Condos aren’t immune…

Turbo,

In my opinion, any new condo has around 5-10% underperformance vs market in the first 5 years as 1. you are getting a sponsor warranty and not paying for major breakdowns or repairs etc. 2. You are getting a brand new product without any wear, nicks, dents etc. and you get to be a perfectionist while doing punch list with the sponsor 3. You may be paying transfer taxes usually paid by the seller.

Underperformance is bigger if condo has tax abatements etc but that part is quantifiable assuming a cost of capital equal to the mortgage rate or perhaps higher.

It is "just" a *small* one bedroom attached to a large eat in kitchen. From the original listing, it looks to be a ~14x~15' "living room", and a ~10x~10 bedroom. The pricing history of 5G tells the same story. 3G and 8G are not $800k apartments, and it's not about the neighborhood.

Price came down awfully fast on the listing. Must have been getting negative feedback right away.

911turbo>> This listing surprised me.

Monthlies were $1700 in 2015, so the increase to $2200 is just inflation. Nothing should surprise anyone about that.

In terms of rents, you can see the floor below going for $3500 in 2018 and $3900 in 2023. Against a purchase price of $1M, this amounted to a 2% cap rate. I’m not sure why a price drop is surprising. At the “bargain” price of $800K, it’s now a 2.5% cap rate. Why would it be surprising that people aren’t lining up out the door for that?

What should be surprising is that people don’t expect these sorts of outcomes in the face of obviously poor fundamentals.

Here’s a sobering thought about this purchase. It was a cash purchase, no mortgage. Even if you count the rent benefit ($20K/yr), even with a sale price of $800K, they will still have lost $100K on transaction costs after 9 years.

Usually people think a cash purchase is “safe”, in that you’re collecting the rent benefit and that would be better than stuffing money in a mattress. Not so in this (and many other) situations.

As usual, the bulk of what inonada writes is unintelligible to me, yet I come out in the same place with respect to expectations. It is comforting that data analysis and common sense sometimes (frequently?) align.

> Monthlies were $1700 in 2015, so the increase to $2200 is just inflation. Nothing should surprise anyone about that.

> In terms of rents, you can see the floor below going for $3500 in 2018 and $3900 in 2023. Against a purchase price of $1M, this amounted to a 2% cap rate.

The monthly increased by 30%.
The rent only increased by 11%
CPI inflation from June 2018 to June 2023 is about 20%.

Everything else is equal , just these numbers will not speak favorably to the price of the apartment.

The original purchase with 2% cap rate against >4% 30 year fixed mortgage in 2018 is mathematically insane to begin with. No wonder the 100% cash purchase still loses money.

If the cap rate is about as mortgage interest rate, the seller can at least break even by staying put.

Somehow in the working class's borough of Queens, it is a different story. It's about 3 years since my apartment purchase, the rent has increased about 20% (consistent with the streeteasy rent index change), while the maintenance fee increased about 5%, with my original purchase price, these numbers changed the CAP rate from the initial 2.8% (against 3% mortgage) to the current 3.5%.

I just checked the streeteasy Manhattan rent index
3177 at June 2018, and 3823 at June 2023, about 20% increase, the same as the CPI increase.

inonada's using the past rental history of this building may not be reliable as different apartments may have different conditions of renovations or have different type of renters (e.g., 2023's renter may be inonada, who is good at negotiation, while the renter in 2018 may be a newcomer to the town and was super desperate, LOL).

The data from a very small sample size is very unreliable. Unless the building has seen huge problems during these 8 years, I probably want to use the 20% increase of the rent for these 8 years.

@Woodsidenyc - Is the bottom line with your analysis (unintelligible to me) still the same? i.e., you are likely to suffer a loss of capital if you buy in Manhattan?

Woodside, I think you are right about using a better indicator of the rental trend than those point samples. But as MCR is asking, I don’t think it changes the big picture.

@MCR @inonada

For the big picture, the streeteasy Manhattan price index gives the follow number.

1.2M at June of 2018 while 1.1M at June of 2023 or at May of 2024.

Yes, in general, buying in Manhattan results in the loss of capital just based on the closing price. The transactions cost adds more loss.

We're trying to assist with this fact ; )Sure, this may sound like selfish, self-promotion, but it is material.

