Found in my inbox - interesting reading.... Email : In the last couple of weeks we have seen significant changes in the world's financial systems. As a result, many clients are calling or sending e-mails asking for our perspective on the New York real estate market and what it means for their investment. While none of us has a crystal ball, there are some facts I would like to share with you.... [more]
Found in my inbox - interesting reading....
Email :
In the last couple of weeks we have seen significant changes in the world's financial systems. As a result, many clients are calling or sending e-mails asking for our perspective on the New York real estate market and what it means for their investment.
While none of us has a crystal ball, there are some facts I would like to share with you. There is simply so much misinformation out there! Any reckless journalist can write a sensationalized article that helps sell newspapers and magazines. However, when it comes to your money, you deserve more.
Below are some important facts, observations and opinions regarding the New York City market, which will dispel some of the myths you're probably hearing:
There are not many apartments for sale in Manhattan. Every year, only about 10,000 apartments are sold here - in good times and bad. The city was never overbuilt like Miami or Las Vegas.
Land is hard to find and construction is challenging. As a result, inventory (the total number of apartments we have for sale) has remained more or less constant in the last 10 years. We never had a significant oversupply of properties in Manhattan and we do not have it now.
We have a very active market, even at this moment in time. When comparing the third quarter of 2007 (one of Manhattan's most active sales periods) with the third quarter of 2008 (when, according to the press, the market came to a standstill), you will find the difference is just 382 signed contracts.
We may see an undersupply of apartments in the second half of 2009. One of the few effects of the mortgage crisis that touched New York is the fact that developers are finding it harder to get new projects off the ground. Consequently, many projects have been delayed or postponed. As a result, we may see an undersupply of apartments in the second half of 2009, and building activity cannot be resumed quickly due to long planning and application processes. Less supply and stable or increased demand will push prices up further.
Property values will likely increase significantly in the coming years, as early as 2009/2010. This opinion is based on the United States' inflation rate and the sharply increased cost of energy and labor. It is much more expensive to build today than in the past. A year ago one could buy a property in a new building at less than $1,400 per square foot. A building coming on the market today has to cost at least $1,600 per square foot, simply because of increased costs to the developer.
Prices for new condominium property will not go down. Since the vacancy rate in Manhattan is generally below 1%, developers would never sell below cost. Instead, they prefer to rent their properties for a while and sell them later. Since rents and property prices typically increase at least at the rate of inflation, real estate is one of the few known options for safeguarding money against inflation.
The cost of ownership will be higher for new buildings. The City of New York recently ended a property tax reduction program for new buildings ("tax abatements"). Buildings that were granted the reduction will continue to receive it, thereby lowering your cost of ownership. You may want to take advantage of the opportunity to buy apartments with tax abatements now, before they are all sold.
The demand for real estate is increasing. As people lose money and faith in the stock market and banks, they are choosing to invest in tangible assets. Real estate is a way to build real and solid profits in the medium term, rather than a "quick way to get rich."
Layoffs in the financial sector will not affect prices or inventory significantly. Contrary to popular belief, the reality of this market is that people who get laid off hold on to their apartment for as long as they can, with every cent they have. Downsizing - selling an apartment and buying a smaller one instead - is not an option during a period of unemployment as every bank will want to see proof of income before extending credit. Since tenants are carefully checked in New York as well, renting is not an option either since employer references, pay stubs, etc. are required. So the opposite is true: we will see less re-sales coming on the market in 2009 as people will hold on to their apartments.
Manhattan continues to see robust appreciation. According to Manhattan's largest appraisal firm, Miller Samuel, the average price of condominiums in the third quarter of 2008 was 10.4% higher than that of the same period in 2007. There is typically a difference between asking and selling prices. The 10.4% increase is based on actual sales price, after negotiations.
There are very few price reductions in Manhattan. While the press jumps on price reductions, here are the real numbers: out of approximately 9,300 apartments on offer in Manhattan today, the price of around 1,300 were reduced in recent months. 8,000 were not. Of those with lower prices, the average reduction was only 2.2%. Even in the most vibrant market, an apartment's price would be reduced after sitting on the market for a while. This is the normal course of business.
