HELP: Should I buy?

?!?! 2k rent vs 12k annual return on 1mil?

If you are renting a 2M apt for $4k (scaled as you have said), keep renting. Why would you even buy when the CC&taxes are $2k?

Most likely, your math is off. Just spit out the real numbers in approximation and save us the confusion.

No, your costs will double. I used certain assumptions, 20% down for ease of calculation (although I assume the down payment will be higher, but you've been investing effectively so I'll just stick with that), a 4.25% mortgage (I suspect your rate would be higher), and an assumption that a very low percentage of your costs will be tax deductible.

It would be folly to purchase.

Right now you're figuratively in debt for the value of the apartment, but paying only 2.4% for it. Sounds good to me.

When you do start to see the numbers work, you can swing around in less than a year. The place you want now won't be available then, but it can't be *that* unique.

The psychic benefits are tricky. You might not like your line so much if you were stuck with it for however long it takes to make the numbers work.

rent

I'm starting to think this inonada poster put this up as some kind of joke. The apartment doesn't even exist. inonada doesn't even exist. We'll probably argue this issue for six pages, without inonada ever reappearing. And so it goes.

Nevrtheless, you would now have the opportunity to lock in a 30 year mortgage at probably the lowest interest rate you are going to see in your lifetime. So, if you can buy with a 30 year fixed (!) mortgage at 3% to 4% I would do so. People bought in New York when interest rates were far higher and if you do the math you will find that the interest rate far more influences your cost of ownership than the actual purchase price.

And that is before topics like the appreciation on which you lose out as a buyer and the fact that ownership lowers your taxes.

tomguss makes a good point: as interest rates rise, as they must, the value of the apartment will plummet.

I'd say If its something you really want and the opportunity is there treat it as consumption not an investment.... Buy baby buy .. Do your part in helping the economy . Consume!!!

if you really are paying 2k a month to rent a million dollar apartment, i cant see how you would remotely consider buying it - even if you are making next to nothing on your money.

having said that, i find it hard to believe that the numbers are that polar in this market unless you are rent stabilized - in which case that reinforces my point.

Surely this is a joke? There has not been a single buy vs rent thread I can recall that inonada has not proclaimed the wisdom and benefit of eternal renting. Has he been misleading people all along and just justifying and rationalizing whatever position he finds himself? Or are there two inonadas?

alanhart
23 minutes ago
Posts: 10283
Member since: Feb 2007
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report abuse I'm starting to think this inonada poster put this up as some kind of joke. The apartment doesn't even exist. inonada doesn't even exist. We'll probably argue this issue for six pages, without inonada ever reappearing. And so it goes.

What gave it away?

alanhart
21 minutes ago
Posts: 10283
Member since: Feb 2007
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report abuse tomguss makes a good point: as interest rates rise, as they must, the value of the apartment will plummet.

Really? What would make the interest rates rise in the first place? Would some of those reasons possibly be positive in regards to the value of an apartment?

I think I found the definitive answer:

"No matter how you slice it, renting is ALWAYS financially more beneficial over time than owning.

Let's make some financial assumptions that are borne out by decades of empirical evidence:

1) Real property prices and rents increase at the rate of income, or 0.7% per year adjusted for inflation.

2) The S&P 500 increases at a real rate of 8.0% per annum.

These being true, it is ALWAYS better to rent property than to buy, if you invest the down payment in the S&P 500. Watch:

Say you make $100,000. This implies that you can spend up to $2,333.33 per month in total housing expenses (28%).

An 80/20, 30-year fixed $375,000 mortgage at 6% gives you monthly mortgage payments of $2,248.31.

Assume that taxes and common charges amount to a VERY CONSERVATIVE 10% of total mortgage payments, or $224.83 per month.

A $375,000 mortgage implies a purchase price of $468,750, and a down payment of $93,750.

If rented an apartment for the amount of the mortgage payment, you will have paid $903,455.33 in rent over 30 years if it increases 0.7% per year.

If you invest the down payment in the S&P 500 for 30 years, $943,374.08 at the end of 30 years, for a total net profit of
$39,918.75. To that, however, add your yearly maintenance and tax payments $2,697.96, increasing 0.7% per year and accruing 8.0% per year over 30 years, and you will have earned an additional $330,084.36, making your total profit $370,003.11.

Now do the same thing for your house. If your $468,750 home appreciates at a real annual rate of 0.7%, at the end of 30 years you will have a home worth $577,863.68, for a profit of $109,113.68. Add to that the original loan of $375,000 - the rest of the equity you will have built - and you get a gross profit of $484,113.68. But you would have paid $434,393.21 in interest, so your real profit is $49,720.47. In addition, you will have spent $90,343.15 in tax and maintenance, making your GRAND TOTAL PROFIT a whopping NEGATIVE $40,622.68.