Recent transaction representing a seller in Brooklyn.
Seller instructed us to offer the buy side agent 2%, while we took 1.25%. We had multiple offers after the first open house, called for highest and best and went into contract $15,000 above the ask. In this real world scenario, we saved the seller $22,000.

The current lawsuit has shined a light on all of this. I think you'll see more negotiating in the future.

Keith Burkhardt
TBG

Keith,
The last 10 houses I have sold in Queens and Nassau County the buyer's agent took between 1% and 2% with the bulk at 1.5%

Woodsidenyc,
Your cap rate went from 2.8% to 3.5% but with mortgage rates at 7% you think you're ok? At some point the sticky downwardness has to subside.

If sellers want to save money I'll do 3% TOTAL on deals over $1,000,000 all day long.

> Woodsidenyc,
>Your cap rate went from 2.8% to 3.5% but with mortgage rates at 7% you think you're ok? At some point the sticky downwardness has to subside.

If I have to sell it right now, I will probably fetch my original purchase price by checking against recent closed sales. I will lose the money due to the transaction cost.

But I intend to stay in the apartment until my death. The current 7% mortgage interest is a little bit irrelevant. My mortgage interest rate is 3%, so the break even CAP would be 3%, so 3.5% CAP isn’t bad.

For me, currently the total monthly (mortgage and maintenance ) is about 5% higher than the rent, so my purchase does give me protection against rent increase.

We've definitely seen lower buy side commissions in Queens for a while. Including a new development in hunters Point. Certainly makes sense to negotiate when appropriate, why not?

Really the point I was trying to make, you can negotiate commissions and think outside of the traditional 6%, and deals still get done seamlessly. We had no reduction in the amount of people showing up, nor any issue with the fear that some sellers have that agents will steer them away from homes with lower commissions. The sort of safety net is the fact that now all listings are published online. So an agent would have to really bend to low levels, to simply steer somebody away from a home they wanted to see based on the commission structure.

On the buy side, when we offer rebates, we take the reduction in commission. There's no negative impact to the listing agent, hence it's been a seamless operation for the last 15 years.

Keith Burkhardt
TBG

Id ask why is there a new permit filing for a sidewalk shed.
The building got the all clear for cycle 9C a year ago.

Cycle 10 isnt due for this building's block # until 2027.

It also has an energy efficiency grade of C

>> But I intend to stay in the apartment until my death.

That’s a really long time to intend anything, no? Don’t you have like half your life ahead of you? Admittedly, I am at the other extreme of non-commitment.

I recall seeing a post at my work several years ago about a pretty upwardly-mobile 24 yo wanting to rent the studio they had bought the year prior. It went something like “This is my dream apartment, and I intended to live here forever. But then I totally unexpectedly met someone, and we’re moving in together!” What upwardly-mobile 23 yo considers a studio as a dream apartment, intending to live there forever? You’ve just spent the last ~4 years going from dorm room to dorm room and upgraded to a studio as soon as you had two nickels to rub together. And how is shacking up in your 20’s totally unexpected? That’s basically what most people end up doing.

@nada - this is why I never understood studios in condos.. its a real commitment to a lifestyle

Meh… at a certain price point they could make sense.

Suppose Option A is $3500/mo rent. Option B is $1000 cc+tax plus $300K purchase price. As a 22 yo, I’d probably take Option B with a 10yr horizon. Best-case, inertia keeps you from succumbing to lifestyle creep at a 10% cap rate. Worst-case, you shack up or leave the city and play landlord with a 10% cap rate.

Now Option B doesn’t exist, but everything can make sense at right price…

> That’s a really long time to intend anything, no? Don’t you have like half your life ahead of you? Admittedly, I am at the other extreme of non-commitment.

Yes, it's a long time. If I can live to 100, yes another half of life. I've already passed the age when I can easily move my home.

I could see the potential need to downsize the apartment after all of my children finish high school in six years or move to a cheaper place at retirement. Many older colleagues of mine stay in the same place, did not downsize when empty nested or move home at retirement. The extra empty bedrooms are useful for the summers when kids return from colleges or the kids' future jobs are in NYC or the kids are between jobs or whatever.

