Inonada vs. Rich Lemmings or: UWS Rent-Buy Math

The "discount" is negligible.

is it just me or is this entire conversation flawed due to the fact that one would likely have to move every 2 years or so if one chooses to rent in a coop. that just isn't going to work when you have a family. how do you factor in nomadic vs stable lifestyle? i don't care how cheap a rental is if i have to be out in 2 years!

am i missing something??

uwsmom: That seems to be what the market is saying by pricing coop rentals rather low. The way I see it, a coop rental is a very cost-effective option for somebody who doesn't mind moving frequently (or who has to). But that's a fairly small slice of the tenant pool.

well, it seems logical that coop rentals are priced lower compared to longer term rentals. it doesn't seem quite as logical when comparing coop rentals to coop purchases.

In my exeprience, owners of coops are often looking to simply "cover their nut" when they rent out their apartments rather than looking to capture the maximum rent that the market can tolerate (as is the case with true rental buildings and/or rental apartments within condos). Thus, the rents may be deeply discounted (if they have low carry costs themselves) or, depending on other factors, the discount may be, as Matt suggest, negligible.

I'm not sure why there should be a discount on coop SALES prices relative to condo SALES prices except during a bubble.

During a bubble, prices are based largely on the prospect of capital gains and condos are better vehicles for profiting from a rising market. So condos should be more affected by bubbles on the way up and down.

But in non-bubble markets, the differences between coops and condos are largely a matter of taste and should result in self-sorting rather than price differentials. Some people prefer gated communities and some people want to be able to sublet. But the marginal buyer, most of the time, should be someone who sees the legal forms as largely substitutes and therefore will be willing to switch for a relatively small price differential.

Even if there is permanent larger demand for one form than the other, it is hard to see why developers wouldn't respond to any price differential by increasing supply of the higher-priced form. That should bring prices back in balance over time, although perhaps slowly if the demand shifts faster than developers develop.

Chuckle chuckle.....

Financedude.... it's like smacking around a blind 7yo wo arms and legs... chuckle chuckle... it's just not fair.

@ OH NO NEVER GONNA MOVE...

Sometimes you DIE.
Sometimes your wife leaves you for the pretty blond;
Sometimes you get triplets and gotta move;
Sometimes your husband goes and kills 17 afghans....

Sometimes ya gotta move.....

and sometimes there are these things called bubbles where a tulip bought for $3K can be borrowed for $.50 and two years later, ya can buy ALL THE tulips ya wants for $5.

The other $2,995.oo will grow to $4MM in 30 yrs at 5%.... but WTF DO I KNOWzzzzzzzzzzz.....

sure, let't continue to build specialized models and apply them generally.

slap away.

specialized bubbles.... huh?

I'm confused (what's new?) & math challenged:
What is the formula: Is it 200 times monthly rent or 15? x annual rent?
Thanks!

The timeframes of the two sets of consumers may be different. People who buy co-ops are either prepared for the length of time the approval process takes, or willing to suffer the inconvenience once to get a long-term home.

Many renters, however, may not be in a position to wait up to 90 days to see if they've got a home or not. By this logic, there should be a price difference in a co-op between sponsor rentals, where's there's no lengthy approval process, and landlord rentals, where there is.

And indeed that's what happens. Sponsor rentals in a co-op building are usually more expensive than landlord rentals, even when one tries to equalize the prices for the difference in brokerage fees a renter might pay.

ali r.
DG Neary Realty

Less transactional friction, the higher the price......

Chuckle chuckle.

Write me a 1000 word essay. What if I can write it in 10 words? How will your parents know I'm giving you enough homework?

It seems to make sense that what is considered as a high or low rent-buy multiples should depend on the property type. In any case, I don't trust rent-buy multiples analysis because I have little confidence that the math is done properly. For example, are the maintenance/cc/taxes/assessment history accounted for? If so, did they break it out by property type? Even if you do your math properly and come up with a specific multiple, it's not very useful when you have no trust worthy standard/historical data to compare it against.

Well thank you, dwell.

You all know I'm math challenged but when dwell is also confused I feel better that it's not just me.