That's right! You rent for the amount of your mortgage, all values go up linearly in line with historic data over time, and you will wind up with a total profit of $370,003.11. Whereas if you buy a home you will wind up with a loss of $40,622.68.

This of course excludes special assessments and all the transaction costs associated with owning real estate: brokers' fees, conveyance tax, etc. It also ignores the tax effect on dividends. But dividends and capital gains tax rates are currently the same (and can't be predicted in the future). The only further benefit from owning is the $250,000/$500,000 tax exemption. But it is doubtful that $410,625.79, which is the absolute value of the difference between the owner's loss and the renter's gain.

Guys, it's indisputable: renting is FAR better in the long-term than buying. All the figures and assumptions I used are real and verifiable. Do your own calculations: rent for the price of your mortgage payment, invest the down payment and maintenance and property taxes in the S&P 500 at the real rate of increase of 8.0%, increase your property value, rent, taxes and maintenance payments at the real rate of 0.7%, deduct the mortgage interest paid, and you will see IT IS ALWAYS MORE BENEFICIAL TO RENT.
"

Let's say it's $6K for a $3M apartment. A great deal, but the downside is that it will end, as good things do. Even then, lots of turnaround time.

The owner maybe paid some fraction of the $3M for the place, and is OK with the current return, is happy with inonada as a tenant, and has other fish to fry.

A sale downstairs may be a kick in the butt for the owner to sell or jack up the rent, but I'd bet the owner isn't following the building and won't even know.

"Really? What would make the interest rates rise in the first place? Would some of those reasons possibly be positive in regards to the value of an apartment?"

No.

Agree with Matsui...It's a fake question.

Do you love it? Can you comfortably afford it? Will it give a great amount of pleasure? Owning will give you some potential financial advantages, but what it does for my clients is provide them with a deep level of emotional satisfaction. They don't have all their eggs in one basket either, they have plenty liquid post close and a diversity of other investments. They don't want to move every year or two etc.

They get a great deal of satisfaction out of their home and creating it along the way, a sense of permanency as well.

Nada: You seem to view home ownership through the lens of empirical analysis. I wonder what your poison is? Watches? Sports cars? Yachts? Large amounts of fiat paper.(:

Some say you only live once and relatively speaking life is quite short. Do what makes you happy and be (somewhat) responsible about it.

Keith Burkhardt
TBG

Except for my two little ones, wife and friends, w67 will view all things as trades. I know myself enough to know the new mclaren and new ceramic daytona, and 68 Donzi with 2400hp (although it may look like the 'forever' car, watch and powerboat) will be surpassed by other 'newer cooler things.'

Financially, if you think risk/reward of the equity mkts / debt mkts is topped out or you see no individual stocks like my view on sprint, then it's trading one bubble asset for another. So if I sold $2mm of sprint and bought $2mm c6, I'd view it as a wash.... But we all know manhattan even with 'excellent' pricing today is still in bubble territory with only one way to go as IR rises.

So I'm content to ride out the shitstorm, once again doubling up on sprint in 2 yrs (to $4mm) and seeing the PV of the C7 drop from $4mm to $2mm during the same time. A $4mm net worth swing that is as easy to trade today as when sprint was trading at $2.40. W67 would be 44yos at that time and an extra $4mm compounded at 5% for 21 yrs would ensure I'd avoid the liver cat food.

But my wife has a patient whose father died at 45, so he proceeded to spend all his money at 44yos. He's now 66 and struggling financially. If he dropped dead at 45.... I'm sure 'living life to the fullest by spending and leveraging' would've been good advice for the likes of likes of Keith said '

You're pretty savy, nada. After reviewing all pros/cons, what does your gut say?

Last year when the markets were down, w67 was saying how secure he was in cash and making fun of anyone who wasn't. Now the market is up, he's advocating the market. somewhereelse?

You did state that properties in your line come to market infrequently and that you love the line and could see living there for the future. How do we know your rent will remain the same? How do we know that you have an infinitely renewable lease? If I was the LL that kitchen would only experience repair work until you flew the coop.
I don't think it's such a bad time to consider a purchase. You can let the RE gods guide you. I'll bet you could figure the market value for the apartment to within 25K. Make your final offer 75K less than that and you got a little deal. If you think you can stay in your rental indefinitely then consider a beach or country home. Since we're friendly I'd prefer that you purchase a beach home so I have one more friend to mooch off in the summer.

actually now that I've taken the time to do some homework.
could be a psycho plunge, might as well consider the Penthouse.

