Glad to be an owner....Rents just going up up up!!

http://streeteasy.com/talk/discussion/33510-one-renters-lament-is-another-owners-windfall-

http://streeteasy.com/talk/discussion/36414-friends-cashing-out-live-rent-free-forever?comment_id=535634

http://streeteasy.com/talk/discussion/4250-buy-or-rent-learn-the-rule-of-15

http://streeteasy.com/talk/discussion/7355-ive-been-a-renter-my-whole-adult-life-heres-why

http://streeteasy.com/talk/discussion/36485-another-owner-basically-lives-for-free

http://streeteasy.com/talk/discussion/34084-tales-from-williamsburg

http://streeteasy.com/talk/discussion/28608-renter-paradox-and-short-termism

http://streeteasy.com/talk/discussion/33795-renters-you-missed-your-chance-to-buy

http://streeteasy.com/talk/discussion/21987-adios-im-out

Jesus died for a lot of people's sins but not those
of the trolls on Streeteasy, for whom hell will be a
well-deserved "second home"

rb345, the theme of this thread is "I'm a dumbboy who can copy and paste." No original text, please.

Yes, we get it.

No need to rub people's noses in it.

Who remembers the nonsense comments from a few years ago from stevejhx and the other obnoxious renters who wouldn't stop insulting those of us who favored buying. Long Island City has just continued to develop and is amazing, with prices up at high levels. I guess history has shown who had the right call.

Epidemiology will show you, eventually, but the info may come too late.

Aboutready, your epidermis is showing. I thought ladies in Williamsburg were supposed to be more modest.

Sexism is never pretty.

Wow, no indignant renter is even protesting it.
I guess the owners win this time.
You just can't argue with a 6-figure windfall for doing basically nothing.
And 100% risk free also.

I still remember people saying a $150k studio on the UWS was a "total idiot ripoff"

Or how about somewhereelse constantly insisting NYC is in a real estate "crash" that happened in his mind only. Hilarious.

Still renting and not worried about it. I took the $300k I could have put towards the downpayment and instead built a business that nets that every quarter. The rent will be paid for life in about a year or 2. Then I will continue cloning the business. Call me when rates go up, your ARM explodes and there is no financing available...buying is great, if the prices are reasonable and no more than 10-20% of your equity is tied up in real estate...otherwise, you are as foolish as your inability to remember your multiple posts.

Still renting and not worried about it. I took the $300k I could have put towards the downpayment and instead built a business that nets that every quarter. The rent will be paid for life in about a year or 2. Then I will continue cloning the business. "

THIS, I concede, was a brilliant move.

Teach me

@NYCMatt:
I would teach you but I have to charge ;)

Are your rates reasonable?

Only one milkshake ... but a very very big one.

@NYCMatt

There are a ton of opportunities out there. They are all in scalable small businesses. Unless you are in private equity, GS, or a hedge fund, most are likely making less than $1m/yr. But there are a lot of businesses that net $1m per yr. A LOT.

I believe you.

My thinking on home ownership has changed considerably over the past four years.

Don't get me wrong -- I think it's still a MUCH better long-term plan than renting. HOWEVER, I no longer believe it wise to sink the vast bulk of one's cash into one's HOME ... as long as one is a "wage slave". In other words, if your livelihood depends on a paycheck from someone else. Since 2008, we've all seen how damn easy it is to have your livelihood taken away from you in the blink of an eye. And in today's economy, ironically, those of us with the most education and experience, and at the higher echelons of Corporate America are the most vulnerable.

Frankly, if I had it to do over again, I would have taken my $100K and bought a Pay-O-Matic or UPS Store franchise and stuck it out in my cheap Brooklyn rental. My life today would be considerably different.

Over these past four years, in the course of the thousands of business stories I've covered and written, I've met a lot of rich people ... a lot of broke people ... and a lot of self-made people. I no longer envy people with the "big" jobs or the impressive titles. In fact, I was one of those people. And then I wasn't. And it took a looooooong time to get back to where I was.

