New development comps - What am I missing??

Please include the tax benefits on the interest for the first $1 Million of home mortgage if it is your primary or secondary residence. Beyond that you should not expect in this market that purchasing income producing property in prime manhattan would throw off a profit year one. Such is the market, and many people on this forum have strong opinions about this fact. I would not be one bet on the presumption that all such people buying in such a market are fools.

Ok include the tax benefits. But then include the mansion tax, mortgage tax, legal and brokerage fees and the opportunity cost of your money. Tax benefits accrue over time. These other taxes come out of your pocket at closing on day 1.

closing a 6M property using 80% financing and you are looking at aprox $180,000-$200,000 in closing costs on buy side. My clients closed on a 3.3M place a few months ago, and closing costs were just over $100K. I guess if your buying a 6M property, whats a few hundred K here and there.

However, get used to seeing new dev resales this year! Of course the owners/sellers will test market and price high to see if they can get their price. Its one reason why I expect 2008 to be the year inventory reverses course in Manhattan.

Could this be a case where the owner would rent it at a price that provides positive cash flow based on their acquisition cost....or would sell it outright if the price was right?

Sometimes people take a shot. If somebody is stupid enough to pay 6 mil for a place, even though it just sold for 3.3, and there's another place in the building, 50% bigger, selling for just under 7 mil (and originally listed at $6.2), well god bless that Seller. What will almost certainly happen is that the price will be reduced multiple times, until they get down to something in the realm of reasonable or they'll just take it off the market altogether.

I would point out that notwithstanding that this apt is grossly overpriced any way you slice it, you are doing the rent/buy math very wrong. Beside the factors you mentioned in your 2nd post, you seem to be ignoring common charges and property taxes, and you're counting principal payments as if they are equivalent to rent.

actually maybe you were counting common charges and taxes in the 33k per month, hard to tell because I don't know what interest rate you were using.

I just used Corocran's mortgage calculator which drops in a rate of 6.50% for a 30-year amortizing fixed rate. Seems like a reasonable rate. But my guess is that very few lenders would offer that rate on a $4.8mm mortgage for a new development condo where comps very clearly do not support the purchase price. And as for counting principal payments, in the early part of the loan's life the payment is nearly all interest. But then ccdevi you are the smart one so I am sure you knew that.

I'm not sure why you're giving me attitude but actually, the very first month, $4339 of your mortgage payment is principal payment. thats almost 15% of your payment and about 40% of the 11k difference you started out with. I would think that would be worth factoring in.

What tax advantage? Even on the 1st $1mm of a mortgage, wouldn't that be basically wiped out due to the fact that the owner's income is at such a level (I assume it must be high to afford this apartment) that the individual essentially doesn't get a deduction anymore?

There is a phaseout of itemized deductions. I'm no expert but my understanding is that it is not really a significant factor in this analysis. I also believe that under current law, which could change, that the phaseout is being eliminated.

Mortgage interest can't be deducted on any part of a mortgage over $1 million in principal.

ccdevi
I agree and you are correct. That is, about 1% of the loan balance is retired in the first year. So in this example, at the end of year 1, the borrower would still owe about 99% of the loan balance or $4,750,000. I myself think that the opportunity cost of not being able to invest your $1.2mm down payment, and your mansion, mortgage and transfer taxes is more meaningful.

Gotham
If you are referring to AMT it often works in perverse ways and unintended ways. It is most penal to middle incomes and in this city that means incomes between $200,000 and $1,000,000. It actually is less meaningful on really high incomes. Higher income borrowers may in fact get some of those tax advantages. But each tax situation is different.

"I myself think that the opportunity cost of not being able to invest your $1.2mm down payment, and your mansion, mortgage and transfer taxes is more meaningful."

I certainly wasn't suggesting those factors shouldn't be included, you also should include the opportunity cost of your principal payments. As I said anyway you slice it, this apt is grossly overpriced.