Nada, I would only buy the overpriced high-end condo if I thought that there is a greater fool few years down the road (you know the buy vs rent for these ones). Or if condo was a small part of my net-worth and I absolutely had to live in that type of condo and did not want to move. Coops for buying and living are far better value. This coming from someone who thinks real estate in NYC will be growing 3-4% per year.

I think that Nada has been a serial renter and has always been vocal supporter of the "rent" side of the rent vs buy argument shows the seriousness of this question. What if we are talking about a truly unique property? I am financially illiterate (at least relative to many on this board) so I won't even try to comment on the financial implications and my impression of Nada is someone who wouldn't even consider something that would leave him without sufficient financial reserve/diversification so I would disregard that as an argument.
My question to Nada is are you ready to make the long term commitment? In order to make sense, this would have to be where you would want to live for at least 5-7, and probably 10 years. That brings up a lot of issues. Could there be mini-Nadas in the future? Would you want to raise them in the city at least in the beginning? Is the apartment big enough? Are the neighborhood schools good? Do you have any likelihood of having to leave New York? In which case how do you feel about being a landlord rather than a renter?
These aren't physic emotional feeling "ownership" questions but rather practical questions tied to the ownership commitment.
Just more food for thought.

Well said Native

Nada,

You have always seemed to have extremely strong opinions about the financial implications of the rent-vs-buy decision.

So let's not talk about that... let's talk about other aspects of the real estate decision, because buying is something of a long-term commitment.

Do you like your board and trust them to make decisions about your property? If you don't like them, can you bear the opportunity cost of serving on the board yourself? Is the line below you available because of a demographic change in the building, and is that change the beginning of a trend, and is that trend a wave you want to surf, or can at least live with? Is your building financeable (sp?), and will it be financeable in the future, or is the purchase so relatively cheap because in a couple of years the building will be cash buyers only? What kind of shape are the systems in your building in, and could you bear a really long construction project? What are the risks of your job being moved to another city? Have you ever hung out in your building during working hours, and are you okay with that vibe in case you ever have to participate in it?

I could go on (and for my clients, I do) but I think this will give you enough to chew on in terms of what the risks are of moving over to the less-liquid side of the housing equation.

ali r.
DG Neary Realty

Nada: In general, I think it is better to wait till the world resolves the financial mess so we can see exactly how much of a downturn the world is going to deliver. That said, if there was an apt in my building in the right line and the right floor, I would buy it.. I love my neighborhood, the transportation, the view, etc. So I would buy now at a price that would be too high and likely to come down for a couple of reasons.

1. It is a rare apt because of the view and I can afford to hold on to it till inflation makes me whole.
2. I know I will always be able to rent it for a premium for exactly the reason I am paying a premium -- the view.
3. A 30 yr mortgage will probably never be this low again and since I believe there will be a global recession next year because of the money printing, hard assets are better than any fixed income investment. And I am even going to pare back on equities. I need investments cause the cash is depreciating as I am writing.

That said, I would never buy an apartment that didn't have a rare premium behind it as I believe prices will go down.

If the seller has held on to this apt for years, he probably wants to cash out now before the taxes change at the end of the year. He/she might be flexible.

Please sing the above refrains of the tune " Just Once in a Lifetime.....

I'm sorry, but the rent/buy calculation simply sucks azz, to channel w67. If there are little nada's who need a school and stability, etc. (and this would work), and parent Nada's don't mind wasting huge amounts of cash rather than putting it in their college accounts, maybe. but Nada doesn't mind moving, and is successful at negotiating flexible term leases, and could probably get 4 years, or even 5, if he wanted to at less of a price advantage. even little nada's have plenty of stability under those circumstances, and as the Nadas don't really mind the hassle of moving (which I can relate to, not really caring myself), this would be stupid beyond belief. not to impose my opinion on anyone, of course.

Everybody, thank you for the responses. The numbers & listing are real. The question of rent vs. buy on it were tongue-in-cheek, my request for serious responses only a nod to the various posts we've had recently requesting no levity in posts. Despite my unclear intentions, I enjoyed reading everyone's viewpoints.

For me personally:

1. Rent for $24K.
2. Buy for $12K monthlies, $12K transaction costs.
3. A carry of $0 on $1M, before upkeep & reno, is this a joke?
4. On $1M, I'd put $48K cost-of-capital (cash, borrow, or whatever mix in between). So even if my rent doubles tomorrow (good for $24K) AND prices/rents increase at 2.4% a year (good for another $24K), I'm still behind on buying because of upkeep & eventual renovation.
5. I'm willing to bet that rich a-holes will continue renting to me at rent-control rates and that NYC RE will continue flat for a long time. Even if I'm wrong to the tune of 2X rent and 2.4% annual appreciation, I'm still ahead.
6. Each year I'm right, I'm up an amount that is 2X my annual rent.
6. Now that's an easy trade.