But knowing how fragile it all is, I no longer want to be one man's (or woman's) capricious decision away from financial ruin. The people I look up to now are the business owners. Not the Donald Trumps or the Barbara Corcorans (ok maybe Babs a little); it's the anonymous people who own so much of what makes the city run: the small landlords ... the dry cleaners ... the parking garage owners ... the laundromat owners ... the guy who opened a UPS store just down the street from me. They may not be uber-wealthy, and they may be working their asses off (who among us these days isn't anyway), but they're charting their own destinies, and they have ***SECURITY***.

They're the ones who show up at an open house with a checkbook and a $1 million cash offer. They may not be living in a CPW penthouse, but in my book, I'll take the "modest" $1 million apartment (with a dining room, guest bedroom, and my own washer and dryer) -- PAID FOR IN FULL -- over being able to afford the $10 million apartment with the insane mortgage.

My new strategy: live modestly. Sink your savings into a BUSINESS that you can grow (and ultimately walk away from). THEN use the proceeds of the fruits of your labor to buy a home.

@NYC Matt

For once I agree with you :-)

I think the main point is that ultimately it comes down to how does one best increase their net worth. People seem to think that buying a nice apartment and then cashing it out in 30 years and then moving somewhere else cheaper is the road to retirement. That's very sad, especially in a capitalistic country. It's not by chance that so many owners are foreigners. In many other countries, being "self-employed" is normal and it is rare to work at a large corporate firm.

If I didn't live in Manhattan, and I lived anywhere in the country where buying yields a 5% cap rate or so I would buy (everywhere basically but NYC, Boston, or San Fran). In NYC, it is so expensive, that you have to really think, is $2 million in debt worth it for a condo or is there something that would yield a better return?

The reality is that if you "own" a home but you have 30% equity and 70% debt, you don't own anything but a headache. If you had the equity in your hands, you could build a small business, generate enough revenue to build the company's credit and then take out debt on the company's name and then grow at a VERY rapid rate with much less risk. Then you can sell that in a few years and buy $2-3m cash without the headache. Or you could do this 10 times in a row for fun if you preferred.

I personally never feel bad about renting because it is a very small percentage of income and I need to be in certain areas to increase my ability to build my businesses. If I bought, I would end up like my friends, house rich and cash poor. I would not have opened several businesses. I would not have had the type of security I have now. They are stuck as 30 yr wage slaves. In the meantime I may be able to retire by 40 (I won't, I'll keep going because I love working for myself). Don't get me wrong, if I were born with $100 million trust fund, I'd consider buying but with anything less, I would definitely rather build a business first.

It's not by chance that so many bodegas are owned by foreigners. I know an individual who nets ~$30k per day at all of his bodegas (combined)...he started the first one with a few thousand dollars 10 yrs ago. Unlike even the best investment bankers, he doesn't work more than 5 hours a week now, and I'm not sure he would call that work. And, btw, he still rents, because he wants to use the capital more productively. That's what I call the American way!

This all sounds good, but you're making a lot of assumptions, business owner promoters. For every small business owner with a little bakery chain or a few UPS stores, working 5 hours a week, there are quite a few who went belly up before they got anywhere near profit and security. I personally have tried little businesses, and as much as I hate to admit it, all but one of them failed. And the one that succeeded was not scalable (I could only make more money by working more hours).
Everybody I meet these days is starting a small business, and I hope they all do great. But the risks aren't trivial.

Matt, if you think that subset of our society is the most vulnerable you are on crack.

Please. It's a hell of a lot easier to replace a $60K income than it is to replace a $450K income.

AND ... in this economy ... it's easier for a $60K/year WORKER to find *any* new job than it is for a $450K worker --who'll be passed over for 95% of any and all job openings (no matter how willing he is to take "any" job) because he is so "overqualified".

Not true. At all. You made the assertion, back it up. I know numerous attorneys and bankers who found jobs easily. Manufacturing and service jobs are disappearing, permanently. Either being displaced by machinery, workers in China or call centers in India.

very interesting discussion. Kind of a Rich Dad / Poor Dad discussion.

You realize that attorneys and bankers are "service" jobs, yes?

Service jobs? Bring me my coal.

@Flutistic

You are correct, this isn't a get-rich quick scheme. But, it's not exactly easy to make a lot of money doing anything else either for that matter. If you think receiving a W2 wage is safer, it's just an illusion.

