how are people affording 3 bedroom apts?

@anotherguy

u have to swing at easy pitches. i'll gladly take the risk of swinging hard for a home run off of an easy pitch. on the other hand, i'm not going to swing at something out of the strike zone just to get a base hit. i'm patient in regards to opportunities to take risks.

risk is half of the equation. reward is the other half. when i see a way to turn $100k into $100k annual cash-flow stream i will take on immense risk if there is decent probability. on the other hand, i cannot afford to focus on something with a 5% or 10% yield over 30 years. i don't come from money so those rates will not help me get wealthy. in fact, when those are my only options i prefer cash. i would rather learn the financials of every industry before accepting those yields.

so answer is: be willing to take risks, but only take them when the risk:reward relationship is favorable. not just favorable, but almost insanely so.

300_mercer

it's not about easy or hard. i failed that rule most of my life. i think most people just don't use proper guidelines. if u use this as a guideline, u will be much better off than if u use 10% savings as the goal! even if u never pass ur own rule.

same with yield. if u look at 3 choices (stock/bond/RE) only and then u say ok investment XYZ has 5% yield so i'll take it, u have missed the boat. u need to start with, how do all these wealthy guys become rich...they compound....how much? 100% annually....ok how do i do that? u will be better off.

nyc1234, I hope you'll appreciate this story.

I have a couple of friends. Wall Street guys (like me), bulge bracket firms, M&A group, been at it 15 years or so, have as much job security as anyone is going to have in that job, etc., etc. Not a bad gig by most standards. The Wall Street guys have cousins who own gas stations. Once upon a time, the Wall Street guys were making pretty good cash comp (by the standards of 20-somethings), while the cousins were working 16 hours every day trying to make a go of the first gas station. Fast forward 10 or 15 years and the Wall Street guys are still doing well - now they make their $1mm or $1.5mm or whatever. Meanwhile the cousins have used the cash flow from the first station to buy a second, the cash from those two to buy three more, from those five to buy 10 more, and so on, and are KILLING IT and basically drowning in free cash flow from the dozens of stations they now own. The gas station guys have long since stopped working in the actual stations, the business is pretty much on auto-pilot and they spend most of their time trying to figure out how to reinvest their gas station dough in other businesses, all the while laughing their a**es off at how hard their Wall Street cousins work for their slave wages.

There's no question about it -- being a wage slave sucks at pretty much all levels.

Prior to the Industrial Revolution, some 95% of all Americans owned their own businesses, and only about 5% worked for employers.

Those numbers are exactly reversed today: 95% of Americans work for others, while only 5% own their own businesses.

NYC MAtt,

how many americans worked for the government back then?

What's your point?

Would you really like to go back to the government oversight and services we had back in 1900, when there was absolutely no worker protection, no environmental protection, and virtually no santitation services?

Why do I find it strange that this thread on buying/renting 3-bedroom has turned into a conversation about living-below one's means, investing and reinvesting cash, and making aggressive high-return investments?

How exactly does buying an multi-million dollar asset that can't generate enough cash to cover even its carrying costs a smart investment? (Well, unless one is making a "slave wage" of $1M-1.5M or is "getting by" making $1M/mo.)

Memito, at that level, NO home is a good "investment"; it's an EXPENSE. You have to live somewhere.

"How are families able to afford to live in 3 bedroom apt rentals (2 kids)? Barely none available and impossible to find a decent one for less than $7k/month. Basically $150k worth of pretax income on rent (and that is low end b/c most are closer to $9k/month). Plus schools, food, cost of living etc. Are people not saving anything these days? I just don't see how this is sustainable. "

What kind of stupid question is this? People who make over $300-350k can pay over $7k in rent.

So if NYC RE prices were 3 times what they are today, you would justify buying a place as a simple "expense"?

You have to live somewhere but you don't necessarily need to buy it.

I just find all of this talk about aggressive investing while living below one's means out of place in a thread where people are talking about how much you have to make to afford a $2-3M apartment (many of which were $500-$1M range just 10 years ago.)

In many ways it sounds like a risky "expense" where one is exposing themselves to a potential real capital loss.

Memito, you're not getting it.

