Rent vs. buy math

Is it $500k? Look at that! Seems to me 2x leverage on $750k @ 4% gives you the same result as 4x leverage on $750k @ 8% in terms of return. You pay $30k in interest to borrow $750k with an average annual return of 10% (and housemath underestimated that as they didn't include reinvested dividends, when the figure is higher) versus the $60k in interest to borrow $750k with an annual return of 4.25%.

You need half in assets / income to borrow for the mortgage, but you pay twice the interest rate. And since you're borrowing more with less to support it, you have a much higher risk profile.

I'm still waiting for LICC to show us that apartment in Manhattan that costs out-of-pocket less to rent than to buy.

steve, do you really want to show everyone that you have no reading comprehension skills? Just look at my posts above.
Also, first you said show you where the costs are the same. Now you say show you where it is cheaper to own. Still doesn't matter, your point is stupid. I pointed out a building above where it costs the same. You can't seem to handle that so you just ignored. Back to steve's bizarro world.

In addition, it makes no sense for comparable apartments to be cheaper to rent than to own. Most people place a premium on owning and would willingly pay more to own than they would to rent the same place.

I'm still waiting for steve to make a sensible statement.

My mistake above, I meant to say that it makes no sense for an apartment to be cheaper to own than to rent.

LICComment – the biggest difference between your calculation and mine is the opportunity cost on the downpayment. Otherwise the comparison is not fair – your monthly rent pays for 100% of your living expenses, but your monthly out-of-pockets after you’ve bought only pay for 80%.

I defer to those with better knowledge than myself on insurance.

Well, if one good thing is coming out of this conversation: I'm likely to change my brokerage account from E*Trade, where I was paying 6.24% on margin, to Interactive Brokers, where I'll pay 3.51%. Looks like I could save a couple grand a year, enough to pay for nearly a month of rent. I would not have focused on the issue if it were not for Steve's pointing out that Fidelity's rates (which would actually be 6.825% for the amount I'm borrowing).

"I pointed out a building above where it costs the same."

Point it out again - I missed it.

"it makes no sense for comparable apartments to be cheaper to rent than to own."

Actually, since owning is essentially capitalized rent, only a fool would pay more to own than to rent.

"Most people place a premium on owning and would willingly pay more to own than they would to rent the same place."

Prove that. You can't, because it's entirely untrue.

jaspernonbeliever, true, but you need to see what funds they provide and what their transaction costs are. Fidelity has a broad range of funds from scores of companies for no fee.

steve_jhx wrote: "tech_guy, AMT eats up the local and state tax deductions."

Maybe, but not germane. tech_guy was pointing out that the standard deduction is basically irrelevant in a high tax jurisdiction like NYC (which is true). While it's true state and local taxes (and real estate taxes) aren't deductible under the AMT, there's also no standard deduction under the AMT. So, if you're paying the AMT the standard deduction still doesn't enter the equation, which supports tech_guys general point.

Schaefer Landing, 440 Kent Ave Williamsburg, Brooklyn

Here's a 1460 sq ft 3BR new construction, luxury, sweeping river views

Buy $1.2MM
Rent $4,500/mo

http://www.streeteasy.com/nyc/sale/228381-condo-440-kent-avenue-williamsburg-brooklyn
http://www.streeteasy.com/nyc/rental/347109-condo-440-kent-avenue-williamsburg-brooklyn

Buyer also needs $120K downpayment + fees and taxes, etc...

"Most people place a premium on owning and would willingly pay more to own than they would to rent the same place."

I disagree with this statement as well. It varies wildly - I for one would prefer to rent than own - unless owning has clear economic benefits. (renting gives me flexibility, i feel shackled with owning because part of my next 30 years salary is spoken for)

A little off topic, but I wonder why 6E is 21% more expensive than 9E in the building 80sMan picked (they both appear to be resales).

"Most people place a premium on owning and would willingly pay more to own than they would to rent the same place."

Unlike Eric Cartman, I agree with this statement, but with a lot of caveats. I agree for three reasons: Stability, ability to do what you want with your home, and long-term growth in both value of apartment and of rents.

