Downtown hot

Williamsburg seems to be hot, I don't know why downtown wouldn't also be hot.

Now, now Ali. You know it's all a mirage and downtown real estate is going straight to $500/psf on average in short order....

Many buildings have the very attractive 421-G tax abatement.

downtown where? village? financial district?

The expectation of the WTC completion helps too.

Sorry, by "downtown" I didn't mean "FiDi" (though things appear to be humming along nicely there; I had a closing in 99 John a couple weeks ago). I meant the packs of buyers who appear to be roaming Greenwich Village/Chelsea/Flatiron/SoHo. Elbows everywhere.

Is it because of the popularity of Downton Abbey?

I meant the packs of buyers who appear to be roaming Greenwich Village/Chelsea/Flatiron/SoHo. Elbows everywhere.

Now that's funny.

rarely do i see a downtown or listing that i feel hits the sweet spot (quality vs. price) and when it does, it's short lived. the truth is i can't imagine there will be a deluge of new listings any time soon and the market is aware of that. it's my opinion that, barring anything catastrophic, this is the new normal. let's see what happens when some of these new devs hit.

Had dinner with a buddy last night who was complaining about this place going so quickly:

http://streeteasy.com/nyc/sale/798018-coop-9-barrow-street-west-village-new-york

He heard all cash, above ask, but who knows. Just one anecdote among many.

There is a unit in my village co-op that is going to set a record ppsf for the building when it closes. It didn't even hit the market; it was quietly shopped to shareholders like a friends and family only sale which hasn't happened in the building for awhile. 130 West 12th and The Abingdon are boosting prices and demand for prewar inventory, and in Chelsea, Walker Tower and the new Brodsky developments in Chelsea seem to be selling out as well...

village has been on fire for a while now and those areas have relatively small apt share of NYC.
buster - those type of sales are usually done at higher prices as someone will pay premium to combine 2 apartments.

Latest SE index values since peaks from ~5 years ago:

Manhattan: -9.34%
Downtown: -8.24%

Hot & on fire, or just blowing smoke?

Bonuses are CURRENTLY sucking. Sucking huge, I posted a bunch of stories on the "blow your mind" thread.

>sucking
>Sucking huge
>blow your mind

What are you trying to tell us?

hfscomm1.

what are you trying to say?

C0C0 you should run for office on your special platform:
ME>>>ME>>>>ME>>>>

hfscomm1

Hb, that's ironic.

Life is ironic aboutready.

hfscomm1.

Not always, hb. Life can be pretty fucking mundane, even when it's distasteful. The me comment oozed irony, despite yourself.

>oozed

A little too graphic for me. I don't need to know about your oozing.

hfscomm1.

@buster, we will see records in postwar buildings too when the current trades hit the tape.

Nada, Downtown has big FIdi inventory, which has not performed well. Greenwich and west village comps are above their 2007 peak. Some examples please. Do not forget to look at 20 east 9th street recent sales.

Another anecdote: 1BR in one of the few high quality pre-war coops in East Village (my building) just entered contract within one week for nearly $900K - an all-time high for that line. There is no inventory and enough people with deep pockets who want to live in the Village.

>> Nada, Downtown has big FIdi inventory, which has not performed well.

You can use Miller Samuel's data to determine the number of condos sold in all of downtown vs Fidi. Latest annual number is 270 in Fidi vs 1968 in all of downtown.

Nice try, but go fish.

front_porch, no doubt about that... I think e76 and Bernie123 hit the nail on the head - very little inventory, and even less quality inventory. I wonder if these prices will encourage more people to list.

jbutton, I meant that the unit in my building is a combo of two units (it's already been combined). No other neighbor could combine it for various reasons, so it's either someone trading up in the building or a friend of a current owner. Either way, it was quietly shopped and someone was willing to pay a substantial premium in a preemptive bid.

Downtown hot! Buy now with my help or be priced out forever!

Downtown - Eaast n West Villages, LES, Soho are hot. Rentals are flying off the shelves at all time highs, and so are unit sales. The reason that these areas are up while Wall Street bonuses are sucking is that these areas are not where the Wall Street Douche bags tend to live. Its more mid range, less douche, more creative types that are doing well.

As a broker I feel this is a lose/lose situation chiming in here. But for what it's worth as a guy who only represents buyers; this market has been very active. Perhaps my view is limited and the SE index is more accurate of a gauge, I don't know.

But we submitted 6-7 offers over the last two weeks, all but two went to best and final. The two that didn't we have contracts out. The others we are just out.

All multiple bids below in the last week or two, just to quantify what I have experienced:

60 East 9th Street
10-17 Jackson Yup.
1 Hanson Place
60 East 9th Street (I think 7 offers)
60 East 8th Street
110 Duane Street
834 Lincoln Place (the line for the open house stretched around the block. Must be a first for Crown Heights)
77 7th ave (3 weeks ago?)