Condominiums are scarce in New York. Condo units in Manhattan are in high demand and there is a limited supply. Out of the 9,300 units offered for sale, only 3,643 are condominiums. Looking at the big picture, less than 100,000 of New York's 2 million apartments are condominiums.
The historic form of ownership in New York is a "co-op," whereby you purchase shares in a corporation that owns your apartment. Co-ops are generally not open to investors since the board of directors scrutinizes buyers and often requires the apartment to serve as their primary residence. This is a major reason why New York has such a stable real estate market - purchasers' finances are carefully reviewed to ensure they can withstand financial downturns in the market.
Regardless of condo or co-op, owners in Manhattan have substantial equity in their properties. Unlike markets in California and Florida, which allowed purchasers to finance 100% or more of the purchase price (and closing costs), buildings in Manhattan generally require a down payment of at least 10-20% plus closing costs. This is why we don't see "fire sales" or foreclosures on quality properties in Manhattan.
The United States has the most resilient economy in the world. The U.S. has proven over and over that it can survive calamities, setbacks and anything else that comes its way.
We believe that more challenges in the financial markets are imminent, though these events will not have the same impact as those already behind us.
We may also see more stringent lending criteria by banks worldwide, which will require more paperwork and documentation to qualify for financing. Still, interest rates are historically low, and despite the dollar's rise over the past few weeks, it is still much lower than in recent history.
In just a few weeks the United States will hold Presidential elections. Regardless of whether Senator McCain or Senator Obama wins the White House, his top priority will be our country's economy. Thus, we expect consumer confidence and demand for real estate to continue rising.
So what does this mean to you?
_____
If you are looking for a primary, second or investment property, now is a good time to start looking. You have some great options, a bit less pressure (although good property still sells quickly) and a little more room to negotiate a discount from the asking price.
If you need a mortgage, be prepared to invest more time working with different mortgage brokers and banks to determine the best option for you. Despite media reports, rest assured that mortgages are being granted every day. Most of New York's banks are still open for business!
If you already own property, you should enjoy continued appreciation of your asset. If you consider selling we recommend you schedule the sale after the third or fourth quarter of 2009 to maximize your return. We will be more than happy to help you with that when you are ready.
If you are already in contract for an apartment that is scheduled to close soon, go ahead! You will not find a better deal in a new building in your lifetime. Most likely your property already increased in price, and even if it hasn't (because you purchased recently) your unit will hold its value and appreciate in the future.
In times like these it's important to differentiate between facts and fiction. As a Manhattan resident, homeowner and investor, I have my finger on the pulse of Manhattan real estate around-the-clock, which is more than can be said about journalists in search of sensational headlines.
Please contact me with any questions or if I may be of assistance with your real estate needs.
Sincerely
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Response by cccharley
over 17 years ago
Posts: 903
Member since: Sep 2008
lol- which broker sent you this? Since prices declined from the last quarter no reason to look at yoy now. Guess this broker does her job well. Go drink the Kool Aid
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Response by mimi
over 17 years ago
Posts: 1134
Member since: Sep 2008
Tell us the name of the broker, so we are sure to not work with this person in the future.
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Response by LICyuppie
over 17 years ago
Posts: 15
Member since: Dec 2006
Horrible Marketing ploy. Missuse of statistics even if they have the slightest bit of veracity.
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Response by cccharley
over 17 years ago
Posts: 903
Member since: Sep 2008
Actually sounds like it was written for The Onion
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Response by mrsblogs
over 17 years ago
Posts: 89
Member since: Mar 2008
I agree with Shamrock...the only people headed for the exits are the speculators (thank goodness!)
Once Manhattan rids itself of these horrible profit only-minded scoundrels, we'll get our wonderful, cultural, dynamic, electrifying, intellectually stimulating city back, then you'll really start to see prices soar! Funny how that is!
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Response by kspeak
over 17 years ago
Posts: 813
Member since: Aug 2008
"none of us has a crystal ball"
and then
"you will not find a better deal in a new building in your lifetime"
There are soooo many choice phrases but that has to take the cake!