Also, if you intend to stay in Manhattan or Brooklyn and are one of the many people earning $100-500k per year and buying a house that is 3-5x your income and dumping 50%+ of your cash savings into it...you may have unwittingly added a significant amount of risk to your overall net worth without realizing it.

Well I've hardly ever had a W-2 in my entire career, just lots and lots of 1099s.

Here's a link making the point that buying a house is a poor investment:

http://www.fool.com/investing/general/2014/05/02/the-uncomfortable-reason-your-home-is-not-a-great.aspx

And I agree with that......except for the exceptions. If you're in a HNWI family, and you like to control you living space, renting just doesn't give the same freedom and satisfaction. And alternative investments aren't risk free either, obviously.

All we need is a crystal ball and our problems are solved.

Right on par with McDonalds.

@Flutistic

Trust me, if I had a $100 million in the bank, I would buy a 1 bdrm downtown. Maybe I'd even go nuts and get a 2 or 3 bdrm. I don't think that there is anything horrible about buying but it's wise to follow a few rules.

I personally don't want to buy at over 15-18x annual rent, I don't want more than 25% of my net worth in home equity (unless I am buying at 10x annual rent), and I am not interested in taking a mortgage that is over 2x my AGI. For me this basically means I will be renting for a while.

Ups franchises are not good businesses,,,,and are getting squeezed from ups internal competition and external competitors,,,,

I think it's pretty obvious that owning is the better deal. No doubt most people would go that route if they could save up the 20% down payment and have a fixed housing cost.

Absolutely.

>and have a fixed housing cost.

Plus the increasing taxes, maintenance, upgrades, and potentially variable interest rate on the 80% you borrowed

"Plus the increasing taxes, maintenance, upgrades, and potentially variable interest rate on the 80% you borrowed"

RED HERRING.

You're an idiot if you don't think that increasing taxes and "maintenance" isn't passed on to RENTERS.

And who's dumb enough to do variable rates on mortgages these days?

No doubt most people would go that route if they could save up the 20% down payment and have a fixed housing cost."

Does that mean it is the smarter thing to do? You don't have any threshold at which you think it is a bad investment? What if the co-op cost was $4k per month and the rent for the same unit was $4,500 a month and the apartment costs $10 million...great deal, go for it.

anonymousbk, my rent v buy decision was similar to yours. mortgage no more than 2xhhi. 20% down. If monthly carry (p+i, re taxes, maintenance before tax deduction) is equal to or less than renting similar space AND I'm staying minimum 5 yrs, I buy; otherwise, I'm a renter.

Have a somewhat theoretical question - is it correct to think of principal as an expense? Isn't it a simple transfer of one form of asset ownership (savings) into another (home equity)? I personally do not think of it as an outright expense, only as a lost opportunity cost of my forgone ROI vs. appreciation of home equity. Thoughts?

Also, why would not you consider tax deduction in your calculations? E.g. my incremental tax rate (all inclusive) is 55% (and no, I am not making over mid-six figured; just a reality of living in NYC.) A tax deduction is a very meaningful benefit vs. renting

> A tax deduction is a very meaningful benefit vs. renting

Agreed. Mortgage interest deduction, deduction of property tax, and capital gains exclusion would be a significant benefit to me. Also ability to retire someday. As a market-rate renter, I shudder to think of what my rent will be when I retire.

I've said it before, and I'll say it again: the only way most Americans can afford to stay in their homes in retirement is to BUY their homes during their working years, so that in retirement all they need pay for housing is taxes and maintenance. I cannot imagine how people think they can continue to pay market rents they can barely afford now in their retirement on 30% (at best) of their current incomes.

On this issue, I agree with c0lumbiac0unty.

I agree with NYCMatt. Those who try to run numbers favoring renting usually assume rent is static, which is a very bad assumption, and do not take into account the tax benefits of owning.

To Boxer1's question on equity, I find when looking at 30 year amortization tables that the first five years of equity payment is how much it takes to become even on your broker commission on exit, if price stays flat.

The problem deviling me and probably other renters is not whether it makes more sense, about which I fully agree with Matt's point on retirement, it's the fact that you get so little for money now in the 400-600 range. In the same way new developments like Hunter's Point took a lot of pressure off manhattan rents in the 2-3k range, the LIC boom and De Blasio promised density might moderate prices in the 400-600 range in a few years.

