All Cash Deals

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>Raphael De Niro says

Amazing that there are no real data sources available to cite, so we have to listen to one individual

The amount of all cash deals is somewhat misleading since many refinance shortly after closing.

They all get their data from here.
https://millersamuel.com/charts/manhattan-apartment-cash-sales-weighted-market-share-by-type/

https://millersamuel.com/charts/manhattan-cash-purchase-market-share-by-property-type/

And source of the data is Douglas Elliman rather than some scouring of the ACRIS data of sales and mortgage with in say 3 months of closed sale.

An old article. So for condos 50% plus cash sales is not far fetched and coop data is likely to be more reliable due to financing restrictions.
https://millersamuel.com/tag/all-cash/
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Excerpt:
Our Results (seems reasonably cleaned up in 2014)
All-Cash Co-ops 36% (no revised Realtytrac results yet)
All-Cash Condos 58% (similar to Realtytrac’s 60.78%)

@30 and @300 thanks for that correction! 36% - and of that a subsection that later refinances - that makes more sense. Still way more than anywhere else but logical given big salaries and bonuses in finance, corporate headquarters based in Manhattan, cultural, media, entertainment industries that hire executives and foreign buyers. 65% made my eyes pop. And it looks like all-cash deals on townhouses and condos skew the average. Seems strange we have to rely on a big RE player for that data (who is checking it?) but, then again, why should the government have to release it?

@30 so they're borrowing against their assets then getting an all cash-out refi for a mortage - is that how that works?

MTH, 36 percent is from 2014. The latest estimate is in the charts.

With the recent higher mortgage rates, it would make sense that percentage of cash purchases will increase.

@300 - yes, but also another stat that can be a bit deceiving (an increasing % of a drastically reduced number of sales) ?

Digging deeper into this train of thought though, we could argue lots of potential all-cash purchases simply took a mortgage the the last 10 years of ZIRP because the rates were so low it was practically free money. That is - the demographics of the buyers didn't change, just the decision making process has a different result at 3% vs 8% mortgage rates.

Given the buyer profile even in my N BK condo, north of 50% seems about right for all-cash buyers. And it was very clearly higher as the price point went higher. Easily 75% for above the 2~3M mark. A few also seemed to be strategic mortgage takers (taking out precisely $1Mish on a $4M unit, to take advantage of the tax deductible interest limit).

So basically anecdotal confirmation that there are a lot of cash buyers easily above 50 percent mark in condos. Doesn’t mean that the selling price is not sensitive to mortgage rates, just that affordability related to high interest rates is much less of an issue the higher in price you go. Call it starting at $2mm plus.

@300 - yes, mortgage rates don't directly impact $2M+ buyers the way they do $1M- buyers, however.. they are indirectly impacted in other ways.

High policy rate right now mean high mortgage rates, lower new VC/PE investment, lower M&A activity, fewer IPOs, etc. Startups are running out of runway, FAANG is cutting, banks are cutting, etc.

So some of the people who were going to be the $2M+ cash buyer are not seeing great compensation & employment stability right now.

Further, the kind of one-off "liquidity events" that cause people to have "found money" they can suddenly put in real estate (founders, early stage startup employees, etc) are not happening at anywhere near the level they were during ZIRP.

How do you reconcile that with high nominal GDP growth so far in 2023?
——
lower new VC/PE investment, lower M&A activity, fewer IPOs, etc. Startups are running out of runway, FAANG is cutting, banks are cutting, etc.

https://www.ceicdata.com/en/indicator/united-states/nominal-gdp-growth#:~:text=Key%20information%20about%20US%20Nominal,Sep%202023%2C%20with%20303%20observations.

@300 You're right seems closer to 50% for coops since about Sept of last year. And not surprisingly higher interest rates have prevailed for that period, sales weak. So an OK time to buy if you don't need a loan and can actually find a place you really like.

very interesting discussion, I consider myself a buyer at $2 to 3m bucket. My issues to pull the trigger are below:
1) the current monthlies fee in Manhattan ( more specific at upper east), is at 50% of the actual rent, and the non-stop increasing trends of the monthlies (building gets older, regulations, staff, tax), even if paid in cash), is out of my control,
2) the fear of owing a giant illiquid asset ( in case I need move, another better property showed up, kids change school, any other life events),
3) the transaction cost of buying
4) the opportunity cost of the capital or dividend gain of putting the cash in 2-3m in SPY or UST
4) usually I prefer to buy when I can afford it, the security feeling of owing the property , however considering the increasing of the monthlies, the secure mentality of owning can be a fear of becoming a hostage and tied down to an illiquid asset forever
5) interest rate - the neutral IR may end up being higher than most building's current mortgage rates, there will be another jump of interest expense gradually show up in the next 5 to 10 years ( right now the portion of interest expense is historically low)

the future (very higher monthlies, very low liquidity) is a very possible scenario, and I don't see ppl discussing the exit strategy ( when the building's maintenance cost goes higher than rent, what is the option for the building? borrowing more? tear down and rebuild? sell the building?...