Wow w81, what a bold headline. Usually the bold headlines come from others before they are debunked and the original poster changes the subject: http://streeteasy.com/nyc/talk/discussion/29701-how-to-piss-away-150k

That's right w81st.

Will there be an open house report this Sunday?

when was the last time you provided an open house report, truth?

suddenly columbiacounty is a supporter of w81st?

huntersburg: cc got lucky and found me live on a discussion.
Whatever his comment I'm sure it's stupid.

but...how would you know?

do you always tell the truth?

or only sometimes?

or perhaps never?

Wow 4 questions in a row.

how come you respond for truth? how does that work?

I thought I responded for myself.
I see the "Add Your Comment" box and I type in it. Then I press "Reply".
Honestly, 25 years ago, who could have imagined this stuff?

i asked a question for truth. you responded. why?

huntersburg: I have a great system for not seeing his hidden comments.

Did you see the news report about the old man who got busted again for jerking off in the college library while looking at female students?

That's cc on se right now he has his shriveled pecker out and is typing with the other hand.

really?

how would you know?

You asked your question in public. I saw it and responded. Certainly if you didn't want to, you didn't need to read it - you can hit the "ignore this person" button. It's a nice feature, but I don't read it, I'm ok with the free speech.

fyi...cuntersburg.

thats a question for truth....not you.

>Did you see the news report about the old man who got busted again for jerking off in the college library while looking at female students?

No

holumbiahounty, you misspelled my name.

There's an old guy in the burbs who likes to go to the local college library and jerk off.
A female student turned him in.

wow.

"Wow" seems like an odd - perhaps creepy - response to that story.

financeguy: I'm not sure why there should be a discount on coop SALES prices relative to condo SALES prices except during a bubble.

Condo sales are generally higher whether bubble or no bubble due to a larger market base and therefore more competition. Tax abatements make new condos more attractive to the financially challenged and transients--people who keep homes 7 years or less. Investors are attracted due to less restrictions on renting, and unfortunately our rather xenophobic culture prevents most foreign buyers from even attempting to purchase at co-ops. And then there are the parents buying for kids-- definitely a condo purchase unless you are in the 1%. Foreign buyers alone must keep condo prices inflated.

Years ago, when I was living downtown, I was having drinks with a dear friend who was a successful RE broker. I asked in all seriousness about the requirements necessary to pass a co op board review uptown. He replied, "White and liquid, baby, white and liquid". Though, in his cups, I believe it was true back then and I don't think it has really changed much after all these years. If so, it is a diminishing market.

Let's call the price on that unit $4.75M, splitting the difference between West81st's $4.5M and my $5M assessment. Using a 15% coop discount, let's say it were a $5.6M unit if it were a condo. Now how does a $15K asking rent stack up? My claim is that it's crap as a 26x asking price-to-rent vs. $4.75M.

For a baseline, let's take this nearby same-floor park-view prewar condo unit that has been previously rented for many years and is now on the market (after months & chops) for $12.3K no-fee, clearly marked as available long-term. It sold for $3.67M (a bit smaller, lesser bones, but condo) a time with which the SE index has us flat: mid-2005.

http://streeteasy.com/nyc/rental/823985-condo-327-central-park-west-upper-west-side-new-york

Let's move that $12.3K no-fee down to $11.5K to adjust for no-fee to equalize. Leaves us at 26.7x.

So the coop is sitting at the same price-to-rent as the condo. If history is an indicator, the condo will likely rent (it moved in 2009 around this price after a fee months) while the coop will not (it has been sitting now for nearly 1.5 years at this price).

So what gives, is that proof enough that coops need to trade at higher price-to-rents? I say "hang on". While at the $11.5K price point, rich non-lemmings like a starting ask of 26.7x they can try to push hard toward 30x, it's a bit of a non-starter at the $15K point. At the $15K point, the even-richer non-lemming can find starting asks around 30x, with hopes of pushing it toward 35x. I.e., the non-coop version of the apt (the one that trades for $5.6M rather than $4.75M) can be found at an asking rent of $15K.

