The Investor Next Door

The studio will cost him $495,000 — about 15 percent more than what it would have sold for in 2008, he estimates. “It’s still a great value for what it is,” he said, “because of the return on investment by renting it.” After paying his mortgage and monthly costs, which include $4 a month in taxes, he expects to clear almost $1,000 a month in profit.

Nice, stupid renter will pay this guy's retirement fund.
Stupid renter has no retirement fund, and will demand gov't handouts.
Save, stupid renter, save...

Stop the presses!
Who the heck is paying $2750/mo. for a studio in Williamsburg?

THE MATH

Fabrizio Uberti Bona owns a two-bedroom apartment at the Edge in Williamsburg, Brooklyn. He recently decided to become an owner/investor and is in contract to buy a studio. Mr. Bona thinks that with rents so high, he can come out ahead each month.
Cost of studio $495,000

Estimated mortgage amount $321,750

Quoted mortgage interest rate 3 percent

Anticipated monthly mortgage payment $1,357

Monthly common charge $408

Monthly taxes $4

Anticipated rent $2,750 a month

Anticipated monthly income $981

Annoying tenant expecting not to pay a brokerage fee, no increases on renewals, everything repaired immediately, the right not to put holes into the wall and not pay last moonth's rent to secure the security deposit ... priceless.

Baffling to me why individuals want to own discrete properties to rent out to others.

ignore the mistaken "not"

If he can rent the place at $2750 and puts little value on his own time, that's a decent investment. Not great, but decent. You're getting $5500 a month gross per $1M, minus $1000 per million in CC, minus $1000 per million in amortized transaction costs, minus $500 amortized upkeep/renovation, minus $500 vacancy allowance, so $2500 per million net. Works out to 3% net yield, inflationary increases bump that up to 5% or so effective fixed yield on a cash investment. Sounds decent if you put modest value on your time. After all, it's $25K expected return on a cash investment of $500K. Even if you place as little as $5K on the value of your time, it starts eating into your true return significantly.

But as soon as you start going higher-end, even that modest return goes poof. One unit in my building, same line, nearby floor, with slight but comparable differences to mine recently listed at a very reasonable ask. Compared to my rent, it at a gross of $2000 per million. If you net out CC's an taxes, net drops to $800 per million. Take out amortized transaction costs over decade, down to -$200 per million. That's not even counting amortized upkeep / maintenance. Even if you say the place is overpriced by 20%, the $500 per million just take you back to flatline.

Now maybe you think this is all crazy, I'm comparing a nutty-high price to a nutty-low rent. Well, another unit in the building, comparable but different line, was for rent for 6+ months with no takers at a very reasonable rent for what it was. They just added it for sale, asking a rent vs sale price that works out to $1800 per million on a gross basis.

>minus $1000 per million in amortized transaction costs, minus $500 amortized upkeep/renovation

This "amortization", do you have to pay cash for it?

http://online.wsj.com/article/SB10001424052702304746604577382321021920372.html?mod=WSJ_hp_MIDDLENexttoWhatsNewsSecond

Americans are getting used to the idea of renting the good life, from cars to couture to homes. Daniel Gross explores our shift from a nation of owners to an economy permanently on the move—and how it will lead to the next boom.

For an increasing number of Americans, though, it simply makes more sense to rent these days. According to Moody's, by late 2011 it was cheaper to rent than to own in 72% of American metropolitan areas, up from 54% a decade ago. And the more people who do it, the more socially acceptable and desirable it becomes. The decline in the ownership rate means that about three million more households rent today than did at the height of the bubble.

Are these 3 million households in New York City?

The answer lies in consumers following the example of corporations—that is, becoming more efficient. The reaction to extended leverage and foolish borrowing isn't to stop consuming and buying; it is to consume and buy more intelligently. That's what the Rentership Society is all about. And it starts at home. Literally. Housing is the biggest single component of consumption in the U.S. economy and the source of much of our present misery. According to the Bureau of Labor Statistics, the typical consumer spends about 32% of his or her budget on shelter. In the last decade, that generally meant borrowing a lot of money to take "ownership" of a home.

