Trouble in paradise? (Well, Brooklyn that is)

steve123>> I think my general point is don't get caught up in FOMO, the market isn't going to get away from you right now. These are not screaming deals. They just aren't the awful yields you see in high end 2-3BR $2M condos. So don't buy prematurely because you feel forced, buy when the prices & your needs mean it works.

Definitely. If your time horizon for actually using the apartment is 5 years from now, don’t bother worrying about it. $300K in a risk-free 5-year bond is guaranteed to become $375K in 5 years. If you buy a place with that $300K, you’ll also spend another $50K in the 5 years ($40K in monthlies, plus another $10K in random cruft) that otherwise could have been added to your pocket, plus interest. $350K principal + $80K interest - $20K taxes => $410K.

The apartment is going to waste over these 5 years, so you’re receiving no benefit. Is it possible that the price shoots up from $300K to above $410K in the interim? I suppose, but fat chance IMO. More likely scenario, IMO, is that it remains at $300K and you’d be out on $110K.

@inonada -

Cap gains come out to 15% now. Am considering direct indexing to help with that. At my tax bracket it might not pay for itself but we'll see.

What my cap gains will be in NY is a really good question and sth I hadn't considered. Esp with state and city taxes. Can't see myself fully retiring in NY but definitely do not want to be as busy as I am now.

As you say, financially it probably makes more sense to wait. @steve123 is correct: this is purely FOMO. If I see a place I like, pass it up, how sure can I be that another place, just as nice, will come on the market anytime soon?

Interesting so you don't think UWS studios will rise that much or at all in value in the next 5 years? Why?

I had to look up "Pooterish." Almost 15 years on this site and I am still learning new things! Thx for the new word.

@MCR

> Do you all apply the same analysis to every purchase you make across the board?

To large enough purchases/investments, yes. Most of the frequent commenters seem to work in finance and i think this is a job-related hazard… lol

> Is there no consumption component in the mix that justifies the a premium one pays for owning vs renting?

There shouldn’t be. In most of the country owning RE is cheaper than renting (returns compensating owners for risk, illiquidity, the need for a large downpayment and good credit, etc.) Manhattan is backwards.

Ditto on “pooterish”.

But then again I wasn’t a humanities major. What’s your excuse, MCR?

>> Interesting so you don't think UWS studios will rise that much or at all in value in the next 5 years? Why?

My theories:

1) Pressure from higher rates on RE prices exert gradually over time, like most negative pressures on RE.

2) Even under steady-state models, RE prices increase with inflation (2.x%/yr). A $300K => $410K increase over 5 years is 6.25%/yr. Can it happen? Sure. Would I take an even-money bet that it will? Absolutely not. I’d want the other side, especially under current conditions.

> Do you all apply the same analysis to every purchase you make across the board?

Probably. Value of time spent on analysis part of the equation too, offset by entertainment value of said analyses. Goes beyond purchases really, every work decision is similarly scrutinized. At work, however, you really need to remove the entertainment value offset lest you waste time scrutinizing low-stakes decisions.

> Do you all apply the same analysis to every purchase you make across the board?

Probably. Value of time spent on analysis part of the equation too, offset by entertainment value of said analyses. Goes beyond purchases really, every work decision is similarly scrutinized. At work, however, you really need to remove the entertainment value offset lest you waste time scrutinizing low-stakes decisions.

@mth as a broker that's done quite a few deals over the last 30 plus years, don't fear on missing out. Especially in the segment you're looking at. I can't think of a time where a client missed out on a home, and somehow an even better deal, better fit eventually manifested. And you've got plenty of time....

I'm sort of in the same place in life myself right now as you seem to be. Nada helped me navigate some of the math / probabilities to help me make some pretty important decisions. Although my situation is sort of the opposite of yours, selling into a strongish market and then renting while I wait around 3 years+ to begin the next adventure.

Keith Burkhardt
TBG

By the way..... good luck with it all!

> Is there no consumption component in the mix that justifies the a premium one pays for owning vs renting?

Not for me, I am indifferent. Renting is good because once I get bored after a few years, it’s easy to change. Downside is you spend mindshare on changing every few years, which is for me a form of entertainment, but a waste nevertheless. Buying has its upsides — more inventory, ability to “settle” housing for an indefinite period — but also its downsides — the siren call of wasting your life away with a big renovation, wasting mindshare trying to sell for years.

If I were in MTH’s world of $300K with $660 monthlies versus $2000 rent, there’d be a serious contemplation of preferences. But when the market is offering rent at $1000, why bother? Just go with the money.

@inonada : that 300K place at 160 E 91st was an outlier. Most of the places I'm looking at are more like 380 - 440K. Studios at the Master at 310 RSD are a good proxy. They come in with very low maintenance, good views, proximity to the 1 and prices are at about 40% of my nest egg.

@inonada and @steve123 - I appreciate your help with the math and some perspectives on tax and RE market strategy.

@inonada you're right that being a good consumer comes with its own strange form of gratification. It doesn't mean you'll end up happier in the end - it's just the process. And maybe you discover something. It's mostly performative in my case. As I say: innumerate humanities student speaking. And a little bit of knowledge can be a very dangerous thing in the hands of a novice. Still, as an American it's my birthright to kick the wheels and talk with the dealer as if I've got an idea of what's under the hood.

@Krolik - thanks for the idea about different rental programs. Definitely sounds like something worth considering esp those with protections for the elderly.

@theburkhardtgroup - thanks for your encouragement! RE is complicated enough to the unititiated but in NY it's x2.

@30 Kudos to you for starting discussion on the state of the market. It's got to be as frustrating to sellers as it is to buyers. And it seems to slowly be driving people (maybe me, too) to make irrational decisions.

When has Brooklyn been paradise? The best part, the Heights, is about the fall into the river. The former Borough President moved to New Jersey and then Manhattan.

@MTH - My favorite thing about Streeteasy Talk is "listening" to the finance types. I think you have already gotten the overall message that the analysis always comes back that NYC real estate is a completely different asset class than real estate in other parts of the country and that it definitely makes more sense to rent than buy from a pure financial management perspective. This is the same in all the "world" cities. Apparently NYC is a bargain compared to London, and I've heard Tokyo is pretty bad as well. I think Hong Kong used to be equally unattainable, but maybe less so these days. With all of that said, I still have a preference for buying over renting, and I think I share your housing preferences - my ideal living space would be a studio on the upper west side with proximity to a park. Were I in your shoes, I would take the plunge.

P.S. - but I would not take the plunge until I was actually ready to live in the space. Under no circumstances would I buy a place I did not plan to use as my primary residence. I did buy a place to use as my primary residence and that never came to fruition, so now I have a lovely apartment that is mostly a money pit! (I do love it, but it makes no sense from a financial management perspective, and all it does is torture me with its existence because I love it and don't live there).