estimated useful lives of the new floors, kitchen, bathroom etc. but take this as a good estimate as I have done a gut renovation. You can also view this as a $72,000 “budget” over 5 years to keep your apartment in good shape.
Opportunity cost on downpayment - I used an after-tax expected return of 5%, which compounds to approximately $138,000 in gains over 5 years, or $2,300 per month on the initial $500,000 downpayment.
Capital appreciation - I assumed that the asset value would increase in line with inflation. At 2%, this means at the end of Year 5, the apartment would have appreciated by $208,000, or $3,470 per month. As a primary residence, the first $500,000 is not taxed.
So $/month per month:
− Amortized transaction costs - $1,670
− Interest cost net of tax deduction - $2,845
− Co-op charges net of tax deduction - $3,140
− Depreciation - $1,200
− Expected return on equity - $2,300
− Less Assumed capital appreciation - $(3,470)
− Total costs: $7,685 per month
This is well below the equivalent rental cost even if you factor in a 20% rental “premium”.

Now, let’s use someone else in a different situation. Say he only has clarity into a 2-year horizon. His costs now skyrocket by more than 30%, because of the increased monthly amortization of transaction costs:
− Amortized transaction costs - $4,175
− Interest cost net of tax deduction - $2,845
− Co-op charges net of tax deduction - $3,140
− Depreciation - $1,200
− Expected return on equity - $2,300
− Less: Assumed capital appreciation - $(3,370)
− Total costs: $10,290 per month

Not only that, certain assumptions such as the “assumed capital appreciation” tend to be volatile, but particularly moreso over a shorter period of time. For example, I feel very comfortable that housing prices will increase by at least the inflation rate over a 30-year period. However, housing prices do not grow in a straight line and over a 2-year horizon, it is very hard to predict. While you might get lucky with prices increasing faster than inflation, luck might also work against you the other way. And when asset prices are at bubble levels, you are exposing yourself to increased chances of loss.
The other factor that could swing it for different people is what they think they could do with the equity downpayment. Maybe you are a great investor and expect to make 15% per year after tax. But maybe you would just stick it in treasuries and earn 2.5% after-tax return. But clearly, this could swing the above equation. Again, everybody is different, and better investors may just choose to rent and compound their downpayment. That being said, Warren Buffett did note that his best investment ever was his house on Farnam Street – though to be fair, he was referring to the intangible value of family life, his wife, etc.

So overall, with prices down 20-30% from the peaks, I think you are at the point where it makes sense for some people to buy and others to rent, depending on their individual situations. My conclusion was that prices in Manhattan are neither insanely cheap nor insanely expensive.

Not perfect, but a decent calculator from nytimes on buy vs. rent that creates a pretty chart:
http://www.nytimes.com/interactive/business/buy-rent-calculator.html?_r=2&oref=slogin

Be sure to click on the advanced tab for fees, taxes, benchmark rate, etc.

maklo, the best methodology and assumptions I have seen. Intereset only is the right way to compare even though I would have chosen a long horizon rate. $800 per sq feet seems a little too good for a fully renovated place, but I do recognize that there were some good deals in the financial district in early 2010. Even if you increase you cost to $1000 per sq ft the math will work.

Also, may people will question the 2% real price increase assumption. People who believe in 2% per year (real estate had bottomed but has no upside beyond inflation) and minimum 10 years hold, will be buyers and others should be renters.

If you are paying $5 a sq ft to rent $1000 a sq ft space, then sure you've got a different calculus. Crap, we've got maklo1421 talking about spending $4-5 a sq ft for 2500 sq ft to rent $800 a sq ft space in Fidi. Put $10-14K in my hands and a desire for 2500 sq ft, I can assure you it won't be spent in Fidi. With that kind of budget, I can find that same amount of space overlooking Union Square w/ outdoor spaces, or the same amount of space in a high-floor penthouse duplex w/ outdoor space in prime Chelsea (teens and 7-8th Ave), or the same amount of space park-facing high floor on Central Park. We're talking $1300 to $2000 a sq ft space for $4-5 rent.

I don't have a problem with others thinking that $4-5 in rent gets you just $800-1000 sq ft places, but it's not the world in which I operate.

Sorry typos:
Also, many people will question the 2% real estate price increase assumption. People who believe in 2% per year (real estate had bottomed but has no upside beyond inflation) and minimum 10 years hold, will be buyers and others should be renters. Renters risk that inflation will push up the rents.

nada, you have a point, in my experience 1100 per sq ft is $5 per sq foot as long as the space is less than 1500 sq feet. $1300-1500 per sq ft apartment with more than 1500 sq ft are not usually available for rent for long periods - 2009 and 2010 being rate exceptions as many people decided to rent them out instead of selling. However, now the sales prices are better and and high end buyers are back.

