Buy vs rent. Run these numbers.

The above scenario is about a renter friend.

Initially, I told her not to buy b/c houses are a money pit
and she can't afford $575k on $100k income.

But, when she said the PITI was only $2700, I wondered if I was wrong.
It's not THAT much higher than her expected 1BR rent of low $2000s.

Rentals are a better buy on a whole right now, the rental rates do not match the purchase price, in other words you should be able to buy with your down payment (20%) for less than the cost of renting. Currently most rentals have a 3% or less cap rate which means either prices will come down but this is the marcro economic view, New York because of its small market (i.e. not a lot of properties for sale) can experience a micro economic burst, but generally the macro view is the one that lasts longer.

Sell $2MM studio on w42nd. Buy $500K 55foot Swan. Buy $1.5MM shares of apple at $390, and sell short some puts, buy some way out of money calls for 2 yrs out.....

Come back to port in 2 yrs.. apple position is $10MM, 2 yrs of traveling and sell Swan for $400K.

FLMAOZzzzzzz

Or make a hole in the floor and keep pumping... bend over deal boy.

Here's a calculator that is worth using:

http://www.trulia.com/rent_vs_buy/

Can anyone here actually run the numbers?
$2700 to own.
$2100 to rent.
What say you?

if you know the answer, why do you ask the question?

Flutistic, very nice calculator for the simple.
I told her not to buy unless she planned on staying there at least a decade.

The tax break is a huge factor here.
If she doesn't already itemize, buying is that much more costly.
In fact, without the deduction, buying is always more, using her numbers.
$575k vs $2300/mo rent

If she does itemize already, her break even is 13 years.
Then it's pure profit. Then, it's free retirement living.
Yet again, renting is for people with no long-term planning vision.

how nice.

you've convinced yourself once again how smart you are and how stupid everyone else is.

congratulations..

Looking at this roughly from the perspective of pure cash investment , the net rental income would be say 1900$ (2250 - 250 taxes - 50 insurance - 50 misc ??) , producing a yield of 3.9% on an investment amount of 590k. That's par for the course in NYC but in many other cities an investment yield should be better.

dealboy, are you suggesting that when de Blasio increases taxes that owning will be more attractive?

fieldschester, this property is not in NYC.

is it in C0lumbia C0unty?

So not witty.

How much will that rent be in 10 years, versus the mortgage payment that's remained the same?

What city is it that has such lousy yield on real estate investment -?

And such crazy high rent?

To my mind, she should buy the house and not rent it. In future she can sell it if something goes wrong. and answering the question $2700 to own.
$2100 to rent. of course to own if we are not talking about the sort period of time.

This person bought the $575k house

People need to factor in transaction costs, future sales costs, expected appreciation of the property, and how long they plan to stay in the area, among other things, to make an informed decision.

But some of that is pure guesswork. As an investor, I just sold a few properties and I lost money on all of them, compared with my initial and subsequent capital outlay. I did get cash flow, but. And that's not taking inflation into account. Not a happy pill to swallow. Other property I've invested in has appreciated like crazy, unexpectedly in one case. There's more risk involved in buying, and that speaks to how a person feels about financial risk.

One of the most valueble simplistic pieces of advice I was ever given was:
Keep a third of your money in real estate equity, another third in cash, and a third in the market.

This advice has generally served me very well.

@superlun

Agreed, this is always good...although I prefer the (similar) concept of 1/4 in real estate, 1/4 cash, 1/4 business equity, 1/4 market. The 1/4 business equity is what gets you rich. The cash is for safety and for crashes and sales. The real estate and market portion protect you against inflation and help you keep your money.

I prefer the Aboutready method: 1 portion subsidized rent, 1 portion spouse's education degrees having nothing to do with my own achievements whatsoever, 1 portion money from a lawsuit that ends up costing other people extra rent, 1 portion having my own rules such as not putting down 80% carpeting, 2 portions vacation, 1 portion having grown up in Seattle but not quite making it in New York and instead having to move to Brooklyn but not the good part, 1 more portion vacation, 1 portion cash to short the market based on someone's negative blog.

Superlun, do you apply this to all assets or just those outside of retirement accounts?

This advice is very simplistic, and everyone has their own understanding and extension of that guideline...

pier45, to answer your question... I don't include retirement into this strategy. But everyone is different. Many would say keeping a third of your assets in cash is silly... Which I agree with... So, sometimes my cash does go low, but I cover myself with LOCs, I have a fair amount of equity in my Real Estate holdings, etc etc...

Point is, my words of advice was directed at the initial post, whereby... When someone asks whether or not it would be wise to buy Real Estate, I offer them this bit of advice... If you have no $$$ in Real Estate, and you can afford it... Then YES, do it!

I like my method too. It's working rather well.

But I never short the market. You're info is often laughably wrong.

Fing autocorrect. Your info.

You seem ... jealous, gothamsboro.

>You seem ... jealous, gothamsboro.

well really, who wouldn't be. Just look at you! OMG! Aboutready! It's all about you!

Well, you seem to always make it about me. Look inward.

good luck