Now if $15K is the striking-distance ask of the condo version of the Eldorado apt, a 15% coop discount would put it at $12.75K, let's push it back to $13K to adjust for the compressing price-to-rents at lower price points. IMO, that starts looking awfully attractive despite the 2-year issue and the coop approval issue. For a rich non-lemming only looking for a place for 3 years anyways, the comparison to $12.3K no-fee for 327 CPW starts becoming compelling. Chops are licked for making a bid at $11K and getting it done at $12K (33x).

I guess my point is this. I claim a $15K asking rent is the starting point on that sort of apt if it were a condo. That's what's available to rich non-lemmings.

Now what coop discount must be made to make it compelling? I say that the starting point of a $13K ask will make it look attractive enough to get bidding. I don't think it needs to go another notch, as far as $11K, say.

What do West81st & others think would be required of this place in asking rent to make it compelling to a rich non-lemming?

Ino: Can you give me your best guess for what your favorite place on Beekman rented for.

As for rich non lemming argument, I have got to say it is compelling. I have never considered such a high rent before and I would prefer to buy a large comfortable NYC apt. I have flipped enough apartments and I would like to do one last reno to live in a place as a permanent home base. I have been looking the last few weeks and the one place I would consider is priced 35% over the same line in the same building that sold one year ago. And it is a total gut. And it has back up bids. Clearly the lemming mentality still lives on.

But I think with this argument it makes more sense to rent for three more years, let my investments grow and come back to RE when there is more product in the market and the de leveraging process has had more time to force some losses in the market. Within a five block radius of me now there are 4 luxury apartments buildings in the works. If my investments can beat inflation I just might have enough to come in at entry level in one of those buildings. Plus, in a year or two I should make a killing on my Miami investment and I could sell that. In the meantime, I am going to reconfigure my thinking on how much rent I should be paying. It just makes sense .

And it is not really that inconvenient to move since It is easy to hire one of those luxury companies where you pack your passports and jewelry and they pack and unpack absolutely everything else. It is a couple of days of inconvenience but by your example, you save an enormous amount of your investment potential.

RE 23 Beekman Place, apt23.

I'd guess $13-14K this year: it didn't spend much time on the market and was well-priced, so I could see it having gone at full asking price of $14K. On the other hand, the horrors of no rent for over a year from 2009 were fresh on their minds, so they would have been incline to consider a few percent off ask, maybe as high as 7% which is where $13K would have landed.

Back in 2009, $13K no problem.

"Plus, in a year or two I should make a killing on my Miami investment and I could sell that." Isn't that lemming talk, as I thought you've said that your Miami place was already down > 20% from your purchase price. Oh,but you got to renovate the kitchen.

I am curious if anyone besides me find it striking that say the rent for a 2BR could be anywhere from $5000 to $6500. Let's take sort of the middle road and say $6000. Comparable 2BR condos in the same area are asking for $2M to $2.5M which implies a rent multiple range of 350x to 400x. Yes, 350 to 400x!

ph41. Yes it is true that my place was down. However all the condos in the building have now sold out and it has been well publicized in the news that Miami real estate is now booming because the south americans, especially the brazilians are investing in Miami. Plus corporate investors are pouring in. They are even starting to build more high rises on the beach. So at the moment my apartment is above water and rising. So it is not lemming talk. Miami RE tanked, it was down over 50% -- a reversion to the mean-- and I bought near the bottom.

I don't think the same can be said of NY RE. First of all NY has retraced very little of the bubble rise. There are still many Europeans buying here but that may not last after the Euro goes down. The Asian market is in slow down mode and South Americans are not coming to NY like they are in Miami. And the financial industry cannot support RE price the way it has in the past.

apt23, agree with what you said about NY RE but doesn't that also apply to FL RE ? I mean, if Euro goes, so goes the EM, emerging market, i.e., Brazil, and you already mentioned Asia is in a slow grind lower. Just curious.