Nada, here is search for rentals above 1500 sq ft in Soho and Village. Exclude lafayette as it is short-term. Broome had no central ac and does not appear renovated. Sq ft for rental is typical overstated by 20%. We are in $4.5-$5 range.

http://streeteasy.com/nyc/rentals/nyc/rental_type:frbo,brokernofee,brokerfee%7Cprice:7000-10000%7Csqft%3E=1500%7Carea:107,116%7Cbeds:2%7Cbaths%3E=2

That is not my experience, 300_mercer. As of 6 months ago, only 10% of the places I queried were not interested in something longer-term than a year.

If I were in the market of a Village place in your price range, I'd have been all over this place like white on rice:

http://streeteasy.com/nyc/rental/726628-house-801-greenwich-street-west-village-new-york

Upsides: West Village, 2000 sq ft, great light, actually a loft in West Village with true 11' ceilings and 13 windows, $6000. Downsides: 6 minutes to subway, quirky layout, quirky finishes, walkup. But on the balance, who the hell cares? $3 a sq ft for a sexy loft in the West Village. As for the "magic of 2009 is gone" storyline, note the $6000 2011 price versus the $5800 2009 price.

Your base is $5200 for 1000 sq ft high-floor non-descript space in the Village. My base is $6000 for a 2000 sq ft sexy loft in the West Village. I think we just have different views on what constitutes a good way to rent, beyond price level of rental.

Crossed posts, 300_mercer. OK, let's talk about your list. The only one in contract is this one:

http://streeteasy.com/nyc/rental/439858-rental-153-mercer-st-soho-new-york

$4 a sq ft, priced the same as it was in 2009, height-of-summer listings. Central AC, high ceilings, prime location, square footage not 20% overstated as floor plan clearly indicates otherwise, plus outdoor space shared with only 3 other apts. Also note explicit statement from owner indicating a preference for a 2-year lease.

Not the great deal IMO, but not bad either. With your level of interest in RE, I imagine you could do even better.

And screw me, this place (through different rental brokers not linked) has been on the market for at least 9 months now:

http://streeteasy.com/nyc/house/508-la-guardia-place-manhattan

Greenwich street place is a fourth floor walk up with just one bath not renovated - sexy in an artist way but not for us. Mercer street is not renovated but the space is real and think good value. If the space were to be renovated, it will be at least $5 per sq ft.

508 laguardia is $4.5 assuming the sq footage is real and place has only basis renovation. As I have mentioned before, 1500 sq ft or higher, the rents are lower in $4.5-5 range if the place is renovated. With doorman, even higher. Less than 1000-1200 sq ft is most expensive per sq foot >$5 for full service basic renovations, as that is what most people want and can afford.

Nada, I figured out why you think rentals are cheap. The rentals you are looking at are similar in quality to apts for sale which are liveable but most people would renovate at that price point. Here is an example, to make this place nice and high-end, it needs $400K. In the current condition, it could be easily rented for $4 per sq feet.

http://streeteasy.com/nyc/sale/576963-coop-54-east-11th-street-greenwich-village-new-york

>Nada, I figured out why you think rentals are cheap. The rentals you are looking at are similar in quality to apts for sale which are liveable but most people would renovate at that price point.

So basically you are saying he's not looking at a fair representation of the market? He's looking at places that are cool for a 20s something year old or possibly early 30s something couple with no kids?

people don't renovate when they believe $400K will bring in $200K in 10 yrs. 300 Mercer... put your wiener where your mouth is... STFU and buy 10K of the underpriced and underrenovated units and have at it...

tweet me the numbers or wiener or both

That is correct but that said nada is very logical in his thinking. Most people forget to adjust for generally higher quality of for sale apartments vs rental apartments. In any case, we are afraid of inflation and want to benefit from govt giving free money by locking in a cheap mortgage.

300_mercer, I get that those places are unrenovated. The only one that I pointed out was the West Village loft at $3, the others were from your search. The Laguardia Place listing is not $4.5. It's not even $4. Were it $4, someone would have placed a bid on it 9 months ago. I know it may seem like I've got encyclopedic knowledge of the market, but these are listings off the top of my head, and I don't know every last listing in your interest range. I can show you renovated examples, but then it'll be something else (like the fancy-renovated LES place at around $3).

As far as I can tell, you entered a rental in 2004 at a decent price. Since then, they've jacked the price up on you by 5% a year, and now you're paying a relatively high price. I get that you have your list of ideal things in a place, but it's not like you're living in your ideal place now. Let's put ourselves back in 2004. You're moving, you have no interest in buying, you see your current place: $5200 for 1000 sq ft, 8 ft ceilings, OK village location, not highly renovated. Then you see the West Village loft: $6000, 2000 sq ft, 12' ceilings, 13 windows, quirky layout, not renovated, superior location. Which do you take? At $5000-6000, you won't get the world....

West village unfortunately is a walk-up. No way my wife will walk in her 4 inch heels. Great value. I would take it in a heart beat if I were to be single.