Keith Burkhardt
The Burkhardt Group

Even on the Upper West Side they are scooping up apartments for more than $1000 square foot for basic apartments in building conversions.

GV remains as hard to get into as ever from what I see in the listings. I see a lot of listings going to contract in under 90 days--many in less than 30. Prices levelled off about 3 years ago and in the central village buildings I monitor they have been inching upward. Availability in the gold coast prewars of lower Fifth Ave is as low or nonexistent as ever. In the post-war building on the side streets more units come on the market but not too many...and they are selling but not at any bargain prices. In the enormous Brevoort East at 20 East 9th St, for example, there is only 1 unit for sale (there are 7 units in contract). At 30 East 9th there are no units for sale and recent offerings went relatively quickly with a studio selling in under a month. The Sheridan next door at 40 East 9th St has no units for sale with the last offering having sold within 37 days. Even the bohemoth Georgetown Plaza at 60 East 8th Street has only 2 units for sale (on the market less than 2 weeks) and most units currently in contract sold very quickly.

Anyone who is still waiting and attempting to market-time a purchase in Greenwich Village seems to have missed the boat. Units are moving very briskly, prices levelled off at maybe a 10% drop years ago and have been recovering ever since.

oh, @boss, I rep the sell-side too. (*grin*)

It is tough that brokers on this board are "damned if we do, and damned if we don't" when it comes to reporting current market information. We can (and do) talk privately: information is part of our business, and, just like traders, we have to stay on top of the flow to best serve our clients.

But the minute we share any trends with people who are on a real estate board (and therefore presumably interested) ... that's problematic?

ali r.
DG Neary Realty

People do read what you contribute, FP. There will always be an angry at life peanut gallery, so you should not believe you are dammed if you do.

It's definitely worth sharing, front_porch.

I think I'm pretty unbiased. I own, but I'm not selling. And even if I were, I'd be selling to buy and therefore trading like dollars. I am pretty obsessed with real estate, especially in the GV area, and more recently, West Chelsea where good listings seems to go into contract much quickly. It's fascinating how much that area has changed in the past 10 years, and how much it stands to change in the next 10.

2009-12 were the best years to buy. There were some real bargains in 2009, after which prices seemed to stabilize and maybe even pop a bit. Rational negotiations replaced bidding wars, and buyers didn't seem to feel any time pressure. I think this strong new market in 2013 is way more reflective of a lack of inventory than pent-up demand, though. Inventory is about 1/3 lower than it has been historically, and buyers looking to take advantage of attractive interest rates are having a harder time finding apartments they actually want to own. Rather than settle for crud, they end up paying more - there aren't any more great values... But that's just my impression.

So why the heck is inventory so low?

the inventory shortage tends to support the concept that many potential sellers are holding off because (despite the frenzy being discussed here) they still don't think they can get what their place is worth.

I agree with columbiacounty, especially since he said the obvious and how can one argue with the noncontroversial obvious.

You all talk like they were giving away GV apts back in 2007. Please...

FP, you'd have credibility if you actually modulated your proclamations every once in a while. You know "market is slow in the UWS currently" or "it currently isn't the greatest time ever to buy RE". When in the last 5 years you've been here have you ever said something like that? Hell, you cannot even admit that sinking money into NYC RE circa 2009 was a pretty crappy investment given a 90% return on stocks since the beginning of 2009.

KW, those of who are long-term bearish are not trying to time the market for buying GV apts. Many of us don't think the market is going down, just sideways. We don't care to live in lesser GV apts we call our "own" but would rather rent better apts and invest elsewhere.

Since I've shown up here, many a bull has called for 3-5% annual increases in prices, which they thought would give themselves a 3% annualized return on down payment, which is all they'd ever expected on their money. It has, congrats: you got 3%, on the low end of the range you wanted. Meanwhile, the rest of us have enjoyed 10-20% annualized return, with about the same risk.

The reason you all lack credibility is that you cannot admit this. No bull has come out and said: "You know what, you were right. Back in 20xx, I said that I don't expect more than 3% from stocks/bonds, so that's all I want for my capital. I have been wrong so far -- I got 3% when you all got 10-20%. However, I think I'll do better going forward."

You all speak as if inflationary increases in a negative-carry asset is some sort of huge win. That is you treading water. The rest of us have been moving forward.

KeithB, your words have full credibility w/ me. That's because you temper your words always, and you present views that change over time.

>FP, you'd have credibility if you actually modulated your proclamations every once in a while.
>The reason you all lack credibility is that you cannot admit this.

