Tales from the Rental Market

agree with uws, the crazy QEs in the past 13 years is like addiction on heroin , too late for this huge junkie to cut it off

How are forecasts shaping up into Fall? I don't know seasonality but I imagine this must be peak renting season?

Found a unit that we would have hit the bid on immediately.. but alas it missed our screen until we saw it 35 days later... and it just rented. It was a 2BR version of a 3BR we passed on for being too cramped... same square footage, decent finishings and was priced a bit cheaper! the 3BR remains unrented as owner look sto sell.

Oh well. Continue to save a little each month by not moving, and that money just seems to get burned up elsewhere (summer activities for the kids!)

Peak renting season is July and August.

Looking for 3BR in UES to rent has been very hard. I was thrown off by little inventory was on the market in winter of last year, and I continue to be thrown off. Found a unit that we liked, but realized its next to a major construction lot that will kick in at some point (not over the next year, but we aren't sure when) - and that was a rental that had two offers come in over the asking price. Toured another unit that at $9.5K was miles away from the unit we previously passed on in the winter at $9-10K. .. had a couple in their 30s and their parents (presumably who would be subsidizing their rent). So it seems to me renting 3BRs is just harder than anything I have tried to rent in my past NYC life (studio/1br/2br) and that the rental market is very, very strong.

why there are so many people coming into nyc?

3BR's in Manhattan are pretty rare.

I think it is a combination of:
1) Fewer 3BRs out there than I appreciated. I'm skewed by my past life of looking for studio/1BR
2) Manhattan is more expensive than I give credit to. People are willing to spend more than I expected (i.e., willing to spend more for less than I would).
3) The affluent are wealthier today than ever before: their stock portfolios/investments are all dramatically higher than they ever imagined, and both political parties are intent on on massive deficit funding to let that continue (one part more intent than the other, but both playing the same game). I.E., no reason to think its all going to suddenly end, let alone reverse.
4) UES never saw as much pandemic flight as I would have though given the family mix. The no kids professional flight was much more material. That is, hasn't taken as many people to return back to the UES to bring back to some supply/demand balance. I'm not sure why this UES is the case... I guess the number of homeowners with kids in public school never really went after the 3BR market, aren't as numerous as I would have thought, or never left the city? Not sure the reconciling factor here... worth starting a new thread (for me!)

I don't think any of this is specific to the UES. I follow many markets, and the story is the same: there is a rush back for the fall (school, work, etc.). Just like there was a huge rush of people leaving the city last year for suburban dalliances, there's a huge rush of people coming back. It's probably net negative overall, but the immediate supply/demand dynamics are super-skewed. I think we are at "peak returnee" season for renting returnees right now (with buying returnees having peaked in May).

As an anecdotal example of what I'm seeing, there is an apt in my building that (once) sold at just over $5M. It rented last winter (Dec 1 start likely) with a last ask of $10K, after 2 months on the market. There is another one that (once) sold at just under $5M. It rented earlier this month (Aug 1 or Sep 1 start) with an ask of $15K, with a week between listing and being marked as "rented".

Pre-COVID, $15K for a $5M apt would happen every once in a while, moving fast. But that was it, I had never seen anything materially lower, much less $10K, outside winter 2020.

That said, I think things will look better for you in the winter, Mouse. Back-to-NYC season for families is over Sept 1, which is driving the giant rush right now. The owners who miss the boat, not recognizing it for what it is, will face an unseasonably dead fall. The pandemic leave/return situation has packed even more people into a summer seasonality for renting. By winter, hope for these owners will have faded, turning into price chops.

But what do I know, I'm just some random guy posting random thoughts. Like these on this thread from last November:

>> I don’t know how long this state of affairs will last, but my recommendation to those who actually like Manhattan is to stop putzing around with their suburban dalliances. While everybody is zigging, perhaps you should be zagging.

>> If I had to guess, we’ll probably hit absolute bottom rent-wise for these types of apartments for Feb 1 or Mar 1 start dates. After that, people will “get” that the vaccine is real and that their suburban dalliances should come to an end. A slow trickle early spring will turn into a mad rush by the end of summer for family-sized apts for the mass affluent and above as offices reopen & schools start.

As I said on UD the other day, now with updated numbers:

It feels like July will be the peak. SE shows less than 20K rentals available currently in NYC, compared to 40K+ in the winter. I do remember looking at the number of listings at $20K+ over the winter and seeing it around either 270 or 400. That number is now at 118, which is all the more a contrast because asking prices are appreciably higher for the same thing. Correcting for that by looking at $25K+ listings, there are 80. That’s a factor of 3.4x to 5.0x lower than before, depending on whether my memory of 270 or 400 was right.

https://www.urbandigs.com/forum/index.php?threads/ticker-top-for-1-month-deal-vol.424/post-3354

Well, I hate to tangle with nada, because if I'd listened to him 12 years ago and indexed my down payment instead of living in it I'd be in a much nicer place.

But I'd like to at least question the idea that "winter will be better." With typical seasonality, sure, but I don't think we're in a typical world. Mouse has gone through one stage of capitulation -- the realization that there is a big cohort out there who are in the same market as he is, something that high earners often don't want to believe, but that I have been hammering on since the beginning.

The question is, is "winter going to be better" just going to be another -- belief? Are we looking at a question of wish fulfillment?

I don't know the answer -- I can't predict asset prices with certainty and neither can any other real estate broker -- but I do see a "rolling return" in the city in terms of offices being open. The finance firms are starting to come back and the law firms are starting to come back, with many finishing in the fall. We'll get Broadway and some performers back late fall... but when's tech back? That, in my mind, is a real X factor.

Secondly, there's the schools problem. The best data we have seems to indicate that the kids will be able to get vaxxed Dec/Jan. Does that mean that we're in for another fall of hybrid sh*tshow, as far as public schools are concerned? It's going to depend on NYC numbers, which are going to depend on collective travel, which is hard to see -- I can certainly imagine a world in which the numbers spike in September, parents freak out about schools, and then October is a flash of opportunity -- which might be a "blink and you miss it" because many many deep-pocketed owners might choose to ride past the dip In the expectation that schools smooth and their parents return for calendar year 2022.

Thirdly, what about foreign capital flows? It seems to me from being in the field that the condo market seems to be starting to recover... if condos move, then co-ops will follow.

I think I said this before, but let me repeat: mouse, if I were in your shoes, I wouldn't worry so much about market timing, but more about jumping on the next piece of inventory that you see that you like. But I would put that under the overarching "listen to nada."

ali r.
{upstairs realty}

So in conclusion, the Manhattan market is most reasonable and healthy only during covid months?

You nailed it, Inonada.

Always fun to tangle on RE, Ali. I don't really have a horse in the "winter is going to be better" race, so it's not my hope or anything like that, just my prognostication. While there will be some return post-summer, I think it's going to be super-muted relative to what we are seeing now. It all revolves around school years, and how that forces office-based employers to make COVID policies that last Sept to Sept. It doesn't really matter what actually happens with schools reopening, COVID abating vs. surging, etc.: everyone's already committed, effectively.

Copying from my UD musings:

https://www.urbandigs.com/forum/index.php?threads/ticker-top-for-1-month-deal-vol.424/post-3289

I think we’ll see continue see churn by people who are either upgrading or giving the finger to prior LL for not reducing rent last year. That means high volume but steady inventory, sorta what it looked like in early 2021.