Like boxer said, when you compare monthly expenses on rent vs buy, you should not count principal since that is in effect another form of savings. When you compare rents vs mtge interest + maintenance/taxes after tax credits, it comes out very favorably for buying. So if you think home price appreciation can more than offset the transaction costs over your holding period, the saved rent is meaningful positive carry after leverage, plus you get the upside in HPA. Provided that you're still mildly bullish on home prices in NYC, I think it is a solid investment, while at the same time providing shelter

@boxer

The principle you pay is a change in the type of asset you own, that's not an expense. And, theoretically, you really don't have to mark that to market unless you need to sell it.

On the other hand, the interest you pay yearly on your mortgage (+ coop/condo fees, taxes, repairs, buying fees, etc) - tax benefits = Expenses

The expenses you will find will generally be close to $2-2.50 per sq ft, prob more (especially depending on how leveraged you are). They will grow essentially at the rate of inflation as will your rental fees. If you are renting 1,000 sq ft, you are looking at $2-3k per month in "true" rental fees growing at the rate of inflation (meaning real rent - equivalent housing expenses). Despite all of the talk of crazy rents, if you do your due diligence you will still get good deals. I've seen a total of 10% increase in my rent over almost 5 yrs right now. I will gladly sign up for that for life.

@LICComent - "Those who try to run numbers favoring renting usually assume rent is static..."

Don't mean to be rude, but what kind of adult runs any type of financial analysis without taking into account inflation???

Also, repeat after me: THERE IS NO TAX BENEFIT TO OWNING. THERE IS A TAX BENEFIT ONLY TO THE BORROWING PORTION OF THE PURCHASE!!! Basically you are borrowing at 3-4% and receiving a rebate, bringing your borrowing costs down to 1-2%.

@NYC Matt

I agree with you but that is simply because the vast majority of the country geographically is currently and has always been at a very healthy buy-to-rent ratio. That's what makes it possible to buy early. If the housing prices in the midwest doubled overnight and the HOA fees everywhere went to half of the local market rent, your assumption would fall apart. Unfortunately, that is the situation in NYC. By no means would I make the same decision to rent in every part of the country. In fact, I only see that equation working in Manhattan, Brooklyn, San Francisco, parts of LA & Boston.

Finally, I get the idea reading this thread, that many people (even in NYC) still don't understand how to invest properly. Of course your rent will go up significantly in 30 yrs, but so should your income and definitely your assets. In fact your assets, especially equities, will go up much more than inflation over time. If you are finding that living in Manhattan is difficult during your working years, you should probably consider that you won't be able to afford to live here when you retire and, therefore, should really keep track of your investments so when you retire you have several million dollars that you can use to purchase real estate somewhere cheaper and live off of the dividends.

>Don't mean to be rude, but what kind of adult runs any type of financial analysis without taking into account inflation???

You aren't being rude, you are just naive about the financial sophistication of the average adult.

>Finally, I get the idea reading this thread, that many people (even in NYC) still don't understand how to invest properly.

You think the average New Yorker is less smart than the average adult?

anonymousbk- you probably weren't reading these discussions 3-5 years ago when those who were positive on owning in NYC were rudely mocked by many here who thought renting was the better option and thought buyers were idiots. In all their calculations, they rarely accounted for rent inflation. Most of those people stopped posting in the past year or so, probably put their tails between their legs and went home to their expensive rentals . . .

@anonymousbk; Repeat after me: There is a tax benefit to owning. "IMPUTED RENT IS A NON-TAXABLE ITEM". Any other return on your capital is a taxable item (interest, dividends, etc.). The value thaqt you derive from using your real estate -- a economic notion of imputed rent -- is a non-taxable item.

Were the people who didn't account for rent inflation simply assuming that rent increases would track with income increases? That's good enough for back-of-the-envelope calculations.

@gothamsboro

"You think the average New Yorker is less smart than the average adult?"

No, I think they are equal to the average American that "believes" that debt instruments are God's magic way of upgrading your live. I incorrectly assumed that most New Yorkers must have taken basic math classes or understood how to use Excel.