You reach a point at which you have SO much money you really don't care about any potential capital loss.

Memito I think u r confused. The thread asks "how are people able to live"...not asking if it is a good investment. The posts actually reveal that there are a lot of people who can and choose to live this way - doesn't say that it is a smart investment or low risk by any means given the poor reward.

I don't think you are getting it.

This isn't a thread titled "I have SO much money I don't care how much I spend on a 3-bedroom apt"... but "How are people affording 3 bedroom apartments" with detailed breakdown of salaries and costs and arguments over how much people should be spending.

Meanwhile there has been a tanget on aggressive investing and leaving below one's means - but I guess they don't care about any capital losses.

This thread is getting stranger and stranger...

"You reach a point at which you have SO much money you really don't care about any potential capital loss."

I hope I never reach that point. Reach the point of stupidity that is.

"I hope I never reach that point. Reach the point of stupidity that is."

One day, if you ever reach that point, you'll realize how stupid that statement is.

But frankly, I doubt it will ever happen.

sidelinesitter: "...10 or 15 years and the Wall Street [bulge bracket firms, M&A group] guys are still doing well - now they make their $1mm or $1.5mm or whatever."

So you are saying a senior "bulge bracket firms, M&A group" banker, probably MD level makes only $1-1.5 million a year including bonus?

Well I guess the thread has transformed from "afford" (in the title) to "live"...

I am not questioning your investment thoughts and ideas on their own, I just find them somewhat out of place in a thread about buying 3 bedroom apartments. Could you imagine the same sort of talk in a thread about "how do people afford to buy a dozen Ferraris"?

People can and could choose to buy 12 Ferraris, but wouldn't hearing about living below your means and sound/aggressive investing sound a bit out of place?

NYCMatt: "One day, if you ever reach that point, you'll realize how stupid that statement is. But frankly, I doubt it will ever happen."

I hope you are right. I on the other hand, have no doubt in you.

To me, life is all about balance. We live well below our means, but there's a limit. Sure it's great to delay gratification, but where do you draw the line? My dad has delayed gratification his entire life, now he is 60, has enough money, but is literally incapable of spending it - the mental block is too high. At some point, sadly, he will die and leave a ton of money to his kids... who don't need it in the least, and will have wished that he spent more of it on himself. I know lots of stories like this.

To bring back to junkie's story and NYC1234's comment, if you save $225K year and are paying $72K / year in rent but are dissatisfied with your apt, you know what - go up to $9K / month, which is $108K / year, get a bigger or nicer apartment, enjoy life a little more, and you're still saving $175-200K, which is just fine. To be clear, I am not advocating going from saving $50K / year to saving zero, nor am I advocating spending more on an apartment you don't need. But junkie was complaining that his/her apartment was really not enough, and he/she could not possibly find the money to rent a more expensive one, despite making $600K - $1MM / year. That didn't make sense to me.

Sunday - correct, they are MDs. Young MDs ~2-4 years in the title. My estimates are just that, but I think they're somewhat informed estimates. Maybe one of them got closer to the $2mm level one year, but I'm fairly comfortable with the 1-1.5 range on average over a few years, esp. given that those 2-4 years have not exactly been Wall Street's best. Assuming they stick around, I expect that they would make more over time, although some might disagree on this given various headwinds (economic, regulatory, political, etc.) to the investment banking industry generally and compensation specifically.

While an MD is 'senior' vs most others in the organization, the more seasoned MD who has been an MD since the young MD was an Associate is another level altogether. What would you guess the range is between a newly promoted MD making maybe low $1s and that person's group head running a business with a few hundred million of revenues? I'm thinking that the group head makes 5-8x (rough guess - feel free to correct me) the newbie. The seasoned MD with 10-15 years in the title is somewhere in between. All of the above are called 'MD', so 'senior' is a bit a matter of perspective.

Apologies for off-topic post, BTW.