I don’t think there will be a big back-to-work wave, just something muted and early (Sept) in the non-family segment. Here’s why.

Companies are in one of 3 modes right now:

1) Declared return-to-work this summer (or end thereof).
2) No explicit declaration of return-to-work, but optional work-from-home period was declared to last through end of summer, and there’s been no extension yet. This means they probably won’t extend but want to keep the option open.
3) Some sort of declaration of work-from-home indefinitely.

The common theme is end of summer as a deadline one way or another, to give clarity for those with children regarding the school year. So most families have to decide whether they are returnees this year, or not, by the end of summer.

That leaves the non-family people. Most know they have to decide one way or another by Sept, because that’s how the school year has created a deadline. Those with FOMO about the hot vac summer are back already. Those that want to stay away until the last possible moment will either come back Sept (if ambiguous companies say to come back) or won’t come back at all for now. Ambiguous companies won’t say “Nov” once they miss Sept (see family schedules), and if the non-family people didn’t come back for FOMO about hot vac summer, I doubt they will have FOMO about crisp vac fall.

Long story short, I think we’ll see a Sept rush from the non-family people squeezing it out until the last possible second, and then a fizzling of the rush back. The next natural deadline after Sept is a long ways away.

And there's just too much inventory like this, either listed or in shadow, that will be a day late and a dollar short on these last days of the rush back:

https://www.urbandigs.com/forum/index.php?threads/ticker-top-for-1-month-deal-vol.424/post-3375

@inonada
Re:RTO (Return To Office)
I agree with your comments and It’s interesting watching it develop.
More and more I think September is not going to be the big line in the sand where everyone returns.

My wife is at a big stupid bank which publicly mandated a July early return with specific targets.
She has gone in a bit and found no one is actually meeting the alleged minimums.
Further, she is seeing a number of people in senior management who have moved further out and are going to be based in regional offices and home, indefinitely. No more Manhattan.

My firm is clarifying our RTO within the month, but we are moving to a hot desk/hotel in model and even more senior management have declared that post Labor Day, they are going to make their primary office CT/NJ/FL rather than Manhattan.

Apple, one of the tech companies publicly pushing for an aggressive return schedule by comparison has now pushed it back at least a month to no sooner than October.

Hiring is relatively hot right now in almost all sectors/seniorities, so I’d argue companies are pretty reluctant to crack down and enforce RTO with a heavy hand.

How much impact do you think RTO actually has on people making decisions on whether to live in New York City or live in a suburb?

When I was a 'city' person, there was no other choice other than Brooklyn or West Village... And the vast majority of people that I know and have been in the city long-term, are staying in the city regardless of RTO. It's simply where they prefer to live.

Was with several senior investment banker friends recently, one of whom lives in NYC and is counting the days until his youngest graduates high school so they can move to FL. The others live in NY suburbs but likewise are seeing no need to be in the tri-state area.

It may sound simplistic, but their universal view is that zoom and remote work are game changers. They are super busy and productive now without going into the office. They are all senior, sector heads. M&A and financings. They are not getting pressure to come into the office. They do, however, anticipate business travel returning when their work shifts from execution to marketing.

Banking sector heads were not spending a ton of time in the office to start with, and that's why they are getting less pressure to return. They always were traveling salesmen.
Also, their work product (M&A and financings revenue) is perfectly quantifiable, so their daily activities do not need to be monitored.
Employees in process jobs, where output cannot be directly and objectively measured without observation, are in a different boat.

RTO will be sizable, there are two factors:

1. People never learn, so most people will forget the 650,000 casualty soon

2. Small business hire more people than big corps. Big corps might be afraid of class lawsuit if employees die from covid after returning to office; but small business bosses are much meaner and often in fearless mode chasing small profit, so they will force employees to return to office across the board

@inonada - I agree that in the rush out / rush back, it still remains net negative. In my/spouse's workplaces, we know far more people who left & aren't returning than we know people who are moving here that were previously outside the city.

@theburkhardtgroup - I'd argue RTO factors in but its just a mean reversion to a bit of the pre-2000/2005 times where, at the margins, people with kids who can afford to stay in the city... are less likely to.

Given the overcrowding in "good" schools in NYC in the 2005-2020 period, maybe it was a historical outlier anyway. I think being a "city person" can be temporal, like it was for you, and factors of where you are in your family/career/income make a huge difference.

We have friends who cried leaving the city last March, never intended to stop being "city people", but now have had their kids going to in-person school in suburban districts and are not relocating back.

Maybe this is net bullish for rents because some who may have moved up from renting to buying will instead rent here & own elsewhere?

Miami is also a factor, the Wall St move down there is very real. Will it be sustained.. well let's check back in 5 years. Good time to be a RE agent or headhunter if it plays out down there.

Overall, I have two lessons from this apartment search so far:
• People are willing to pay more than I am, to live in Manhattan. For example, we toured a 2BR at the Lucida for $9.5K. The current occupant had 2 kids, stroller in the entryway (nowhere else to put it), every wall was converted into storage, etc. These people have wealth, and that is where they ended up. It is a little perplexing to me. Great building, but I wouldn’t put up with that living arrangement with 2 kids.
• 3BRs are so scarce. I remember my search years ago for a Studio was easy, a 1BR was easy, and 2BR took a couple months. I’ve only seen three 3BR over the last 9 months that we would have really wanted (2 we really wanted, and wished we didn’t pass up on through my own flubbing). It seems like if we want to maintain our criteria in Manhattan longer term, we will have to buy and not rent… and we can probably find pretty good demand for a quality 3BR rental if we ever needed to put it onto the market. .

@Inonada That is the plan to hold on till Winter and make the move then. There is a lot of competition, however. I’m not sure this competition suddenly ends on Sept 1st, as it feels this year is just a weird year given COVID up-ending seasonality. There were a lot of inquiry for the 3BR we just lost, and those folks haven’t found an apartment yet (there is no inventory)…. I imagine they will remain my competition past 9/1.

@AliR That *was* the plan, to just on the next piece of inventory that met our criteria. To be honest, I flubbed it on the last unit we looked at. I went in strong with an offer above ask. The unit served every purpose, except was next to a vacant lot that could start construction in 1-3 years. The 3 month break up fee put me off, as if the owners knew something that I didn’t. As soon as I let it go, a few days later I was like Job “I’ve made a huge mistake!”. I simply underappreciate the scarcity of 3BRs that meet our criteria, and the willingness of the market to pay more for worse housing stock. In any case, that will be the plan the next time as well.

@Inonada It will be curious to see what post-Labor Day brings for company return. I am aware of a few Fortune 500 that previously extended work from home till Labor Day, and want employees back post Labor Day. But its nearing August 1st and I’m not seeing an uptick in office traffic. That datapoint, coupled with this Delta variant, has me thinking the gauntlet being thrown down for office return is 2022. However, you already noted that rental demand is really high, and we haven’t even had the full return yet!?

I'm not overly familiar with the current rental market. I did have someone looking not too long ago, and there seem to be decent inventory once you got to about $15,000.