I know this is house hoarding, not different from the rent stabilized tenants who are still holding on the 3 bed2bath apartment with just an senior couple or just one widower.

The real estate is very illiquid, which is not something that I can do about it. Yes, renting is more flexible and can upsize/downsize easily and optimize every single square feet, but I don't like to move and I don't want my housing cost decided by the landlord or the market force. Yes, owning still has the maintenance cost that are not fixed due to real property tax increase or labor cost increase or material cost increase.

Right but a maintenance increase is a pill easier for me to swallow as opposed to a rent hike.

@stache - I understand the sentiment but you have different risks

If my rent goes up too much, I shrug my shoulders and move on renewal. As it turns out, in my/my wife's 11 years of renting, this only happened once. I also had a landlord sell an apartment I rented in, forcing a move but I moved within the same building for the same rent and no brokers fee.

If my maintenance goes up too much, I now have an illiquid asset that I have an increasing desire to sell, with high transaction costs, that is also increasingly harder to sell (who wants to buy an above-market maintenance apartment). Plus - who is selling due to high maintenance now when they have a sub-3% mortgage and any new purchase will have a 7% mortgage attached? You're stuck whether you like it or not.

I have to say I'm finding more and more 2bed/2bath condos across Manhattan, in non-fringe hoods, asking for 2013 (or worse) prices.

ex-

https://streeteasy.com/building/the-parkwood/2e

https://streeteasy.com/building/2-cornelia-street-new_york/702?from_map=1

https://streeteasy.com/building/sky-house/22c

Yep - I am always cross-checking and am still happy with our coop purchase at .75X of comparable condo purchase. Benefits and burdens attach to each choice, but if you can just wrap your head around coop as a dysfunctional family, I reaffirn my coop decision here. Just wound up board term and I will only go back on if really needed. Overall there are only a few in our coop I would choose; the rest are just my crazy uncle that I can navigate without emotional or financial distress.

The prices may be 2013, but, if I did the math correctly, the assessed values for TAX purposes are up 48%, 97%, and 42% respectively, and that doesn't take into account that tax rates rose also (and the Sky House listing might *also* have been a beneficiary of an abatement that rolled off -- can't quite figure that one out.)

So the monthlies are taking a big bite out of purchaser's(s') budgets.

ali r.
{upstairs realty}

But with that said, if I had been able to make internal peace with the eminently more financially responsible decision of renting rather than buying, that would have been the way to go. The psycholigal premium we have paid for owning is steep. I can't say that I wish I had made a different decision there; the only thing I can say with sincerity on that front is that I have "issues," that I would not have were I able to create an MCR 2.0.

*pyschological

>> I have to say I'm finding more and more 2bed/2bath condos across Manhattan, in non-fringe hoods, asking for 2013 (or worse) prices.

Yep…

>> https://streeteasy.com/building/the-parkwood/2e

This one got some light tasteful renovation too.

And isn’t this the *fringe* of the West Village? Any further east, and it’d be *gasp* Greenwich Village.

https://streeteasy.com/building/2-cornelia-street-new_york/702?from_map=1

They probably cost themselves money and lost value by removing the sauna:

https://streeteasy.com/sale/1032482

Who doesn’t want a sauna when they are working with 1200 sq ft?

2 Cornelia isn't a family location

@Rinette - indeed, but is your median downtown buyer so concerned with this?

As I commented to my friend as I noted these 10 year pricing round trips - I can now afford to live in hoods I no longer desire to.

I think I'm going to enjoy this more than most of my real estate purchases
https://www.instagram.com/reel/C8NR87ov-lV/?igsh=b2tzbGRueTg0eXFp

Touche - Now that is undeniable consumption.

So, nobody on this forum will appreciate how awesome it is to hear Mr. Brightside blare across the public square in Columbus, Ohio. Google it. AWESOME.

https://therealdeal.com/new-york/2024/06/18/vornados-220-cps-notches-82m-resale/?utm_campaign=sl-ny-daily&tpcc=sl-ny-daily&utm_source=trd-newsletter&utm_medium=email&utm_term=New%20York%20Daily

Hasn't inonada pointed out something similar occurred at the Limestone Jesus, but at some point the bloom comes off the rose?

That's not to say the sales numbers aren't a bit staggering.