To show inonada is not all about numbers, let me switch to psychic:

1. Variety is the spice of life.
2. Inonada professes faithfulness to his wife.
3. Inonada does not profess faithfulness to a piece of RE.
4. There are lots of unique apts/homes.
5. More than enough to fill inonada's lifetime.

So you and Sra. Nada are moving to Branson, where she has repeatedly told you she wants to move? Well good for youse!

Huntersburg, when did inonada write that (assuming that it was him)?

It's a pretty big assumption to think that index funds will continue to return a whopping 8% per year. If we have some down-trending or sideways years, such as 1929-1954 (that's how long it took for the '20s highs to come back) or 1966-1982 (sideways market, and inflation ravaged your money all the while), RE starts looking a lot better.

Is the 8% in post-inflation terms? 8% wouldn't have done much for you during the double-digit-inflation 1970s, whereas owning RE through that period would have carried you along very nicely.

"whereas owning RE through that period would have carried you along very nicely."

... tell that to most of Brooklyn, Queens, the Bronx, and essentially all northern cities of any size at their core, and older streetcar suburbs north, south, east, west and in flyover country.

Nada,
I don't understand the calculations. Is the $12K transaction cost the closing cost? Would you pay all cash? Are you saying that if your rent doubled, it would take 20 years before it hit $1m?
What I think you're saying is that if you buy, you will have parked $1m in a non-income generating asset. I'd really appreciate it if you could clarify.

"... tell that to most of Brooklyn, Queens, the Bronx, and essentially all northern cities of any size at their core, and older streetcar suburbs north, south, east, west and in flyover country."

Then we're talking about neighborhoods and not RE-versus-stocks in general.

The national Case-Shiller index hovers right around 110, with a brief 10% spike in the late '70s, for the entire mid-'60s to early-'80s period of the stagnant stock market amid high inflation.

If you owned index funds, inflation took away your gains. If you kept your cash in a safe, Fed-sponsored inflation destroyed you. If you bought an apartment in 1966, you were protected over the next 15 years from the inflation that would have otherwise ruined you.

so you knew the answer to your question before you asked the question? Don't you ever go to the movies?

Ali ---perfect.

TZ, the post is originally from stevejhx I think.

Shiller has a great Excel spreadsheet showing US stock prices, dividends, earnings, inflation, etc. since 1871. Google "shiller data".

Since 1871, stocks (with dividends reinvested) have returned 8.9%, or 6.7% after inflation. Since 1945, 11.0%, or 6.9% after inflation. From the peak of the bubble in 1929 to present, 8.9% or 5.6% after inflation. From the bubble peak in 1929 to the re-achievement of that headline number in 1954 which you quote, 5.9% or 4.0% after inflation.

"so you knew the answer to your question before you asked the question? Don't you ever go to the movies?"

I rarely go to the movies, prefer to watch them lying down at home.

The intention of my post was not to ask a serious question about what I should do. Rather, I thought it an entertaining way to share some info from my silly corner of the RE world. I didn't think anyone would take the question seriously given the fact that the apt is essentially being lent to me for free. But I do appreciate the serious responses nevertheless because it gives the various perspectives people have.

So it wasn't really a question expecting serious answers, but the serious answers provided were ones I did not expect.

"What I think you're saying is that if you buy, you will have parked $1m in a non-income generating asset. I'd really appreciate it if you could clarify."

Dwell, that's exactly how I see it.

The rent on the place is $24K. The monthlies are $12K. But if you assume transaction costs of 9.6% -- $96K on a $1M purchase -- and amortize it over 8 years of living there, that eats up another $12K a year. I think you need to budget another $5K a year for upkeep & renovation ($150K after 30 years). So for the privilege of putting up or borrowing $1M of cash, I'd get the benefit of losing $5K a year.

I operate under the assumption that long-term, the market will correct w.r.t. losing 0.5% a year. But maybe I'm wrong. Maybe there's a magic pot of income that appears from Bloomberg's ass tomorrow and raises city-wide incomes to the point that would allow the owner to charge double for the rent. This additional $24K a year would translate the $5K annual loss into a $19K annual profit. Furthermore, future rent increases would allow for another $24K a year in capital appreciation on the asset. Even in this fairy-tale scenario, the return is $43K on $1M: barely enough to cover a 30-year rate on a jumbo mortgage, never mind the higher rate of return I'd want on a downpayment.

There's something eminently satisfying about tearing something apart and reconstructing it. Kind of like playing god in your own little village.

If it doesn't stress you our financially why not?

As much money I earn / spend / accumulate, I am not so detached from the value of money. I'd rather fund a real little village with the difference than play house.