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Response by cccharley
over 17 years ago
Posts: 903
Member since: Sep 2008
mrs blogs - are you joking? Have prices not soared for the past 8 years? How much more soaring can you imaging happening? You must be a broker
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Response by JuiceMan
over 17 years ago
Posts: 3578
Member since: Aug 2007
This letter is the nightmare of every doom and gloomer on streeteasy. LMAO
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Response by haterhater
over 17 years ago
Posts: 16
Member since: Aug 2008
Wow! Thanks for the entertainment!
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Response by mrsbuffet
over 17 years ago
Posts: 134
Member since: Nov 2006
oh you always gotta love the broker babble. beautiful read.
This is my favorite part:
"If you consider selling we recommend you schedule the sale after the third or fourth quarter of 2009 to maximize your return. We will be more than happy to help you with that when you are ready."
so even they admit that now is not a good time to be a seller...
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Response by crescent22
over 17 years ago
Posts: 953
Member since: Apr 2008
> out of approximately 9,300 apartments on offer in Manhattan today, the price of around 1,300 were reduced in recent months. 8,000 were not.
That's funny- use the search tool on this site and it shows 2554 price changes of any kind, of which 197 were increases (often I am sure a quick drop then a revision back to the old price). So 2357 drops, and the timeframe is 60 days.
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Response by crescent22
over 17 years ago
Posts: 953
Member since: Apr 2008
> According to Manhattan's largest appraisal firm, Miller Samuel, the average price of condominiums in the third quarter of 2008 was 10.4% higher than that of the same period in 2007.
I guess he missed the part of that report showing a 9% drop since Q2.
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Response by crescent22
over 17 years ago
Posts: 953
Member since: Apr 2008
> Still, interest rates are historically low,
Fed Funds maybe but not mortgage rates:
NEW YORK, Oct 16, 2008 /PRNewswire-FirstCall via COMTEX/ -- Mortgage rates soared this week, with the average 30-year fixed mortgage rate jumping more than one-half percentage point to 6.74 percent. According to Bankrate.com's weekly national survey, the average 30-year fixed mortgage has an average of 0.42 discount and origination points.
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Response by newbuyer99
over 17 years ago
Posts: 1231
Member since: Jul 2008
I have to agree with cccharley - my reaction reading the piece was "this must be a joke".
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Response by marco1313
over 17 years ago
Posts: 43
Member since: Feb 2007
This broker is a complete joke. I do think spring/summer time of next year could be an excellent time to buy. As Buffett said in that NYT article. Be fearful when others are greedy and be greedy when others are fearful.
Does this broker realize that the financial sector will not be the only sector that will see unemployment rise? Think about retail, online companies for starters Yahoo is planning on huge layoffs a huge base of their employees are in Sunnyvale but they have a large force in NYC. Ad agencies will have no choice as companies being to pull ad campaigns. This crisis will have a trickle down effect many small businesses will go under. I hate to be such a pessimistic but thats the reality. The US is in a recession and it could have been worse its better than being in the Great Depression 2. I dont want to think what would have happened if Congress did not pass the 700 Billion dollar rescue plan. For now the days of all buyers paying $1000-$1400/sqft in NYC will take awhile as the US rebuilds from this crisis caused by greedy and complete irresponsibility by our government (republicans and democratic), by the financial institutions and by us the american buyer taking on more debt then we can actually afford!
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Response by stevejhx
over 17 years ago
Posts: 12656
Member since: Feb 2008
"The demand for real estate is increasing. As people lose money and faith in the stock market and banks, they are choosing to invest in tangible assets."
It was written by steveF. In fact, just scanning it (it's too long to read) it is taken nearly verbatim from steveF's postings. To wit:
The demand for real estate is increasing. As people lose money and faith in the stock market and banks, they are choosing to invest in tangible assets. Real estate is a way to build real and solid profits in the medium term, rather than a "quick way to get rich."
Layoffs in the financial sector will not affect prices or inventory significantly. Contrary to popular belief, the reality of this market is that people who get laid off hold on to their apartment for as long as they can, with every cent they have."