@oldgreyhair

"The value thaqt you derive from using your real estate -- a economic notion of imputed rent -- is a non-taxable item"

Forget imputed, I'm not an economist, and the IRS doesn't care. Go buy a property 100% cash down and ask your accountant to deduct the entire amount or even $1. Any derived tax benefit is a result of the government subsidizing the interest on your mortgage, not the principle. By your logic, if you own a business, you are better off only using debt to finance your activities simply so you can have the privilege of deducting the interest on your loan as a business expense.

@anonnymousbk - I understand the economics of renting vs. buying pretty well, and as much as I find your attitude and posts entertaining, you should proofread your answers. The mortgage interest part of your "rent equivalent expense" is the biggest slice of the monthly cost, and it will NOT grow at the rate of inflation, like rent would. If you think inflation is going to eventually pick up meaningfully (as I happen to), owning a hard asset financed at a 3.5 percent fixed would be a nice hedge, besides giving you a roof over your head. Good luck saying the same about rent. Taxes and maintenance are prone to inflation, but they are significantly smaller vs. what I would pay in rent on the equivalent sq.footage in the neighborhoods I like, especially after taking into account mortgage tax deduction.
The expense that I would be most concerned about is a forgone return on my mortgage equity; so I would try to get as much leverage as I possibly can and invest my cash at a much higher rate than 2.5 percent after tax.
And on your comment regarding business financing - if you were a nicely profitable business, and had the same benefits to your cost of funds as a mortgage borrower, it would be an absolute no-brainer to borrow as much as you possibly can and use the funds to grow = expand your equity, whose return is significantly higher than the puny interest you are paying on your borrowings (of course it would not work for a poorly run business, only accelerate its demise.)
And lastly, I have been through a 20 percent increase in my rent once, which forced me to move, and I swore to myself I would never go through it again. Buying is a way to solve that problem.

Of course your rent will go up significantly in 30 yrs, but so should your income and definitely your assets."

Spoken like someone who apparently blocked out the last four years from memory.

Newsflash: MOST people's incomes do not go up "significantly" over the course of their careers. MOST people reach a plateau by age 40. And in fact, in 2009-2010, many high earners lost their jobs and are STILL unemployed. Many others are now earning half (or less) than what they were making before. They'll be lucky if they ever get back up to their pre-2009 incomes again.

So tell me again how their assets "of course" will go up as well? Their income stagnant (or thanks to Corporate America's obsession with youth, reduced). They're sending their kids through college. Their rent is skyrocketing. Cars are only getting more expensive. They're being forced to pay higher and higher health insurance premiums. And now they're faced with elderly parents who need round-the-clock care.

Anonymousbk, do you even live in the real world?

stevejhx resurrection?

@anonnymousbk The IRS does care. Imputed rent is a $52 Billion lost revenue item. See the Congressional Budge Office Report on the issue, its a long and extensive report. Here is a summary: http://www.huffingtonpost.com/2011/04/18/the-top-10-tax-breaks-_n_850534.html

Wait! How's does RENT go up without incoming???!?!

Say it ain't so Joe...

signing off,
"A happy home owner that purchased in Spring of 2009"

"I agree with NYCMatt. Those who try to run numbers favoring renting usually assume rent is static, which is a very bad assumption, and do not take into account the tax benefits of owning"

Matched several times over on the other side by those who make erroneous assumptions of big pricing growth.

"Don't mean to be rude, but what kind of adult runs any type of financial analysis without taking into account inflation???"

Unfortunately, too many here...

"In fact your assets, especially equities, will go up much more than inflation over time"

Bingo...

"when those who were positive on owning in NYC were rudely mocked by many here who thought renting was the better option and thought buyers were idiots"

Correction. Those who argued it was ALWAYS better to buy were challenged... and they were obviously wrong.

Don't change the story...

Boxer, while some of your points are on, you're missing the larger point that if you OVERPAY, those points won't necessarily fix that. What does a 'flat' cost mean if it is 3 or 4x what you should be paying? You'll never recover from that.

Ultimately, you have to do the calculations.

Hardly anyone here said it was ALWAYS better to buy. Most everyone was talking about the environment at the time. Nice try at revising history, but once again you have it wrong. How is that real estate crash you insisted NYC is in coming along for you?