>> If it doesn't stress you our financially why not?

Now that's a great idea. Anyone out there who does art, has the pull to put it somewhere prominent? A clear box, a refillable stack of dollar bills, a mini-incinerator, and a robotic arm that takes a bill each minute and burns it. Better yet, performance art with an actual person, the dollar bills, and a paper shredder. I'll fund it, we'll call it "If it doesn't stress you out financially, why not?"

Serious inquiries only, please.

you sound like someone under a great deal of stress and in that case I don't recommend ownership for you

I can tell you right now that the while the art world might well smile upon an installation that shreds real dollar bills, it takes a dim view of the shredding of an actual person. Unless it's *really* artistic, and of course the right person.

And you thought we were going to comment on NEA/NEH/faith-based actual money being "shredded" via the funding of every stupid little museum in every East Podunk across this great land.

Huntersburg's post is the funniest rectal hot air I've read in awhile. Such earnestness in justifying bubble prices. Flmaozz.

You got me nada and agree that the Alis/w81/UDs/Keith/other assorted re pumperz of the world have no clue how hard earning a $1mm izz.

Aww c'mon ieb. Don't be sore. I'll give you credit on the art installation.

"I can tell you right now that the while the art world might well smile upon an installation that shreds real dollar bills, it takes a dim view of the shredding of an actual person. "

Well I assure you that in Roman times, they would completely understand one that shreds humans. Dollar bills & fiat currency, not so much. An ulterior motive of the gold standardistas, if you ask me.

>Huntersburg's post is the funniest rectal hot air I've read in awhile. Such earnestness in justifying bubble prices. Flmaozz.

Real estate is fixed income?
Rates won't go up when the economy improves? The economy improving doesn't mean higher income?

Why do you read rectal hot air? What got you into it?

>Triple_Zero
about 19 hours ago
Posts: 184
Member since: Apr 2012
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Huntersburg, when did inonada write that (assuming that it was him)?

He didn't. It was another frequent poster's well debunked bunk.

"Rates won't go up when the economy improves? The economy improving doesn't mean higher income?"

... right, that's what got Jimmy Carter re-elected.

Piling on with alanhart....

A bubble by definition is a mis allocation of resources. When incomes rise. Less will be spent on housing. Whereas the fixed income nature of re will take a rectal beating. And when Bernie takes the fruit punch away....it'll make my $4mm gain in sprint worth that much more.

Flmaozzz. W67 would rather 'own' $4mm in cash when yields are at 10% than a $4mm coop bought at peak with 3% 15 io loans. Flmaozzzz. Omfg. Omfg. Hilarious. The morons that don't get that simple math should vote Rimjob and his partner who ran a sub 4 hr marathonszszzzzzz. Oh that's right he ran one only!!!!! Flmaozzzz

If this has been answered somewhere else I apologize, but how are you able to rent a $1mm apartment for 2k/mo? I would ride that out as long as could. In my experience, rent on that kind of apartment would be about 4k depending on amenities. Sounds like a great situation though.

>A bubble by definition is a mis allocation of resources. When incomes rise. Less will be spent on housing. Whereas the fixed income nature of re will take a rectal beating. And when Bernie takes the fruit punch away....it'll make my $4mm gain in sprint worth that much more.

That's a lot of words but not much logic and therefore not much of a rebuttal argument.

A bubble by definition pops. When was the pop? Or when will the pop happen?
From the 90s on, we've had a generation whose housing preferences and expenditures increased while their incomes, real or fantom, increased. If the economy improves so much to the extent that the Fed is raising rates to the point that yields are 10%, the argument that there are no factors supporting housing and other assets doesn't hold water.

Throw in some Sprint talk, some Obama talk, and change the subject, I get it.

Easy financing caused the housing bubble not increasing incomes

Ah, got it, incomes never increased from 1995 to 2000, and from 2003 to 2007/8, periods that coincide with the the greatest increases in housing prices. And incomes didn't stagnate in the early 1990s, 2000 to 2003, and 2008 to 2012 when housing prices were weak.

And historic low rates are not doing much to reinflate the bubble because financing has become more difficult.

Glad you finally understand.

>And historic low rates are not doing much to reinflate the bubble because financing has become more difficult.

This debate is about what happens to RE prices when rates rise. They aren't going to rise magically. There will have to be a reason for them to rise. It's unlikely that financing will be difficult and the Fed will decide it's a great idea to raise rates.

$1M illiquid depreciating asset, $2K rent, $1K to monthlies, $1K to transaction costs, $500 to upkeep/reno. $1M cash investment to lose $6K a year, no bubble here, economy & Russian billionaires will save us.

