Sell Now?

I think most on this board think that the market will remain flat to decrease over the short term. I also don't think real estate has risen 20% over the last year. Even if it has, and assuming the market remains flat, your $3.0M apartment would only be $3.6M today. Seems like you'd still make out by selling your current apartment for $3.9. Now, that is only a very rudimentary financial analysis. You also have to consider your mortgage, the rate you are paying, the rate you may end up paying, transfer taxes, flip taxes, etc. Variables you have not provides us with. Also, any analysis by us board folk will fail to take into account the uniqueness and emotional value of this apartment to you - a value that is hard to objectively assess.

Good luck.

Counter with a higher amount, sign a contract that provides for a closing no earlier than 2 years from the date of purchase (so as to get 500K - 250 K if single - of your capital gain tax free), and go for it. If the buyer wants to expand, they'll need time for plans, approvals, etc, anyway, and don't really have a choice, except move. During that year you can find something as good for cheaper, I bet, and you made a nice profit. Nice spot to be in...

"Sell! For God's sake, get in there and sell, sell, sell!" ;o)

Nobody knows anything. You're smart enough to have gotten into a really good position, so you're probably smart enough to play it right. Good luck.

Here's the problem most people on this board don't understand that downtown Manhattan is not only strong but experiencing appreciation in values. I really can't advise you since I don't know your personal financial situation. If you need the money than sell. Only problem is that rents in that area are very high and if you like Tribeca you're going to pay a premium. If you don't need the money and are going to be there for the next 10 years plus I would hold on to the property and enjoy it.

West81st, not sure if that was a "Trading Places" reference or not, but I enjoyed it regardless.
"Turn those machines back on and sell!"

Thanks, all, for your comments.

I think it is the emotional factor that I am getting tied up in. Moving the family, taking the risk to sit out the market for a year, etc. My gut says that the market is going to go down and that there is no way I am going to get this kind of premium for another 5-7 years (the original planned "out" was around 3-5 years).

That's the problem when you are dealing with your home -- there are all of those damn "soft factors" to deal with.

tribecaguy19 don't try to time this market. Do you really think in 7 years your property won't be worth as much. Who knows you might be right but do have fun with your Wife on this one particularly if decide on renting.

Do you love or hate your place? If this is a home, why sell?

Ahh . . . the wife factor. Yes, that is the killer here! The last thing I want is an "I told you so" situation either way :) We "like" the place, but if we could find better we would definitely take the leap. What has us making second thoughts is that we actually spent a few days looking this weekend and the inventory in our price range was pretty bad. The only way that would change is if the market dropped a good 15% in the next year and we were able to get into something that is now in the higher range -- basically doing a swap for a bigger place . .. righ now, doesn't look doable.

1) Don't move to make $. Move if you want to move. This is a great opportunity for that. Don't move if you don't know what you want, or nothing will meet your expectations.
2) Long Term (7 Years out) your apartment will be worth more.

How much does your neighbors place appreciate by combining your unit with his? My guess is more than $900k. Find out what that number is before making any decisions. If $900k was his first offer, there is significant upside for him above that. He may be planning to buy your unit and flip them together.

I agree with Joepa.

You deserve a significant market premium to the net selling price for your inconvenience. You should find something comparable FIRST -- and then agree to a deal so you know you are accomodating somebody else's needs... Something in the same building?

Agree with Joepa too and Juice..How much do you LOVE this place? Is money a luxury for you that you can do without the 900K gain on sale? Yes, Manhattan is pressured right now and trouble on jobs front on wall st may hurt high end in near term (1-2 years), but if you are super rich and you love this place, then 900K may not be worth it for you. Sure the place may be worth less in a year, but if you intend to live there for many years to come, you may be sorry if you act with a 'timing the market' mentality!

Good luck! Seems your in a good position either way.

Apologies, I was intrigued with this thread. Might I ask the square footage and # of bedrooms, cause am wondering what segment of the market and location that you fear will not have others available in that $ range?

I'd also state that you will not only lose on taxes, but also in renting right? It is a decent short term gain on the offer, but also take into account opportunity cost in continuing to own it, as although no one can predict the market, it seems you want to be invested in something continually or a year after selling, where prices can very well be higher, thus pricing you out as you mentioned, but also your unit can be worth over $4 MM.

Calculate the transaction costs.

