Downtown hot

> Latest SE index values since peaks from ~5 years ago:
> Manhattan: -9.34%
> Downtown: -8.24%
> Hot & on fire, or just blowing smoke?

Brokers blowing smoke. Nothing new about that...

> petrfitz

OH MY GOD, IS PERFITZ BACK?

So, totally bankrupt in Las Vegas lake, now back to shill NYC again? So much for that "market wasn't crashing" stuff...

Yes, assuming that someone loses their job the day that they close does make the transaction costs particularly painful - that's essentially what your example is doing (and even that isn't being calculated properly since you would be increasing your equity by a bit each month, so in a flat market there is more than $300k in equity just by virtue of amortization - not much in early stages of mortgage, but let's be fair). More likely is that they've got a few or more years in a place before their job goes south. Granted, renter's savings and investments could be higher as well.

Additional risks for the renter's liquidity - market in which they've invested everything but reserves turns south quickly. If market goes up by 80% since Oct 15, 2008, it can go the opposite way as well...and if your investor put everything in in beginning of 2006 (pick a date before the crash) and had to liquidate in late 2008, how does that affect your scenario? Can't just cherry pick one timeframe that worked out - there are people that invested at the market's high and sold at the low. Also true for real estate buyers, of course.

The reality is that there are too many variables to really do this fairly - you assume that a buyer has no additional assets beyond reserve and home equity that can be liquidated - unlikely, particularly if the job is not lost in first year of ownership. Yes, the renter's assets would also be higher for sake of parity, but by having more assets the homeowner can forestall hitting the liquidity wall for much longer, which means no forced payment of transaction costs to access the residual equity/liquidity. I think it's too shallow to assume that an owner has everything in the home and reserve account, with nothing else. Say they've got another $200k or more in liquid assets? Liquidity for renter still lasts longer (although I don't know why your analysis assumes higher monthly costs for owner - they can buy something that costs the same as they would have paid in rent; that's a choice and there are plenty of $7k or higher rentals out there in new buildings where a similar size place to buy can cost the same each month in an older building, assuming reasonable amount down), but once you get to multiple years of available liquidity, the difference is probably moot. Yes, this assumes that it is possible to find a job that supports the monthly nut within a few years...doesn't seem unreasonable unless Snowmageddon ends it all this weekend.

>> you assume that a buyer has no additional assets beyond reserve and home equity that can be liquidated

HMM, what the hell are you talking about?

This started with me saying that for a given amount of net worth ($500K in my example) buyer has a greater need for liquidity because the equity in the home is illiquid. This is not a cost of buy vs rent issue, banks require you to add $2000-2500 a month to the equity in the home every month early on, but you cannot access it (even after years of build-up) without a job. Both home equity and investments can suffer losses, that is a separate issue. But the home equity, regardless of gains or losses, is inaccessible. Buyer needs separate liquidity.

In your 2006 example, suppose buyer puts entire $500K in home while renter puts entire amount in stocks. Market drops, both now only have $300K of net worth. Buyer has no access to equity, must sell to get to it, suffer transaction costs. Renter has $300K liquidly accessible. It'd be wholly dumb for buyer to leave no other liquidity. For the renter, less dumb.

Same story if there were gains. Buyer's equity goes up to $1M, so does renter's. Buyer has $1M, but guess what? No one wants to lone to a person without a job. Renter has $1M liquid. Buyer has critical need for separate liquidity, a cash buffer. Renter, not so much and can be more aggressive with deployment of money because of liquidity.

Don't even understand how you this could be even remotely controversial. Illiquid investments require investors to make other plans for liquidity, returns aside, while liquid investments provide liquidity.

Random question - does anyone know if W67th cashed out and is paying ordinary income tax rate on his Sprint gain or is he holding on for cap gain rate?

Post the announced deal with Softbank, he stated that he bought double the number of shares he had prior.