Hey huntersburg, do you got a big pile of money? Who knows, maybe granny the cosmetics mogul felt sorry and left the runt of the family a few nickels. If by some chance, please go buy a spectacular property for investment. I'll get itchy soon enough for a new place.

Was that with sarcasm on or with sarcasm off?

Bernie got a magic wand.....

Look you turd. The historic low rates is a rip cord for the smart ones who see the writing on the wall. For financial ninnies like you who take historical data to extrapolate re going forward wo quantifying nor admitting the massive re bubble of 2001 to 2007, are like the nazi sympathizes who neither does not believe the holocaust ever happened.

Go on take that cord Bernie has given you and make a nice noose for yourself or your family. Meh, I like $$$$ y'all.

real estate is like the Nazis?

Was that with sarcasm on or with sarcasm off, Huntersberg?

You'd have to ask w67, and his little monkey boy follower inododo.

I'm not that certain rates will rise. And certainly not in the near term. That would require a relatively extensive economic expansion (or a total destruction in trust in US debt, and that's something that would make mobility extremely valuable, forget the cost of your mortgage), and although it's possible, it seems as though most companies are betting on fueling their expansions with overseas labor and services. Time will tell.

In the meantime, I see absolutely no hurry. Demographics aren't creating new households at even close to a historic rate, etc., etc.

But the main thing is that in many price ranges and locations the rent/buy ratio is still so f'ng out of whack that you'd be an idiot to buy. Triple Z and Ieb, what you don't get is that a fair number of people don't mind renting. Some even prefer it, for any number of reasons. Renovations are stressful, while renting it's easy to say hell, the kitchen isn't quite our taste, but we don't own it, you know. Renovations have destroyed relationships.

>I'm not that certain rates will rise. And certainly not in the near term.

You and I discussed our agreement on this.

>In the meantime, I see absolutely no hurry. Demographics aren't creating new households at even close to a historic rate, etc., etc.

Yes, but inododo's refrigerator is 10 years old and he's feeling the heat.

>But the main thing is that in many price ranges and locations the rent/buy ratio is still so f'ng out of whack that you'd be an idiot to buy.

Didn't you just buy? Is the rent/buy ratio impacted by interest rates?

>Renovations have destroyed relationships.

50% of marriages end in divorce.

100% of peak bubble buyers are worse off financially (divorced or not)......

Thanks for clarifying, nada.

So, are you basically against owning a residence (no matter the purchase price) because it locks up cash in a non-income generating asset? Or, would you consider buying a less expensive place, even though that too would lock up some capital?

I don't know if I agree that Manhattan RE values will greatly decline in the near future; I think that depends on the purchase price. However, I do think that RE tax & maintenance will climb, making ownership more expensive. I also agree that transaction costs are very expensive & thereby inflate purchase costs.

Dwell, yes agree that cost of ownership will increase but for other reasons.

China it seems is like Japan in the 80s & 90s only much bigger. Look what happened then, the Japanese with all the money came here and bought real estate.

Now with the Chinese economy unable to sustain it's growth rate much like Japan experienced it will cause several things to take place. One is that cost of goods manufactured in China will go down further thereby driving consumer spending here a good thing for our economy and wealthy Chinese will intensify their movement of wealth to US in things like nyc real estate. Just my take on it.

And as far as curating nyc real estate I thought that front porch's job?

So consumer spending on low cost Chinese goods will drive up RE prices?
I think I heard it all now

ieb, your analysis seems very facile to me.

Yes, hb, I just bought. But my mortgage is around half one year's income, I only put 10% down, I am reasonably confident I'll never need to sell it, the rent/buy numbers are likely to make sense indefinitely, or at the very least the next 15 years, and it's part of my estate planning. This was one cheap purchase, much less than our 2001 condo purchase, and yes, at much lower rates. And, although I'm sure it's not nearly grand enough for penthouse lady's tastes, I'm perfectly happy and I love the location. If I wanted or needed something larger or with a killer view or extensive outdoor space or a prime location or a top school district, etc., I'd still be renting.

Yea look what happened to RE after the Japanes bot RE in the 80s n 90s in the US. They bot at peak prices and took huge losses after there stock market crashed. RE did not come back to prices they bot for in the US for a decades.

Dwell, I am not against purchasing RE per se, it all depends on price vs income produced by the home. In my little corner of the world, the numbers are beyond silly. Even if my rent were 33% higher (maybe I have a special ability to find low rents) and I could negotiate the price down 20% (maybe it's listed higher than market), it'd still be silly.