Manhattan continues to see robust appreciation. According to Manhattan's largest appraisal firm, Miller Samuel, the average price of condominiums in the third quarter of 2008 was 10.4% higher than that of the same period in 2007. There is typically a difference between asking and selling prices. The 10.4% increase is based on actual sales price, after negotiations.
There are very few price reductions in Manhattan. While the press jumps on price reductions, here are the real numbers: out of approximately 9,300 apartments on offer in Manhattan today, the price of around 1,300 were reduced in recent months. 8,000 were not.
LMAO.
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Response by serge07
over 17 years ago
Posts: 334
Member since: Aug 2008
>As Buffett said in that NYT article. Be fearful when others are greedy and be greedy when others are fearful.<
Marco, one little caveat to Buffet's statement. He was referring to the US stock market which has declined 40% so there are excellent bargains out there. Perhaps if Manhattan were to plummet by a similar amount, Buffet might be a little more enthusiastic about the valuations of this market. I seriously doubt he's a buyer for some time to come.
This broker clearly did not experience the NYC RE market of the early 90s & obviously has no clue how bad market conditions can get. Besides the obvious financial bust, NY state fiscal deficit is projected at $8-10 billion in 2009 and that has yet to be adsorbed as the cuts further depress the economy & levels of services.
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Response by steveF
over 17 years ago
Posts: 2319
Member since: Mar 2008
stevejhx...i didn't write it but i wish i did......
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Response by stevejhx
over 17 years ago
Posts: 12656
Member since: Feb 2008
steveF, then you should sue them for plagiarism.
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Response by marco1313
over 17 years ago
Posts: 43
Member since: Feb 2007
Serge07, I understand what Buffett was referring too what I am trying to say is much like what has happened in the US stock market as the price of RE goes down in NYC, it creates more sellers who panic and once they panic, us the buyers should find the deals that are best for us. There are many investors who were priced out of NYC RE from 2004-2007, next year might be the opportunity for those buyers. I know if I find the right deal some where around 350K-500K I am buying everything will depend on sqft, neighborhood, condo/coop, new/old and what price did the unit sell for before I put in a bid.
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Response by nyc10022
over 17 years ago
Posts: 9868
Member since: Aug 2008
Again, just ask any broker...
"When was it ever NOT a good time to buy real estate?"
"Economy is great, there is no wall street crisis... so BUY"
"OK, there is a wall street crisis, so this is the opportunity of the century... so BUY"
Lying fing brokers can't get their story straight...
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Response by nyc10022
over 17 years ago
Posts: 9868
Member since: Aug 2008
"Serge07, I understand what Buffett was referring too what I am trying to say is much like what has happened in the US stock market as the price of RE goes down in NYC, it creates more sellers who panic and once they panic, us the buyers should find the deals that are best for us. There are many investors who were priced out of NYC RE from 2004-2007, next year might be the opportunity for those buyers"
Difference is Buffett wouldn't call buying an apartment an investment.
Buffett is specifically talking about the stock market. If it was a RE investment, he'd probably be talking REITS. He is not talking about a co-op on 3rd avenue.
The long-term historical return on RE in real terms is near 0 (Shiller). That prices might be lower than they've been in a while in one year doesn't make them a good "investment". You buy an apartment to live in. You don't buy it as a replacement for a smart diversified portfolio.
Waiting for prices to come low enough that you'll be able to "make" money afterward still completely misses the point. Folks should never have been looking at their apartments as investments. That will become clearer in the next few years...
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Response by waverly
over 17 years ago
Posts: 1638
Member since: Jul 2008
I liked:
"Most of New York's banks are still open for business!"
That's a ringing endorsement....it was like the broker wanted to put a smiley-face on the end of that statement, but stopped themselves. Their BS limit must have been reached.
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Response by lo888
over 17 years ago
Posts: 566
Member since: Jul 2008
You caught me on a rare day, I actually feel sorry for these guys in a way. As long as no deals get done, they make no income. I know they had some phenomenal years recently but who wants to make no money at any point (regardless of what you made before.) Hopefully they're getting to the stage where they can beat sellers down just to get some deals done instead of harassing buyers and piling on the BS.