Which is it? They lack credibility because they disagree with you, or they lack credibility because they don't change their points of view over time?

hfscomm1.

and credibility?

>you got 3%, on the low end of the range you wanted. Meanwhile, the rest of us have enjoyed 10-20% annualized return, with about the same risk.

On what backward looking basis are you judging the identical risk profile?

you keep forgetting the golden rule.

hfscomm1.

Nada I appreciate that, I have tried to be evolving, pliable in all things in life.

I don't think "owning" your home is just about investment. The majority of the people I meet are concerned with the place they buy being a home first. Of course they want to be financially sensible, but they want a place they can create to their tastes. I think there is a non-tangible feeling people have about home ownership. And if they have a bit of luck (Good timing?) perhaps they will do alright when they sell, who knows maybe even really well. But also the buyers I deal with have substantial assets after they close that go elsewhere, as well as large incomes that continue to go to work in other markets.

I guess I am just trying to say you can own your home along with stocks, bonds and maybe a Lambo:). One thing I am noticing about clients financial portfolios (a sophisticated bunch) many are cash heavy missing the tremendous run equities have had recently. Many still don't trust the financial markets. I don't have the kind of money most of my clients have, but other that my SEP account where I am fully invested, I just got the courage to commit a 1/3 of my cash to stocks maybe 6 months ago.

Buy a home if you can afford it, buy a home to make you happy; don't buy a home thinking it will make you rich or out perform stocks over the long run.

I absolutely get where inonada is coming from, he has made that clear and it makes perfect empirical sense. But there is an emotional component to home ownership and I think a fair financial one if you own over the long haul.

Considering where we have come from in 2008...it is quite astounding how resilient the NYC housing market has proven to be. And I am also old enough to remember October 1987; markets recover. But just don't put all your eggs in one basket.

Keith Burkhardt
The Burkhardt Group

Did not nada say in some of his previous posts that he has significant money in alternative assets which I would think did 10 percent per year if he somewhat cherry picked. Hedge fund index did not do that well. Poor investment relative to equities. So much for comparing every investment to equities without considering diversification.

>Did not nada say in some of his previous posts that he has significant money in alternative assets which I would think did 10 percent per year if he somewhat cherry picked. Hedge fund index did not do that well. Poor investment relative to equities. So much for comparing every investment to equities without considering diversification.

Well, you can't expect him to be consistent, he did say, "FP, you'd have credibility if you actually modulated your proclamations every once in a while." and "KeithB, your words have full credibility w/ me. That's because you temper your words always, and you present views that change over time."

http://streeteasy.com/nyc/talk/discussion/33936-sso-profit
http://streeteasy.com/nyc/talk/discussion/33935-spy-profit

KeithB, I hear you on the other aspects. There are lots of owners here that don't constantly talk about their places in investment terms. Then there are the others.

buster: 2009-2012 were the best years to buy
FP: putting her money where her mouth is
KW: missed the boat over a 10% rise since the absolute bottom

You wanna talk about the joys of ownership, rainbows, and puppies, have at it. But if you're talking money, get your head out of the sand.

>> I guess I am just trying to say you can own your home along with stocks, bonds and maybe a Lambo:). One thing I am noticing about clients financial portfolios (a sophisticated bunch) many are cash heavy missing the tremendous run equities have had recently.

In theory, you can have it all. But with finite money, money committed on place takes money away from elsewhere.

The reason you cash-heavy clients missed equities is probably related to the cash being down payment money.

Say you've got $500K to your name. Would-be buyer sets aside $300K for down payment. Can't touch that. The other $200K, well I've got to worry about making my monthly nut & expenses if I lose my job, better not risk that or else I lose my house & $300K. An opportunity like 2009 comes up, all the money's spoken for.

No plans for buying, $500K to invest. Opportunity like 2009 comes, you are not playing scared in the face of blindingly obvious fundamentals. No alligator to feed, ability to change housing costs, liquid investments.

FYI, you & I might differ in our definitions of "sophisticated".

>> Did not nada say in some of his previous posts that he has significant money in alternative assets

The only alternatives I have ever given for money sunk into NYC RE are diversified stocks, bonds, and high-yielding RE (if it's worth your time). In 2011, I mentioned Phoenix RE. Lots of comments about how NYC is so much better. Indices have Phoenix up ~25%.

Diversification is good. But that doesn't make up for diversifying into a poor-yielding asset. The lack of movement in NYC RE prices in response to a 60% drop in cost of financing should tell you something about the wisdom of diversification in poor-yielding assets.

It's like buying stocks in 2000 for the sake of diversification. Then when somebody points out the fact that 13 years later, with earnings 70% higher, you are still looking at a flat price, you point out that in reality you earned 10% in dividends. And you diversified.

