28 East 10th Street #11E - guess profit since 2009

More like $ 8-10 range if you look at the rental listings.

This must be a typo. Brooks2 keeps telling everyone that the correct price for Manhattan real estate is actually around $500 psf. At 2,250 sf, this should sell for around $1,125,000. I think it's a typo.

Brooksie in hiding but wait till the time rates go up to 8 percent without inflation. He will come out of hiding but with destroyed equity and bond portfolio.

So you scoured all of SE to find the biggest outlier, and this is all you could find? Cherry-picked to be the market-bottom contract date? Check. New development discount? Check. Cash buyer discount? Check. Out-performing building? Check.

I'll play along.

So let's break down 8E, which has actual sales prices for both 2009 and 2012. Oct 2009 contract price of $5.2M (all-cash), sold Oct 2012 for $6.7M. Cherry-picked that it outperforms the market on those cherry-picked dates by a factor of 2.6x (up 29% vs. 11%). Transaction costs: $500K (no mortgage). Maintenance paid: $135K (closed July 2010). Rent benefit: $500K (using your $8 ppsf number w/ 23 months of residency: bought another place June 2012). So in reality made $1.36M on $5.2M, a 26% return.

Now let's play make-believe in addition to cherry-picking. Make it a 1/3rd-down mortgage, so take out $400K between interest @ 4% (5/1 ARM to cherry-pick) / mortgage tax / points. Pretend that the developer gave absolutely no discount for a no-contingency cash buyer in 2009. A $0.96M return on a $1.73M downpayment, or 55%.

So now we've done all sorts of cherry-picking (dates, new development, cash buyer, outperforming building) and added make-believe (mortgage, no cash buyer discount), and we came up with 55%.

During your cherry-picked period (Oct 2009 - Oct 2012), SPY returned 50%. About the same, just the broad stock market aligned to your dates, without any cherry-picking.

Now let's play 300_mercer on it. First, I'd like to cherry-pick my dates Mar 2009 - Feb 2013. SPY did 140%. Now, I'd like to cherry-pick my stock: AAPL did a 420% return. That's 3x better than the market, not so far off your cherry-pick of a property that did 2.6x better than the market. Now, I'd like to retroactively lever 3x against sub-1% stock margin rates. That's up 1250%.

Holy crap, I turned your 2009 $1.73M down payment into $23.4M. I'm a genius!

Really, if your highly-skewed example cannot even beat the broad stock market during your cherry-picked period, that's just pathetic.

BTW, if we had kept your cherry-picked dates and retroactive mortgage, but had simply used a market-average increase in price, the return on the down payment would have been 0%. Versus 50% for the stock market, without any cherry-picking of dates.

Vol of apt prices is much lower than stocks and you do not get a margin call as long as you pay your monthly. If you lose your job, you can always move to a cheaper place and rent out your apt without being liquidated - your equity broker will not be so kind as your lender. You want to play via equity calls, they can expire before the market rebound. 4 to 1 leverage on apt adjusts for lower vol of real estate.

5/1 arm has been sub 3 percent for a long time and I just got 2.45 percent for another 5 years. At the end of five years, do not think I want to keep a mortgage. My equity exposure is already enough and growing fast as I am sure yours is.

you only need a mortgage at closing. Not sure what the down payment for entering into contract on a new development is but do not think it is 20-25%.

Nada, think I have mentioned in my previous posts that the sale of this development as the peak of the recession without much discount turned me from a bear to bull on manhattan real estate.

10-year avg volatility on stocks has been 14%, using monthly SPY data.

10-year avg volatility of NY RE has been 6%, using monthly SE index data. Levered 3x, it's 18%. More than stocks.

No margin calls either case.

Your cherry-pick w/ leverage did 55%. My equivalent cherry-pick w/o leverage did 420%. Same volatility, no margin call.

That's putting aside the issue of making payments on a negative-equity home. If you don't have the money, sure. But if you do, why exactly are you not dumping and buying at a lower price? I.e., same choices as margin call.

I didn't think we were talking about you & now regarding mortgage rates. A 5/1 ARM circa then was 4%. Refi costs would have eaten any advantages along the way.

The drop in mortgage rates ($2 trillion mortgage purchases by the Fed) has had something to do with prices.

New development is usually 10% down, not sure in this case.

Either way, if you have a liability coming up in 9 months the capital is tied up. You don't put it at risk elsewhere, it's spoken for.