1. I am late to this discussion
2. as a rule I agree with Inonada on one of her keys points
3. it is generally more prudent to put less cash into one's primary residence
4. and to leave more in liquid assets for rainy days
5. given the uncertainties facing our economy that is more true than it's been in decades
6. even if the "yield" on non-invested assets is lower than one's mortgage rate

I think your set of assumptions are backed into in order to support your conclusion. If both have $500k net worth, why does it have to be $300k in initial downpayment? How about $200k? And with that additional $100k, that pushes off the "critical" liquidity event even further into the future. The only controversial thing here is why you continue to use self-serving assumptions without consideration for all the variables that make any comparison like this totally moot. It's a pointless argument and my issue is that you fail to recognize ththis here is no right answer. You haven't considered the possibility of renting out one's owned home (to downsize into something smaller if needed) or the possibility of selling your own property and saving 6%. Those are two options. Ultimately, I think the problem here is that you assume that someone buying a place puts the vast majority of their wealth into a home and is forced to keep the rest of their wealth in reserve. What about two people with $1mn net worth and the owner has a similar $300k downpayment. In that situation, you're dealing with such excess liquidity that there is essentially no difference between the owner and the renter unless you assume that the owner never works again. Pretty draconian and unrealistic.

>You haven't considered the possibility of renting out one's owned home (to downsize into something smaller if needed) or the possibility of selling your own property and saving 6%.

I guess you can do the first short-term, and the second, are you serious? Maybe you can save the 3% if you want to make it your job to do all the work.

Not easy, no, although not everyone is single with no family members willing and able to help (perhaps a stay-at-home spouse). Just food for thought.

HMM, have you recently bought or moved, or are looking to do so soon?

HMM, you're objecting to a statement that was "illiquid investments need a larger cash buffer than liquid investments". You seem to argue vehemently otherwise. Good luck with that.

>illiquid investments need a larger cash buffer than liquid investments

What is a cash buffer for an investment? And more specifically, what is a cash buffer for a liquid (i.e. easily converted to cash) investment? Why is this even a possibly interesting topic of discussion?

Downtown seemed rather slushy and cold to me, today.

I do wish the rest of you would stay on topic.

I posted this a few days ago but for some reason it did not seem to post ...

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.

uws,

Buying 2009 to 2011 turned out to be smart buys in prime areas of NYC, Manhattan, Brooklyn, Queens, etc. The returns have been phenomenal for many who bought. Congrats!!!

UWS you are missing the elephant in the room - transaction costs. at 7% exit cost, you pay $75k which does big damage to your equity bump. Also, does $1mm entry include transaction costs at purchase?
SPX round trip transaction costs are $15-20.

Jbuttocks, uws96 included $12K / year for "amortized transaction fees and depreciation".

When you focus on sale transaction costs, are you accounting for the replacement of transaction costs associated with a new rental every 3-5 years over the life of someone's longer ownership period?

Uws96, let me give a couple of caveats for your example before you get jumped.
- It works for a coop but not a condo. For example at 1200 per sq ft, you will get 800 sq ft for which the rent will be 4k. There are decent coops still available for $1000 per sq ft. A similar quality rental will cost $4.5 per sq ft per month.
- It does not work for high-end properties in $ per sq ft and properties with absolute price of >$3mm. Rent for these properties does not go up in the same proportion as the price per sq ft.
- Minimum hold is 10 years.
- Your carrying cost has tax benefits built in as the maintenance plus taxes are typically $1500-2000 per month per million.

green, ok i missed that but either way, way to little especially since the time he bot (feb/11)

on another note, he is 80% leveraged, S&P index is about 35% leveraged. He owns one asset, S&P is 500 companies in probably 30 different industry groups. hence lever up S&P 2x at least to get the same risk he's taking.

The risk tied to leverage has to be looked at in context of the duration of the asset, and the levarage relative to the overall portfolio of assets, not leverage related to the specific asset itself. If you have a large mortgage, but plenty money in the bank, that's very different than if you have little or no money in the bank and an uncertain job. Similarly if you have a margin account but plenty of money in a money market account, you have less overall personal risk than if your stocks were your only asset.

With respect to the duration of the asset, an underwater (i.e. 100%+ leverage) home owner, so long as he can pay his mortgage based on income or the value of other assets, still retains significant call option value in his home and doesn't need to sell. In fact because the home owner doesn't get stopped out, like in a margin equity account, the home owner actually can retain both the call option for future upside, and a put option making any further losses the responsibility of the lender if he or she so chooses, at the time he or she so chooses.

excuse misspellings - levarage (sic), etc.