Would this be a little too small for your needs?

https://streeteasy.com/building/adams-tower/28d

Come to Peter Cooper Village (yeah I know it's too far South for you). There are no natural lines of 3 BRs but the occasional Frankenapartment shows up.

@30yrs I think not living in UES is cheaper. We want to rent there to see if it makes sense for us to buy there in years to come.
@burkhardtgroup $15K is simply not in the cards. What do you figure someone needs to earn to pay that $15K with 2 kids (presumably in private at that rent spend). $65Kx2 = $130K for school and stuff + $15x12 = $180K for rent. Other cost of living at least $250K? So breakeven cost ~$550K? At current taxes, that means earning $1.1MM pre-tax? You probably want to save a bit as well... so figure $2.5-3.0MM/yr with very low risk (i.e. so you can bank on it every year)?

Personally I've always chosen to live substantially under my means, still do. And that meant living in less than prime neighborhood's. My personal choice. This allowed me to continue to invest, and live comfortably within my budget. I really enjoyed living in Washington Heights, and as an old school New Yorker I could handle my car getting broken into every couple of months without thinking the city was going to hell in a handbasket. My two oldest children were lucky to have a family brownstone to rely on. They also went to public school in the village, i.s. 89 in bpc, LaGuardia for high school.

I come from an artistic background, and many of my friends were of the same Ilk. This meant family's jammed into rent stabilized tenement apartments, or living in converted lofts in tribeca/soho... But this is a different generation of New Yorkers I'm speaking of. And these are also people that are still in New York City and wouldn't leave if the plague broke out.

Other costs of living at 250k seems a bit high?

It is quite unfortunate that spending 10k a month on rent doesn't get you what you need to live comfortably. However I think the listing that I posted is pretty livable.

if you've got two children with all the extras that you mention, I'd be looking outside of Manhattan if my income was below $1M per year. Unless you're willing to make some sacrifices on where you'll live. But again that's just my take on it.

Brilliants insights

@Burkhardt Thank you for that background. It helps me understand this mentality of staying in NYC at all costs. I am surprised by how many private school legacies I meet, e.g. those who went to private school in NYC and settled down in NYC and are repeating with their kids. I ended up in NYC because of work, and would probably leave NYC if I could get a comparable opportunity in a more livable city (livable = cheaper + more space + more greenery). I don't understand the concept of a weekend home (sounds like such a hassle, but perhaps a necessary hassle in NYC). And to be honest, I never stepped back to think "what does $10K/month get me in a NYC rental"... I always just assumed it would be super grand and that UES would be cheaper than other areas (who would want to live in the UES I thought to myself!?!). I just don't want it as badly as others. I think its an awesome experience for my kids though if we can hold on for them, which I think requires lowering our expectations/changing spending habits.

In terms of budget, I have asked around to 6+ people who would answer the question honestly... with two kids in privates school how much are you spending per year overall... the answer comes back $450-600K pretty consistently... I think the dry cleaning, ubers, taxis, restaurants, vacations, clothes, baby sitters etc. all add up -- especially with two working parents who cannot optimize (e.g. brown bag their own lunch or take the subway to get everywhere). By definition, $1MM is there breakeven.... i.e. they would need to move out if they only made $1MM between the two parents. I have spoken to parents who earn $1MM between the two of them and do not do private because they cannot afford it.

I have heard before of a 30% rule, based on which households making 1mm pre-tax and 500k post-tax "should" spend 12.5k on housing per month. Not sure if the rule takes into account private school, which in my book is not a necessity. Why not consider a public magnet school instead?

I am curious to understand the range of prices for rentals in prime neighborhoods. Let's assume current / end of 2019 prices and group all the buildings into two categories:
"old" = few of the following: well maintained 20th century construction; doorman building, rooftop deck, laundry in the basement, decent condition
"new" = few of the following: 21st century construction, luxury finishes, high level of amenities (gym / pool), laundry in unit
Not considered: "odd goods" = few of the following characteristics: walkup, no doorman, ground floor on a busy street, no laundry in the building, really bad condition

Here is what i see in Midtown and some less desirable areas of UES:
studio - $1800 to $2800 (old); $2500-$3500 (new)
1br - $3000 to $4000 (old); $3800-$5000 (new)
2br - $4000 to $7000 (old); $7000-$9000 (new)
3br - ??? I did not look too much into this, but according to the report linked below, median is $5300 and average is $7400
https://www.millersamuel.com/files/2021/07/Rental-06_3021.pdf

The whole "not enough 3brs" question is very interesting. According to the report, 3brs rent for the highest price per square foot, and 1br are lowest priced per square foot.

Bottom line: there is a broad range of prices for the same number of square feet in similar locations. I have always stuck to the lower end of the ranges because that is what I could afford or was willing to spend. Most important was always the location!

@Krolik, I think that rule ignores the variability in salary. If one earns that like clockwork, they can stretch more (i.e. take more risk with how they spend it, given the funds will always be there). Finance can be a bit more lumpy, and you may take a 0 every 5-10 years. So you would need to haircut your compensation to a more acceptable level and then apply that rule.

Agreed. Personally, we only considered our base after tax salary (no bonuses) in our budgeting calculation. And we were willing to spend under 25% of that on rent or monthly carry (ignoring opportunity cost of down payment) per month in order to live within / below our means. There is a decent amount of inventory at the lower end of "old" ranges to pick from and get a good amount of square feet in a decent location, thanks to low interest rates and COVID discounts.

A well timed article I meant to post earlier - https://www.nytimes.com/2021/07/22/realestate/how-much-will-an-extra-bedroom-cost-you-in-rent.html

TLDR - Manhattan is the most expensive place for each incremental bedroom, both in dollar and percentage terms. No surprise there, given what I have seen out there. I would imagine this is pretty similar statistic for purchase price increases per bedroom, and also applies in prime Brooklyn, etc.

The weird thing re: weekend homes is that even in expensive areas around NYC, a weekend home may very well be cheaper than upgrading from a 2BR to a 3BR.. and at least you always have the option of turning it over to an income producing asset by renting it seasonally.

What is wrong with this one? Also 3 bed rooms are not really higher price per sq ft relative to 2 bed rooms for comparable finishes.
https://streeteasy.com/building/111-east-88-street-new_york/8b

What is wrong with this one? Also 3 bed rooms are not really higher price per sq ft relative to 2 bed rooms for comparable finishes.
https://streeteasy.com/building/111-east-88-street-new_york/8b

Another one for $11k. Much bigger but those tiles in the bathrooms!!
https://streeteasy.com/building/26-east-93-street-new_york/6ab

Thank you for the listings; I keep a daily check on them so no need to post. Looks like 111 East 88th was just listed today. To answer the question, there isn't anything wrong with the listing. Generally, its above what I budgeted (although they are looking for a 10% higher rent than it last rented for in Fall 2017, so I suspect there is movement in the ask), an old conditioner mounted high up in the windows begs a question of their HVAC units, the floors could have been updated over the past 20 years. Generally, it confirms the market has moved above where I thought it would be (e.g., I would have expected better quality for $10K). This is really a 2BR with a small room (that has a toilet in it). But a convertible sofa can be put into a Living room? Not sure about that small room with the toilet; don't think that showed up in the video. I like this Classic Six alyout idea; it seems to give a lot of privacy and is a good use of space. The location isn't our favorite, but its really workable and fine. Overall, this is a livable unit that is just outside of our budget and I'm not sure really works as a 3BR (I need to see that small room with the toilet to understand what it is.. e.g. you wouldn't want a home office next to a toilet). I will probably take a tour, but I think mentally at this point will wait till Oct/Nov than compete with the back-to-school rush. The Classic Formation is pretty intriguing , but I don't love this unit at this price point as it seems the rest of market may.