I want to be clear. I own real estate. In places where I get ~9% cap rates. In fact, I don't pay my rent in NYC, my passive cash flow from other properties in other areas pays for it. I'm just not a fan of buying real estate when the cap rate drops below inflation.

@boxer1

"The mortgage interest part of your "rent equivalent expense" is the biggest slice of the monthly cost, and it will NOT grow at the rate of inflation, like rent would. "

Actually I didn't include the mortgage or the mortgage interest as an expense at all. I'm simply comparing the carrying costs of owning a co-op or condo, ie the taxes and the maintenance fees, and comparing it to the rent. I didn't even bother counting the interest because in my case I would prefer to buy with cash. If you don't think taxes and/or maintenance fees will grow with inflation that's on you.

"The expense that I would be most concerned about is a forgone return on my mortgage equity; so I would try to get as much leverage as I possibly can and invest my cash at a much higher rate than 2.5 percent after tax. " "And on your comment regarding business financing - if you were a nicely profitable business, and had the same benefits to your cost of funds as a mortgage borrower, it would be an absolute no-brainer to borrow as much as you possibly can and use the funds to grow"

Actually I have no problem in borrowing money for my business but I don't do it for a "tax deduction", I do it when the cost of capital is much cheaper than the return rate. I'll borrow at 3-6% for something growing at 20-40%, but I'm not interested in borrowing at 3-4% to fund a real estate investment that will likely grow at the same rate. Of course, in NYC, it's possible that currently it will grow less than the inflation rate.

@NYCMatt

"MOST people's incomes do not go up "significantly" over the course of their careers. MOST people reach a plateau by age 40. "

I am not talking about most people. I'm talking about prime Manhattan real estate which is selling at $2-3 million now on the low end. Do you think that most people in this group are experiencing income plateau's in their 40s? You've got to be kidding me. The only people who plateau in this group are the ones with capital gains from their businesses or bonuses that are so large that they retire.

"And in fact, in 2009-2010, many high earners lost their jobs and are STILL unemployed. Many others are now earning half (or less) than what they were making before. They'll be lucky if they ever get back up to their pre-2009 incomes again."

If that were true Matt, pls explain the rise in prices and rents? Obviously the money is coming from somewhere, right? Even more, if your argument is that buying is better in case you lose a job, please rethink that argument. At least with rent you can move somewhere cheaper in less than a year with minimal transactional costs. In a fire sale of a $3 million property, how much do you think you would lose?

"So tell me again how their assets "of course" will go up as well?"

Simple - equities rise at a pace that is faster than inflation in the long run and real estate rises at the rate of inflation in the long run. Again I'm talking about people buying in prime Manhattan. People have been killing it since the crash, you realize that don't you? The stock market went up, all assets have risen, interest rates are essentially nonexistant so private equity shot through the roof. That's part of the reason there are so many cash buyers, lines-of-credit are close to what they were in 2006 at REALLY low rates.

@oldgreyhair

That's great, but where are you getting the money to pay off your equity? You take a wage, pay taxes, and use the post tax income to pay your mortgage off. Similar to how you pay your rent. The deduction everyone talks about is related to the interest on your mortgage. Please let me know if you think otherwise. Thanks for the link, it's a good one.

---

Finally, I'm not here to discuss whether to buy or rent ALWAYS. I'd say 90% of the time in most parts of the US you should always buy. I'd even say that outside of prime Manhattan/BK you are usually better off buying. I just don't believe in overpaying. I think it's very difficult to do that in this market. I'm seeing signs of a lot of emotional purchasing, echoes of the last crash. That's why we are seeing properties flip with 10-15% increases within 1-2 months. It's not sustainable.

anonymousbk, could you summarize? Or at least provide a short list like rb345?

gothamsboro is lazy and has a limited attention span. unless his possibly (almost certainly) unhealthy obsessions kick in.

@anonoymousbk: You certainly are confused. Your comment was that there was no tax break to owning real estate; I told you that you are wrong and cite imputed rent. You said the IRS doesn't care. I post a reputable link that shows imputed rent to be a $52 billion lost revenue item to the treasury, and you answer with a nonsensical response about equity. If you do not wish to be educated on the issue, fine. Do not waste my time. If you would like to understand more, I refer you to the Congressional Budget Office report. If you google it, you'll find it. If you need me to post a link, let me know.