The caveats, however, are both market and personal.

The personal is mostly about creating the long-term time horizon. That means being certain I am going to stay in the same place, that the apartment will fit my current and present family situation, etc.

As for the market, I don't have to time it perfectly, but I can certainly try to avoid buying at the peak.

So for the right place, at the right time, I would be willing to buy even at a (reasonable) premium to the cost of renting the same place.

80s Man - I am coming up with 40% more expensive to own than rent 440 Kent Ave, using the same assumptions I've used on other apartments discussed on this thread. Are you coming up with something different?

"Williamsburg, Brooklyn"

Who's talking about Brooklyn?

"So for the right place, at the right time, I would be willing to buy even at a (reasonable) premium to the cost of renting the same place."

No one ever disputed that. In fact I said it earlier on this thread. I think the issue is what is that premium? LICC and petrfitz argue that it's infinite; I don't think it is.

If it were cheaper to own than to rent the rational decision would be to buy an apartment, rent it, and make a sure profit. Can anyone furnish an example where this is possible? It seems that the rent vs. buy math is built around assumptions of future capital gains, the amount of and time frame for these gains are unknown and hence risky. Rent increases are known with relative certainty ~4.5% a year and less risky.

If you buy and rent for more than the cost of ownership, this is to say, at a profit, then your renters are either people who can't afford to buy and hence, you take on extra risk buy having an underfunded renter or your renters are people who can afford to buy but choose not to because they don't plan on staying around very long and you have the risk of holding an empty apartment and not collecting rent from time to time due to the transient nature of your renters.

The owner also has to keep money invested in the apartment in the form of the down payment and to continue to maintain the apartment at a certain level of quality that justify the asked rent.

I'm interested in monetizing the rent vs. buy discrepancy, if it exists. Otherwise the discussion turns to maximizing terminal wealth, which become very hand-wavy (what if prices double....).

The premium placed on ownership might matter in an older building where repairs or modifications are desired. I don't think this premium would exist in new construction. I may be wrong.

Another reason that renting might be more expensive would be if there were a limited supply of homes to purchase, if no new homes were entering the market and even a qualified buyer would be forced to rent. This is the "they don't make new land in Manhattan" argument. This may work with over the tree-top Central Park views and other highly desired properties but I feel it's fair to say that the developers have added and continue to add enough supply to negate the adage.

80s man: agree - we need to try and quantify the gap between owning and renting. without that, it's all in the terminal value (TV and discount rate are the two biggest guesses in any financial projections, and are the ones that often drive the numbers). Happy to explore any new ideas anyone has in this space.

As for your statement that if owning were cheaper, then everyone would buy to rent out, that's not true. If owning is 10% cheaper than renting, but if you rent you have to (a) put up with less than 100% occupancy, and (b) pay 40% tax on rental income, then it's still not feasible to turn a quick profit.

In fact, here's how I see it: In normal world (where house prices do not appreciate faster than inflation)

- If owning is more expensive than renting, the only reason you would want to own is psychological (some people believe it is a sign of growing up, respect, prestige, etc - the stuff realtors have them brainwashed of). The difference in prices is what you are paying for that "feeling" or "experience"

- If owning is between (a) cost of renting, and (b) 30 - 40% lower than renting, then, buy only if you plan to live in it, not feasible to rent out and make profit

- If owning is more than 40% cheaper than renting, then you can buy and rent out and make a profit

Thank you to one of the participants for calling my attention to "housemath.us."

Seems to me that the critical factor with the model is what you think say 10-year inflation and 10-year annualized change in house prices will be.

The default is 4.0% inflation and 4.5% house price increase. It may seem hard to believe, but the "breakeven" inflation rate on 10-Year Treasury Inflation Protected Bonds is actually only 2.2%. In other words, the "market" is forecasting 10-year inflation of 2.2%. (8/27/2008 Bloomberg) I'm simply not at all comfortable forecasting 10-year housing price increases from today's "lofty" Manhattan levels to be 4.5%.

10-year periods have a way of being very different over time! For example, people blithely speak about the long term return from stocks being about 10%. True. But for the ten year period ending July 31, 2008, the annualized return was only 2.91%. (Poor returns often follow "bubbly" returns.)