I wonder if the low inventory represent a real shift in NYC apartment ownership. I wonder if NYC has become so much more safe/livable/desirable that fewer people are going to sell going forward.

Anecdotal but, the majority of my friends who are buyers don't ever plan to sell. They are buying/have bought more apartment than they need (because where else are they going to put their money), they are buying all cash or 50% LTV at the max, in neighborhoods where they want to live. And I'm guessing that their units won't hit the market for another 50 years.

And/or there just might be so little inventory because the wealthy have more money than ever, and they want to have a home here. Plus, the job market outside of NYC is weak. If they were to leave they could never find a job like the one they have here. Why leave NYC if you've got a great job, a great apartment and if NYC is safe/livable/exciting/stimulating/challenging??

Perhaps you no longer sell your place and move out of NY, you just buy a 2nd/3rd home elsewhere but keep your place here? Lots of reasons/thoughts/brainstorming, but my guess is that there isn't a bunch of shadow inventory waiting to be listed when prices rise.

Nada, your main argument against buying NYC real estate seems to be that it isn't stocks.

Since you get such great results from the financial markets -- you want to be my wealth manager? Because you seem to be claiming much better results than the people at Credit Suisse and T. Rowe Price have been getting me.

ali

My main argument is that yields suck compared to risk & other options. Same story for years now, but it never sank in for you. Return in stocks 2009-present compared to NYC RE is a reflection of that, the point being even stronger given the 60% drop in mortgage rates.

On being your wealth manager, no thanks. I'm not a wealth manager here soliciting clients. Besides, seems like a frustrating proposal.

When I quote broad stock & bond indices, it has little to do with me or Credit Suisse or T. Rowe Price. It has everything to do with your choice of asset allocation and where you choose to invest your cash. You invested money in NYC RE 2009, you made the choice.

When comparing to some star investments, everything else became a loser. It cannot be like that. It is like comparing people's career choice. Why don't everyone become Warren Buffet? or should we all go to medical school? For those who cannot tolerate encountering blood everyday, they have to choose a different career. In fact, if everybody invest very heavily in just stocks, then the stock market itself would become a bubble.

The observation that I had seen in the last few years in this forum, the so called bulls were only calling for the real estate market being stablized and recovering. No one was claiming it would out run other investments. On the other hand, most bears here called for the real estate market to continue its downturn. In hindsight, the so called bulls seem to be winning the arguement.

The reason I speak of the "other aspects of home ownership" is because buying a owner occupied home is not the best use of money if we are talking about return only over long periods of time. But if you hold onto it for say 8-10 years the DP is not flushed away, there is appreciation, perhaps not what a "sophisticated" investor can achieve:)

You should simply do what is best for your lifestyle and mentality.If renting makes you feel better based on the math, you should rent. If you can afford to own and you prefer this, do it. My friends dad bought a Bugatti Vyron, I was at the shop where it was serviced recently, I think I heard the number $20K thrown around for a full service, the cost of the car was $1.6mm?! Is this the highest and best use of dollars? No, but he enjoys the hell out this car. Whether Nada can or can't afford one of these cars, I highly doubt he would purchase one:)Certainly that money "could" do better elsewhere.

Owning an apartment in NYC may not be the best asset class, but it still contributes to the diversity of your holdings. Buy what you can afford, enjoy it, live in it, raise your family there and throw great parties. (By all means do the same if you rent).

So do what suits you best, emotionally and financially. I have never looked at my home, whether renting or owning (though I have always lived well within my means) the way I look at bonds/stocks. That's just me. And on occasion I have certainly not been afraid to tell a client they would be better off renting.

Hey Nada, you can be sophisticated and a purchaser of NYC real estate. Diversity is what makes the world a wonderful place, your preferences are not exclusive to sophistication :) Rent on my brother!

Keith Burkhardt
The Burkhardt Group

There are also some who the prefer to "invest" in something they can touch and feel versus numbers on a screen and a statement.

@truthskr10- Now that is too much information! :)

Yes, of course brokers ideas are worth sharing. But really, Ali, you want to pretend you're just "reporting current market information"?

What you're reporting here is that you're doing business. I'm glad to hear it, but I won't hold my breath waiting for you or any broker (for either side) to start a thread on Streeteasy with the title "Downtown Tepid!"

nada is responding to those espousing RE as a good investment, a concept which has little to do with touch and feel--or pistachio paint jobs--or sure to depreciate negative-carry assets like boats and cars

there are infinite ways to disappear money in pursuit of joy--and we all engage these activities--dinners out, cars, boats, vacations, clothes, blah blah---but if one alleges that something is an investment, expect that it be compared to other investments

and if you simply dont care about potential disappearnce of money in connection with RE you own, call a spade a spade--and call a broker, quick!! like ali, OP here--cuz it's hot!!