Greens dale, great comment.

4 to 1 leverage in real estate is similar to the risk of unlevered equities if you look in the very long run. I like to be conservative and use 3.3 to 1 leverage ( appx 30% down) in real estate ( if you are going to live in it) as the same risk as unlevered index investing.

JButton, second greensdales point. somehow margin leverage on stocks seems a lot more risky form of debt than a 30-year mortgage. Its rebalanced on a weekly basis, and your stocks can be automatically liquidated. God forbid you dont go on vacation during a financial crisis and have your brokerage firm force liquidate your securities in a panic sell. And can you even get 80% as a retail investor for anything other than government bonds?? It's really not comparable.

I don't see owning the apt as risky because it is illiquid. I see it as having hedged my biggest expense item (delivering positive carry to boot). I am at a pt in my life where I know i want to live in NY with a stable family for at least the next 10 years so chances of being a "motivated" seller are low. On a side note, I am in the process of refinancing my mortgage and pulling out most of my original equity based on the increase in gross set value so kind of makes the whole illiquidity pt moot for me anyway.

Anyhoo, I am just taking issue with the dogmatic assertion that buying was a universally bad financial decision in 2009 through today that I see from a lot of people on this board. Frankly it just reminds me of the dogmatic assertions by others in 2005-2007 that nobody would never lose money buying real estate.

Anyone heard of ETFs? SSO? solve your margin concern right there.

universal?? no.

bought "right" in 09 and you are fine.

bought right in 07 and you are fine, for that matter. some neighborhoods (park slope, for ex) trade at new highs now.

bought at avg across NYC, vs balanced portfolio, with comp leverage (margin stop out not relevant by me), youve not done so well.

liquidity doesnt matter until something unforeseen arises, and that something usually includes household financial stress.

and 10 year hold=connsumtion of renovation cost--10 years turns a property to one in need of serious update, if not gut (family use will crush a renovation in 10 years, typically)

>Anyone heard of ETFs? SSO? solve your margin concern right there.

Pick two points in time where the SPX is identically priced and now look at the SSO value at those two times. Not identical.

Of buy options on the SPX

Talk about duration disparaty.

excuse misspellings - disparaty (sic), etc. maybe my 'a' key is stuck.

besides homeowner's option to keep paying mortgage and not get stopped out is not free. he is paying off mortgage that is too high for what he is getting, ie. he can get the same at lower cost per month.

>besides homeowner's option to keep paying mortgage and not get stopped out is not free. he is paying off mortgage that is too high for what he is getting, ie. he can get the same at lower cost per month.

You make a tremendous amount of no-basis pessimistic assumptions there about the mortgage amount and rate, and the rental rates.

only assumption i am making is that a homeowner is underwater on mortgage (your example of value of call/put options implies such scenario, no?).

one positive for homeowner vs. investor is tax shield on gains.

"Pick two points in time where the SPX is identically priced and now look at the SSO value at those two times. Not identical." Yes, mathematically, it won't be perfect.

But my return with them was for the most part double the S&P (which was pretty great).

Well congratulations. You and inoitall can have a smarter-than-you-off.

>only assumption i am making is that a homeowner is underwater on mortgage (your example of value of call/put options implies such scenario, no?).

No, you made some very significant, and negative, assumptions on the amount of the mortgage payment and the rental amounts.

"an underwater (i.e. 100%+ leverage) home owner, so long as he can pay his mortgage based on income or the value of other assets, still retains significant call option value in his home and doesn't need to sell."

by default if you're paying off a loan amount above value of your asset you are overpaying. Could your rate be lower than prevailing? yes but if you are underwater because econ downturn that is less likely. could rental rates be higher, sure but again why are you underwater - if due to econ crisis rental rates should be lower.

but if you are underwater because you bot in a land lease building, then both rates and rental levels could be different.

Lots of assumptions.
Land lease? How did that become the topic.

> Well congratulations.

So, you are admitting the point you disagreed with was right?

> You and inoitall can have a smarter-than-you-off.