UES West of Lex around 86th is mostly coops. So rents are in $5.5-6 per sq ft range for a good clean basic luxury property with elevator doorman etc. You get far more bang for the bug as $ per sq ft price increases. As you go further east towards 1st Ave, rents are cheaper and $10k will certainly be possible for good 3br. No different from purchase price dynamic.

The area I think we like the most is high 70s/3rd avenue. Close to 77th subway, still very walkable to park, and close to the 2nd avenue 'scene'. There is 1 rental 3BR on the market, and yes, that is the one I ended up flubbing (ended up getting rented sight unseen to a family in CA that is coming for private school this Fall for their children.. I offered over ask, and they offered over my offer with better lease terms).

Thank you for the $5.5-6.0 rule. Makes sense on what I have been seeing (advertised 1500 sq ft * 6 = $9K). I think the actual sqft is often less than the advertised amount and the asking rents are more $9.5K+, so I would suspect seeing more $6.50-$7.00 asks. These are comfortable units for sure, but aren't of the ilk I would have expected at this rent range (e.g., vented kitchens, no A/C window units, updated floors at some point over last 20 years, etc. )

"vented kitchens, no A/C window units". I assume you are fine with through wall ac units. I think this is doable for a three bed, for 1500-1600 sq ft unit, 2 or 2.5baths in $10k but you can't be too picky. If you were to look closer to 1st ave, suddenly your choices will increase.

I think the 11k per month apartment posted above is a pretty good deal for ~2000 square feet near Central Park.

In the last 10 years similar sized apartments in the building seem to go for 2.7M-3.0M, and maintenance is ~3200 per month (why is maintenance so low near Central Park in UES? Maybe there are assessments to maintain this prewar building?).

If you buy, mortgage and maintenance would also be ~11k per month, but you would have to put down 650k!

26 East 93rd seems to be priced where it is due to bathrooms really needing reno and perhaps a few blocks too far away from 86 and Lex subway.

It is perhaps no more than $2mm coop on its current condition with perhaps $4000k in maintenance.

@300 "I assume you are fine with through wall ac units." I've learned I need to be. Before this search I assumed if you are spending $9-10k/month rent you are definitely able to get central air. I disabused myself of that notion really early. A quiet HVAC system would be greatly appreciated by me, but also so quickly taken for granted that it would be hard. You can rewrite the old wall street quote. "the only thing harder than having enjoyed central AC is having it, and then losing it".

I'm not sure how constructive this is, but $6 ppsf rent for these utilitarian apts that would have fetched $1200 ppsf back in the heyday would put me in a funk too. Particularly since during my search, I was looking at the same $6 ppsf for spectacular apts that would have fetched $4000 ppsf back in the heyday. So, I feel for you Mouse.

Anonymouse>> What do you figure someone needs to earn to pay that $15K with 2 kids (presumably in private at that rent spend). $65Kx2 = $130K for school and stuff + $15x12 = $180K for rent. Other cost of living at least $250K? So breakeven cost ~$550K? At current taxes, that means earning $1.1MM pre-tax? You probably want to save a bit as well... so figure $2.5-3.0MM/yr with very low risk (i.e. so you can bank on it every year)?

You got your numbers wrong, Mouse. Your costs add up to $460K. At $1M w/ 2 kids, after 401k etc., it's more after-tax income is $600K. So $140K in savings, which at 20-25% of after-tax income is a fine sustainable savings rate for retirement. So it's perfectly doable, and plenty of the mass affluent spend 75-80% of their after-tax income because that's what they prioritize.

I think you have a limited imagination of the range of peoples' priorities. In particular, you are projecting your own priorities onto a market that is composed of people whose priorities are much more broad. Your equating of $15K rent with "presumably in private" reflects your priorities. Your notion of "other costs of living" at $250K beyond rent and "school and stuff" reflects your priorities. The fact that your private school parent peers spend $450K - $600K a year is, again, a reflection of your priorities. These people are copies of you, priorities-wise. They live on the UES sending their kids to private school, like you, as opposed to a multitude of other choices in the world. It should not be surprising, then, that their priorities look like yours rather than (say) Keith's. I am not saying these priorities are wrong, just that there are other priorities out there.

As an example of other priorities, if I had a pre-tax income of $1M and after-tax of $600K w/ 2 kids, then I'd:

- Have kids in public school. This is not a matter of cost, it's a matter of preference: I think the right public schools provide a better education, with a better link to reality for the kids, than private schools. You probably don't share this preference.
- Restrict spending on items beyond housing to ~$120K/yr. Again, this is a matter of preference: with 2 kids watching & learning, I don't think I'd want to spend more. You probably don't share this preference.
- Have no qualms about renting a nice apt at ~$15K/mo = ~$180K/yr if it represented good value.
- Save & invest ~$300K/yr, or 50% of after-tax.

So pre-pandemic, you would have perhaps found me near P.S. 234 negotiating $17.5K/mo down to ~$15K/mo for something like this:

https://streeteasy.com/rental/2768849

That'd be ~$6 ppsf rent for a back-in-the-heyday ~$3000 ppsf apt that went for $5.5M.

And post-pandemic, I'd upgrade to a larger, better apt by negotiating one of these down from $23K/mo to ~$20K/mo:

https://streeteasy.com/building/111-murray-street/45west
https://streeteasy.com/building/111-murray-street/47west

That'd be ~$6 ppsf rent for a back-in-the-heyday ~$4000 ppsf apt that went for $12M+. Sure, I'd be spending another $60K/yr and saving/investing "only" $240K/yr, or 40%. But if they're pricing it so cheap, YOLO: after all, if I don't spend when they're giving it away, why was I saving/investing all those years in the first place?

In any case, those are my priorities. I am not saying they should be your priorities. You might feel like you cannot / would not do that for a variety of reasons. But realize that "cannot" and "would not" are a reflection of your priorities, not the priorities of others and therefore the rest of the market.

Another lifestyle point... My clients who make ~$1mm a year don't spend that much money beyond what they spend on kids, if they have them, and housing, because they are simply too... indentured? is that a safe word? to their jobs to have leisure for a lot of spending. Some travel, maybe, if there's family in another country, but they don't shop for randomness and experiences the way I do, because they don't have the time.

Indentured to my job and no free time describes my situation pretty well! I think it is pretty common in Manhattan. When I had a lower paid job and more free time, I lived in another borough.
Also, I would do public school for the same reason/principle as ionada, and because I already paid for it (call that sunk cost fallacy, or maybe I am just estimating that any possible improvement in education quality is not worth the price tag).

Firstly, love this thread and perspective.