You could do worse things with a portion of your money than buy a home to live in. Most of the people on here touting real estate as a "great investment" are not some of the more prolific posters. I think the majority are just people who want to own a home and grow a bit weary of hearing you have to be a moron to purchase NYC real estate. Oy..I'm giving myself a headache. I'm done. Enjoy your day!

Keith Burkhardt
TBG

>nada is responding to those espousing RE as a good investment, a concept which has little to do with touch and feel

Actually there are so many factors, most of all is comfort.

I know a few people who to this day won't buy real estate because of how bad they were hit in '91.
Also know other people who won't buy stock since the tech stock crash.

Me personally, manhattan is the last place I buy a purely investment residential property.

KeithB
Not everyhting is an arms length transaction :)

>but it never sank in for you.

FP is not an asset allocation specialist. Not sure why if she has expertise on her given field that you need to call her dense.

vic64 has it right (by the way, is that halfway between the Vic 20 and the Commodore 64?)

Keith, what yikes said on investment vs. consumption. No problem with Bugatti, nobody's going around talking about people missed their chance to buy Bugatti's.

>> Hey Nada, you can be sophisticated and a purchaser of NYC real estate. Diversity is what makes the world a wonderful place, your preferences are not exclusive to sophistication

My comment about sophisticated was directed at people who have been cash-heavy these past years, not purchasers. Plenty of sophisticated buyers of NYC RE, like happyrenter, except he was the first one to tell you that it wasn't the smartest move investment-wise.

>> In hindsight, the so called bulls seem to be winning the arguement.

Vic64, you gotta be joking. I've been here for 4.5 years. I've been calling "decade of flat" & negative carry for NYC RE. I've been calling "up" for stocks, called "up" on Phoenix RE too just to show I'm not all about stocks.

For example, read this thread from 2010:

http://streeteasy.com/nyc/talk/discussion/19820-its-still-a-terrible-time-to-buy

front_porch>> Time to remember that all real estate is local. It looks like prices have hit bottoms in many cities and that the economy is recovering, but that doesn't necessarily mean you want to run right out and grab a condo in Phoenix or Miami. But I think if you have job stability and the desire to buy, NYC's not a bad bet right now. (Note: I have been an owner in NYC for a dozen years; we traded up last summer).

inonada>> I'd be willing to bet that the low-end of the Phoenix market saw its low last year while other markets like NYC have a ways to go. Most of it will come in the invisible form of negative carry and lack of rises despite inflation, I'd guess. I find it curious that Ali thinks that NYC in 2009 was "not a bad bet" while Phoenix is bad. Early last year when that market was trading 70% below peak, at 1995 prices nominally and 35% below the 1992 bottom on an inflation-adjusted basis, with gross rental yields above 10%, I gotta say I was tempted. However, I decided that dropping just $100K a pop on the other side of the country just wasn't going to be worth the effort, so it went into stocks instead. Here we are a year later, that market's up 25% with another few percent in carry while NYC is flat with a few percent loss in carry. But NYC is somehow the "safer" bet.

The actual record since then is as follows. SE index for NYC RE, up 5% total over 2.5 years, or 2% annualized. SPY up 35-40%, 14% annualized. Case-Shiller for Phoenix up 20-25% total, 8.5% annualized.

Right on all 3 counts. What more do you want? Say it was all luck, even a broken clock is right twice a day, it's all going to change going forward, I don't care. But for your own sake, just take your head out of the sand for the moment and acknowledge it.

Essentially Nada we are not in disagreement. I have never, here nor to my clients referred to their purchase of a NYC apartment as the best place to invest. But it does become a part of your "investments" how good it will perform relative to your other holdings? I don't know. But you may enjoy it more than your shares of Sprint, though both provide some financial/emotional components.

Though for the most part I would say the average person will have more use for a home, rather than a Bugatti. The price of Bugatti's also remains more fixed, perhaps cost is tied to labor, parts etc. Most people could never afford a Veyron at any time in their lives. The NYC real estate market has certainly out paced many prospective buyers as it has accelerated due to market forces much faster than their incomes. So essentially it is a truism that someone could have missed their chance at purchasing NYC real estate. Is that a bad thing? It might be to some people.

My business model is a little different as you know.

The battle will rage on here on the SE boards.

Keith Burkhardt
The Burkhardt Group

Just for the record. Even if I did have the money, I would not purchase a Bugatti:)

>Essentially Nada we are not in disagreement. I have never, here nor to my clients referred to their purchase of a NYC apartment as the best place to invest.

You are missing the point. He has consistently said that NYC RE is the worst place to invest.