Certainly preferred to a shill-off, no?

http://www.smartmoney.com/invest/stocks/the-unseen-danger-of-leveraged-etfs/

I guess it works until it doesn't work - so all I can do is wish you the best of luck with that product you two. Knowing that I am not in a complex, derivative and fee-laden leveraged ETF and sticking to just plain stocks and bonds helps me sleep better. May not be a very detailed approach to risk, but that's how I ultimately measure it.

No somewhereelse, there is not a linear relationship between the SPX and SSO. Again, two identical SPY levels don't necessarily equal identical SSO prices.
I didn't say you didn't and couldn't make money.

Feel free to have a shill off too if you'd like. I didn't see anyone shilling here. Certainly I'm not, I have nothing to shill in case that happens to be where you were going.

"I guess it works until it doesn't work"

Wow, is this really what passes for "danger" these days?

"No somewhereelse, there is not a linear relationship between the SPX and SSO."

That is a strawman. I didn't argue that. You are making up a false argument to argue against.

And this wasn't the original assertion either (the one you argued against).

You also happen to be misusing the term "linear relationship".

"You keep saying that word. I do not think it means what you think it means."

shill-off

ha!

On the contrary.

5/3/07 SPY = 150.35; SSO = 94.98
1/28/13 SPY = 150.07; SSO = 66.82

The first date above was the first time SPY closed above 150, and the second date was the first time since 2007 that it did.
Remarkable difference on the SSO.

Yikes are you upset that I didn't make you a contestant in the smarter-than-you off?

"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......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."

Best post, EVER. Thank you, KeithB.

>> Let's look at a similar but theoretical buyer who closed June 2009 with the same basic assumptions.

uws96, nice post. You claim $120K appreciation plus $30K positive carry in RE vs. $110K from SPY. So $40K more for RE is your claim. However, I see the following inaccuracies:

- S&P is at 1521, not 1426. With dividends, it returned $147K since June 1, 2009 on $200K.

- Your claim originally was $500 of positive carry, not $700. Furthermore, I think $4500 rent for a $1M apt is rich. A number like $4000 is more realistic for what rent would have looked like 2009-2013. So knock positive carry down to $0K.

- While 3% jumbo ARM rates are available now, they were not in June 2009. The 40%+ drop in rates might have had something to do with the rise in prices, you know? Any case, back in 2009 it was more like 5.25%. Maybe you refi to 3.5% in 2011, pay some fees / points. Averages to 4.5%. The extra 1.5% works out to $30K after-tax. So -$30K in negative carry.

- Paying a mortgage involves paying principal, to the tune of $50K over this timeframe. Value of that put into the market: $18K.

So your story was +$150K buy vs. $110K rent. But reality is more +$80K buy vs. +$165K rent.

And that was with a highly-levered 5x buy with the buyer taking interest rate risk. Make it a fixed mortgage, goes down by another $30K. Go to a high-end property, take out $45K for lack of tax deductions and take out $30-60K for a different rent/price regime. All-told even with an ARM, that +$80K for buy on the high-end looks like flat vs. +$165K rent on $200K.

"S&P is at 1521, not 1426. With dividends, it returned $147K since June 1, 2009 on $200K."

StreetEasy index lags so I am using apples to apples data, latest being December 2012.

"Furthermore, I think $4500 rent for a $1M apt is rich. A number like $4000 is more realistic for what rent would have looked like 2009-2013."

That's great that you "think" that but I am basing it off actual data and comps in my building.

"Maybe you refi to 3.5% in 2011"

What I actually got 2.875% in 2011 interest only. And I am re-financing this year and pulling out all my original invested equity at 2.5%. So I got all of my equity out and I get a free long-dated call option on my house. Not bad.

"And that was with a highly-levered 5x buy with the buyer taking interest rate risk."

And avoiding rental rate risk, like the 10% rise in rental rates in 2012.

"Go to a high-end property"

Why are you bringing up high-end properties? That's like me bringing up some equities in under-performing sectors.

In any case, my Feb 2011 example is based on real data so spin all you want, it's just reflects your confirmation bias at play. I am not even trying to "prove" buying was an awesome decision just dispelling the dogma that it was a universally bad financial decision.

Why are so many people picking on inoitall lately?

I don't think it was a universally bad financial decision, just a less-lucrative one in general.

If you are in lower-end properties with relatively higher rental prices, that makes a difference.

If you have access to special 2011 interest rates not generally available, that makes a difference.