@memito

agreed, the thread has gonna a little m.i.a., and i have no doubt contributed to the chaos (labor day; drinking beers most of the day so what can u expect!)

and u r right the question is how can "afford". the problem is that is a vague question. does it mean afford in the bank sense of the word? if so then the thread makes it very clear how u can earn this much as do several posters with a lot of real world examples. now what a reasonable margin of safety is in regards to "affordability"... this all depends on the individual.

and the answer to ferraris is the same, ie most buyers of high-end luxury are not buying hand-to-mouth the way banks lend...most that buy have way more than the liquid amount of cash to buy it. it's a toy.

agreed my points are a little out of place, i am not a good writer but i'm trying to tie things together so the poster can realize the answer is in small businesses.

btw memito, ur posts on TARP don't exactly spell out how to afford a 3 bdrm either but the point u make is still a very good one, and although, tangential, related.

"i am not a good writer but i'm trying to tie things together so the poster can realize the answer is in small businesses" - you sell yourself short, 1234. Your posts on this thread are some of most lucid and with some of the freshest perspectives seen on SE in a long while

I agree. nyc1234, will you be so kind to post examples of some small businesses where good money is/was to be made (without giving away your current ideas of course).

>Your posts on this thread are some of most lucid and with some of the freshest perspectives seen on SE in a long while

Overruled!

well what do u do? u have a boss and there is an owner. the owner only is interested if there is profit, which means your efforts have a margin. the best way to start is to utilize ur same skill...on every block in the city and on the internet there are millions of ways to make money. u need to focus on things u know then figure out the math, ie, how much cash flow is reasonable if u own the entire system.

even if u r a banker making $2 million a yr, ur bank is probably making another $2 mill or more from ur work. why should they have it?

u must also have vendors, which ones do u think get the largest checks monthly, what do they do? etc...

nyc1234: good points. I'm always racking my brains thinking of how to get into some $ making biz.

REjunkie: I think your question has been answered. What worries me more is how anyone affords anything in the U.S. Scale down the numbers. How do people afford 200k houses who make 60k? Or 80k or even 100k (if they have kids and cars to run). Forget buying. I can't think of many places in the States with a "reasonable" labor market where rent doesn't consume a fairly large proportion of income.

i agree with ny1234 re: utilizing what you know. it's also important to do something that you actually enjoy doing because you will spend every minute on it (at least in the beginning) when it is yours.

W67: interesting theory tying together "super" inflation in healthcare, education & RE. "Cheap" money. Makes sense to me. What about the availability of information? When I think about what I would do if I got seriously sick, I would go right to the Internet and look up treatments. Depending on outcome, I don't think I'm alone in being willing to spend up for treatment + whatever insurance will bear. This kind of information wasn't available - I wonder if it's contributing to escalating healthcare costs. Ditto education. You're getting more data granularity in terms of yields and easy applications online - top schools can basically charge what they want because the pool of applicants has expanded and the gap between top schools and the rest of the pack widens.

ok so after 2 yrs, what i have learned is that it seems there are 3 different types of renters in the $7-10k range:

1-FIRE sector high-end professionals - usually renting in the range of 75-100x income
2-Entrepreneurs - renting in the range of 100-150x income
3-Other professionals - often renting at bare minimum range of 40-80x income in an effort to have a decent place for their kids. (entertainment counts in this group and they actually tend to push towards lower affordability rates on average).

this is anecdotal and based upon information speaking to building managers over the past few years. i'm certain there are a lot of outliers, particularly in terms of ratios.

mixed in that group, there is also a side story that i didn't realize 2 yrs ago but have since connected the dots: investment real estate. u may ask, what the hell does this have to do with renters? it's not clear what percentage of these renters have this mindset but from conversations it seems that a good 20-30% of the renters in this range own investment real estate somewhere else, often paying their entire or partial rents. additionally, the higher price renters, ie, $15k vs $7k, are more likely to be in that group of investment owners than the lower renters.

finally, the numbers - it seems that there are about 15k making $1m+ in the city and 15k making $1m+ in the outer boroughs and/or burbs - i don't remember where that link is but it was about 2 yrs old and i would guess it has skewed towards brooklyn in the past year or 2. i think with this info, it starts to make sense how people are able to afford to live with kids in the city.

You forgot the fourth and largest group: SHARES. You're assuming that all of these renters are single "households"; they're not.