Assume you buy your next place for $3 million. Your $900k profit will be consumed by:

1) 1.425% NYC conveyance tax = $55,575
2) 0.4% NYS conveyance tax = $15,600
3) NYS/NYC income tax (as regular income) 7.7% / 3.65% = $69,300 / $32,850
4) 1.875% mortgage recording tax for the new mortgage (say $2 million) = $37,500
5) 1% mansions tax on new purchase = $30,000
6) AMT on capital gains (26%) = $234,000

Your total approximate transaction costs will be $474,825. I'd talk to an accountant first.

There are other factors, but unless you've lived in it for 2 years, you don't get the exclusion.

Simple. Tell your prospective buyer what it will take to get you to sell. Transaction costs plus whatever profit you require to get you to take the risk- you decide on that number. If he can't do it, you stay put. Like I said: Simple.

Hey, tribecaguy19.... DUMBO

What, NNNRE, you need a neighbor?

It's awfully desolate down under the bridge.

stevejhx -- why is there a 26% rate on the cap gains as opposed to the normal 15% rate?

and -- why arent the NYS/NYC gains considered cap gains as opposed to regular income?

The only specialness related to capital gains and AMT is how it affects the AMT exemption phase out, which can increase your other income's exposure to the AMT. The worst case scenario would be the situation in which without the sale your AMT and normal tax were identical. In this case, you'd effectively pay a 22% tax rate on the first $177,400 of capital gains until the phaseout was completely gone and then pay the normal 15% capital gains on the remainder. For a $900,000 profit, this would result in a tax bill of $147,418 rather than $234,000 in Steve's post. However, the transfer taxes you paid on the way out and any taxes you paid on the way in (transfer taxes if a new development and possibly mortgage recording taxes) reduce the capital gain. So the ~$70K in transfer taxes that Steve listed above would be partly offset by a further reduction of $10,676 in capital gains taxes.

Further note: if your AMT income is greater than $273,500 if you're single or $328,000 if married then your exemption is already phased out so you'd pay the normal 15% rate on your long term capital gains.

To answer your other question, I don't think NY has special rates for capital gains, so it's taxed at the same rate as regular income.

The effective rate of tax on AMT is 28% above $175,000, and capital gains are subject to AMT, albeit at a slightly lower rate. My assumption was that since tribecaguy was already living in a $4 million apartment, he was already subject to AMT, so I calculated it on the whole thing.

It was just a very rough guesstimate, as I indicated, and even what jordyn's saying will be complicated by tribecaguy's other income. Nonetheless, half the "profit" will be wiped out in taxes and transaction costs.

NYC and NYS tax capital gains as regular income; there is no special rate. That's why.

Steve--that's not right. Capital gains rates are identical under both AMT and the regular income tax scheme.

The amount of tax in my post is the absolute max if your income without the capital gain was exactly at the start of the phaseout AND your AMT and normal tax would otherwise be identical. This is incredibly unlikely, and as my follow on post indicates someone buying a $3M apartment will probably already have phased out their AMT exemption so the entire gain would be taxed at the 15% rate.

Stevejhx,

I have a side Question regarding AMT. Assume you are subject to AMT, live in NYC, have absolutely no deductions and have 1M in cash to invest in safe investments. Where would you put your money as the 2nd SAFEST option to US treasuries ?

Thanks!

steve would invest it in nybits.com

Then I stand corrected, and pass it off to my CPA!

Thanks, all. I know this is not an "official" tax forum, and I am sure that many will feel that I am an ignoramous for not knowing these details at this level of transaction, but these posts help. (the hyper inflated RE market even makes us relatively little guys owners of big assets!) FYI -- I am fully subject to the AMT based on my salary level ($300K+), so I am pretty sure that any exemption that I have had has been phased out.

tribecaguy19 --

I'm an agent, and I find it difficult to think through a hypothetical like this without more details -- i.e., knowing your apartment -- but I think part of the question has to be, are you in a three-bedroom?

Three-bedroom inventory in P.S. 41 has been thin for some time, and demand is rising as Tribeca becomes the "cooler" stop after the Upper East Side. If what you are living in would cost you $4.5 million to replace, then no, don't sell.

If you are in a convertible three, it sounds like selling might make more sense.

What you want to do also is to ask your agent what the market value of your unit is. You are thinking of the $900K you could sell it for over what you paid for it -- or that $650K after-tax gain -- but what you also want to assess is what "premium over market" your neighbor is paying to get the combo.

If anyone approaching the building from the outside, for example, would pay you $3.5K, it makes sense to be thinking about the money in two slices -- your appreciation of $500K that you would get from any Joe or Jane buyer, and the $400K dessert topping that your neighbor is offering you.

ali r.
{downtown broker}