I calculate $1MM take home is $530K (ex-IRA, which I guess could move this up to $550K). Not saying this is a massive difference than assuming $600K takehome, but that is a very sizeable difference in savings after expenses. I don't think you can prudently do two kids private at $530K... back out $130K school and $120K rent (assuming $10K) = roughly half out the door.. and that's before summer activities, any nanny, insurance, utilities, cable etc. (which I think you mentioned could be anohter $120K or so in your household). $130 + $120 + $120 = $370K. So earning $1MM means you are saving $260K/YR, which is less than one years living expense. that seems way too risky. I'm sure that the household could trim on rent and those expenses etc., but I imagine that would be more the exception than the rule for a family sending two to private. So I imagine many families earning $1MM do not go private. Now, if their income comes in like clock work (e.g. not volatile) then perhaps they can take this risk... I have had (effectively) zero year incomes multiple times in my career so I could not (or won't) take that risk.

Our family is doing a massive budgeting excercise after 2021. In 2021 we are living live as is. At year-end I am going to itemize every single expense from every credit card/cash withdrawl and categorize it all. We will be over $120K for sure (we do have inflated medical bills per year which add another $15K/yr), but I suspect there is massive leakage in transport (uber/lyft), food (we downtiered our restaurants, but it feels price increases have offset it), and our kids activities (e.g. paying for a weekly class that isn't 100% focused on/useful). I doubt we could get it to $120K like you have, so bravo for that. It does make sense to put a budget/rule in place to avoid being over consumers around our kids. And well if you can do $120K, so can we, and I will keep that # in mind when I do this exercise! When I was single, my budget was so tight.... people didn't believe it. Married with two kids, things have spiraled out of control.

On private, we are pursuing private. We aren't wedded to it. We were able to get into one of the 2-3 schools we think could be worth it. If that didn't happen, we would be going public (comfortably doing so in the city for elementary, would need to learn more about middle school). We debate public vs. private all the time. The best exercise I came up with to frame the question: what is better, giving your kid a $1MM check when they are older [say 25, not 21] or a private school education? Depends on the kid/what you want, but I think the vast majority of private schools will fail that test. For myself as a kid, I would have preferred the $1MM route versus being thrown into private. We are still not sure its the right move (will we ever know?), but will hold on till our youngest gets through 1st. The youngest was born very very early, and in public would be the youngest kid in her class (not even gestationally adjusted) versus in private she would be the oldest... after 1st we can then transfer to public more comfortably knowing we don't have to watch out for her as much.

If we were not going private, I don't think we would value the city enough to stay here beyond elementary. I'm not sure as its a hypothetical question. But its clear that others are willing to sacrifice more to be in the city than us. We still have rich experiencs in the city, but we don't value those experiences as much as we did when we were 24 years old.

I graduated from college in the city. I remember thinking that a couple years after graduation I would get a 2BR walkup on 3FL next to Central Park with a roofdeck for $3500/month... as a bachelor. I can only imagine if someone asked me at the time, what I would envision if I was married with 2 kids... I would have guessed a 3BR or 4BR, 10' ceilings, central air, 2000 sqft, in the village, for $8K/month. Reality is today I'm looking at 3BR, 8' ceilings, wall throughs, 1300 sqft (usable), UES for ~$10K/month. Inflation has caused many expenses to go up, but my industy's compensation (finance) has been static (maybe come down) and taxes have gone up. This is a lower quality of life than I would have imagined years ago...

What is a "fair" rental equivalent price for a streeteasy unit liste for sale? Going on StreetEasy and using 50% down and 2.25% 30YR financing ?

Where can you get 2.25% for 30 years? I only see 2.75%. If the monthly (maintenance, tax for condo, and mortgages with 50% downpayment) is the same as the rent, it will better to rent money wise. I believe the equivalence between the sale and the rent is based on 20% downpayment

Mouse, It is easier to use cap rate concept. 2.5-3% for basic 1/2 bedrooms in a doorman building (expenses are CC+ Taxes + insurance + upkeep/assessments). Going to 1.5% or lower in a fancy apartment selling for $25mm.

$3MM apt x 0.025 / 12 = $6,250/month for a $3MM apartment? That seems too low?

You gotta add expenses to get cap rate. $5000 cc+taxes, $1000 insurance and upkeep. $12500.

@anonymouse Where did you grow up? Those are some hefty expectations from life. Wish I had some of those.

Making $1M per year as a household is extremely tough. It requires the household to include two people pretty far along a successful career, such as two surgeons ($300-$590k average per salary.com), or two McKinsey Associate Partners (https://mconsultingprep.com/mckinsey-salary/), or two at least VP-level Investment Bankers (per wallstreetoasis.com), or two CFOs ($260-$720k per salary.com), or two VP Engineering, or two medium-size company CTO, or two experienced M&A attorneys. And all such a couple can afford is a modest 3br in Manhattan with central air if they are lucky.

By the way, I think the expenses you and ionada outlined excluded debt service, which is a significant expense for many with a medical or law or MBA degree.

Also, saving 260k per year means saving 4 times national HH income (of ~65k)!!! To me that seems very prudent and opposite of too risky.

This has not existed for almost 20 years unless the apartment has what I call bachelor type finishes. Perhaps during peak 2009 recession if you got lucky.
“ I would have guessed a 3BR or 4BR, 10' ceilings, central air, 2000 sqft, in the village, for $8K/month.”
Also, square footage market standards includes condo eqt measurement, which definitely includes all exterior wall-in and portion of exterior walls if not full exterior walls.

Maybe time to assess cost of living vs. earning opportunities and move to Nowhere, say Fayetteville, AR.
https://www.nerdwallet.com/cost-of-living-calculator/compare/fayetteville-ar-vs-new-york-manhattan-ny
Housing costs for Manhattan (which seem accurate) are 695% HIGHER!!! Doubt the salaries differ anywhere close to as much.

I can't imagine most posters on this board would be all that happy in Northwest Arkansas, but OTOH it's not a great example of "Nowhere," I don't think.

Look starting 5:30
https://youtu.be/aSHk3lRigtM

Thanks, 30yrs. Interesting to see that even before COVID, rents had not been going up with inflation for many, many years, which matches my experience.

Mouse, I just used this website for my after-tax calc:

https://smartasset.com/taxes/new-york-tax-calculator

I plugged in $1M, 4 exemptions, and $39K 401k. I got $550K take home too, but I count the $39K 401K as “saving/investing”, not “spending”. Add another $10K in after-tax value from backdoor Roth IRA, post-1986 contributions, 529 plan, etc. by my accounting. Krolik, paying down debt (student loans, mortgage, whatever) is also a form of saving/investing, as opposed to spending, IMO. I.e., an activity that increases net worth.

Also, I don’t _actually_ earn $1M with 2 kids. I’m just saying how I would do it. But if my imaginary income / family has lit a budgeting firing under you, go for it!

For me & my degree desires/wants, spending $15K per person on “other stuff” requires a degree of budgeting & care (though perfectly comfortable). At $30K per person, it’s pretty carefree and un-budgeted. At $60K, it’s indiscriminate.

>> What is a "fair" rental equivalent price for a streeteasy unit liste for sale? Going on StreetEasy and using 50% down and 2.25% 30YR financing ?

Depends on what you mean by “fair”. If by “fair”, you mean how much you are “spending” then this thread has various thoughts:

https://streeteasy.com/talk/discussion/45998-spend-of-purchase-price

Consensus was that with current interest rates, “spend” is something like 3% of purchase price + cc + taxes. Some people had a lower %-age but added insurance & upkeep, landing more or less in the same place.

