Are people still doing buy vs rent calculations?

That was a last-century thing

I did buy vs rent in my building. I can buy my same unit for 30% down @ 2.5% for the same price I rent.

Are you excluding principle payments from your mortgage payments when you calculate your monthly payments for buying?

And how about down payment? Became sunk cost?

Down payment is your net asset value which can go up or down with your home price. Similar to equities.

At this point in time I think you have to do rent vs buy comparisons based on the full purchase price since a) you can get the same rate on CDs and other safe instruments as you pay on your mortgage, and b) you can't assume any return on your down payment due to appreciation. So you would have to include the opportunity cost of the return on investing your down payment at an equal rate, so it's a wash.

You also need to amortize your closing costs in and out over the expected length of ownership.

Instead of buying an apartment, will you put you down payment in equities (most people looking to buy an apartment in NYC have more than 50 percent exposure; not speaking for myself) and assume no appreciation? If you do not invest in equities, and are currently all cash investor, sure you would assume some foregone return on your downpayment. But for most people it is allocating some money from equities to down payment. Equities can go down and real estate can do down. Do not forget to put rent inflation in you buy vs rent unless you want to keep moving every two years.

Not to mention the emotional pain of moving and loss of freedom to control where you live to your landlord. I am asking one of my condo tenants (who does buy vs rent calcs constantly) to vacate or pay significantly more, and his wife is going nuts as they have to move. I wouldn’t never want to be in that situation. What is the cost of that?

That's the downside of renting from some jerk Coop/Condo owner ;)
There are plenty of rental buildings where that's not the case (and after Cuomo signed the new rent regs today, a hell of a lot more).

Exactly. That is why rent of buying should be compared to a Related like building factoring sq footage - 2 beds rooms with barely 950 sq ft rather than some temporary 1-2 year rental in a nice comparable condo. Full rental buildings increase too significantly. I have renewed leases back in 2005-7 at more 10 percent back to back yoy increase.

Here is an example of buys that shouldn't be happening:

34 Dikeman Street in Red Hook
SLD 02/29/2016 $1,928,000
SLD 05/14/2018 $2,090,000
On Mkt 04/10/2018 $2,145,000

I agree. Makes most resales in Manhattan look cheap.

30yrs_RE_20_in_REO and 300_mercer - people want to live where is hot and trendy. (un)fortunately, that is (certain parts of) Brooklyn.

I get Dumbo, Greenpoint and even bed Stuy. But not Redhook.

My point is that it's been for sale 3 times in less than 4 years. That was one thing when the market was skyrocketing, but now it's pretty much a recipe for losing money no matter how smart a choice you make.

There are some really good free rent vs buy calculators out there, but have yet to see one that tries to help you make assumptions (per 300's point) about costs of moving over whatever time horizon you're making a comparison. This can't be that hard to add as a technical point, but unlike a lot of other inputs the defaults / rules of thumb aren't as well established - (say move every 2 yrs on average? And what's reasonable for moving cost?) but should be factored into the rent side of the equation.

And for those of us who look at rent vs buy, the median time horizon of potential NYC buyers cannot be helping in this market. It seems like a lot of primary residence buyers were thinking about a 5 year (+/- 1 yr) horizon, and possibly still are. The buy side of the equation cannot compete without consistent and strong price growth, which is going to be harder without a sudden return of foreign demand.

So rates continue to come down. So in most cases except ultra luxury, buy vs rent (which have ticked up by 3-4 percent) should favor buying for more than 7 year horizon using 10/1 ARM I/O which you can easily get for 2.5-2.75 now from Wells Fargo.

300 - agree, question is how many buyers fit the "more than 7 year horizon" in NYC. They are out there, but would guess there is some skew towards 3+ bedrooms (but just a guess). Anyone have data or anecdotes along those lines?

I would say any one with a child fits that bill if they have been making enough money to afford the apartment they want to buy for the last 5 years (essentially to have enough savings for downpayment which could also come from gifts from parents or a single bonus or stock windfall).

I do buy vs rent by using cash price + closing costs and then calculate cap rates. Then need to account for variables such as vacancy or in a townhouse or older unit, repairs, etc. Also need to consider sales price and fees. And account for taxes. Easiest way to do this is in Excel. The calculators are really poorly made for the most part. But...after all of that calculation...ultimately:

If your plan is to be an employee and invest in equity/bond funds, in the long-run, most of the time buying makes sense. But if you are able to generate higher yield as an investor, it may not make sense. Ironically, the more savvy you are as an investor, the worse Manhattan real estate looks.

For ex, if you put $1m across 10 multifamily syndicate investments around the midwest, south, etc, you can reasonably expect an after-tax return of $5-7k/mo. I've been doing this for a while now and getting closer to $8-10k/mo + keep in mind you are getting principle pay down + appreciation (in some cases). That allows me to rent essentially with passive income. This also allows me to live in a space for $1m that is larger than what I could buy for $1m. I'm buying properties in a group with little mgmt control but with companies who have gone at least 1, if not 2, economic cycles. Also usually buying with at least 35% down.

What I am noticing that is making me more interested in buying in Manhattan is the cap rate compression that is happening throughout the country. 10 yrs ago, you could net $10k+/mo in the midwest or south. The fact that cap rates are compressing makes Manhattan a relative value vs a few years ago. I'm now starting to notice more deals hovering towards the $5k/mo (6% yield after tax) number which essentially is the cutoff for this strategy in terms of risk, imo.

I think a big part of what you are noticing is the result of hedge funds entering that market as your competition.

Anonbk,

Multifamily indeed has been an attractive asset if you find an operator who you can trust and you aren’t paying 3-4 percent to capital raiser to get in. I have investments in multifamily but I like full control of my investments.

Typically a person who is very good at generating returns has enough money to spare for manhattan luxury. An extreme example will be Ken Griffin.

There are plenty not so rich who do both as they place a premium of ownership due to flexibility to modify the place to their liking and not having to move. The richer you are, more premium you put on that.

300,
I absolutely agree but a lot of that is the "wealth effect" - i.e. how wealthy people perceive themselves to be. And that's why markets like Manhattan are largely driven by whatever the perception of whatever direction the majority of buyers perceive the market to be headed. My read is that right now the majority of buyers feel the market needs to be below current pricing and I also feel that will be a self fulfilling prophecy.

There has indeed been a lot of negativity in the last one year and Streeteasy condo index down 6-7 percent from peak to bottom in April reflects that. More expensive in $ per sq ft say $3k plus and absolute $ > $10mm are down 20-25 percent and this segment is still over supplied.

As we have been discussion in the market indicator thread, there are signs of improvement in the resale market which is mostly lower $ per sq ft. It remains to be seen over the next 2-3 months if the strength continues. Low rates are a big boost and they usually take some time to work their way through as people are locked into leases etc.

Curbed recently updated their piece on the subject:
https://ny.curbed.com/2019/1/16/18177265/new-york-city-real-estate-apartments-rent-or-buy

seems that the sentiment is all Brooklyn now... manhattan less so, thus driving down prices.