If you have access to magical 3% rates in 2009, that makes a difference.

If you conveniently ignore actual prices S&P while holding dearly onto a RE index that is not realizable without 10% transaction costs, that makes a difference.

If I continue with your hypothetical 2009 example and you reply selectively with a 2011 example I was not talking about, that makes a difference.

>> I don't see owning the apt as risky because it is illiquid. I see it as having hedged my biggest expense item (delivering positive carry to boot). I am at a pt in my life where I know i want to live in NY with a stable family for at least the next 10 years so chances of being a "motivated" seller are low.

The above argument aside, your statements above are a bit of a paradox to me. On the one hand, you are talking about hedging your biggest expense item for the next 10 years. On the other hand, you have decided to take on a larger amount of debt at floating interest rates. What is your "hedge", and how is floating (and increased) debt helping?

>> Why are so many people picking on inoitall lately?

I'm asking all the wrong questions.

If you factor in rising rental yields (>15% since 2009 in my bldg), that makes a difference.

If you choose to debate one date (June 2009, when the equity indices were close their generational lows) and not the other (Feb 2011), then your "less lucrative in _general_" dogma doesn't hold true.

If you bring up non-relevant facts like higher price/rent ratios for "high-end properties", that doesn't make a difference and is just argumentative.

If I took out take out a 5 year ARM in 2011 and then re-finance it now with a 7 year ARM in 2013, then I have had my interest rates hedged for pretty much 10 years @ <3% overall. Meanwhile rental yields are up 10% in my building and are expected to rise for the next 7 years, so yeah I feel pretty hedged.

I bring up 2009 because that is the most common variant of "best time to buy" put forth on this board. I agree that 2011 was better, but that doesn't seem to be the general sentiment here.

On your claim that rents are up 15%, doesn't that line up with my statement of $4000 rents 2009-2013 if you say current rents are $4500?

I bring up high-end properties because lower-end properties where you find $4500 per million (studios, for example) are about as interesting to me as (say) Las Vegas condos are to you.

On your cheap money, what do you think happens in the next 5-10 years to support prices w.r.t. your calculus? Rates stay low, or rents / incomes jump, or people stop caring?

>I bring up high-end properties because lower-end properties where you find $4500 per million (studios, for example) are about as interesting to me as (say) Las Vegas condos are to you.

Wait a minute, does the spreadsheet template only work if it is deemed interesting as a precondition?

i think manhattan properties in general are fairly priced so prices rising in line with inflation is not an unreasonable assumption to me

i don't know what the "general sentiment is" so I don't know how to respond to that. i also don't know what is interesting to you and what is not

so tell me friend, you did say 2011 was better than 2009, but do you think buying a Manhattan apt in 2011 was - in your own words - "generally a less-lucrative" financial decision?

hasn't the 2x etf discussion already happened on this board? mathematically (and also in the prospectus) it is obvious that a 2x or 3x etf will underperform 2x or 3x the index in the long-term. the underperformance will be proportional to the daily closing volatility. it's been documented and it is a well-known phenomenon.

also why not hedge inflation on a rental with VNQ?

finally why is everyone paying $10-$20 per stock transaction? $5 TD Ameritrade. $1.50 options

There you go again Nyc1234, arguing with somewhereelse's scarecrow.

>> i think manhattan properties in general are fairly priced so prices rising in line with inflation is not an unreasonable assumption to me

In your estimation, are they fairly-priced in the context of 2.5% mortgages you see continuing forward, or are they fairly-priced in the context of higher mortgages in the future?

On buying a place in Manhattan circa 2011, depends. I personally would have ended up in a place with aggregate return 30% worse compared to SPY. I.e., a 5-10% loss rather than a 20-25% gain. You claim a similar magnitude in the other direction.

Cheers, friend.

"HMM, you're objecting to a statement that was "illiquid investments need a larger cash buffer than liquid investments". You seem to argue vehemently otherwise. Good luck with that."

I don't object to illiquid investments needing a larger cash buffer. That makes sense. I do object to calling a home purchase an investment. It's a cost of living and an alternative to renting. Not an investment. I also objected to your assumptions - not that they're any less valid than mine for irresponsible but only that they were presented as the only alternatives.