So 300, you are basically saying that inonada's preferred apartments are for single well-to-do men ... even a married couple with a fashionable lady wouldn't fit the bill for the narrow examples that are being held up here. 4 months ago he was discussing NYC valuation based on Wayne, New Jersey. For an intelligent young professional, the lenses are a bit colored.

but you, mighty hunter.

are neither young
nor professional

columbiacounty, someone is looking through the window in your shower right now.

what rhymes with hfscomm1?

When I was single I did not understand why people are willing to pay so much more for a nicely renovated place. I would have been happy living in white facade 60s building as they are better value per sq feet. My wife soon trained me about the differences. Same reason why some people buy prada or St John's and others are happy with J Crew.

w67, Do not appreciate your comment. My wife works harder than I do and makes good money. She should be able to stongly influence what we like.

St John's -- what is she, 60?

Yeah, people are willing to pay more for renovated space. But 300 Mercer isn't exactly Prada. It's in the worst location in there is in the Village. Its got that early-70's "Stalin & Associates" architecture inside and out, and from the looks of the pics the inside isn't J Crew. More like TJ Maxx to me. Is this the type of "nice" place your wife has trained you about the differences on to be paying $5.2?

Honestly, at even-money per sq ft and budget-constrained I'd take the West Village place over 300 Mercer. So would my wife, and we're not in our 20's. It's not that we like unrenovated walkups, just that 300 Mercer's immediate vicinity is not that great, and quite frankly the inside is depressing comparatively. You wanna be in the West Village, walkups are the norm, and lofts (if you're into that type of thing) are impossible to find. At $3 vs. $5.2, it's a no-brainer.

All that said, I'd rather be in the Perry St glass towers. Hope you're not offended by my bashing of 300 Mercer; I imagine you're feeling the same way, hence looking to move.

I bash 300 mercer myself all the time for its low ceinling and 70s look - and we sure are paying too much for the views. We do like the location a lot due to proximity to subways, washington square park, and east village restaurants. Service is fantastic.

I was just giving St John's as an example to illustrate classic and expensive (pre-war apt) vs nothing special. My wife would not be caught dead wearing that.

Nada, looking at the pictures, it looks like both 801 Greenwich and 153 Mercer are significantly inflating their square footage. You are trying to say the say that space-wise, a 2BR/2BA with what doesn't appear to be sprawling common space compares to my 4BR/3BR with a 1,200 sf open living/dining area?

But more importantly, in comparing rent vs buy why introduce another factor (eg location). I wanted to live in the Financial district because I have two young children and want them to attend the new BPC school. Not to mention the family friendly parks and pedestrian walk spaces. Once you introduce the location factor, it's just another factor for people to debate with wildly different preferences. Fine so you think FiDi is a dump and you'd rather live in half the space for the same price in the West Village, but that is missing the point of this thread.

I am merely trying to compare apples to apples as much as possible, stripping it down to the most important and comparable factors. And on that, I would then challenge you to find a true 4BR/3BA 2,500 newly renovated high floor loft that you can rent for under $10,000 in FiDi bc I certainly could not find one there after many months of searchng.

>I am merely trying to compare apples to apples as much as possible

No Maklo, intellectual honesty is not allowed here by the people with an agenda.

>And on that, I would then challenge you to find a true 4BR/3BA 2,500 newly renovated high floor loft that you can rent for under $10,000 in FiDi bc I certainly could not find one there after many months of searchng.

Again Maklo, those that you are engaging in discussion with only want to pick and choose what suits themselves. We had one nutty woman in apartment 23 comparing brokers to companies that sell cigarettes and saying purchasing is idiotic ... except where she purchased in Miami. And the person you are having this specific debate with was telling us a few months back that NYC's trends can be deduced by looking at Wayne, New Jersey. Yup.

Oh yeah, here's 801 Laguardia unable to achieve $4 a sq ft 8 months ago, and it's still on the market.

http://streeteasy.com/nyc/rental/700168-townhouse-508-laguardia-place-greenwich-village-new-york

Maklo, when you put super-tight boundaries it's pretty hard for some random guy who does this for fun to find exact matches. I never looked in Fidi, but this is the closest thing I can offer you off the top of my head:

http://streeteasy.com/nyc/rental/693105-rental-119-fulton-street-fultonseaport-new-york

A 3BR/3BA 14th-floor penthouse squeezed into 1800 sq ft (that's what the sales listings have for this condo) with 700 sq ft outdoor space. Call it 2100 sq ft, asked $8000, probably went for $7000-$8000. Yeah, I know, too small for you. But high floor, and open views from outdoor space which I think is an extreme rarity in Fidi. I don't know what your place is, but I imagine PH with outdoor space and some open views has more pizzazz than your space. Never saw this place, all-in-all wasn't attractive enough for me. I do remember some others in Fidi, low-light, going for $3 or less.

On 801 Greenwich, I saw the place randomly in 2009 at a time I wasn't in the market. It really is 2000 sq ft, and I am pretty picky on this type of thing. Really a great-deal listing, as you can tell by the short time-on-market despite being a quirky walkup. Really raw space, but cool-raw rather than scuzzy-raw. I live in a pretty staid setup now, so it's not exactly like I'm all about raw spaces.