I don't own Sprint (except through some index holdings, I guess). That was the great w67th. I think the amount of money he cleared on that would buy (say) KW's apt cash, and I think the amount of joy it brings him is greater than the amount KW's apt would. That said, it's nothing compared to the amount of joy KW's apt bring to KW.

Nada, it's easy to look back and quote what an amazing run equities have enjoyed. Tell us about the future! Specifically rank order these assets' one-year return starting today (add others if you prefer):
- equities (overall or sector specific)
- bonds
- real estate (REITS or hard; national or local)
- commodities esp. gold, silver etc
- Art, coins other?

Also for stevejhx, a prediction on tulips would be helpful.

nada, I have a whole handful of clients trying to buy now who wished that they'd bought in 2009. In a lot of my submarkets, that was the exact market bottom. I stand by my NYC "not a bad bet" statement.

Was Phoenix better? Maybe in terms of return -- but you know what? I (and my clients) don't live in Phoenix. It doesn't make me wrong that I didn't steer them into investments 2,500 miles away. By your standards, I'm a bad real estate agent because I didn't tell people to bet on the Ravens in the Super Bowl.

Honestly.

ali r.

So I closed my apartment in February 2011. Normalized to $1,000,000:
* 80% mortgage ($800,000) at 3% interest rate
* 20% down ($200,000)
* Cash carrying cost was $3,000 per month and let's throw another $1,000 per month for things like amortized tx fees and depreciation
* I am making positive carrying cost as equivalent rents are ~$4,500 per month

The downtown index is up from 1,921 to 2,083 through December 2012. That's an 8.4% rise in the gross asset value. So the $1,000,000 is now $1,084,000 and my equity is worth $284,000. By my calculation that's about a 23% IRR. Stripping out the positive carry, IRR is 20%. S&P 500 has gone from 1,286 to 1,426 over the same period. With dividends, that works out to an 8% IRR.

Let's look at a similar but theoretical buyer who closed June 2009 with the same basic assumptions. The downtown index is up from 1,860 to 2,083, which means that $200,000 equity is now worth around $320,000 or about a 60% appreciation. With the positive carry of $700 per month, the IRR is 20%. Meanwhile, the S&P 500 is up from 920 to 1426 over the same period. Add in dividends and it's about a 15% IRR.

I am not sure how buying was such a stupid financial decision in 2009 or in 2011.

Bernie123, what's the point? Damned if I do, damned if I don't.

Take my pal, 300_mercer. Publicly made a call middle of 2011, told us all to bring it on, we had great fun. He's on record for NYC RE doing 3-4% annually with cost-of-capital doing 3.25%. So far, NYC RE has been doing 2.5% annually and any diversified portfolio I can imagine for cost-of-capital did 13-15% annually. E.g., SPY did 13%, TLT did 15%, 50/50 blend did 14% with 8% annual volatility. SPY vs. SPY vs. 50/50-blend, all more than fair cost-of-capital comparable for an illiquid 3-5x levered down payment on a 5-6% volatility asset, what else do you want?

Now I'm willing to let sleeping dogs lie, but then he starts instigating. Good fun & all, but it's like the Twilight Zone. Didn't NYC RE underperform and cost-of-capital vastly outperform his expectations? Aren't I supposed to be the one to stir trouble?

It is only illiquid if you are in the market to sell.
The leverage is a positive, unless you are looking to sell short term.
The "volatility" is improperly measured and of limited relevance.
Also the imputed cash flow is pretty much guaranteed on your own occupied residence.
And no transaction cost until you sell.

front_porch, a RE agent's job is to broker a sale. Not give investment advice.

When you are on here talking about "prices hitting bottom" and "run right out and grab a condo in Phoenix or Miami" and a "bet" on NYC RE, I hope you are doing it as an online pundit. I don't know why a NYC real estate agent acting in a professional capacity would ever steer clients from / towards investments of any sort, much less in the direction of buying or not buying investment apts in Phoenix. I did not call you a bad real estate agent, just made a statement about your investment calls here.

Oh for goodness sake. Leave Ali alone. She is expressing her thoughts.

Why? I have yet to see much, if any, nuance to her thoughts. As someone who has expressed a strong opinion, but routinely noted where and why there were exceptions to my general view, willingly, I agree with Nada. Keith, that's a different story. He has always impressed me with his reasoned analyses.

"Downtown hot" It's never not been hot.

'the purchase of real estate is consumption, not investment. its still america and we're all free to enjoy consumption. the problem arises when it gets confused with investment.

the problem for FP and all other real estate agents is that if they say that to any potential clients, they lose the business.

A primary home is not an investment, it is an alternative to renting. You have to live somewhere.