As 300 points out, if you consider “fair” what the market trades at rather than what you are “spending”, then that 3% varies. For lower-end properties — coops priced at $1000-ish ppsf, say — 3% is typical. For higher-end properties — condos priced at $3000+ ppsf, say — 1.5% is typical.

>> “ I would have guessed a 3BR or 4BR, 10' ceilings, central air, 2000 sqft, in the village, for $8K/month.”

Nah, that wasn’t even around in the 2009 bottom: I was looking & trying to get lucky. FWIW, in terms of bottoms the 2020 bottom was appreciably lower than the 2009 bottom from what I saw, even ignoring inflation.

Mouse, I’m not sure why income variability is such a big factor. If someone earns $1M in good years, but then half the years it’s $0, then their income is $500K/yr no matter what the little voice inside their head tells them. I get that variability means you gotta be able to adjust, but if you are spending only 50% with easily-adjusted costs, what’s the big deal?

Krolik, I hear you on expectations. I remember when I first came to the city, I overheard some lawyer (40-50 yo?) talking to a broker about an $8K apt on a HH income of $600K or $800K or something. My wife & I were like “Wow, who the hell earns and rents for that much!” I’ve always led a happy life, in no small part because I had no expectations from it.

Mouse, I understand your thinking. If you have enough savings, coops west of Lex are good deal right now. If you don’t care about the opportunity cost of 30-40 percent down (opportunity cost depends on the individual - risk tolerance, amount of total wealth, preference of customization, not wanting to move, and their investment prowess), you will get a nice place without high floor view for $10k monthly outflow at 10/1 ARM.

Mouse, I understand your thinking. If you have enough savings, coops west of Lex are good deal right now. If you don’t care about the opportunity cost of 30-40 percent down (opportunity cost depends on the individual - risk tolerance, amount of total wealth, preference of customization, not wanting to move, and their investment prowess), you will get a nice place without high floor view for $10k monthly outflow at 10/1 ARM.

@Inonada it was hard for me to follow that "spend" thread. For me, I thought about spend as the equivalent cost of buying a place and renting it out. My financing assumptions are 50% down financed on 30YR at 2.5%, which would be my own purchase philosophy (I wonder what average Manhattan mortgage LTV actually is, but I imagine it is less than 70% of current market values). I look at Interest + Maintenance + Tax + Insurance + Repairs + Amortized broker fee (not sure if this captures it all).

Random property:
https://www.urbandigs.com/building/340-east-80-street/18e/sale-listing/?teamid=23964

At $3.85MM, this would be (roughly) monthly cost of $3.7K principal, $4.0K interest, $5.6K CC (off the ad), $800 insurance (assumed $2.5K annual per $1MM of property value), $500 repairs (e.g., amortized make ready of 1 month rent over 24 months), $700 broker fee (1.5 months over 24 months), and $100 of other. This adds up to $11.5K ex-principal and $15K w/ principal. The asking rent is $15.5K. It looks to me the owner is expecting a positive cash-on-cash return by having his unit as a rental.. i.e., have renters pay for his principal. I think this is close to your 3% rule (3% x $3.85MM, divided by 12 months and then adding $5.5K of monthly common charges).

The market is the market, but it strikes me the rental market is worth than the buyers market right now - in that little area.

The same math on a lower apartment, e.g., https://www.urbandigs.com/building/156-east-79-street/8a/sale-listing/?teamid=23964 would imply ~$8K (ex-Principal) and $11K (w/ principal). I imagine this apartment would rent for $9K very quickly and owner would try for $10.5-11.0K... i.e. cover his cash flow entirely again with the rental.

So the conclusion is my expecations are off market / the rental market is higher than where I thought it would be. A differing conclusion may be my math is wildly off.

Is this a factor driving rents higher? 14% of renting households in New York County are in arrears? Average $5K/household? I imagine it is not an issue on the UES given relative affluency and the $5k/Household stopped increasing around a year ago (i.e., a sign that the rental stress was in peak COVID versus today).
https://precisionforcovid.org/rental_arrears

Your math is off. The owner expects to make a return on their down payment which some people express in terms of cap rates. So if you assume zero down payment and use at 2.5% mortgage rate, interest component plus various expenses will get you close to rental price in the type of property you are looking for (2.5% cap rate). Just look up Cap Rate.

For ultra-luxury, cap rate is only in 1.5% hood.

But assuming 100% debt financing is not the actual cost of ownership. Nearly all owners have equity in their units, and they own that equity because they expect their asset price to go up (and giving them a tax-advantaged leveraged return on that equity).

Debt is cheaper than equity. So 300 mercer's all-debt scenario is the floor for the expected return, which I think is useful for this exercise.

Mouse, maybe Manhattan LTV is around 50%, but it might reflect that many have been in their units for a while and already paid down some of the mortgage. It does not necessarily represent optimal capital structure given market conditions. I assume that right now, most people looking to buy property would be looking to borrow as much as possible. Ideally for most coops that is 20% down / 80% LTV, but some will ask for 25% or 30% down (some of these units have lower prices to compensate).

To compare renting vs. buying, you need to make an assumption on cost of capital. For someone holding a 2M apartment and renting it to you, instead of selling it and investing the 2M into something else, what minimum return do you think they would accept, comprised of net rent (expressed as cap rate) + price appreciation expectation?

The cap rate in Manhattan is 1.5% to 2.8% (I looked and have not found 3%+ even at low end of the market!!!). That's like a 30-year government bond. Except a lot more headache, way more risky, including risks of bad debts and eviction moratoriums, illiquid, and with huge transaction costs. Presumably owner accepts this very low yield because they hope to make their return via price appreciation.

In general, price appreciation should follow inflation, unless the balance between demand and supply changes. In Manhattan, my view is that price increase in line with inflation is the best case scenario. While supply of units on the island is roughly fixed, people have been leaving NYC in the last few years, even pre-COVID, and that's not great for demand going forward. Also, properties (and rents) are already overpriced as compared to people's incomes (hence this whole thread), so unless they get more overpriced relative to incomes, or unless real incomes increase, tough to see real prices going up.

So the unlevered real return = cap rate + price appreciation in excess of inflation (which in my opinion is probably zero)
Nominal return = real return + inflation (this could be something, but the Fed is telling us inflation is transitory and many experts agree, so this might also be minimal).

The remaining factors are leverage and taxes. Right now, interest rates are so low (and even lower after tax), they are below cap rates in some cases. In my opinion, this is what makes a real estate purchase in Manhattan work, sort of. And the more debt the better!
Unless the buyer is retired, I do not understand what could be the argument for putting more money down.

I also don't understand how/why people purchased property in Manhattan few years ago when cap rates were below interest rates. Equity returns were definitely negative.

Unless you just have so much money that you don't care, which does not apply to anyone in this thread I think.

I think there are more HHs in arrears in other boroughs, less in Manhattan where people have been able to work from home. There are no buyers for properties with a tenant in arrears, so current landlords are stuck holding these units. When eviction moratorium is over and these tenants either resume paying or are evicted, these units likely to come to market, an event that possibly could push down real estate prices.