The only way I get a buy (rather than rent) signal from the model is to assume Manhattan real estate prices rise nicely from current very "extended" levels. I'm simply not willing to make that assumption.

Steve - I completely agree with you that the premium I'd be willing to pay to buy is not infinite. In fact it's relatively small. At 10% premium - sure no problem (again, for the right place, at the right time). 20%-30 - maybe. Any higher than that, gets pretty tough to justify, at least for me. That's why this discussion is interesting to me - it looks to me like the current market premium is in or near my "maybe" stage, at least for me, of course depending on the apartment. I am on the sidelines anyway, partly for personal reason (i.e. it's not the right time), but hopefully for no more than 1-2 years. That's why I want to work through the math and get as smart as I can in the meantime. I've actually learned a ton on this thread already. For instance the insurance cost, which I had never factored into my calculation before. Or the nuances of the tax deduction - I happened to meet with my tax guy yesterday, and because of this thread, I knew some good questions to ask him. So thanks to all.

eric_cartman, I meant to say if owning were cheaper than renting "all in" (with all of the costs, fees, taxes added and subtracted from each side) then a rational person would buy and rent it out.

I agree with your utility argument. If owning is more expensive then people will still buy because the feeling of owning is worth it. In corporate finance the premium over book value that one company pays for another is called "goodwill". During the dot-com bubble companies were paying billions in goodwill. I wonder if the "goodwill" effect is also seen in real estate.

Does anyone else here have insurance on their condo unit? I do, and it isn't nearly as high as eric says.

Coop insurance is not another $200/mo over buying. First, figure you'll have renters insurance of a few hundred dollars if you don't buy, so the cost of owners insurance is really only the difference in cost--not $0 to rent and $x to own in insurance costs. If you own, you can bundle car/second home/umbrella policy with coop insurance to get a better deal if you have those other needs. In my experience coop ins. has been about $100/mo. for one bedroom in 100-30 unit buildings depending on coverage you want.

newbuyer, I've always said that a slight premium to lock in capitalized rent for the long-term is something I'd consider as well. I've also said that, depending on interest rates, the 12x ratio can go as high as 15x, and that I'd consider going that high. But I pay $4,500 a month for a 2-bedroom 2-bath 1000 sq. ft. apartment in Chelsea - 12x that is $650,000. 15x = $810,000. I'd pay anywhere between there given market conditions at the time, but not the $1.2 million that virtually identical apartments across the street are asking.

$4500 per month for a 2-bed, 2-bath in a top building in Chelsea is the very low end and atypical. Those apartments are renting more in the $5500-$6500 range.

eric_cartman, more thoughts for you: you seem to be interested in looking at this problem from a rational expectations point of view.

Owning is only cheaper than renting when the marginal utility of the apartment you desire kicks in. That is to say, if all you want is a 1BR, then renting is cheaper. As you start to add "must-haves" such as a doorman, a fitness center, a garage, skyline views, etc... the marginal cost of renting grows to the point where the apartment you desire is unique and you'll pay anything to get it ("trophy apartment" with respect to your personal preferences).

Developers and brokers recognize this, they build and market apartments that are set to be trophy (luxury) properties for a wide range of buyers starting at $350-400K.

Another result of the marginal utility kicking in is that the buyer now owns a special property (according to their personal preferences) and assumes that this property will increase at a higher rate then other properties (everybody's child is above average). But as developers build more apartments with similar or better features the marginal utility goes down for existing apartments because most people will place a premium on an sponsor unit relative to a resale.

Maybe this post is too long. Anyway, how you set the utility function for your personal preferences determines whether renting or buying is cheaper. Again, this is something that brokers and developers intuitively grasp. I have to think about how to calculate and measure it.

"$4500 per month for a 2-bed, 2-bath in a top building in Chelsea is the very low end and atypical. Those apartments are renting more in the $5500-$6500 range."