FWIW, I don't expect Manhattan RE to drop. The fundamentals suck, and the most likely way out IMO is an extended period of going nowhere on price. I've been saying this ever since I showed up here on SE, putting my money in other assets. NYC RE has been a sucker's asset. Down 1.7% annualized since Oct 2008. Even those that bought 3 years ago in the much-vaunted lows of 2009 have only tracked inflation. All this over a period that saw mortgage rates drop from 7% to 4%. Meanwhile, bonds up 50%. Stocks up 75%.

"Even those that bought 3 years ago in the much-vaunted lows of 2009 have only tracked inflation."

I think they've done a bit better than that. Based on the SE condo index, for example, the gain is about 10% after adjusting for inflation - if I'm reading the index methodology correctly:
http://docs.streeteasy.com/research/SECMI_Methodology.pdf
(See "Inflation" under "Considerations".)

The gain is nothing to write home about, but it's a gain. Anyway, I don't think this discrepancy dilutes your larger point.

Well there certaily are a lot of intelligent people here.

My premise is that in 5-10 years from now asset purchases made during this period including real estate will probably look really good. We must be 40-60% through whatever it is that we're going through. I'm all loaded up in high end real estate and even got a large position in S @ $4.20 thanks to 67. We all end in the same place and the only thing that seperates us is how you get there so why not do it in style.

BTW I do business in asia every day and I can say that they have hit the panic button. In my industry I buy market share and then use it to drive what I pay and right now the Chinese are going after each others throats.

With regard to mortgage rates dropping over the past three years, I don't think that matters much. A 2009 buyer may have benefited from lower rates - either by refinancing or via resets on an ARM.

Agreed with all the above that this is contrived question intended to make an absurd point. I'm sure he is just waiting for responses that don't completely rule out buy to jump on the pro-buy argument. Ionada is no doubt very smart, but not everyone on this board is incapable of doing basic math.

Ionada has proved conclusively that buying for 41x annual rent does not make financial sense. Congratulations. What a frigging genius.

Now do the math please for 12-15x and the argument isn't quite as simple.

>Now do the math please for 12-15x and the argument isn't quite as simple.

Is your 12-15x impacted by mortgage rates?

Hb, obviously. The rent/buy ratio that is acceptable is affected by the total monthly expense, which is affected by rates. If I had kept my 2001 condo I obviously would have refinanced, but when I bought it i had no crystal ball to tell me that would be an option in the future. Mour outlays here are a bit more than half of what we were paying then, at least in part because of rates.

Seaver, very few places sell at anywhere near 12-15x annual rent. I bought at around 14x, but I can tell you it's extraordinarily rare.

West81st: "Based on the SE condo index, for example, the gain is about 10% after adjusting for inflation - if I'm reading the index methodology correctly."

I think you are misunderstanding the methodology. The methodology paper does not talk about inflation-adjustment at all, except in that section under "Variations of the StreetEasy CMI" stating "The StreetEasy CMI was manipulated a few additional ways for comparative analysis." They used to publish both non-inflation-adjusted and inflation-adjusted, but they stopped doing the latter.

Publishing only an inflation-adjusted index is extremely weird. However, the definitive evidence that the CMI index currently being published is not inflation-adjusted is the graph on page 7 comparing to Case-Shiller. On its description, it says "Since the CSI is not adjusted for inflation, we removed our
inflation adjustment so that we could compare 'like-to-like.'" You can note that the CMI shown there (scaled by 10 to undo the CSI-comparable re-scaling) is indexed to 1000 in Jan 2000, first breaks 2000 in late 2005, and double-peaks in late 2007 / early 2008 at 2200. That matches the currently-published data exactly. CPI was up 25% between Jan 2000 and Jan 2008, so the inflation-adjusted difference would have been 1.76x instead of 2.2x during that period for inflation-adjusted CMI.

In any case, I was basing my statement on July 2009 to July 2012 CMI vs. CPI. The former did 1833.08 => 1969.93, or 2.4% annualized. The latter did 215.351 => 229.104, or 2.1% annualized.

@Ino - "From the bubble peak in 1929 to the re-achievement of that headline number in 1954 which you quote, 5.9% or 4.0% after inflation."

I'm afraid I'm going to look monumentally foolish in some way by asking this, but: if an index (or a single stock) is at some level at Year A and, after going up or down or wherever, is at the exact same level at Year B, how can the annualized return over that period be anything other than zero?

Unless you presuppose continuous additional investment using dollar cost averaging, or try some flim-flammery with how averages work ("A $100 stock crashed to $50 in Year 1 and then doubled to $100 in Year 2. You had a -50% return followed by a 100% return. That's a 25% average annual return!"), how can you have a 5.9% return on an index that has the same value at the end as at the beginning?

I buy a fund that exactly mimics the Dow just before the crash in 1929. I hold onto it until 1954. It's trading at the same value it was at in 1929. I go to sell it. I have neither gained nor lost a penny.