"Say you've got $500K to your name. Would-be buyer sets aside $300K for down payment. Can't touch that. The other $200K, well I've got to worry about making my monthly nut & expenses if I lose my job, better not risk that or else I lose my house & $300K. An opportunity like 2009 comes up, all the money's spoken for.

No plans for buying, $500K to invest. Opportunity like 2009 comes, you are not playing scared in the face of blindingly obvious fundamentals. No alligator to feed, ability to change housing costs, liquid investments."

You have to pay every month for a roof over your head - the difference is whether you plunk down a bunch of cash for a downpayment and then make monthly payments for principal, interest, taxes, insurance and maintenance, or if you put down much less in security deposit and then pay rent every month. Saying that a renter with $500k would have all of it entirely free for investment is nonsense when you also say that if someone had $500k, used $300k for a downpayment and then won't invest the $200k because they need to have reserve. You're telling me that someone who is renting doesn't also need a reserve? How will they pay for their rental if they lose their job? Food, etc? Both renters and owners need reserves, so that distinction is false. If you buy a place with comparable monthlies to what you would rent, then ownership holds out the prospect of one day not making monthly mortgage payments. Maintenance will only go up over time, but is unlikely to exceed rent on a comparably-sized property since maintenance is factored into rents by landlords. Renters will always need to shell out. And there is likely to be some inflationary benefit to taking on leverage with a house - greater risk is that rates (and inflation) go higher from these levels, which will only push your rental payments up. Yes, inflation will help equities as well (good luck with your bond portfolio). There are arguments on both sides, but comparing stock/bond returns with primary home ownership is a waste of time because primary ownership is not an investment, it's an alternative to renting and should be considered as such. If you're paying way more than rent-equivalent in order to buy, not so smart (up to you how much utility is derived from it). But if the monthly payments are comparable, making blanket statements that renting is smarter than owning because it frees up more capital for investing ignores some very real costs to being a renter for one's whole life. And saying that renters don't need reserves, but owners do, is just fiction. Not being able to make your rental payment because you have no reserves is just as painful as not being able to make your mortgage payment. Granted, you lose your equity if you default on a mortgage and can just walk away from a rental (with credit scores equally mangled), but it's not like you can live with no cushion as a renter.

As an aside, "ability to change housing costs" is not a ringing endorsement when the vast majority of leases are 12 months in length. All of a sudden, that opportunity you spy in 2009 doesn't do much for you if you need to lower your housing costs to invest and wait 12 months for current lease to roll off. Selling a home could take 12 months or longer, but that seems longer than average...so who has more flexibility?

so is your point that owning provides more flexibility than renting?

So HMM, your point is that sometimes owning can provide more flexibility than renting.

inonada
about 2 hours ago
Posts: 4685
Member since: Oct 2008
ignore this person
report abuse
front_porch ... I did not call you a bad real estate agent, ...

inonada
about 24 hours ago
Posts: 4685
Member since: Oct 2008
ignore this person
report abuse
...FP, you'd have credibility if...

aboutready
about 1 hour ago
Posts: 15232
Member since: Oct 2007
stop ignoring this person
report abuse
Why? I have yet to see much, if any, nuance to her thoughts.

Her and U.S. Supreme Court Associate Justice Sotomayor, right?

@nada I need a better financial planner! When 67th shows up...it's gonna get ugly up in here.lol.

Nada. I think you do know the future returns of various asset classes and won't share it with us. Very selfish of you!!!

Overall no, because transaction costs impose a very real expense when buying, but I do think that there are cases where buying might be as flexible as renting. There is a benefit to locking in your monthly housing cost over a long period of time. Rent can go down, but the long term trend is up - perhaps only by inflation, but at least that inflation works for you when you own (assuming a fixed rate mortgage). If you're a single renter and can switch between a studio and a larger apt, that is very flexible, but for anyone with a family that needs a 2br, for example, you will be beholden to the rental mkt and "forced" to move whenever rent gets too high. That doesn't really feel flexible to me - quite the opposite. Assume your apartment appreciates at a zero real rate - I'll take that over the guaranteed loss of renting over a five year or longer time horizon. Again, this assumes monthly ownership costs that are comparable to rent.

Bernie123, I wish.

HMM, the difference between the renter and buyer is liquidity and carry.

Owner with $300K downpayment on $1.5M house has a $8300 monthly nut ($5700 mortgage, $2600 monthlies). Annually, that's $100K that must be paid for housing costs, say another $60K in life costs. With a $200K cushion, there is only a 15-month runway. After 9 months of no job, you only have 6 months of runway left. Probably best to list the apt for sale at that point? That'll eat $150K in transaction costs, crap. That $200K cushion has you up against the wall in 9 months.