When was the last time, LICC, that you stepped foot in a rental building in Chelsea, to have become The Mighty Carnac of Streeteasy? Oh ye who pontificates so on this board, who has never posted a figure or any accepted economic theory or relevant data - except, let us remember, your claim that Manhattan real estate appreciates at a nominal rate of 9% because one apartment in a marginal neighborhood did from 1968 (close to the nadir of Manhattan) to 2008 (after a 100% run-up in 3 years) - I'm still waiting for you to show me all those apartments that are cheaper to buy than to rent, or that cost the same, out-of-pocket.

FYI the apartments renting in the $5500 - $6500 range are a) closer to 1200 square feet; and/or b) in a high-rise building on an avenue with an expansive view; and/or c) have a balcony. I look out my window and can see them. You see the Duane Reade they're building by your house - so you'll finally have someplace to shop.

And the cost to buy an apartment such as that is closer to $1.8 million.

you know when an apartment hits someone's marginal utility when that a person borrows money to buy the apartment whereas the same person was renting without going into debt.

You'll always want to rent until you see an apartment that hits your marginal utility at which point you'll want to buy. Risk tolerance also comes into play. Risk averse people need more utility before they buy. Risk seeking people need less.

steve, anyone who has read the posts over the past couple of months knows: 1) I often post reasonable, logical analysis and supporting data that disproves much of your misleading and incorrect claims and conclusions; 2) I provided several examples and supporting information that showed annualized 8-9% growth in Manhattan real estate over the past 35-40 years; 3) I just posted above a building with comparable costs to own and rent; and 4) your credibility and reputation on this board is in tatters because of your constant incorrect, obnoxious, and misleading statements, your refusal to admit when you are clearly wrong, and your ignoring facts that contradict your claims while still repeating over and over your disproved remarks.

I want to correct my post above, I spoke with Interactive Brokers today and their margin rate is 2.88% for people borrowing between $100k and $1.0mm. It seems to me that they are basically paying you to borrow given that inflation is much higher, or at least charging you very little over inflation if 2.2% is the long term expectation as Topper pointed out. Again, thanks for the lively discussion - I'm going to save myself a nice chunk of change by switching brokerages.

LICC: "1) I often post reasonable, logical analysis and supporting data that disproves much of your misleading and incorrect claims and conclusions"

I've yet to see one.

"2) I provided several examples and supporting information that showed annualized 8-9% growth in Manhattan real estate over the past 35-40 years"

No - you showed a newspaper article quoting real estate prices in 1968 in what was a marginal neighborhood at that time in a city whose population had been falling and was just a few years away from the worst economic crisis in its history, then choosing an end date that includes a 100% increase in prices in 3 years, and a fivefold increase in prices in 10 years.

So OF COURSE you're going to get that result! And I can get the opposite result if I pick a brownstone in the once tony neighborhood of Stuyvesant Heights, now BedStuy, between 1908 and 2008.

"3) I just posted above a building with comparable costs to own and rent;"

I didn't see it. Post it again just to humor me.

"4) your credibility and reputation on this board is in tatters"

LMAO!

Steve,

I think you and I generally agree on the concepts and approach, but differ a bit on the numbers and math, for two reasons:

1) I used your $4500 and $810K (i.e. 15x), then ran the numbers using $1500 maintenance, $200 insurance, 20% down, 6.5% interest rate, 35% tax benefit on mortgage, 6.5% opportunity cost on downpayment - i.e. same assumptions I've used throughout this thread). I come up with net monthly cost of $4400. So at 15x, I am not paying a premium at all, even a slight discount. Assuming this is the "right place at the right time", I said I'd be willing to pay a premium of 10%, getting me to $900K, and would consider paying as much as 20-30% premium, making the place worth looking at around $1.0MM. Still not $1.2MM, which brings me to

(2) I can't argue with you on your rent and the price of comparable apartments (i.e. $1.2MM/(4500*12) = 22x+), since I don't know your neighborhood. However, I know on apartments I've seen in midtown, UWS and UES, the ratios seem to be more in the 17-20x range. For instance, my apartment rents for 3800, and I think could be sold for $850-900K. Around 19x. Further, the first two examples given were well below the 22.2x. The third example was identical to yours (4500 and $1.2MM), but the maintenance was very low for the size.