Do the stochastics tell you downtown is hot?

Fine, let's talk of it as a cost of living and an alternative to renting.

I think the downpayment used for buying cannot be considered liquid funds for the buyer to be used in case of unexpected life events. This liquidity issue is separate from the fact that the downpayment is at-risk of possible loss. Renter may consider those same funds as liquid & accessible in case of unexpected life events, even if placed at-risk.

Would you agree with the above?

Sounds like you are talking about someone who is pretty stretched financially.
It's funny how when it suits you, you switch your analysis to be focused on the "high end", and then when it suits you, you switch to someone who is in need of having to spend their downpayment on unexpected life events.

My original example was on a person with $500K cash. Choice #1 was to put $300K as downpayment. Assuming a $1.5M purchase, income likely in the $300-400K range, but still needs to keep $200K at low risk for liquidity needs. Choice #2 was to rent at $5-6K, have $500K available to risk when something like 2009 comes along.

I don't either case is financially stretched, nor do I think the story would change much if we doubled Or quadrupled all the numbers involved. Do you?

Also, I don't see where in my latest post I said anything about the rest of finances. I simply said that down payment money reduces liquidity. If that makes up 60% of your net worth, it matters greatly. If it makes up 10%, the difference is marginal. Has nothing to do with high-end or not.

Inonada:

Greensdale is a troll. He is simply trying to annoy you with inane comments
and statements.

really rb?

http://streeteasy.com/nyc/talk/discussion/34027-point-of-inflection-in-nyc-sales-market

"Owning an apartment in NYC may not be the best asset class, but it still contributes to the diversity of your holdings."

Not really. It is *one* apartment in *one" building on *one* street in *one neighborhood* in *one* city in *one* country. Even if you like real estate, this is horribel diversification.

Now, you can say "I added a different asset, so I am more diversified". Except what if you have 4 different stocks in your portfolio. Then you buy a fifth on margin, at 300% of your net worth. You are actually *less* diversified.

Your risk profile went up significantly, as you now have the "benefit" of leveraged swings in one asset.

This is poor, poor diversification.

"Buy what you can afford, enjoy it, live in it, raise your family there and throw great parties......do what suits you best, emotionally and financially."

Thing is, this is true, but that means the diversification argument goes out the window. Because it isn't an investment them. It is *consumption*. It costs you money, in the same way the Ferrari you drive isn't an investment. You pay for it.

"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."

Great. Because, as I said, it isn't an investment.

Problem is, if you take out the expectation of appreciation, folks were WAY, WAY overpaying for this consumption. It was much cheaper to rent for a long time in the bubble.

"Buy what you can afford, enjoy it, live in it, raise your family there and throw great parties......do what suits you best, emotionally and financially."

Not to mention, you can also say the same sentence with the word "rent" in it.

"Rent what you can afford, enjoy it, live in it, raise your family there and throw great parties......do what suits you best, emotionally and financially."

Turns out you could pay less by renting it, or get more for the same dollar by renting it.

Much better for me emotionally and financially.

"On the contrary."

Great comeback.

You still misused the word, as I said.

Really?

"Do what suits you best" is a reference to buying or renting.

Steering this back toward the original point of the post, at least downtown commercial spaces appear to be rebounding well.

http://www.nytimes.com/2013/02/20/realestate/commercial/wall-st-landlords-reopen-after-expensive-repairs-to-hurricane-damage.html?ref=realestate&_r=0

S&P is just now moving back into its 1,000,000+ ft² at 55 Water. That building has three underground levels where a lot of the infrastructure was concentrated.

Thanks NWT. How about the SSOs?

What's an SSO?

SSO is double the S&P. somewhereelse bought it instead of the S&P because he's so smart.

Ah OK. (I tend to skip the posts with lots of ticker symbols.)

SWE, ultimately everything turns into consumption. The only difference between consumption and investment is timing. Consumption is now. Investment is deferred consumption. When you buy stocks or bonds, your ultimate intention is to delay consumption into the future, and hopefully be rewarded for your patience by getting more consumption than you would be able to gain today by spending that cash now. Viewed in that way, I don't see why buying a home (deferring consumption well into the future) cannot be considered an "investment".