Mouse: Think of owner’s return as two components: dividends equal to market cap rate (appx 2.5 percent for the type of property you are looking for) + property price increase or decrease.
You can deconstruct all you want but cap rates are market driven.

—-

But assuming 100% debt financing is not the actual cost of ownership. Nearly all owners have equity in their units, and they own that equity because they expect their asset price to go up (and giving them a tax-advantaged leveraged return on that equity).

I agree cap rates are market driven. And they reflect that you should not be able to have rent cover all of your expenses for a 100% debt financed property. If a property owner could rent out a unit and cover all expenses and not put a single $ into the unit, there would a massive demand increase for this asset class (especially in America where 99% think real estate values go up long term). That demand increase would push up prices so that you couldn't 100% debt finance a property and expect to cover all expenses with rent.

FWIW, large rental buildings are probably north of 3% cap rate in Manhattan as the square footage is typically 10-20% smaller than the typical basic luxury doorman condo for the same bed room count. Look up size of apartments some Related Buildings like 1 Union Square South. You can also read Equity Residential public shareholder information to cap rates across the country.

And Manhattan cap rates are a unique beast due to many rich people wanting to live and own here (Nada arbs the richest of them). In the rest of the country cap rates are much higher. There is a Blackstone multifamily fund open to public. You can read its reports for what they can earn.

If someone thinks $10k is expensive for a good 3 bed room. There is more money than people think in Manhattan.
https://streeteasy.com/building/1-union-square-south-new_york/21l
https://streeteasy.com/building/1-union-square-south-new_york/019r

And I assure you that there is no Sub-zero fridge or Wolf oven or eqt.

Mouse - few more facts to consider:

1) The interest rates for investors is higher than primary residence, around 3.5-4.5%. That means, 3% assumption is actually too low if you are looking at expenses for a mom and pop owned investment unit. Also, they are assuming lots of risks that could result in significant cash outlay (like bad debt, vacancy, repairs etc) and need to be compensated for that as well as cover cost of down payment capital.

2) In most parts of America, cap rates are much higher than in Manhattan. Probably about 5% on average, and even above 10% in some economically depressed areas (like Memphis, TN, where you do not expect much price appreciation). That means when you buy an investment property (typically 25% down as an investor), you can cover all your costs, and have some cash flow on top of that. Historically, price appreciation on top of cash flow is about equal to inflation. Question remains whether you'd could earn more if you instead invested your down payment into the stock market.

3) In general, if you bought a business, you would expect that revenues>expenses so you can make a profit. Otherwise, why bother? Exception is an early stage startup loosing money in the short term to make a lot of money later, but that is not the pattern you expect in real estate. In real estate, since no crazy growth is expected, the unit better make money today.

4) Actually, certain groups of homeowners can get a loan with only 3-5% down via special gov't programs. Not 0% down, but much less than 20% requirement for a coop in Manhattan. 10% down in the norm for a conventional loan.

5) The scenario you describe played out prior to financial crisis, when lots of people bought 3 homes each at 0% down. In the aftermath, people learned that RE can go down, sometimes by as much as 50% (check Phoenix RE price history!!!) and banks and regulators learned that 0% down + loose standards was bad, and so underwriting standards are much tighter today. Recently, cheap debt has driven massive appreciation once again, RE market is at an all time high, driven by purchases by only very creditworthy Americans, and cap rates are at an all time low, everywhere (though still not as low as in Manhattan).

Bottom line, as expensive as rents are in Manhattan, Manhattan real estate asset prices are very high relative to rents, resulting in a cap rate very low vs. national average, and too low for Manhattan RE to make sense as an investment.

Mouse - what is your expectation of RE price appreciation in Manhattan in the next 5 years, and rent increases in Manhattan in the same time period?

@Krolik
I have no expectations on rent, and if I did I would be wrong because I have historically been wrong.
Simplistically, rents are still lower than pre-covid, and I believe the world will eventually normalize, so I think rents will be higher at some point over the next 5 years. I did think those pre-covid rents were negatively convex, as they kept going up as a larger % of income (my anecdotal guess not born of research). However, rents in the pandemic/today didn't go down as much as I would have thought, and I underestimate how badly people want to be in Manhattan. So, I don't think the rents were as negatively convex as I thought, which provides a bit of a support level over the next 5 years. I wonder if there are commercial conversions to rentals that will suppress the recovery, but I have no real idea on how meaningful they will be and when that inventory would come on. So overall, I think rents will be higher 5 years from now. Which means they will be lower (because I am always wrong).

Two quick observations to your points 1-5 above:
1) I don't agree with the idea that an equity down payment is an 'expense' that has to get repaid. I did account for some expenses in my model (broker fee, maintenance) but did not assume vacancy. I have rented from 4 prior landlords who claim homestead exemptions and have really low property assessments for their taxes (one of these even has 5 units in the same building all registered to the same Miami corporation.)... so I think their taxes are underpaid and they probably have lower cost mortgages (FWIW, you can get investor financing closer to 3% rather than the 4.5% you cited). It wouldn't shock me that most of them refinanced recently at 2.xx. I vaguely remember a prior landlord doing a refinancing while I was a tenant!
3) Just reiterating my view that paying down principal is part of the profit/building of equity, its not an expense. It's a draw on cash flow, sure, but its not an expense.

It is an absolutely fair point that my rental math was trying to compare cost of buying a unit vs. cost of renting a unit -- from my perspecive. I implicitly assumed that the owners renting out their units were primary owners looking for a longterm lease... versus business minded folks that want to recoup their cost of vacancy.

This recent thread and observations make me re-rack expectations for rent in Manhattan. I think I remain too anchored by the rents that were occassionally on offer over the last 6 months. I waited and pounced for the recent unit I missed... and I think otherwise I need to up my budget by $2K/month to get something I want - which I think will be doable in Oct/Nov. Overall it seems better to buy than rent, but I do prefer the flexibility at this time.

To clarify, I do not view paying down principal as an expense either. But I think cost of equity concept applies. Down payment capital is not free, there is opportunity cost / return hurdle.

On rents and purchase prices going forward:
According to BLS pre-COVID statistics, New Yorkers spend 38% of income on housing, which is the highest proportion in the nation: https://www.bls.gov/regions/new-york-new-jersey/news-release/consumerexpenditures_newyorkarea.htm

I suppose rents will bounce back to pre-COVID levels at some point soon. But can they increase from there - I am not sure. Either New Yorkers would have to earn more money than before, or they would have to spend an even higher proportion of income on rent. I do not see a catalyst for either, so my guess is rents would increase with inflation. On supply side, it is a really good point regarding conversions of commercial to residential, which could lead to rents increasing slower than inflation.

If rents are not going up (faster than inflation), the only ways for property prices to go up (faster than inflation) is by lowering the already very low cap rate (net rent / cap rate = property value). I am not sure why cap rates would go down. If interest rates go lower, that could also give real estate a boost, but doubt it will happen.

Bottom line, it is unclear to me that rents or purchase prices can move higher outpacing inflation. Housing is even more expensive in SF than in NYC relative to incomes, but other than that this is one of the most expensive places already.

High end rental and sales prices will continue to go up as we already see it, because the crazy toilet paper dollar injection is designed to benefit the rich, while low end prices will keep flat or go down from here, because the economic keeps getting worse, you know it, and I know it .