What am I missing?

^ Maybe I'm missing the impact of dividends. But that seems like a lot of dividends to pay out.

West81st: "With regard to mortgage rates dropping over the past three years, I don't think that matters much. A 2009 buyer may have benefited from lower rates - either by refinancing or via resets on an ARM."

That's great. I'll be sure to let Bernanke know that all that West81st thinks that putting short rates at 0% and buying trillions in treasuries & mortgage debt gave absolutely no support to the housing market. Well, not in NYC at least. Because here in Manhattan, no one cares about 30yr jumbos that dropped from 7% in 2008 to 6% in 2009 to 4% in 2012. It's all Russian billionaires buying cash.

On Lordy. W81's mom has forgotten the first rule for ponzi schemes and crack dealers, 'never involve your family.'

Mortgages going from 7% to 3% has had zero impact on manhattan re? Omfg. W81 and w67 will never be 'friends.' it's like being friends with a holocaust denier.

Amazing the financial retardedness on this board! Sprint back up to $5.20. Simple math. $2.4 bought 375k shares. Currently $5.22. It'll break $5.55 after new iPhone announcement. Once it breaks $5.93 it'll shoot straight thru to $10 share. Give it 2/3 qtrs till + churn from ppl leaving AT&T/verizon.

Nyc re dead in the water.

seaver69: "Now do the math please for 12-15x and the argument isn't quite as simple."

Oh I think that at 12x, the argument over the math becomes just as simple as at 41x, only in the other direction.

The argument with the owner downstairs on the price, on the other hand, not so simple. What's the most delicate way of placing an offer at 70% off from asking price?

Aside from making my head hurt with all the math, this thread made me feel both good about myself and bad about myself: It made me feel good because I got the joke immediately; it made me feel bad because it highlights the destructiveness of my real estate addiction (I'm "in" for that art installation by the way). Inonada, please give us real-estate addicts something to humanize you - like KeithB, I am dying to know what your poison is. Please tell us that you have a gambling problem; something, anything . . ..

TZ, yes it's the dividends.

For $100 invested at 1929, the average annual dividend through 1954 would have been $2.65. So if you just spent them, then 2.65% annually.

However, in a year like 1932 you would have received a $2.08 dividend payment and would be re-investing it at a time when the $100 price would have been down to (on average for the year) $22.14. As the price retraced itself back to $100 in 1954, that small $2.08 dividend would have become $9.40 w/o dividend reinvestment and a whopping $29.44 w/ dividend re-investment.

That reinvestment effect over 25 years (none as big as the 1932 one, of course) would have boosted the return from 2.65% to the 5.9% I quoted.

> Please tell us that you have a gambling problem; something, anything

Would him being a liar count? What about his racism?

Thanks nada. I always like hearing your thoughts.

Romey, Ryan, fox news....

And cuntersburg... The one fktard to rule them all.

If you say it cuntsburger it must be true....

Like the nazis of old.... Keeping good company cuntzberg.

It may be worth it if your current LL will give you a reasonable buy-out (assuming you are Rent Stabilized).

I have Sprint stock. Didn't need w67th's advice months ago.

I don't need to do the funky monkey dance on se declaring my gains.

nada: Nice test. When do you give out report cards?

dwell: I always like reading your thoughts.
I ESP'd you, while I was in Barcelona, shopping at you know where...
Cheers!

No, you just did the funky monkey dance declaring your profit on your apartment sale.

"I am dying to know what your poison is. Please tell us that you have a gambling problem; something, anything . . ."

... inonada gives his money away to his landlord. Isn't that enough? He rents when he can own. Isn't that enough?

for some people it's never enough.

I've been away from se for a week and alkie aboutready has been sitting alone at home on her computer watching and waiting; while I've been living the good life in the real world.

and: here she is, within minutes of my comment being posted.
I wasn't talking to her.
I wasn't talking about her.

My apartment was sold months ago, I haven't spent the gains from that
Re sale. Don't need to.
Yet, the drunken frustrated unemployable alkieaboutready is here to try to start a fight with me.
Her usual alkie bully behavior.

Well, really, trUth, what sort of response do you expect from the other posters on this board when completely out of the blue you start yammering on about stock in a telecomms corporation that you own, and a bizarre animalistic dance that you don't (?) do, followed by unwelcome personal messages from two other posters who you've never even met?

Carefully re-read that post and tell yourself whether or not it belongs here ... along with your last post, which is just pathetic -- explosive emotional insecurity.

and here's alkiealanhart with another drunken comment within minutes of my comment being posted.
It's 6:50pm there and the alkies are sitting at their computers waiting for me.

It's been a long wait for them. An entire week of sitting, drinking and waiting.