Don't get me wrong - I'm sick of hearing how they layoffs won't happen or that all the people in coops have enough income to sustain them into perpetuity or that we should make any offer (on properties we're not even that excited about) just to see what happens. Also, the "loyalty begets loyalty" thing (don't work with anyone but me!) really gets me. How about esclusivity on their end - stop showing every apartment until I am positive I don't want it.
There is no doubt that brokers are contradicting themselves with every other breath but what else can they do? Most finally do admit that there will be more deals in 2009 but they're still looking for that next buck.
All that being said - I bitch about brokers on a VERY regular basis and have stopped dealing with all but a couple at this stage. And my favourite part of the email above is justifying the $1,600/ft price tag. This guy will do great 6 months from now! I would also love to hear more details about his political views! NY real estate is not at the forefront of either candidate's mind.
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Response by marco1313
over 17 years ago
Posts: 43
Member since: Feb 2007
nyc10022. What you don't understand is that Buffett has a long term view as do I. I don't plan on buying next year only to have to sell in another 2 years. I plan on owning for awhile so I am willing to take the pain much like when the stock of a good company. If you buy a piece of property in a good neighborhood over time it will get its value (again over time that could be 3 years, 5 years or 7 years. If you bought in NYC after 9/11 2001 and sold in 9/11 2005 in NYC you would see profits up to 100/200 percent.
I am thinking long term just like Buffett with stocks.
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Response by NYC10013
over 17 years ago
Posts: 464
Member since: Jan 2007
Don't even try to compare your thoughts on why anyone should buy Manhattan real estate now to Buffett's thoughts on buying stocks now - he's talking about buying stocks after a 40%+ decline - Manhattan real estate is just starting a decline that will likely last 3-5 years. You didn't see Buffett publicly promoting buying stocks two years ago, did you? This is probably the worst time to buy Manhattan real estate in the last 20 years.
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Response by eric_cartman
over 17 years ago
Posts: 300
Member since: Jun 2007
I love the broker's email.
I mean, really - if only people would stop listening to the mainstream media and relied solely on brokers for real estate advice like they were supposed to, things would be just fine.
My two favorite sentences:
"The demand for real estate is increasing. " - REALLY? then why the inventory build-up?
"Layoffs in the financial sector will not affect prices or inventory significantly." - DUH?
ha ha ha .. any broker wants to defend this article?
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Response by will
over 17 years ago
Posts: 480
Member since: Dec 2007
I agree with OP, to a point. I think things will decline slightly (5-10%), then stay flat for a couple of years.
Things change fast these days and they are getting faster. Just look at gas prices. The US economy will be in recovery mode by mid-2009.
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Response by marco1313
over 17 years ago
Posts: 43
Member since: Feb 2007
Bremlig, Thats your opinion, when prices are going down and people are panicking thats when you are in a good position to buy. Now you may think its going to decline for another 3-5 years but you dont know that for sure. Nobody knows. I am looking to buy if I can find something within my price range that I can afford. I then plan to hold onto to it for quite sometime.
I will only buy if a seller is willing to accept my bids, what will I bid 20% off asking on anything. Thats my strategy, will it work it may not but I am going to try. I bet you are the same type of guy how pulled out all his money two weeks ago of discretionary funds, IRA and 401k investments. When Jim Cramer made that claim it was for investors who need the money within 5 years but if you have a long term view the stock market and the RE market will rebound so there is no need to sell unless you need the money today. My father has been through 4 US recessions and in each of them we have rebounded. Each one had its own bubble burst effect. If you stick on the sidelines and just propagate doom and gloom you much like all the others will make no money.
So if you feel its sooo bad and RE cant work for you stick on the sidelines as other investors jump in and leap frog you in making money. I will repeat I like Buffett in stocks have a long term view of RE. I also own stocks and will continue to buy them as others sell.
Bremlig look at a graph of RE would you agree over the long term money is made?