Sorry apt22 - all your post re: your Miami apartment smacks of the same self-delusion that you mock on people who bought in NY. OH, but now it's YOUR purchase, so you see the "foreigners" coming to the rescue in Miami. Has YOUR building been taken over by the Brazilians yet? Hope so, because you'll need "clustering" effect to recoup your "investment"

Sorry > apt23

You would think so, but it is not the case as Miami is it's own microcosm . FL RE is not doing well but Miami is booming and here are a few reasons:

There is a vast marketing campaign to get South Americans to buy in MIami by basically selling green cards. It is a long story but is happening. It is not happening for Europeans who favor NYC. And, consider that you can get a beach front property in new or nearly new buildings with fabulous amenities --pools, gyms, spas, restaurants, in a beautiful and temperate climate for $400 -500 psf South Americans are now filling Miami hotels in June July and August which is winter in Brazil and much more convenient vis a vis air travel. And those hotel guests become buyers. So Miami is getting both the upper and the middle class South Americans, Russians and Germans which is a much vaster demo than the plutocrats that buy into NYC. It is a no brainer -- what would you take in August --a 2 BR on the beach with one of the most beautiful oceanfronts in the world or a viewless studio in a bad neighborhood in NYC with the promise of the putrid air on the August subway system

And there are not many Asians buying in Miami to my knowledge so the downturn in Asia won't affect Miami RE as it will in NYC. It surprises me because Asians are buying up Las Vegas hand over fist. The only Asian money that seems to be in Miami is investment in big projects

Bottom Line: Manhattan RE is too expensive --still in bubble territory-- to attract all but the wealthiest foreigners who don't care about price. When they start to care about price, it will affect RE here. And if the Euro tanks, they will care

ph41 -- so it wasn't delusion when i honestly posted a loss in my investment but now that i say it has turned in Miami, I am delusional. You seem to be hopelessly uninformed. Don't you read the news or follow and business news. This Miami turnaround is reported on the business channels every day and is chronicled in every serious news publication.

Apt23 -- can you give a breakdown of price, rent, common charges, taxes, and transaction costs in Miami? Your choice of price point.

Yes apt23 - I do read the news. So for Miami it's now the Brazilians, and for NY it was the "Irish Carpenters". Let's just not forget that what goes around comes around.

Sorry that Manhattan real estate is still too expensive for you. Just keep waiting for the $500/sf LOL

Ino: Here is a recent foreclosure -- there are still many in the pipeline. This 1 br. sold for $290,000 or $359 psf. The same apt at "market" rate in the recent upturn just sold for $325K. The cc: is $432/month taxes 1.5%.

http://idx.kevintomlinson.com/kt/listing/view/A1574541

sorry -- rent is $2500 - $3000 month depending on time of year.

ph41 actually NY RE is not too expensive for me precisely because I have been prudent about buying and selling many times over the years in NYC. I am in a two bedroom with beautiful views of the park -- in a rental because the US and the international markets are going thru the most massive de leveraging in history and I do not believe NYC RE is immune to the world economy. I never called for $500psf but if it comes, I will certainly be ready for it because I am very liquid. How will you do if you happen to see a black swan fly by your ph? Good luck with all your sassy LOL's then.

Ino: forgot to mention that that apt originally sold in 2004 for $650K

Blackswan flyin' by phlady
take apt23 and learn to fly
all her life
she was only waiting for Miami to be free...

apt23, we're indeed going through a massive de-leveraging but it will take time. The $500psf target may well be too unrealistic but no one knows for sure. However, I'm sure that the current 2BRs of around $1300-$1400psf is definitely unrealistic and unsustainable.

Apt23, thanks for the details. Even at $2500 a month, the price-to-rent is 10x. $30K in rent, $10K in cc's and taxes, budget $3K for transaction costs, another $2K for upkeep. Leaves you earning $15K on a $300K investment, so 5% with 2% inflationary growth. So 7% return on cash, about 3.5% above treasuries for you capital. Sounds properly / well priced.

Not like Manhattan RE where you yield just treasuries on a $2500 apt and essentially zero at the "rich lemmings" price point.

BTW, have you been out in the park recently? Blossoms are going nuts.