On 153 Mercer, it was just the only one in contract from 300_Mercer's list, nothing special to me. Floorplan pretty clearly shows sq ft is not particularly inflated: 25 x 87.5 building, so staircase is only inflation (which you'll see on sale listings as well).

Also, let's play your apples-to-apples game the other way, same ratios as you. I challenge you to find raw loft space in the West Village, 2000 sq ft, for $1.2M or less. Let's see if you get any closer than I got on your Fidi space. I'm not holding my breath...

Will this place in the West Village allow Maklo's 2 young children to go to the new BPC school was was specified in his or her criteria?

nada, stalin and associated comments is funny. I got the apartment before I met my wife - dazzled by the views at $3800 a month.

I hear you: for $3800 circa 2005, I could see the attraction Comrade 300_mercer.

It sounds like you're homing in on your loft-to-renovate from the sounds of the other thread. Clearly a nice upgrade for you, excited to hear more details over upcoming months, requisite jibes notwithstanding.

Thanks. Do not have the contract yet. Keeping my fingers crossed.

Nada, at $1.2 million and using proportionate ratios as mine (scaled down maintenance and taxes), you are talking about equivalent rental cost in the $3,800 to 4,200 area. I haven't looked hard but i don't think you can find true 2,000 sf rentals in the west village at that level unless it is a real dump.

Huh? You asked for $2M family apt in Fidi for below $10K. We have a $6K rental: $6K / $10K * $2M = $1.2M. Same proportions as you claim, please find me something similar so we can talk apples-to-apples in the West Village. I don't understand how you're getting to $4K for $1.2M: please explain.

FYI, here are some 2300-2600 sq ft high-floor 3-4 BRs in Fidi that with last asks $7000-7500:

http://streeteasy.com/nyc/rental/425766-coop-55-liberty-street-financial-district-new-york
http://streeteasy.com/nyc/rental/484554-coop-55-liberty-street-financial-district-new-york
http://streeteasy.com/nyc/rental/522523-condo-15-broad-street-financial-district-new-york

And from what I can gather, you got a pretty good deal when you bought, so it's not like you're the "average" Fidi sales deal. But $14K for 2500 sq ft in Fidi? C'mon, you can do that with sweeping Central Park views if you put your mind to it. I know, that wouldn't interest you...

Nada, the ratio I am referring to is the equivalent rent of $7,685 that I calculated from my original post. Compared to all-in purchase price of $2,000,000. So approx 260:1 ratio. I actually looked at both of those buildings back then and would prefer mine (a little larger, 4 exposures, full-floor loft, 20+ floor with better light). And here is the kicker, i locked in my price with minimal inflation for the next 10 years. You won't rent these at those prices today.

You like to keep changing the rules, yeah? I'm talking about the rent you claimed in Fidi and your challenge to find something better. I did despite your strict criteria. Now I would like the same from you in the West Village using your own claimed rent, not some imaginary number from your spreadsheet.

In your mind, people are paying $14K a year for 2500 sq ft in Fidi all the time. Despite those examples by some guy doing some simple searches showing $7K, not a soul paying less than $10K. Given that you actually saw those places, thanks for not mentioning it yourself. Everybody knows rents are up 50% since those 2009 & late 2010 prices in Fidi. Never mind the West Village rent being up only 3% in 2 years: after all, the West Village is no Fidi.

hmm....wonder how many metaphorical tongues are figuratively bleeding...

Nada - not changing the rules. I conducted an exhaustive search looking at both options - including multiple visits, bringing my designer, detailed measurements etc. Without getting into the exact details of my apartment, suffice it to say that it was a few thousand $/mo superior to the examples you threw out, both of which I visited as part of my search. The ones which were comparable - by my judgment - to my current apartment were renting in the $10,000 to $14,000 range. Some were bigger and less nice, some were smaller with very high end finishes.

You of all people should know that you cannot compare apartments on the basis of two or three variables that you can filter on StreetEasy. I am NOT going to disclose my address, so you can either believe me or not.

"hmm....wonder how many metaphorical tongues are figuratively bleeding..."

about your fashion talk. just to be clear.

Hfscomm1

Take this as a five year investment.

$850,000 purchase price
$170,000 Down Payment

Borrowing: $680,000
Rate: 3.125%
P/I payment: 2912.95
Taxes = $252
Common Charges = $556
Total Outgoing Monthly: $3,720.95
60 months= $223,257

Principal Balance June 2016 = $612,556.35
Total Mortgage Payments (60 months): $174,777
Principal Reduction: $67,443.65

Rent: 3,200
Total Rent 60 months (assuming no increase): $192,000

$223,257 - 192,000 = $31,257 total outgoing difference

$67,443.65 - $31,257 = $36,186 Better to buy pre interest tax deduction on $107,333.35 of interest paid over 5 years.