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Response by NYC10013
over 17 years ago
Posts: 464
Member since: Jan 2007
20% off ask doesn't mean anything about the value of an apartment.
Nope, I pulled most of my money out of stocks 2 years ago. Just luck but I felt like stocks were overheated. I put 50% of my 401k back into stocks over the last three weeks and will probably dribble the remaining 50% in over the next year or so. I have enough cash to buy pretty much any apartment I want within reason with 100% cash - but I'm renting and will continue to do so for at least the next year. Taking the long-term view is a sucker's cop-out. I look at it this way - buying Manhattan RE right now (unless you're stealing it from someone) would be like buying stocks 18 months ago - sure, you might make money over the "long-term" but it'll probably take 5-10 years for the stocks to get back to where they were 18 months ago - so the returns SUCK. Everyone is definitely entitled to their view of where Manhattan RE is going over the next 3-5 years - mine is we just finished the largest RE price boom in history and we're heading into one of the worst recessions in history, so why the hell would I buy Manhattan real estate when the party is just getting started. There isn't blood on the streets - this is barely a pin-prick thus far.
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Response by marco1313
over 17 years ago
Posts: 43
Member since: Feb 2007
Like I said thats your opinion. Before I even make a bid I also attend on finding out what the apartment last sold for. I plan on doing homework before I buy in this terrible recession. If I find the right deal I am in for the long haul.
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Response by cleanslate
over 17 years ago
Posts: 346
Member since: Mar 2008
Oh wow, that is a very interesting catch, stevejhx! If he did not write it, it's definitely plagiarism. He did not even re-phrase, he basically copied and pasted. LOL!
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Response by nyc10022
over 17 years ago
Posts: 9868
Member since: Aug 2008
> nyc10022. What you don't understand is that Buffett has a long term view as do I.
And the long term return on stocks is 8% or so, on RE its near 0 in real dollars...
"Long term" doesn't turn a poor investment into a good one.
> I plan on owning for awhile so I am willing to take the pain much like
> when the stock of a good company.
A bargain about to be a bigger bargain is no bargain at all. Just because its a "good company" or a "good apartment" does NOT make it a good investment. That is rookie mistake #1.
> If you buy a piece of property in a good neighborhood over time it will get its value
Again, the long term return on RE is 0. So I'm not sure where you are getting this info.
> (again over
> time that could be 3 years, 5 years or 7 years. If you bought in NYC after 9/11 2001 and sold in
> 9/11 2005 in NYC you would see profits up to 100/200 percent.
Past returns are no indicator of future returns. This would be you making rookie mistake #2. You are pointing out a BUBBLE and then using it as evidence of a good investment.
This is about as backward as it gets.
> I am thinking long term just like Buffett with stocks.
Again, a bad investment long term is still a bad investment. "Riding it out" or "I can take the pain" doesn't make a loss anything other than a loss.
> Bremlig, Thats your opinion, when prices are going down and people are panicking thats when you are
> in a good position to buy.
And folks are NOT panicing yet. Lots of rationalization. Hell, YOU are looking to buy. Clearly the capitulation is nowhere near.
> So if you feel its sooo bad and RE cant work for you stick on the sidelines as other investors jump
> in and leap frog you in making money.
Go ahead, leap frog to bankruptcy.
Now you're talking brokerspeak.
> I will repeat I like Buffett in stocks have a long term view of RE.
Which, again, is completely illogical.
Buffett has a long term view of stocks, therefore I'm going to invest in an '82 Camry! Buffett says long term, so buy tulips long term! Indonesian bonds long term!
I'm sorry, but that is just an awful mistake to make. Apples and oranges.
Bad investments long term are still just bad investments.
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Response by nyc10022
over 17 years ago
Posts: 9868
Member since: Aug 2008
Sorry, I gave nominal stock return. I believe it would be near 0 real return on RE, and 6% real return on stocks. I haven't seen the numbers lately...
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Response by Scoop_Jackson
over 17 years ago
Posts: 8
Member since: Oct 2008
I have a question. I am thinking about buying a 2 BR, 2 BTH for 995,000. If I rent the same apt. the next 3 years it will cost me $180,000 (5000 per month is what something comparable will go for now).