Hi aboutready. Just trying to clarify - I'm lazy except for the times I'm not, which is often?

> If you do not wish to be educated on the issue, fine. Do not waste my time. I

Oldgreyhair, only you can waste your own time online.

I am not talking about most people. I'm talking about prime Manhattan real estate which is selling at $2-3 million now on the low end. Do you think that most people in this group are experiencing income plateau's in their 40s? You've got to be kidding me. The only people who plateau in this group are the ones with capital gains from their businesses or bonuses that are so large that they retire."

---

I do not "think" it, I know it, based on my own research.

************

"And in fact, in 2009-2010, many high earners lost their jobs and are STILL unemployed. Many others are now earning half (or less) than what they were making before. They'll be lucky if they ever get back up to their pre-2009 incomes again." If that were true Matt, pls explain the rise in prices and rents? Obviously the money is coming from somewhere, right? Even more, if your argument is that buying is better in case you lose a job, please rethink that argument. At least with rent you can move somewhere cheaper in less than a year with minimal transactional costs. In a fire sale of a $3 million property, how much do you think you would lose?

---

Here's your explanation for the rise in prices and rents: Russian oligarchs and other international money, as well as 20-somethings doubling, tripling, and even quadrupling up on apartments never intended for any household larger than a couple.

************

"So tell me again how their assets "of course" will go up as well?" Simple - equities rise at a pace that is faster than inflation in the long run and real estate rises at the rate of inflation in the long run. Again I'm talking about people buying in prime Manhattan. People have been killing it since the crash, you realize that don't you? The stock market went up, all assets have risen, interest rates are essentially nonexistant so private equity shot through the roof. That's part of the reason there are so many cash buyers, lines-of-credit are close to what they were in 2006 at REALLY low rates.

I was not talking about the 1%, as you apparently were. I was talking about MOST people, in the aggregate.

> I'd say 90% of the time in most parts of the US you should always buy.

not really. this is the boomers' view. Millennials have other priorities, they value mobility and the little house price inflation going forward will not compensate them for the large transaction costs.

@old

Let me rephrase then: there is no deduction on your annual taxes for the principle paid on your mortgage.

principal, sorry few beers in

nyc1234: The way the tax break works is that you don't report the income from your owner-occupied home. That's more valuable than a deduction -- an enormous tax subsidy/welfare payment to owner-occupants not given to renters.

Of course, this doesn't mean that owning is a better (private) deal than renting, even leaving aside this anti-patriotic aspect of free-loading off of the public. At current NYC prices, the entire benefit of the tax break seems to go to the seller -- buyers pay for it (and then some) up front.

The best financial justification for buying rather than renting at current NYC prices is if you are desperate for leverage and can't get it elsewhere. For example, if you reject both the market predictions and standard macro models and, instead, believe that we are on the edge of massive inflation, then the opportunity to borrow at low nominal rates should be very attractive.

Or if you expect the NYC real estate market to continue to go up faster than the costs of construction/conversion or rents. You will note that those who claim that renting is more expensive than buying continue to rely on the bubble-assumption that prices will rise faster than rents. In their models, buying is cheaper, because - paradoxically - buying will grow ever more relatively more expensive, while for some reason ordinary market mechanisms (more construction/conversion) won't work to bring prices down. The argument is roughly the same as that used against highway expansion (more supply creates its own demand) but without the special economics of highways: NYC with twice the number of expensive condos will be three times as attractive to investors even as returns from renting continue to drop.

"You will note that those who claim that renting is more expensive than buying continue to rely on the bubble-assumption that prices will rise faster than rents. "

And those who claim that buying is "more expensive" than renting always seem to assume that renters will never retire.

I don't know how to calculate the percentage of owners who "buy and hold" their property, but at the lower end at least it seems very low. They are not buying for retirement.

Of course they are. Just because they're not staying in THIS home, doesn't mean they're not going to come out way ahead in retirement; they now have EQUITY ... regardless of how many times they "trade up" their homes, they are on the path to their retirement housing.