The 3% rule + CC (e.g., monthly rent = purchase price * 3% / 12 + CC) generally foots with the math I laid out (e.g., the cost of purchasing an apartment with 50% mortgage financing and having rent cover all expenses except principal, but including vacancy, broker fee, insurance etc.

I currently live in Midtown East. I pay ~$60/ft (and could negotiate lower to $55/ft given pandemic). And that's not going to be possible moving to UES. There is a 3BR premium and an UES premium. E.g., say the UES is 15% more expensive than ME (on a $/ft, a 1BR is 15% more expensive than a 1BR in ME), and 3BR have a further 10% premium (on a $/ft).. these compound into a 27% premium on a $/ft. So an equivalent 60 ft goes for $76/ft in UES. Now, I think the UES also has higher common charges (that's been my anecdotal experience when I looked at buying)... so many co-ops with high CC... that can drive another 4% higher on %/FT. so now I am 32% more expensive on a $/Ft. Add in that I want a a space that is 25% bigger than my current 2BR... I am looking at paying up 65% to secure my need.

Now I did find a place that fit my need for +45% and failed to secure the apartment... so woops. That was a good apartment that I let slip through my fingers. But man a +65% rent increase is just annoying to get 25% more space... I guess that's what I have also struggled to wrap my head around!

How much more value do you feel like you are getting for that +65%?

The extra space is needed, so the +25% is needed. In terms of actual dollars of the remainder, it is $30K/YR

The question is the remainder. Pros: closer to school, maybe an actual community, closer to park, a trial period of renting to see if it is worth it/buy there. Cons: less diverse, low quality housing stock, food sucks, knowing how much I spend absolute dollars in rent and always thinking it should get something more.

This is a first crack. I tried to lay out cost of two working-full time parents living on the UES with 2 kids in private school. Tis is not my own spending, as I will be doing a 2021 lookback analysis on it in 4 months (I really hope we are spending less on food.. WFH/pandemic will probably cut that # a lot.. that is too much on food... also crap are kids this expensive)

Private School $125,000 (2 kids + donations to school)
Rent/Utilities 130,000 ($10K/month + $700/month utilities, insurance, XMAS doorman tips)
Nanny 28,000 (25 hours a week * $20/hour; two full-time working parents)
Kids 42,000 (2 kids x $25K each for full year activities + clothes)
Food 40,000 (groceries, office lunch, seamless 2x/week, 2 adults+sitter 6 times/month)
Transport 10,000 Car garage + insurance + Gas + metrocard + taxi/Lyft
Discretionary 18,000 Can be cut 50-100% immediately.. but brings joy to life!
Medical 15,000 Insurance + Gym = 7500, 7500 for out-of-pocket deductibles and stuff
Daily Services 13,000 Laundry, grooming, clothes for two adults, tax prep, apartment crap
Total $423,000

I believe one should be saving 2YRs of annual expenses every year (random number that popped up into my head). So that means take home of $1.3MM. That means to spend that much above is a $2.75MM pre-tax lifestyle.

If you cut out private school and take out $25K of cost from above (whatever you think I grossly over estiamted above) you get to $271K of expenses. To save 2YRs expenses every year requires $815K of after-tax take home. That requires earning something like $1.7MM/YR. That's still an insanely high number... and this is public school (I'm a public school kid, nothing wrong with it)!

Where am I off? What are the major things I am missing? Don't save 2YR worth of expenses every year? Earn $1.75MM and brown bag lunch it?

2k per month per kid on activities? On top of private school and nanny?
If you live on Upper East Side, you do not need a car and the associated garage and insurance.
I think there are ways to pay for medical deductibles with pre-tax money via HSA.

Honestly, the whole thing is off. Suppose the couple lived not on UES, but in their parent's basement in Brooklyn, and kids went to public school.
423k- 130k rent / utilities - 125k = they are still spending 168k per year with zero rent.
Other people clearly do not spend nearly as much as this one couple. In fact, average HH spends 73k (admittedly, average HH includes half of one kid). ( https://www.bls.gov/regions/new-york-new-jersey/news-release/consumerexpenditures_newyorkarea.htm )

Also, definitely, saving 2 yr of expenses per year does not make sense, at least to me. It could, if there was an associated life goal, like save up to start your own business, or take a year off and travel, or go to graduate school, etc. Are you that worried that both you and partner might be out of work for 2 whole years? I mean, after a few months, you could always try to find a job in an adjacent industry or function. Maybe take a pay cut, but that is better than zero. Or are you hoping to retire early?
Firstly, keep in mind, once you are retired, your expenses on Lyft, seamless and nannies should go down, you would need fewer designer suits. And at some point 401k and social security would kick in and supplement your income.
Secondly, if you are set on saving that much, it means living a very different lifestyle.
FIRE movement principle ( https://www.ramseysolutions.com/retirement/what-is-the-fire-movement ) of saving about 50% of your income with the goal of retiring early is based on extreme frugality. That would mean no private school, no seamless, no car, staying in Midtown East or moving to Queens, packing your lunch, doing your own taxes and laundry.. no one said it would be easy.

As a general principle, no one is entitled to 3 years worth of lavish living expenses with private schools, after tax, in exchange for just one year of working. If everyone did that, a lot fewer people would be working!

Where are you off?? The entire thing is comical.

UWS_er, welcome back to the thread!

Mouse, it sounds like you are looking at spending +65% in rent on value that it little more than +25% to you, reading in between the lines. No wonder you feel frustrated. Every time I’ve upped the ante on rent, I’ve been excited. E.g., I (and the sales market) values my new apt at 2.5x the old one. Rent is 1.6x the old apt nominally, and 1.5x once you factor in the freebies of the new apt. Most of that differential is the COVID discount, but some of it is the “bulk purchase” discount whereby rents become cheaper (relative to sales) the more you spend.

It seems like you don’t particularly value the UES at what the market values it by sales price. On top of that, the rent runs at a premium relative to what you have now: no bulk discount. So why bother? If you are going to spend +65%, spend it on something that you are going to be excited about. This sounds like a chore.

I don't know how you own a car and garage park UES and your total transportation is $10k.

@Inonada, that is definitely correct. Also I am now realizing I did the math incorrectly. The premium from 2BR Midtown to 3BR UES is like 25%, but the common charges/ft are 20% higher (not 4% higher). So the equivalent space in midtown is +51%. and to get 25% more space on top of that... so the vig is more like +90%... not +65%. Missing out on the unit that was only +50% more... now I feel like an idiot. For some reason that building is cheaper on $/ft (no amenities?) with less CC/ft... and even then I was getting it at a 10% discount to "fair value" (probably because of the vacant lot which could start constructing).

In any case, now that I see the math in higher clarity... +90% increase in rent.. I barf more.

I’m not sure why common charges factor into it. I guess you are thinking of what is “fair” to pass onto you in rent so that the owner’s cap rate remains the same? If so, your old math seems more in the ballpark. Suppose a $2.4M apt has $2K in cc’s, $2K in taxes, and $6K in cap rate ($2.4M * 0.03 / 12), so $10K total. A 20% increase in cc’s is $400, or 4% of $10K. Not $12K / 20%.

(Rule to live by: a gentleman/ lady never does math after midnight.)

If one can save 1/3 worth of expenses every year, he is already doing better than most people.