Even assuming a 7% cost to sell the investment, you are likely still winning by purchasing on a short term ARM assuming there is no change in the market price of the unit.

james.mcpartland@wellsfargo.com

Well Jimbo, thanks for that! Do us all a favor & show us the property you have in mind that meets that description.

You'll not find anywhere in Manhattan with taxes and common charges at those levels - except for abated properties, double it.

And mortgage tax, flip tax, conveyance tax? Closing costs? Do they fall into your neat little model anywhere?

7% cost to sell the investment? The real estate commission alone is 6%.

Also, how much do you make on that $170k down payment invested in that property?

Get real.

I was referring to the matsonjones
3 days ago

Manhattan 1BR on Fifth Avenue in midtown.
Just signed the deal to rent for $3,250.

This apt normally sells for $850,000
It was originally sold to a sucker in 2007 for about $900,000.

Monthly cost to own today:
Taxes = $252
Common Charges = $556
Mortgage = $3861 (assuming 20% down)
Total = $4669/mo

Thank you stevejhx. Here is the first one i clicked on.

http://streeteasy.com/nyc/sale/613590-condo-133-west-22nd-street-chelsea-new-york

Take a deep breath before you freak out on here.

When banksters join a Re forum to sell you a mortgage, you know they come to git ya!
In 5 years when the unsutainable US debt will force the Feds to rise fixed mortgage rates to 7 or 8%, housing prices will drop below your knees & when you'll bend over trying to pick up the pieces, Jim's boss will do your a$$ waiving your foreclosure papers above your head!

Taxes are abated - 421A - as I said:

http://newconstructionmanhattan.com/zh-hans/node/1819

Let them kick in in full force and effect, then get back to me. They will probably triple.

About the maintenance - it may very well be subsidized, as well - I can't tell from the information provided, but $400 seems very low for a building that boasts a pool.

FYI I wouldn't "freak out" on that apartment for anything: anyone who pays $1300 psf for a 634-square-foot hole is out of his mind.

Also, that apartment is about 40% overpriced based on the (still overpriced) comps in the area, which hover around the $550k level for similar sized 1br 1ba units.

Unless you think a pool is worth $300,000.

I wasnt discussing the collateral at all. Just the fact that there is a possibility to make gains on a short term investment with rates where they are and have upside potential compare to the initial posting that had numbers that were way out of whack.

Sledgehammer: Get a fixed rate mortgage if you are worried about interest rates rising. Not everyone is trying to sell something on here. I was just trying to put an previous post in current market perspective.

PS I would love to hear more about your theories on future interest rates and why you think that a person that finances properties shouldn't be in a forum discussing properties. Usually the people need financing to purchase the properties that are listed/ discussed on streeteasy.

wellsfargo... where 50% of last year's income was based on reserve masturbation. Let's pull up a chair for one of its employees to discuss the merits of locking in a bubble priced asset for 30 yrs to lock in a manipulated yield curve to keep the bubble inflated.

yes, Mr. James McPartland, do chime in.

You had a massive structural economic shift to "right now" consumption based on a de-linking of credit risk from credit origination. You make a loan, Mr.Banker, your get to poke the pig in 30 yrs. You fk up, you lose your job, you lose your future bonuses, you lose your 401K/pension plan.... no but it didn't work out that way did it?

>yes, Mr. James McPartland, do chime in.

Oddly, the only other poster I've seen who writes like that is Aboutready. Really. Sad.

Maklo, why don't you point out other examples of $2M Fidi apts where the going rent is $14K. Surely, yours cannot be the only one. I'd like to see what $168K annual after-tax down-the-drain buys you in the magic land of Fidi when the idiots in the prime areas of Manhattan are giving away their $4-6M apt for about the same.

15 Broad has 3 rentals over $12k in 2011 and currently listed.

20 pine has 3 in 2011 2 listed at $11k

2 Water Street had 1

"All things being equal, I think renting should command a slight premium because of the option value to pick up and move as soon as your lease is up. However, that option value is less valuable to people whose lives are more stable (families, school-age children, etc.) and more valuable to others whose lives are at a more volatile stage (those with less certain job prospects, changing household situations e.g. expecting to get married, have kids etc.). "

Definitely a good point... options always have value. And, of course, there is the transaction cost (moving, some fees), but certainly much less than with buying.

Not saying it makes up completely for any other specific factor, but it is a factor.

Personally, I don't love moving itself, but I love the ability to try new kinds of apartments, buildings, or locations. What I would have bought (even if price wasn't an issue) 5 or 10 years ago (or, hell, 2 years ago) is substantially diffferent from what I want now.

And this is Manhattan, not the burbs. I thought much of the reason we lived here was because of how dynamic it is.

YAWN. THe price/rent ratio varies city by city. Every article written on this topic I have seen over the last year says that NYC and SF are two places where its definitely better to rent, all else equal. TOP citing Chicago is nuts.