Renter's monthly nut is only $5500, or $66K a year, plus $60K for life. Invest $450K, keep $50K in cash. After 9 months with no job, you've spent $94K but still have $406K liquid. Cost you $9.99 to sell investments as needed. You still have 3+ years of liquid cushion, cost of downsizing is easy: just leave. No pressure to pay $150K in transaction costs because you might not have a job in 6 months and don't want to go broke.

Make sense? Note I didn't say anything about one investment going up vs the other one down. Simply a matter of illiquidity, high transaction costs, and a mortgage that forces you to pay down principal every month in addition to interest.

Nada, how much are numbers for 5/1 interest only? After all renter does not have any inflation protection either. Say 1200 sq ft apt and condo. Maintenance will be 2000. At 2.5 percent, 30k, let us make it 35k assuming almost 3 percent. In addition, you can move out and rent out your apt at 5500 and break even. Just like the renter, live somewhere cheaper.

Also renter may not be able to renew if no job. Move with grandma.

HMM, "monthly payments are comparable" is meaningless without context.

Suppose I had bought my place cash 4.5 years ago when I showed up here on SE. The rent on my place is double the monthlies. By your argument, I'd be out 2.25 years worth of rent so far.

Except I invested the money. It's now up (say) 80% -- that's what S&P has done since Oct 15, 2008. For my place, that's 27 years worth of rent. After accounting for monthlies, it's enough to cover 54 years of difference. That should probably cover me for a lifetime. And I can still invest the money going forward.

I just pointed out that your example was wrong for 5700 per month in mortgage cost and you forgot that owner has a choice to downgrade as well. Now you are switching back to alrernative rate of investment argument.

Are you serious, 300_mercer, arguing on liquidity?

HMM was talking about paying off the mortgage long-term, having certainty, etc. So I assumed a 4% jumbo fixed mortgage. $68K annual motgage nut. You want 5/1 ARM at 3%, that's still a $60K nut. The $8K difference does not change the story. Bank don't give a damn about your income statement accounting of interest only, bank wants its cash flow of interest + principal. Nice monthly addition to fatten the equity cushion. Don't pay, you're delinquent. Not a good place to be with $1.2M of debt against a few hundred thousand of dwindling illiquid-heavy equity to your name.

Moving out does not help you access the $300K of equity tied up. It does not make the $150K transaction costs in a forced liquidation disappear. Pressures are still there. Orthogonal to cost of renting vs owning.

C'mon, you know this.

>> I just pointed out that your example was wrong for 5700 per month in mortgage cost and you forgot that owner has a choice to downgrade as well. Now you are switching back to alrernative rate of investment argument.

I had not seen your post yet and was replying to HMM.

Reply to your post is above.

>> Oh for goodness sake. Leave Ali alone. She is expressing her thoughts.

Isn't the whole point of a message board to then express other thoughts about those thoughts?

I think the proper forum for expressing thought unilaterally is a blog.

Granted, maybe message boards in North Korea are for unilateral expression of thought too.

Sorry, I went back and read HMM post (usually skip long posts). I read you post independently and found that it had some flaws, which I pointed out. BTW, you can do 2.5 IO.

In addition, I believe that anyone including renter should always have at least 2 years of full expenses in cash/FDIC insured CDs, if you are in a profession like wall street. Never to be touched or invested unless you can rely on family support. The older you are, the more you may need as high paying jobs are harder to come by.

I agree with the $300k tied up but at the same time, you do not get kicked out by your landlord as you do not have a job any more (at the time lease renewal).

Buying is certainly NOT for the liquidity poor. If I only had $500k, I would not put down $300k in downpayment unless I had a guaranteed income. I will be a happy renter, which is what I did for a long time till mid 2011 (enjoyed a bit of the famous 2009 stock bottom as well). Still invested in stocks despite the run-up.

I think an IO loan just kicks the can down the road on a small fraction of the liquidity problem. Remove requirement to pad equity now, increase it down the road. But the mass of the problem -- inability to access $300K of equity without incurring $150K of transaction costs that you'd just as well not incur by finding a job -- remains.

FWIW, on LLs & job loss, I've never had a LL ask for employment info after initial lease. Have you?

>> In addition, I believe that anyone including renter should always have at least 2 years of full expenses in cash/FDIC insured CDs, if you are in a profession like wall street.

Say owner has $1.5M apt, no mortgage. All-in expenses run $100K a year, so $200K in cash is OK by you. Buys you 2 years of solvency.

Renter has same $1.7M equity invested in diversified stocks / bonds / etc., expenses run $150K. Doesn't that $1.7M of diversified liquid assets buy you some credit against 2 years of cushion? It's a liquid amount that covers 11+ years. How about 20 years' worth? 30 years' worth?