Manhattan Real estate is highly correlated with limited downside relative to the market in individual property. Sadly, that is not the case for single stocks. For each property, you can show is down using actual sale data in primish Manhattan since late 2009, I can show you multiple stocks which are down in top 1000 market cap companies at that time.

Not to mention that relevant volatility should be measured against an average holding period for the asset cass.
Just as using a stock market cost of capital for real estate is wrong, using a volatility period for stocks is not appropriate for real estate.

Greens dale, actually nada is not off the mark in method but he happens to pick a unique period when real estate showed higher than historical vol. however, the period is recent, hence can not be avoided.

I notice you said "not off the mark" instead of "correct" which it is not. Even you point out that, "you do not get a margin call as long as you pay your monthly. If you lose your job, you can always move to a cheaper place and rent out your apt without being liquidated "

20e rented for 20k. I'd say some real negative carry if you need to rent.

>> Manhattan Real estate is highly correlated with limited downside relative to the market in individual property.

Limited downside relative to the market? We just saw a place that out-performed the market 29% vs 11%. An out-performance of 18%. So that probably means there was a place that under-performed by 18%, right, that's how averages work. So assuming NYC is not Lake Wobegon, some property was down 7%.

On your hypothetical 3x levered $5.2M property, this means a sale price of $4.8M. The profit at a $6.7M sale was $0.95M at 3x leverage, or 55%. So a $1.9M lower price would have meant a $0.95M loss, or -55%, at 3x leverage.

I don't know what percentage of properties in NYC were 18% or more from the average, resulting in being 55% or more from the average. Maybe 1%? Maybe less? your call, you tell me. Doesn't really matter.

I'd guess that maybe one or a few percent of the S&P 500 did worse than a 55% loss since the market bottom. You wanna argue that single stocks had a higher probability of a 55% loss than single 3x-levered NYC apts? Fine by me. How about portfolios of 2 or 3 stocks? Eventually with a portfolio that is diverse enough, but not too diverse, I can replicate the downside relative to the market to match whatever you claim it is for NYC apts.

Controlling risk is important, but going to the relative risk of individual picks within asset classes cannot make up for an asset class with an average return of 0% (2009-2012 3x levered NYC apt w/ transaction costs) against one with an average return of 50% at the same risk (unlevered stocks).

And that's not even getting into the cherry-picking of dates issue.

>> Greens dale, actually nada is not off the mark in method but he happens to pick a unique period when real estate showed higher than historical vol

I said 6% over the last 10 years according to the SE index. If you use the full SE index going back to 1995, it's 5.75%. Shiller's data is about the same. You wanna use Shiller's data back 50+ years, it's 4%. At 3x leverage, 12% to 18% depending on whether you believe the immediate future will look more like the recent past vs. the far past. Most knowledgeable people would say the recent past is a better predictor, but whatever. It is 12 to 18%.

Stock volatility has been 14% over the past 10 years. Using Shiller's data, also 14% over the past 100+ years.

So no matter how you slice it, the general point holds. RE levered 3x has had about the same volatility as stocks.

Even recent tail events are very similar. Stocks did -40% in 2008 year-end to year-end. NYC RE, levered 3x, did -40% in 2009. Case-Shiller national, levered 3x, did -47% in 2008.

>> Not to mention that relevant volatility should be measured against an average holding period for the asset cass.

This statements makes no sense. If you explain what you're trying to say better, I can clarify.

"you do not get a margin call as long as you pay your monthly. If you lose your job, you can always move to a cheaper place and rent out your apt without being liquidated "

Unlevered stock does one better. Not only can you move to a cheaper place and not get liquidated, but you're not stuck paying negative carry on an underwater property.

The lack of a margin call does not buy you a free lunch. If your property is worth $600K, but your mortgage is $800K, sure you can continue paying your $800K mortgage. But wouldn't you rather just walk away and buy a $600K place, putting you $200K ahead? Or would you rather stay $200K in the hole for the same of not placing a margin call on yourself?

>> So in reality made $1.36M on $5.2M, a 26% return.

The other thing to mention, a 50/50 blend of stocks & long-term bonds also returned about 50% over your cherry-picked period with 10-year volatility of 8.5%.

Compare that against a 26% return for cash (6% volatility) or a 55% return for 3x-levered (18% volatility) on your cherry-picked dates and cherry-picked apt.

An example is an example only. I don't believe the Op intended to use this to compare the investment return with other investments. I think his intention was to rebuke those bear's opinion during that "cherry picking" period between 2009 and now that real estate would ONLY go DOWN. The example shows that real estate may not be the best investment, but it can be profitable too.