Whether it is a good or better "shifting of consumption to the future" (i.e. "investment") than stocks or bonds is a different topic.

Well said uws96. In adddition, if you consider buying a house as an investment, then the option of living there can be considered as the hedge (everyone needs to pay for their housing expenses anyway if you are not homeless)of that investment. At the same time, your investment is also part of your consumption now if you are living there everyday. Alternatively, you can also transform your consumption/trading investment into a longer term dividend producing product by renting the property out.

A natural hedge.

hedge?? your analysis is stochastically flawed, or youre talking boxwood, or maybe privet.

Always with the stochasm.

"Really?"

Yes, really. Look it up. At least you stopped repeating the mistake.

"SWE, ultimately everything turns into consumption."

Nope.

Investments don't all ultimately turn into consumption, that is false. If you are saying eventually you sell/profit and then consume... ok. But it doesn't change an investment into consumption.

But that still doesn't make owner-occupied housing an investment, or anything close to it.

"Investment is deferred consumption."

No, it isn't.

Investment affords consumption. It doesn't make it consumption.

That is simply wrong.

"When you buy stocks or bonds, your ultimate intention is to delay consumption into the future"

Maybe... by *selling the stock*.

The investment can pay for consumption.

Consumption needs to be paid for.

"I don't see why buying a home (deferring consumption well into the future) cannot be considered an "investment"."

Because the home costs you now. You are paying for it. Just like buying a ferrari.

"Investment is deferred consumption."
"No it isn't. Investment affords consumption. It doesn't make it consumption."

You say potato, I say potahto.

"Consumption needs to be paid for."

I don't know about you, but the stocks and bonds I own needed to paid for as well. When you invest in stocks and bonds it means that cash is not available for consumption. When you buy a house, similarly, it means that cash is not available for consumption. When you sell either, that cash frees up and can be used for consumption, or to invest in another long-term asset. I don't see any difference here.

Stocks pay dividends. Houses pay dividends as well, in the form of equivalent rent. A house is a long-term asset, which accountants would define (reasonably so) as something that is meant to deliver benefit for more than 1 year. Stocks and bonds are claims on businesses that generally are meant to be around for more than a year; they are also long-term in nature.

I could setup a corporation and issue shares to myself. The have the corporation buy my apartment and pay rent to the corporation and take income in the form of dividends paid out on the shares. Or rent it out.

Now you'd call my ownership of stock in the corporation an "investment" but you'd call the direct ownership of the house "consumption"? That doesn't make any sense.

Is buying gold an investment or consumption? May be both. Or call the consumption part a hedge of the investment part. Since you can wear your gold chain as jewelry. Owning a 24K gold chain has its consumption element. Like real estate, gold is more than just a consumption. It can be an investment, but what is an investment in the first place?

Put it that way, an investment is a product you purchased that will at a minimum depreciate very slowly. There is a reasonable expectation that the demand/supply/price curve of such product over time will produce a favorable price appreciation, or the product will generate net income or resource for you while you are holding onto it, like crops being grown from a farming field, rents being collected from a piece of property, or all kinds of commercial products being manufactured from a factory. That time span can be as short as an expiring stock option (counting in months, days or even hours), as long as real estate or company ownerships (stocks)in the range of decades if not centuries, or gold or diamond for multiple generations.

So, when buying a owner occupied home, you are living there as a hedge to reduce the cost or risk of getting an unfavorable selling price in the future. At the same time, if the selling price is eventually profitable, the actual cost of acquiring this property would be further reduced by living there.

>You say potato, I say potahto.

Really?

Is a car an investment?

Is a car an investment?

If you use the car to generate income, such as a limo or taxi, then yes. Like a truck for a trucker. You extract income out of that vehicle throughout its life span. However, you usually don't expect to sell off that car and get more than your original purchase price. That would be true for most cars except antique car trading may be. If you use the car as a personal car only, then it is pretty much a consumption. There is no money generated from the vehicle from the beginning to the end. The personal usage of it at best can be called as a hedge for your transportation needs on a near certain losing trade.

Boss_Tweed
about 9 months ago
Posts: 287
Member since: Jul 2009
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Downtown seemed rather slushy and cold to me, today.
I do wish the rest of you would stay on topic.

How about today?