Renters are on nothing but a downward spiral.

@NYCMatt

"And those who claim that buying is "more expensive" than renting always seem to assume that renters will never retire."

Sorry Matt, that is a ridiculous assumption. If you are sitting on $5+ million in cash (nominally) 30 yrs down the road, it is realistic to assume that you can generate between $150-200k in annual returns which (if you do the calculations properly) should be able to pay your rent until you retire. Of course, this is also under the mistaken assumption that it is a 100% certainty that these are the best cap rates we will ever see.

I think you are under the misunderstanding that owning a house is the only way to obtain equity.

@financeguy

I will definitely speak to my accountant about this. Can you give me quick back-of-envelope math? Let's say you make $1m per year and you buy an apt for $3m cash purchase. What is your annual tax saving versus if you buy $2m of equities?

sorry i meant $3m for the property vs $3m in equities

>nyc1234: The way the tax break works is that you don't report the income from your owner-occupied home. That's more valuable than a deduction -- an enormous tax subsidy/welfare payment to owner-occupants not given to renters.
Of course, this doesn't mean that owning is a better (private) deal than renting, even leaving aside this anti-patriotic aspect of free-loading off of the public.

Financeguy if you could just be more brief, you could be the next Karl Rove. That's as good rhetoric as Jeb Bush calling illegal border crossing and US occupation an act of love.

No. A "ridiculous assumption" is asserting that the average American will be sitting on $5 million in assets, when a) only half of the working population today has ANY sort of IRA or 401(k), and b) those who DO have an average balance right now (according to Fidelity) of about $25,000.

>that the average American

huh?

@NYCMatt

What does this thread or any of my comments have to do with average Americans? Where the hell do you live? Even people in random parts of the world know that prime Manhattan is for multimillionaires and billionaires now. Do you think people making $55k per year are looking at renting for $10k per month vs buying a $3 million apartment? I don't think anyone in my building makes less than $250k annually and in the surrounding brownstones, I would guess that is a bad month.

A quick Streeteasy search for all downtown Manhattan apts right now shows median price/ft $1,765, size 1,397 sq ft, and price at $1,999,000 with a total of 1,584 units available. What's more likely? That the people buying these have $25k in assets or $5m?

@NYCMatt

"Do you think that most people in this group are experiencing income plateau's in their 40s? You've got to be kidding me. The only people who plateau in this group are the ones with capital gains from their businesses or bonuses that are so large that they retire."
---
I do not "think" it, I know it, based on my own research.
------
Also, could you please send me the link to your research? I'm interested in meeting these people who made $3m per year in their 40s and then dropped off.

Aboutready no longer lives in Manhattan. She collected her windfall settlement that raised rents on middle class tenants and went to buy an apartment. She was rejected by her bank, despite her husband being an equity partner. Today she lives in Brooklyn with her two children.

"Hardly anyone here said it was ALWAYS better to buy."

My, my, that's certainly revisionist history. It was said over and over again.

And, more important, the calls for 'buy' came right before the biggest RE crash of our lifetimes....

Painfully wrong in either case.

"How is that real estate crash you insisted NYC is in coming along for you?"

Pretty awesome. Was really fun seeing the mega declines and having people freak out and deny the truth. Where are those nut jobs now? Oh...

Also, could you please send me the link to your research?
--
No. Believe it or not, not everything is "linkable".

Nor should it be.

@NYCMatt

Cute. Solid argument.

The New York Times calls buying a home in New York today a "perilous investment":
http://www.nytimes.com/2014/05/22/upshot/rent-or-buy-the-math-is-changing.html

So that's that.

"It was said over and over again."

Sure, but not by anyone really credible. It's just silly to state something is ALWAYS true. Hell, even the NYT is changing their tune :)

my, my!

Somewhereelse is just flailing away with nonsense now because he knows how time has shown the foolishness of his past analysis and how bad he know looks. It's sad.

I love when LICComm channels Leopold "Butters" Stotch as Professor Chaos.

"Sure, but not by anyone really credible"

Well, I didn't want to just come out and say that LICC wasn't credible... but, ok, you got me there.

Sad is at +653.55% today. So sad.

my, my