The reason that Chicago is cheap is because nobody wants to live there.

Just like Long Island City.

then what happened to ericho? didn't he know not to buy in LIC? or did he mistake LIC for Chicago?

double dip baby.... who called it? who never wavered.... paul revere is sending you the message.... LIC is kaput.

>Every article written on this topic

These articles focus on what price point?

Nada - we looked at rentals in 20 Pine, 15 Broad and 75 Wall that were in the $10,000+ range.

Speaking of listings in 75 Wall, here's one for $12,500 a month:

http://streeteasy.com/nyc/rental/771306-condo-75-wall-street-financial-district-new-york

Looks like that's a penthouse line in the $4M range.

The 2BR market is more of what I pay attention to in the FiDi, but I agree with ionada that $14K for a $2M apartment doesn't line up very well with reality. I frequently see $2M units offered for rent in the $7-8K range. Similarly, $800 psf for a fully renovated 4 BR is a good deal, even in the FiDi. The FiDi is an interesting hood in that it's mostly new construction with a few older conversions that aren't in great shape--the one exception is 55 Liberty, so I'm surprised maklo didn't like it there.

Which ones? For example, the only thing fitting the bill at 20 Pine circa 2009 from SE's extensive records seems to be PH5 (2200 interior + 1300 terrace) with a last ask of $11K. It sold for $3M and I imagine rented for $10K or so. Is this what you consider comparable to your $2M place? I get that you might not appreciate the layout, the terrace, the Armani finishes, the architecture, the condo nature, the PH status, whatever, but this is what some lowballer paid 50% more than you did for it in 2009. $10K for a $3M place in Fidi, not all that different than the rest of Manhattan.

I'll also note that the 20 Pine listing is now asking over $4M.

Jordyn, maybe maklo did buy in 55 Liberty as it's the only thing fitting the bill that I could find. I think maklo has the following problem by analogy. Say I'm looking for a 3000+ sq ft apt on CPW with a park view. The only ones available for rent at the moment are $60K ones in 15 CPW. But I find a coop in a "lesser" building for $7.5M. I go on and claim how apts with the characteristics I'm interested in rent for $60K a month. Now I'll be the first to say that I don't get $6000 a sq ft in 15 CPW vs. $2500 in its cohorts, but it's a bit disingenuous to compare the rent on an $18M apt to a $7.5M one even though in my eyes the difference is nowhere that large.

Lookie here. On CPW, 2700 sq ft view apts that rent for $14K sell for $16M:

http://streeteasy.com/nyc/rental/725217-rental-300-central-park-west-upper-west-side-new-york
http://streeteasy.com/nyc/sale/482449-condo-15-central-park-west-lincoln-square-new-york

- I prefer CPW at 90th over 61st as it's much more residential.
- Coops are better than condos as it keeps the riffraff away.
- I like the layout better.
- I prefer true prewar to faux prewar.
- Finishes don't matter to me.
- Who the hell wants 8' windows when you can have casement windows?
- The Fords lived in the Eldorado apt, who lived in the 15 CPW one?

Nada - let's look at this the other way. Right now, looking at active sales $/sf to active rentals $/sf/yr, the ratio is 21.0 at 20 Pine, 21.4 at 15 Broad and 22.8 at 75 Wall. I don't know why you think a 20.0 ratio ($800/sf divided by $40/sf/yr) is so far out of the realm of possibility, especially in the 2008/2009 timeframe. And I do think I got a good deal in hindsight.

Now perhaps there is a degree of subjectivity factored into comparing to $56/sf but that really is immaterial to my main point, which is that my equivalent monthly cost was <$8k per month by buying instead of renting which would have cost me above $10k per month.

20-25X is what EVERY academic or Wall Street source says NYC's rent/own ratio is. It was higher a few years ago. Why are you guys arguing this particular point?

Maklo, I'm down with $40/sf/yr. Problem is 2500 sf * $40/sf/yr * 1 yr / 12 months gets you to $8333 per month. Or the more subjective / optimistic $56 gets you to $11666. It sounds like there might be a 12 vs 10 issue in your calcs, which combined w/ subjectivity yields a pretty out-there result. I hope you can appreciate the difference between a number like $14K and $8K, and the rising rental discount expected at $14K, which was my point.

FWIW, I do appreciate your main point. You've got very specific needs (2500 sq ft 4BR in Fidi) which doesn't come up that often rent or buy: I imagine at any given point in time, there are probably 4 on the market rent or buy, only 1 priced well, so you do what makes sense. I'm just having fun arguing w/ you, that's all. Hope you don't mind.

Some comments / questions on the details you provided:

1) Did you really do a 3.5% interest-only 5/1 ARM? What are you actually doing, and what interest are you actually paying?

2) Did you account for the expected cost of interest rate changes in your spreadsheet? Say your ARM is reseting in 2013 or 2014 and that you have to do a 2.25% spread on top of 1-year treasuries. The market is placing (as it was in 2009) an expected interest rate of 3.5-4% for 1-year treasuries from 2013-2014 onwards. That means that years 5-10, your expected interest rate is more like 6%.