So I guess to me 15x feels like equivalence (assuming "reasonable" maintenance), and since I'd be willing to pay a premium for the "right place at the right time", I'd consider buying at 16-18x. It further feels like the market is generally above that, but not by too much, with of course variation by apartment.

newbuyer:

"1) I used your $4500 and $810K (i.e. 15x)"

The problem is that what you can rent for $4500 will cost you $1.2 million.

2) "Then ran the numbers using $1500 maintenance, $200 insurance, 20% down, 6.5% interest rate"

Where is property tax?

3) "35% tax benefit on mortgage,"

You're giving the mortgage deduction the benefit of your highest tax rate, which skews your answer. You need to use - shut up, LICC, you know not what you speak - your effective tax rate so that all deductions are given equal weight.

3) "6.5% opportunity cost on downpayment"

Where did you get that %? Also, the opportunity cost is on the entire investment, not just the down payment. You're borrowing money at a cost, and investing it; what would the benefit be of borrowing that money and investing it elsewhere?

And again - you qualify to rent an apartment for $4500 a month if you make $180k a year. But to buy, your payments would be:

P+I = $3,649.00
T+I = $1,700.00

= $5,349 (without the missing property tax)

So you'd need to make about $215k to buy that same property at 15x. Therefore, it's not accessible to the same people.

And when you jack the price up to $1.2 million, it's really not affordable.

Ugh, I tried to show where we agree and where we differ, and you attacked everything I did.

(1) Exactly. I was using YOUR numbers to see if 15x is equivalent or a premium.
(2) $1500 was intended to include maintenance and property taxes, which I think is pretty reasonable for an apartment of that size / price range
(3) 35% is my effective tax rate (it's actually 40%, but using 35% because of AMT and other deduction limitations). My marginal is closer to 50%.
(3) If anything, 6.5% after-tax is quite aggressive. If I'd have used a lower opportunity cost, I'd have come up with a lower monthly net cost. And when you calculate monthly cost, the opportunity cost of the borrowed money is irrelevant, since you wouldn't have borrowed it (no one would've lent it to you without the collateral of the apartment, this is the point you keep harping on regardind qualifying). Besides, I am already counting the interest, counting opportunity cost again would be double-counting.

As for the qualification point, yes, we get it, but it's completely irrelevant to this debate. I make well over $215K, so I can qualify for the mortgage in question. Therefore to me, what matters is the cash cost comparison.

When I run it, I get approximate equivalence at 15x, not at 12x. That's our first difference.

I also tend to see ratios on apartments I've looked at around 17-20x, not the 22x+ that you mention. That's our second difference.

As a result of these differences, I tend to view the current market as a bit out of whack at 17-20x when it should be at 15x (I also think rents may be at a cyclical peak, but that's a different topic), whereas you think the market is way of whack at 22x+ when it should be at 12x. I certainly allow that reasonable people can use different assumptions, different personal situation, and different data points and come up with different answers, neither one of which is necessarily wrong. Do you allow for that same possibility?

steve just makes the same wrong comments over and over again. Your claim that what you can rent for $4500 would take $1.2 million to buy is just nonsense.

Again you insist on your effective rate position, which I have proven wrong and everyone who has seen the discussion agrees. Why you are so stubborn with a proven wrong position is beyond me. Do you still believe the world is flat? Welcome to steve's bizarro world.

Dear posters - great thread and you have spent all month debating the rent vs buy scenario. Please remember that Monday is the 1st and you must have your rent checks in on time or your landlord will have to charge a late fee.

We landlords love getting over 50% of your take home each month. Please send your checks immediately as I need to put a new engine on my boat and have several spa days planned.

Haven't rents gone down though? The observer did an article yesterday showing manhattan rents down across the board since last year. If rents are going down, and prices are going down, doesn't that mean renting looks better?

ha ha perfitz, are you related to spunky, by any chance?

I happily cut my check to my landlord (managing company, actually). They fix my light bulbs and sink, run the risk of less than 100% occupancy, problematic tenants, etc. They also pay for heat, keep the AC working, etc. They deserve it.