In the 20-odd years I've lived in this city, never have I seen so many middle-aged men and women -- $70K+ professionals -- living with roommates. Back in the late '80s and early '90s, having a roommate past age 25 was unheard of, and even looked on as a bit strange (unless you were unemployed, down on your luck, or a "struggling" artist of some sort).

@NYCMatt

No I didn't forget. I asked two property managers that manage multiple buildings with over 200 apts in the $7-10k range (doorman buildings).

They said that it is not that common in that price range in the West Village for SHARES. When they do share, the individuals are typically also FIRE sector, as it is in my building, and it seems that the most common arrangement is 20-30 somethings in groups of 3. Keep in mind, the question was how do people afford these apartments, and even in the case of the families you have essentially a share but with the possibility of 2 income earners instead of 3. It doesn't change the data much. Of course, this all varies by area. I don't know what the Financial District stats are but I would guess over half are FIRE shares.

I asked two property managers that manage multiple buildings with over 200 apts in the $7-10k range (doorman buildings). They said that it is not that common in that price range in the West Village for SHARES."

Wow. TWO property managers focused on buildings over 200 apartments.

Guess that covers the entire city

@NYCMatt

You must check your reading comprehension skills. A basic SAT course may help you.

As I stated, my information was anecdotal and applied only to a certain part of the city. A statistics class may also be beneficial because the entire group covers multiple buildings with over 200 units, over 1,000 units in total. Clearly you don't understand polling, either.

You have a tendency to shoot from the hip in EVERY discussion. When you disagree with someone, you simply state you have evidence, but it's NOT available anywhere. On the other hand, when someone else attempts to bring reasonable evidence to at least shed light on subject, you dismiss it without any rationale or evidence of your own.

Finally, it is usually pointless to discuss a large market like NYC in its entirety, as one market. That's why my info applies to a small rent range in a certain geographic area. You like to subvert conversations to take a small focal case and apply it to the entire market. That's why you couldn't comprehend the discussion of the wealthy market in NYC, since in your opinion, a $5 million apt purchase is made by someone with a $50k salary.

A statistics class may also be beneficial because the entire group covers multiple buildings with over 200 units, over 1,000 units in total. Clearly you don't understand polling, either."

I understand polling plenty. I also understand how easily it can be manipulated so as to render any results useless.

"That's why you couldn't comprehend the discussion of the wealthy market in NYC, since in your opinion, a $5 million apt purchase is made by someone with a $50k salary."

Check YOUR reading comprehension skills. Never did I say that

Anonbk, Good insight.

> I can't think of many places in the States with a "reasonable" labor market where rent doesn't consume a fairly large proportion of income.

agree, add "that has decent schools" as a condition. this is the reason why household savings' rate is still pathetically low. basically only those with a decent rent stabilized apartment can save the way the middle class in USA used to a generation ago. that chunk is now going to housing costs.

Finance fan? What makes you a fan of finance? Any particular element of finance? How does finance compare to your other passions? Do you consider yourself a novice finance fan or an expert finance fan?

expert, no doubt. housing should be saving at about 10%-15% given how fast boomers are retiring. still, it's shocking how little most save and how much $ they waste on housing. puzzling behavior.

meant "households should be saving 10%-15% at least in average"

"still, it's shocking how little most save and how much $ they waste on housing. puzzling behavior. "

Millions of people make their livings in New York City, but quite a few of those millions cannot afford to live anywhere in the city, and many more are just barely making it, "wasting" their money on housing without having anything left over to "save".

I suppose everyone in the middle class who makes their living here in New York City should consign themselves to three hour commutes, living in Reading, Pennsylvania, so they can avoid "wasting" money on expensive housing here in the city?

"still, it's shocking how little most save and how much $ they waste on housing. puzzling behavior. "

Millions of people make their livings in New York City, but quite a few of those millions cannot afford to live anywhere in the city, and many more are just barely making it, "wasting" their money on housing without having anything left over to "save".

I suppose everyone in the middle class who makes their living here in New York City should consign themselves to three hour commutes, living in Reading, Pennsylvania, so they can avoid "wasting" money on expensive housing here in the city?

Some are living in rent controlled apartments that are below market rate or are in a government subsidized housing assistance situation. And other simply have a decent income to be able to pay the high rent prices.