Apt23 you are delusional about Miami RE. There is a good reason Miami RE dropped by 50% and that is supply increase that you didn't see anywhere else but Las Vegas. Brazilians are coming is a bull boy excuse. You are talking your book buddy simple as that.

Nihao jbottom. . Talking your book = being human. Some humans were on the side of nazis. On SE, we r either on the re bull side or re bubble popping side. Rent / buy ratio is how we peer into your soul, or lack thereof.

Saw the fking funniest sign in awhile driving to airport. 'used tires for sale'. Who the fk would take that liability? Then I thought add a 6% commission. :)

apt23
about 10 hours ago
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>Clearly the lemming mentality still lives on.
>Plus, in a year or two I should make a killing on my Miami investment and I could sell that.

>BTW, have you been out in the park recently? Blossoms are going nuts.

Yes, very nice. Hasn't blossomed up in Columbia County yet, too far north.

JButton
about 2 hours ago
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>Apt23 you are delusional about Miami RE. There is a good reason Miami RE dropped by 50% and that is supply increase that you didn't see anywhere else but Las Vegas. Brazilians are coming is a bull boy excuse. You are talking your book buddy simple as that.

w67thstreet
about 1 hour ago
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>Nihao jbottom. . Talking your book = being human. Some humans were on the side of nazis.

Is w67 comparing apt23 with a Nazi?

>apt23 - The "black swan" has already flown past the ph, as far as I am concerned, and I am still way way up.

In enlisgh?

Too much drinking, much impaired motor skills?

Inonada: Yes, great day. Walked the High Line with Kid #1 after a nice bike ride along the Hudson. Seeing cherry blossoms and azaleas on March 24th gets her worried about climate change - and rightly so. I told her we need to enjoy it while we can.

I don't have much of a feel for "right" rents. I use rents as an input for sanity-checking sale prices. That's why this topic grabbed me. I've always ignored coop rentals for benchmarking purposes, on the assumption that they are a niche product unsuitable for most people's needs.

I agree with you that, if coop rents are a reasonable benchmark, then the premium to buy seems hugely out of whack. The question is to what degree these listings are relevant to sales.

Also, I think you may assume to much about the negotiability of coop rentals. As rsm321 mentioned, coop owners often just try to "cover their nut" by renting their apartments out. If they can't get that number, it may make more sense for them to stay put - or sell, if relocation is mandatory.

nihao...

@ph41... flying high like a kite......

@w81...."let me plug in the numbers to make it alright for me to sell/buy UWS coops... and look at me "I'M HUMAN"

We are not arguing whether you're a nice guy... WE ARE ARGUING IF THE BUBBLE's DONE DEFLATULATING!

Shi shi

@ph41 again..most planes are still flying right bf they crash......

One of my planes was once crashed into by a food service truck.

Sorry - should be "assume TOO much".

w67 - Yes, there are bigger questions. The thing is, if you want to know how much air is left in the bubble, you need good data. Coop rentals may be good data, or noise, or something in between.

Don't bubbles pop?

West81st, thanks for the namesake thread BTW. The rich lemmings don't stand a chance.

How was Cherry Walk on the Hudson, did you make it in that direction? Ripe or still needs time?

>w67th - you might be able to get a deal in Shanghai - the market there is having a little bit of a meltdown Still nowhere near $500/sf

inonada: Went that way last weekend. Some of the buds were already starting to show color. We'll probably be there tomorrow morning, before open house hours.

$500 psf? That's only possible if we have much higher interest rates, which won't happen until we have a stronger economy. But with a stronger economy, incomes will probably be rising.

"That's only possible if we have much higher interest rates, which won't happen until we have a stronger economy."

Isn't that a sign of a failure of imagination? Economic growth is absolutely NOT the only way we get higher interest rates. I will give you two examples to ponder; Greece and the '70s. In the '70s growth was anemic and inflation wasn't just high, it was accelerating. And Greece has experienced a dramatic shrinking in its economy and double digit interest rates in a ZIRP environment.

I am not predicting the end of the world here. But it is a mistake to base a huge, leveraged, long term bet on an illiquid asset with high transaction costs based on the idea that there is only one scenario in which rates rise. And a possibly positive scenario at that.