Sean, East of Lex or west of lex? What do you see as rental choices west of lex and what is maintenance (cc+tax)/rent ratio there? Appreciate a few sample buy vs rent listings.
Also, appx 40-50 percent ratio is common in full service mid end luxury buildings. Ultra
Luxury is even more. Usually people look at this in terms of cap rates.

I mainly looked west of lex, Carnegie Hill.

rent is about $1200 to $1500

https://streeteasy.com/building/55-east-86-street-new_york/14b
https://streeteasy.com/building/55-east-86-street-new_york/10b

same line, sold at $4.75m, with monthlies at $6500 in 2022 (could be 5% higher now

https://streeteasy.com/building/55-east-86-street-new_york/12b

it just does not make any sense, when UST pay over 5%.

I also have a feeling the future rent increase will be very limited, especially for rents over $10k, some places the rents remain the same or have very small increase for the past years ( while below $10k rents have inflated a lot for the same period)

on the other hand - the increase of monthlies of owing can be a deadly, as it is driven by tax and all other unavoidable costs that out of anyone's control.

in terms of cap rate, Manhattan residential has been around 2 to 3%, which is more or less in line with the ultra low mortgage rate. But now the mortgage rate is at 7% and risk free UST is over 5%, the cap rate maybe below 2% plus negative outlook. On top of that is the huge transaction cost ( broker fee, mansion tax, slip tax, closing coast , even if all cash), its for sure a 15% notional loss even if you hold it for 10 years.

back to myself, I am still very actively looking and ready to buy or rent if I see the one I like, whichever comes first. I would not expect any capital appreciation if I end up buying, the decision is similar to buy or rent a car, there is no financial / investment value in upper east real estate, its just a consumption, a cost to choose to live in Manhattan, a lifestyle to live by the park.

what is the probability the monthlies ( tax, o operational cost, staff, interest cost will decease?)
with AI coming, it clearly going to eliminate some white collar high paying jobs, although the blue collar/service industry jobs have good payroll increase and less risk to be replaced by AI, they are not the ones that can afford even a studio.
any one has a more optimistic view?

10b seems like a very good deal if you can lock it in a for 2-3 years.

I know 10b is not bad, but I am still very hesitated, the apartment is not renovated, and also my kid school is actually closer to 96, instead of 86, and the floor plan is a bit strange, one of the big disadvantages is renter cannot make any changes to the floorplan. I am currently living at upper west, so need cross the park to the school, ideally I want to find a place that is within 5 blocks , and I like , otherwise the margin of improvement is not enough for me to move , then I will need sell my current place ( another big headache )

also anyone has a personal experience or preference on south and east facing apartments or south and west facing? Personally I prefer south and west, however because Manhattan is not straightly line on the gride, the southeast will have longer sun light than south west, especially on winter.

Sean, From time to time I look in that area for fun. Coops above 86th street on Park have come down a lot if they need reno. Around 96th, I certainly see many good deals.

https://streeteasy.com/building/1185-park-avenue-new_york/5e

BTW, I know many people who cross the park from UWS to go to school on UES. UES close to private schools/Hunter is just more expensive and limited supply except stuffy coops vs UWS.

I checked 5E before, price is very reasonable, no picky for old renovation, but right now I stuck with an idea that I want both south and west facing window. Maybe someone here can talk me out of it...what is the disadvantage to have corner windows?

You don't want to move.

I definitely enjoy upper west more, especially around 96th street area, with trader jo, whole food, even the park is nicer and more accessible on west side, while east side between 86 to 96, is only a bike route and water view. But every morning when I have to rush my kid, I check on StreetEasy again.

BTW, I dislike south facing windows (have them and supersized 4'x8') as every time the sun is out you have to pull down the shades. Otherwise it is too bright to see your computer screen and hot. Of course, it make people feel good that they can get a lot of light but realistically when you pull down the shades on South faces windows, North light is better as you do not have to pull down the shades. But I am in minority in this thinking.

Sean, I wouldn't move if you own a place you are happy with. Getting a nanny to drop off for a few years is much cheaper than the transaction cost. After that the kid can take the bus. I know many parents who put their 7 year old in school bus from Tribeca to UES, and it works just fine. And plenty of kids taking buses to Horace Mann and Riverdale from the city.

Is that enough talking you out of moving?

sounds like its better for me to rent a southeast or southwest corner unite first to find out if I really like it. the rental choices are very limited, I may have to wait for a while.

@sean @300 - Interesting (and welcome) perspectives. Thanks.

Apart from schools, I always think: UWS for performing arts, UES for visual - museums and galleries.

Pure idle curiosity - I wonder if there's a breakdown of (initially) all cash deals by neighborhood. I didn't spot anything like that on the Samuel Miller charts. it's probably not relevant to anyone who's making deals.

Nothing public to my knowledge even though one can create it using public data using some computer programming skills and elbow grease.