Now let's say I buy, then after 3 years sell for $995,000. Haven't I lived rent free and gotten a good tax deduction to boot? Interest paid that did not yield a tax benefit plus closing/transaction costs would be far less than $180,000.
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Response by LICyuppie
over 17 years ago
Posts: 15
Member since: Dec 2006
Scoop but when it is worth 700,000 you will have lost 300,000 dollars plus all of the expenses of moving. I'm sure you may argue that you still did not spend 180,000 on rent. Wrong, because you will be paying interest on your loan which will be 180,000 at 6% over three years. So, only buy now over renting if you are betting the market will go up. Which would clearly be a bad bet. When that same apartment is 700,000 or LESS than you can bet the market will go up and not look so silly.
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Response by wishhouse
over 17 years ago
Posts: 417
Member since: Jan 2008
Scoop_Jackson: Go to http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html and plug in the numbers. With 10% down, 6.1% mortgage, 1.35% property taxes, and 0% appreciation you will break even at 21 years. Actually, that's without common charges. You can just subtract that from the monthly rent price. Say you're it's $1000. Now it's never better for you to buy.
There have been a lot of threads in the past here about rent v. buy, but when you're talking about a specific place, this form is pretty straight forward. They also have a link discussing their methodology.
BTW, when I first joined Street Easy, I thought the same thing as you.
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Response by wishhouse
over 17 years ago
Posts: 417
Member since: Jan 2008
Or better yet, even if you:
had 0 maintenence
put down 20%
had a 5.5% mortgage
0 property taxes
0% appreciation
and rent increased 10% per year
You would still only break even after 5 years.
Now I think you were joking.
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Response by buster2056
over 17 years ago
Posts: 866
Member since: Sep 2007
Got this snippet from an email spam from a broker at elliman this morning:
"Recognizing that the Q3 Market Overview figures do not reflect the impact from the recent financial crisis, we can expect to see a continued softening in prices at least for the next two quarters; however, in no way, will it be significant, as we've seen throughout the rest of the country."
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Response by NYC10013
over 17 years ago
Posts: 464
Member since: Jan 2007
Such a crock of shit. These brokers will never learn - they'd be much better off driving market prices down quickly to a level where buyers will flood the market and turnover will get back to normal so they can clip their 6% fees.
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Response by bjw2103
over 17 years ago
Posts: 6236
Member since: Jul 2007
"And the long term return on stocks is 8% or so, on RE its near 0 in real dollars...
"Long term" doesn't turn a poor investment into a good one."
It's a good thing most of us don't buy the entire RE market then. I don't think it's particularly relevant to a buyer looking to purchase a single property. You're right about the "bad investment is a bad investment" trope, but there's no doubt that if you hang on to an asset long-term, you increase your chances of potentially seeing a return. To say otherwise would imply that you can accurately predict the market, even years out.
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Response by nyc10022
over 17 years ago
Posts: 9868
Member since: Aug 2008
> there's no doubt that if you hang on to an asset long-term, you increase your
> chances of potentially seeing a return.
Only if its an asset that traditionally beats inflation.
Holding euro long term actually makes it *less* likely to show a return.
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Response by bjw2103
over 17 years ago
Posts: 6236
Member since: Jul 2007
"Only if its an asset that traditionally beats inflation.
Holding euro long term actually makes it *less* likely to show a return."
Completely depends on how long we're talking about. Nobody knows for sure. Furthermore, doesn't really matter what it does traditionally, no? This is exactly what you said above:
"Past returns are no indicator of future returns. This would be you making rookie mistake #2."
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Response by lo888
over 17 years ago
Posts: 566
Member since: Jul 2008
buster2056 - I guess "significant" is a very relative term!
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Response by nyc10022
over 17 years ago
Posts: 9868
Member since: Aug 2008
> Completely depends on how long we're talking about. Nobody knows for sure.
Yes, but it just gets worse the longer you hold it.