3) Did you account for the effect of interest rate changes on price? Right now, the Fed is targetting 2% inflation with 0% interest rates. During more normal times (i.e., when you want to sell in 2020), it'll likely target 2% inflation with 3-4% interest rates (which is what tradable markets are predicting). This 3-4% swing on the front end of the interest rate curve will have something like an effect of 2-3% on mortgage rates. After-tax, this would be like a $2000/month difference to some guy like you making your calculation, or 25% of your expected monthly cost. Do you think that will translate to a 25% drop in price when you want to sell (offset by a 25% increase in inflation after 10 years, so flat nominally)?

4) Somewhere I read that Case-Shiller shows 7% annual volatility in house prices. Given that your 25% equity is going to take the brunt of volatility, that means 28% volatility on your equity (after-tax as there is no acommodation for capital loss on a primary home). So 5% expected return for 28% expected volatility, and illiquid to boot. You're really happy with 5% on such a volatile investment with horrendous liquidity?

5) Brokers will charge a 5% fee for a place like that, and you forgot another 2% in NY state & city transfer taxes, plus some other loose change on the sell side, so more like 8.5% total in a coop rather than the 5% you assumed.

6) Kudos on including depreciation!

7) Given that AMT hits pretty much everyone whose income is between $200K and $1M, and and the target buyer of a $2M apt has income in that range, I would imagine that you don't get to deduct on the 50% coop maintenance taxes. Interest is deductible only by 28% federally (also because of AMT), but you also get state & local beyond the $15K standard deduction, so 35% overall sounds right to me.

There are no right answers on much of the above, just curious whether / how you account for them as you seem pretty detail-oriented.

"20-25X is what EVERY academic or Wall Street source says NYC's rent/own ratio is. It was higher a few years ago. Why are you guys arguing this particular point?"

Because maklo claimed 12-16X for a certain subset of the Fidi market. I assumed his point was that the certain subset of the Fidi market was special, immune from 20-25x. I endeavored to provide counter-examples.

Any other questions?

jason, as long as I got you here, answer me this. I know you're going to yell at me, but why am I seeing random listings with the same asking rents as 2009?

http://streeteasy.com/nyc/rental/756153-condo-201-west-17-chelsea-new-york
07/17/2009 Previously Listed by Site Realty at $5,500.
01/08/2010 Site Realty Listing is no longer available.
04/14/2011 Listed by Site Realty at $5,600.

Not yell, but anecdotes do not prove anything. Its pointless to provide them, when we have Case-Schiller, Jonathan Miller, Trulia, and all sorts of other sources of meta-data telling us what the ratios are - and many more on asking (and actual) rents.

Jason, it must be humiliating to work 5 levels below inonada at the hedge fund.

No more JuiceDrivel in a long time!

NADA – point taken on the ratio. Using $10k per month it is $48/sf per year not $40/sf, and the ratio is at 16. So part of this may be I got a better-than-average deal. But let’s go through the main points, which I am happy to see finally address the core of this buy vs. rent debate.

1) I actually did 80% down and 30-year with 10-year IO mortgage. That rate is today 4.875%. I used 5.125% in a revised analysis (down below)

2) Original analysis used a 5-year hold period, but I will change to a 10-year correspond with a 10-year IO and my actual hold period expectation

3) Interest rates are only one factor in RE values – and it is not a simple direct equation, we are talking about second and third-order effects here. What you are referring to are only the short-term interest rates as determined by the Fed and we know that it is medium and long-term interest rates which matter the same if not more – and these are not determined by the Fed. So even if you were Ben Bernanke and knew exactly what you were going to do with the target rate, you still don’t know how the market is going to determine the 10-year rate. Now imagine you are just the average (reasonably intelligent and sensible) prospective RE purchaser.

Moreover, you would have to apply this thinking to the “opportunity cost of downpayment equity” debate as well. And you’d also have to apply this thinking to equivalent rental rates – as they too are impacted by interest/inflation to a certain extent.

Frankly, and maybe I am just not an expert on these things (although I’d like to think I do know a little something about this subject), but my head hurts just thinking about all of this, so instead I try to approach this a little differently and follow some basic guidelines:

a) Don’t overpay. How do you know if you are overpaying? Pay attention at price/rent ratios, historical comps … all over a long period of time … recognize that these things go in long cycles and there is a lot of mean reversion at play. So there are times when it makes sense for few, if any, to buy real estate – like 2006/2007. Other times, it is a no-brainer for most people. I think most of the time, it makes sense for some to buy and some to rent in NYC. I think we are in one of those more normal times, maybe prices continue to fall relatively to rents – making it even more sensible to buy.

b) Hold period matters here. Risk on ultimate sale price determining your overall return (investment + equivalent rent), and exposure to short-term swings in factors you cannot control is higher for a 2-year hold than say a 10-year hold.