Thoreau: "And when the farmer has got his house, he may not be the richer but the poorer for it, and it be the house that has got him."

Cabin by lake for rent.

Thoreau was a bum.

"If he can rent the place at $2750 and puts little value on his own time, that's a decent investment."

Assuming he can find a sucker who'll pay $2800/month to live in a STUDIO in Williamsburg.

Interesting article. I don't see it driven so much by current high rents, but a view that rents will keep pace with costs , that the appreciation is tax deferred, it's a tangible asset, return on savings currently is zero, prices have come down since the peak ,and if it's the same building a potential place for a son or daughter to live. Also sometimes people want more room for guests to stay, but don't want that extra room connected.

>Assuming he can find a sucker who'll pay $2800/month to live in a STUDIO in Williamsburg.

I think he's talking about 2012, not 1992.

Even in 2012, $2800/month for a studio in Williamsburg is insane.

What if I told you that the studio was built by your union?

None of my four unions builds apartments. Nice try, though.

Lazy unions you belong to. Can't even build an apartment.

I didn't say they "can't". I say they DON'T. There's a difference.

So they are too good for it?

Tomorrow will be a more fun day, huntersburg.

""Assuming he can find a sucker who'll pay $2800/month to live in a STUDIO in Williamsburg."

The last studio that rented in the building (8N) went with a last ask of $2500. Of course, that was after what appears to be 5-6 months of sitting on the market empty since purchase, most of the time at $2600. Probably means a $2300 final rent. On the other hand, purchase price was $426K. So a rent per million of $5400 seems achievable in the building.

If you're willing to go empty 5-6 months ever time you need to rent out, which no doubt is every year or two as the tenant will figure out something better as evidenced by the overpricing inherent in the 5-6 months of vacancy.

inonada and NYCMatt make an interesting pair

"So they are too good for it?"

Our talents command a higher compensation in a much different arena.

Yet so many of your friends are unemployed and dependent.

They're not in my unions.

Too good?

can someone show me a 3% fixed 30 yr mortgage on an investment property please. you'll be lucky to get 4.5% and at that point you are up $300 per month in costs. then there's the typical forgetfulness of increased property taxes in 4 yrs. now lets do the real math.

rent $2500
mortgage $1630
common charges $ 408
taxes $ 4
------
$ 458

then you take into consideration the vacancy of 1 month per year (include maintenance of the unit into that for simplicity sake) of $200 per month and you are left with $258 per month. then look forward 4 years and see what your taxes will be then...... not such a good thing even with the optimistic numbers put forth.

Again, it's an article from the NYT Realestate section. Dont make investment decisions based on what you read in this paper

This guy is a broker who has done plenty of sales in the building. And lives in the building. Yet posters on Streeteasy know better what the apartment is going to rent for? And posters on Streeteasy have no faith that he can keep it rented, so we all have to assume it's unrented for 1 month out of every 12 (which doesn't even make sense, 1 out of every 13 might make sense if you really think this broker isn't going to be able or motivated to get his own apartment rented).

Did anyone read any of the comments to the actual article? This guy from Seattle said it best:

"If the profit on renting them out was so good, the developers would never have sold the units."

AMEN.

Developers want quick profit and turn over. They are not guy and hold. When you have someone putting up high rise rental it's usually someone like Sam Zell who has a REIT and works for long term money. Last few years, there's been a trend where fewer people own more of the units in a building, holding one or two to rent out. The guys doing it have more financial flexibility and can think long term. This is not the Dentist wife turned part time speculator back in 2005.

"Developers want quick profit and turn over."

Not necessarily.

If there's solid money to be had in HOLDING, they would have done so.

Some guy in Seattle is what NYCMatt bases his life on?

What about all of the big NYC landlords, are they all fools because they are renting out apartments in their buildings instead of selling them? What about the new construction, are they idiots because they could have made more by selling? AMEN?

Huntersburg, you're arguing the wrong end of the point.

Take a breath. Empty your bowels. Re-read the entire thread. THEN comment.

NYC: why would you even read the comments of a troll

That's amusing. apt23, the woman who called the police on her husband in a harebrained scheme to get revenge on her neighbor, is a supporter of NYCMatt.