Even a north/east apartment can get extra light from the sunlight bouncing back from nearby buildings.

sounds like window facing may not the dominant factors for many. My current apartment is facing north and west corner, I love the orange light from the west windows so much and think to expand it to south and west for my next apartment. Maybe all south and west or east facing could have too much lights with its own shortcoming I am not aware of.

I like North and West. Or East and North. It is the size of windows and height/ distance of/from the buildings which matter far more. You want direct sun, you go out.

A friend with big expanses of south-facing windows keep the blinds drawn almost all the time. They have a clear view south, and it's just too bright. That said, the night time view is special. Also, if you have art of any value (or pricey upholstery), you will want to have UV film installed to reduce the risk of damage / fading.

I'm predominately north-facing, with 1 smaller W facing window, and it's just fine. I do get a little wedge of direct sun in the early morning.

@sean: You need to make a list of things you're looking for and prioritize them (and a separate list of the negatives). You're all over the map with concerns and choices, which is leading you to gridlock. One thing: Anywhere you buy is going to get older -- maintenance is an ongoing expense anywhere, as are taxes. Neither are going down. The key is to find a well run building so there aren't any (or minimal) surprises.

@Steve123
"Digging deeper into this train of thought though, we could argue lots of potential all-cash purchases simply took a mortgage the the last 10 years of ZIRP because the rates were so low it was practically free money"

This is true. I was an all cash buyer 10+ years ago but last moment mortgaged 25% of the purchase because of the rates.

Interesting perspectives on exposures. We have giant window southern exposure living room and while I do love it at night and in the winter, during the hot months it is too much and impossible to cool the room. I have come to prefer northern exposure.

for owners with low interest rate mortgage, I don't think it has that much of financial benefit, if they have to move out and sell, the monthlies cost of sitting on the market, is more damaging, than the little saving from the mortgage vs current UST/capital market return, especially for the coop owner, where they cannot even rent it out.

for me, if the owner already moved out, not allow to rent, sitting on a 2.5% mortgage (assume invest in 5% UST), while paying the high monthlies, refuse to sell at whatever price the market can offer, is a mentality that owner choose to slow bleed at 5% per year, instead of taking a lump sum 20% of loss right now.

wow, so many north window lovers, that is definitely a surprise for me, I am now more than ever thinking to rent than buy now, in case I end up dislike south and west corner window and but have to stuck in it forever. currently I am assigning 20% premium for a south and west corner window, compared to north and west corner.

which one you like??

https://streeteasy.com/building/carnegie-hill-tower/18a
https://streeteasy.com/building/70-east-96-street-new_york/pha

PHA. While the listed square footage doesn't exist, it is just far better than 18a 8 foot ceiling box.

None of you ever heard of smart windows?

I don't understand why people wouldn't take out the max mortgage, or at least $750k of debt. The mortgage rate isn't 7.3% when you have (1) a relationship with banks like many millionaires do, and (2) tax deductibility at a 50% marginal rate. So say you're paying 6.5% pre tax or 3.3% post tax. A $750k non-amortizing I/O would seem ideal. The worst thing about being a renter is missing this massive subsidy for debt. (And not being able to put $50k into the apartment to fix all the small things.)

@ George, but for people who is doing standard deduction, and who don't take out mortgage, still have standard deduction tax benefit at $27,700 for joint filers

compared to if the person max the $750k mortgage at 6.5% pre tax, and 3.3% after tax, assume invest the money in UST at 5.5%, the benefit factoring full tax benefit is $16500 per year, which is subject to income tax rate.

unless the mortgage rate is much lower , or the person has many other itemized deductions, maxing out the mortgage at 6% is not necessarily generate a profit.

I think if we are talking Manhattan real estate, it is unlikely a buyer is taking standard deduction...

But with SALT cap at $10,000 for property and state and city tax, unless someone has big medical expense or donation, what else can be itemized to be higher than standard deduction at $27,700,
without other big itemized expense, the tax benefit of max out the $750k mortgage should be compared to $27700 - $10000 ==$17700 when you don't take out mortgage.

Well charity for 1 thing.
Any investment losses.
And any mortgage interest deduction is quickly going to exceed $17.7k even outside of NYC.

PHA, for the terrace and somewhat better floorplan (though I sort of hate both of them, for different reasons).

Sean's point is a good one. Itemization has definitely gone down, but if you're making enough to spend $2m on an apartment and pay cash, you're probably making at least $500k, so if you only give 3% to charity you're giving $15k a year to charity. Plus $10k of state tax deductions. So you're at $25k fairly quickly. And then the interest deduction is meaningful.

@Aaron2, same here, I do not like either of them, and there are no other decent choices around the area, will have to wait

PHA: why do they do that to otherwise beautiful, homey pre-war apartments? Very trendy and sad

@Sean I am pretty much in the same boat. Manhattan condos/coops just don't pencil vs renting these days. Brooklyn/Queens are better with much lower monthlies and tax, but the commute doesn't work so well for me.