But what really makes me happy about cutting the check is that it is close to half the size of the check I would need to cut the bank to buy a similar property today.

steve:

http://www.investorwords.com/1668/effective_tax_rate.html

Your effective tax rate includes the taxes paid against the first 20k of your income (quite a low bracket). If your deductions take your taxable income down to 20k, you don't qualify to buy or rent the properties we're discussing. Taking a blend of your top 2 tax brackets when deductions bring you from one to the other is correct. But that's not what "effective tax rate" means.

You're also double-counting when you consider total purchase price to be opportunity cost, rather than down payment. Maybe you can earn 6.5% on the total amount given the 5-to-1 margin (previous to be read with extreme sarcasm), but I certainly can't.

petrfitz, I lost your address, so I can't mail my rent check. Sorry!

stevejhx, I know I've run this exercise with you before, but just looked at 2BR listings in Chelsea at nybits.com, and the median (in the small sample again, granted) is still quite high at $6300. There's a much healthier sample of apartments in Hell's Kitchen (which I think most people would agree is less desirable than Chelsea, but close and somewhat similar), where the median is $5160. It's hard to say with certainty of course, but there are convincing indications that your rental is a pretty good deal, as it's somewhat below market rate. Either way, I think this underscores the difficulty of this exercise, despite the neatness of your formulas (which I appreciate actually!).

Pete, enough with the "50% of your take home" garbage. Repetition is not going to make it funny or accurate.

Also, you need to accept the fact that the vast majority of people here are debating the merits of buying places to live in, not to rent out. So if your goal is to berate them, you should be comparing the merits of sending a rent check to a landlord vs. sending a mortgage payment to a bank. I don't know why you keep forgetting this. Maybe you are eating the lead paint chips in your LES tenements or something.

east cider - my goal is to help them understand how moronic it is to even question that renting is a financial strategy and to help them understand their idiocy.

In the end, the pro rent vs poster, i have come to believe, are not even serious or in the position to buy, they spend their time arguing that renting is an investment because it makes them feel better that they cant afford to own.

I also believe that a majority of people who cant afford to own are not in that position becuase they do not make enough money, they are in that position because they do not have good personal financial management skills and in turn do not save. others like Steve just do not understand the financials of purchasing and owning.

I am in my own way being a Chet like communicator of their idiocy.

bj and steve - I love hearing that you cant find a 2 bedroom for under $5500/month. I on several that I bought in the last 2-3 years all for around $400K. Your rent checks are paying for my trip to Costa Rica and for my pad in Eze.

perfitz,
listening to you gloat about your success is like listening a lottery winner who advocates buying lottery tickets (it worked for me!! so everyone should do it!!!). Some people like you just happen to have the money AND found themselves at the right stage in life to buy property, which coincidentally was at the right time when we had the single largest nation-wide bull-run in real estate in the last 40 - 50 years. That's just dumb luck.

i dare you to buy property now, at today's prices and make a profit.

Sneaky, I do rent a 2 bedroom for under $5500 a month, and it pays for my vacation place on Fire Island - rather than being foolish and buying one place costing $9,000 a month, I rent an identical place for $4,500, pay another $2,000 a month for my summer place, have my Lexus SC430 parked in my building, and I still have money left over.

bjw: "just looked at 2BR listings in Chelsea at nybits.com, and the median (in the small sample again, granted) is still quite high at $6300."

That's correct, but it's a very small and volatile sample. If you had looked a few weeks ago you would have seen less luxurious buildings with an average of closer to $5,000. The apartment below mine was listed for $4,800, rented for $4,750. The one below that pays $4,100.

tech_guy: "If your deductions take your taxable income down to 20k, you don't qualify to buy or rent the properties we're discussing. Taking a blend of your top 2 tax brackets when deductions bring you from one to the other is correct."

I understand your desire to use the top 2 tax brackets, and while it's better than the LICC method of using only your top bracket (which is nonsense), you still must give equal weight to all equivalent deductions. You can't pick and choose which one comes first - to do so would be equivalent to applying your lowest tax rate to your January income because you still haven't made enough to get you into the top rate.