The U.S. is the same as Greece?

Huntersburg: cyclic model. The fate of a bubble is tricky and, well, "timing" is challenging ;)
Bubbles are fun to think about.
I doubt this response was helpful.

But we are in a bubble. Bubbles pop, right, not deflate slowly?
Everyone knows there's a bubble - it's obvious when comparing rentals to owned apartments, and yet declines are slow and there is still a market with buyers.

Something like that, right? Very logical and orderly, right?

And nyc-observer has a significant point that many like to ignore as they treat housing as if it were a fixed income investment. but Av has an exception. From Greece. In the 1970s.

Citing Greece is ok for these purposes, but talking about foreign buyers is not, right?

Foreign buyers will dry up in New York, but not in Miami, because Miami is special. In New York the'll dry up because the Euro will decline because the European economy is bad. But the U.S. economy is bad too, but that doesn't count for this argument's purposes, right? Put your money in Sprint I suppose. It's all so logical, wrapped up with a nice neat bow that everyone here understands. Except for the people who are buying because they are lemmings.

Makes sense.

back to the blossoms: East 35th street between 2nd&1st the braches/blossoms form a blossom arch like walking through a blossom tunnel.

between 3rd and 2nd.
^correction^

More in blossom news.

Brooklyn Botanical Gardens. Magnolias starting to fade. Very few cherries going as of yet.

Great cherry arch canopy on 51st between 9th & 10th.

Comparing Greece to US is silly.

At least inonada and I agree on one thing: a cherry arch canopy is a lovely sight in mid-Manhattan.

> nyc_observer: $500 psf? That's only possible if we have much higher interest rates, which won't happen until we have a stronger economy. But with a stronger economy, incomes will probably be rising.

Not necessary saying we'll get to $500psf but it doesn't have to take higher interest rate to pop this mini-bubble or bubble resurgence! It wasn't higher interest rate that pop the 08 bubble if you remember.

AvUWS ... nailed it!

And nyc_observer, comparing Greece to US is NOT silly. Don't think of the "end game" as the only reason you can't compare the two! Debt deleveraging works the same way. The "end game" may be different but the process is the same. And it's the process that will prick this mini-bubble, not the "end game." BTW, if you are thinking not only is the US different from Greece but this time it's different, call me and I have a beautiful bridge to sell you.

I had a Souvlaki for lunch today. New York City must be Greece.

a new bear, str33easier. more seeing the light.. nice

sounds like you two will get along nicely with yourself.

sounds like you already do like playing with yourself

I see.

jbutton: Apt23 you are delusional about Miami RE.

I have been very clear on this site about what my book is -- including being clear that my apt was down 20% when that was the building comp. However I am simply stating that Miami RE is up -- something that often happens after a reversion to the mean which happened in Miami. This fact has been all over the news, and not just NYTimes real estate puff pieces. Here from the real estate press, The Real Deal:

http://therealdeal.com/miami/blog/2012/03/23/miamis-home-selloff-could-be-complete-by-the-end-of-2012/

How is Sprint doing?

The $5M vs. $15K listing is now asking $14K. 2650 sq ft overlooking the park from an iconic building with a asking price-to-rent of 30x. I'm thinking a bid of $12K will get this done at 35x.

Go for it.

This is a 2br for 14k??? cmon easy one. also a coop, who knows how many renters they nixed - good luck to coop buyers. where do you see it for sale for 5M?

Great point guys, but could it be as simple as this apartment is just old and doesnt compare to the modern condos or rentals buildings which offer so much in terms of quality finishes and building amenities, especially in the 15K range?

During my search i have seen 15k apts on upper east go on the first day of listing. but these were 3+br apts. you need a special renter to pay 15k for a 2br, ie. can't fit a family w/ more than 1 child.

Can you post a link to one of these UES places? I'm curious.

I've never lived in a home with a Loggia. This, and the view, is what you're paying for.
Place kicks ass 'sept the price.

http://streeteasy.com/nyc/building/12-east-88-street-new_york

last 2 rented here