4) I get the concepts of volatility and illiquidity. However, my view is that you have to be careful applying hedge fund concepts to a home purchase – they are not that analogous. First, with a home you are locking in the consumption benefit portion of it, which would if anything imply lower “volatility” vs. exposing yourself to the swings in rental prices. Second, volatility on the ultimate exit price doesn’t matter unless you are forced to sell (at a bad time). I can understand why hedge funds look at volatility to the last decimal point – they are at risk of their investors redeeming on them at a quarterly basis and don’t want to be forced sellers. I run my own PA differently from how I would run other people’s money. Home purchases are more analogous to running my PA than a hedge fund.

You see, I don’t care if my housing price goes down 3% in Month 3 and is up 7% in Month 7 and down 10% in Month 10. I DO care what I ultimately sell it for of course, and as long as I am not forced to sell it at a discount because I was stupid and bought more than I could afford, traditional measures of volatility don’t matter to me. So again, I boil it down to a few basic guidelines:

a) Hold period again matters. If you know you need to bigger place in 2 years, then you are exposing yourself to being forced to sell (or live unhappily) when you don’t want to.

b) Don’t buy more than you can afford! That again will force you to sell.

We should also consider illiquidity, but there is a whole other debate on what that means. I’ve seen arguments on both sides. For the average person, liquidity might be a bad thing – I have seen all sorts of bad decisions made with liquid portfolios and being forced to sit on your invested capital may not be a bad thing for the average person. Sure, at least you can spend it freely, but I go back to my earlier point – don’t buy what you can’t afford! Watch the SNL skit (http://www.nbc.com/saturday-night-live/video/dont-buy-stuff/27169/)

5) I’m cheap and a hard negotiator. The incremental work involved in selling a $2M apartment is not 4x a $500k apartment. And this is one thing within the control of the owner (unlike interest rates), particularly with the greater availability of tools and information available today, and I would suggest to all (reasonably intelligent and sensible) prospective SELLERS to at least try to knock a few percentage points off the broker’s fee. And btw, broker’s fees as I understand have been going down over time, despite what the broker’s themselves may tell you.

6-7) No response required.

Ok so back to the numbers. Starting from my previous assumptions, I have changed them to be more in line with my actual situation, plus an update on recent rates. I used the 30-year fixed (10-year IO) rate of 5.125% (Wells Fargo is at 4.875% for Jumbo as of today). I bumped up to 80% mortgage yield. I used 6% all-in transaction costs and changed the hold period to 10-years. I inflated most costs and equivalent rent starting at $10k per month (incl. depreciation) at 2% and I factored in price appreciation at inflation plus 50 bps. Here are the average monthly ratios over the 10-year period:

Interest Expense $6,833
Co-op Charges $4,106
Less: Tax Deduction $(3,110)
Amortized Transaction Costs $2,000
Depreciation $1,200
Less: Asset Gain $(4,688)
Less: Return on Downpayment $2,096
Total Monthly Rent $8,457
*** Equivalent Rent $10,950 ***

Note I haven’t factored in any broker charges for equivalent rent, nor have I factored in things like the hassle factor of moving. In many cases, those are not insignificant. For this situation and set of assumptions, it makes much more sense – economically – to buy than rent.
Then I solved for the “return on equity” variable to see where it crossed with equivalent rent. That was 9.00%.

So my major conclusions are:

1) Hold periods matter. Don’t buy if you are not planning on living there for, say, a minimum of 5 years.

2) Don’t buy what you can’t afford. Or it may turn you one day into a forced seller. At which point, volatility DOES matter.

3) If you think you can make better than say 8-10% on an after-tax basis (11-15% pre-tax) over the long haul – god bless you and go out an invest your equity. As a side note, Warren Buffett did ~20% at Berkshire Hathaway over his long career.

Typo. Note in at the bottom of my post in the numbers section ... should be "Plus: Return on Downpayment" not "Less: Return on Downpayment". The numbers themselves don't change.

Thanks for the detailed answer, maklo. I appreciate it, and I enjoyed seeing how you viewed things.

On what 10-year interest rates will be 10 years from now, the market already has an opinion on them by the difference between 10-year yields and 20-year yields. You can take positions on it, you can lock in the rate, etc.

On liquidity & volatility & "I'll wait the market out", I respectfully disagree. Volatility is a symptom of the underlying issue, uncertainty. If you have to move and your coop doesn't allow renting, you don't get a choice. If your 10-year IO loan expires when interest rates are high, you don't get a choice. If some terrorist fucknut sets off a dirty bomb, you don't get a choice. If you bought S&P 500 in 1999 and "waited out the market", you'd be up today. It still doesn't mean that you risked too much for too little reward.

That said, 9% after-tax seems appropriate reward for the risk, and I get your motivation: you think you're at 16x price-to-rent.

One thing you didn't answer: aren't you getting hit with AMT? If that's the case, isn't your coop maintenance completely non-deductible?