In effect, I think there would be very little difference between your method and mine since the tax brackets are very broad, but the way the government taxes you is on the sum of all income and deductions for the calendar year. It doesn't say, "margin interest is at the low tax bracket, mortgage income is at the high, and everything else is in between." It says, "This is the sum of what you made, this is the sum of what you can deduct, therefore this is the sum total tax you have to pay."

eric_cartman, it's probably in your best interest to ignore petrfitz - he's a bit of a joke.

petrfitz, you bought a place in Eze? Quick - what's the name of the train station there?

stevejhx, I actually did check nybits a few weeks ago - it was still quite high.

steve: The government doesn't record taxes the way you describe. All deductions are taken from the top. It may span 2 or 3 brackets, but always the topmost 2 or 3 - never the bottom one until all the others are gone completely.

Ironically, now that you call so much attention to this, I went back to my own calculations and found that I do the *opposite* of what you suggest. I'd bet most people do as well, because its the simpler way to do it. I looked at my taxes last year, and counted how much a deduction would be on top of that. That means my existing deductions get the benefit of the top bracket, and potential mortgage interest deductions get the bottom of that bracket and the top of the next lower bracket.

Which makes sense. I can't choose to not pay my state/city taxes. Since it isn't a choice, it should get the top benefit of the deduction. Anything that's a choice should get the marginal rate after the other deductions are already accounted for.

tech_guy, I will warn you that steve will make every dumb assertion he can to defend his wrong position that you should measure the benefit of the mortgage interest deduction using your effective rate, which is ridiculous. I along with many others have spelled this out for him in the clearest terms possible, yet he has some issue where he can't admit he is wrong.

somebody just posted a CNN/Fortune article on exactly this onanother thread (title is cnnfortune)

Supposedly 13.5x is "even", and we are at 19x.

And, if the Observer is right about rents dropping.

I was looking at the 20 pine stuff on streeteasy.

They are now renting apartments for $2500 (at least 4 at that level). The cheapest studio sold listed seems to be $715k (for about the same square footage). That is a 24x ratio.

tech_guy: "Since it isn't a choice, it should get the top benefit of the deduction. Anything that's a choice should get the marginal rate after the other deductions are already accounted for."

Really? Then what do you do if they're all "choices"? Mortgage interest, margin interest? Or exemptions / exclusions - 401(k)? Is having children a "choice"? If so, isn't living in New York a "choice"?

That's the dumbest thing I've ever heard. You need to calculate them exactly the same way the government does: all at once.

LICC: "I along with many others have spelled this out for him in the clearest terms possible."

Yes, you did the calculation, came up with the effective rate, then claimed you had won by really coming up with the marginal rate.

Classic LICC - declare victory, & it's over! :)

Petrfitz wrote: "please cite any well known examples of renters outperforming owners."

Sure. Anyone renting in Tokyo from 1991-2005. And, anyone renting in Manhattan from 1989 - 1994.

steve, you don't even know what the term "effective rate" means. But please, keep at it, because you are just showing everyone how bizarre you are.

LIC and Steve, maybe you two should just get a room already.

;-)

nyc10022, LICC is just a minor annoyance in my life. Sort of like a mosquito flying around your head when you're trying to go to sleep, and can hear it but can't see it and you don't want to fall asleep until it's dead, but then you decide, with just a little cortisone, you can live through the experience and just ignore the damned thing.

To wit, LICC lives in Long Island City. I live in Manhattan. Who, then, is the mosquito?

Hmm, steve has rented his home for the last ten years, I have owned my homes for the last ten years.

steve, thanks for showing everyone how much of an obnoxious, pretentious, narrow-minded man you really are. Keep sitting in your apartment worrying about how successful everyone else is while I'm having fun with my young neighbors in LIC.

Seriously, don't you have anything better than this to do with your time?

"steve, thanks for showing everyone how much of an obnoxious, pretentious, narrow-minded man you really are."

Thank you, LICC!

"steve has rented his home for the last ten years, I have owned my homes for the last ten years."

No - I have both owned and rented for the last ten years. Right now I do both. Neither of my homes is in Long Island City, however, which I won't even consider until there are at least TWO Duane Reades.