> Completely depends on how long we're talking about. Nobody knows for sure. Furthermore, doesn't
> really matter what it does traditionally, no? This is exactly what you said above:
> "Past returns are no indicator of future returns. This would be you making rookie mistake #2."
No, you are confusing what happens within a market with an overall market movement. Malkiel wrote the line talking about stock picking, or sector picking. But, stock prices follow earnings growth in the long term, meaning the market as a whole will follow that.
Stock growth will match earnings in the long term.
RE will match income growth in the long term.
The individual movements of pieces are just anomalies... and markets then revert to the mean.
Meaning long term investments in apartments... not such a good investment, real return of 0.
Long term investments in stock... much better.
Currency, long term return is 0.
For certain asset classes, long term returns are almost guaranteed to be zero. Holding those longer won't improve your returns, just guarantee a bad investment.
So, back to the original point.... holding a bad investment longer doesn't make it a good investment. Being able to "ride out" your losses doesn't make them anything other than losses.
Breaking even nominally after 15 years is a horrible "investment" strategy. It is a guaranteed loss.
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Response by bjw2103
over 17 years ago
Posts: 6236
Member since: Jul 2007
"Meaning long term investments in apartments... not such a good investment, real return of 0."
Correct me if I'm wrong, but real return on RE (which is 0.7, I think, not 0, but no biggie) is for the entire market, and therefore not really applicable to a sole buyer looking to purchase a property. If that's not true, are you therefore advocating that buying a home is a horrible investment?
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Response by nyc10022
over 17 years ago
Posts: 9868
Member since: Aug 2008
> Correct me if I'm wrong, but real return on RE (which is 0.7, I think, not 0, but no biggie) is for
> the entire market, and therefore not really applicable to a sole buyer looking to purchase a
> property.
Backward... I don't see how the entire market would *not* be applicable to a single buyer, given that it represents the median likelihood. If anything, a single purchase is worse as an investment, because there is no diversification (like buying one single stock). But, if you do buy one single stock or one single apartment, on average you are going to do as well as the market. Because the market is the sum of all the individual choices.
So, what this means in reality is that one individual apartment purchase as an investment has all the risk of the overall market plus more... the risk that your specific apartment gets a tower built right out its window blocking all views (same as one stock having its CEO die). This is partially the risk of no diversification.
> If that's not true, are you therefore advocating that buying a home is a horrible investment?
I'm not sure what the bigger point is here, but if you're aiming to say "this is about one person's choice to live somewhere and they might love the apartment" and all that, then, I agree, that could be a good reason to buy something.
But that doesn't make it an investment, it makes it a lifestyle decision. That apartment will cost money over the long term. "Assets" that cost you money to maintain - houses, cars, etc. - aren't generally good "investments".
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Response by bjw2103
over 17 years ago
Posts: 6236
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nyc10022, I actually agree with what you're saying here. The difference is, for a single buyer looking at a single purchase, the whole point is to do your homework on the property, the neighborhood, etc. If you do it well and get a price that is reasonable, you greatly increase your chances of doing quite well with it. Now unless cash is no object to you, you will quite likely not find the "perfect" apartment, but as we all know, a lot of real estate was purchased without the proper due diligence (hell, there's at least one I know of in my building - I still don't understand what their thought process must have been), so there are a lot of bad decisions being made out there. Those who choose well will see a return. It's happened before, and will continue to do so. From that perspective, the 0.7% return means next to nothing to me. We should poll the noted investors on this board (malraux, eah, for example) - I'd be surprised if they thought differently. The larger point is, as you alluded to, that RE cannot be viewed as a pure asset, precisely because it plays a central role in your lifestyle. That's another reason a lot of these theories and ratios paraded about on here leave a little something to be desired. They can't measure some of the "intangibles."
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Response by nyc10022
over 17 years ago
Posts: 9868
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> Those who choose well will see a return.
I still don't agree.
I agree that you can do a little better than the market picking something with a little more care. But say that gives you a 5% better deal.... that won't turn a 0% real return over 20 years into a 7% return... more like 0 to .3%
To me thats going from bad investment to slightly less bad investment.
It certainly won't turn a bad investment into a good one.
Picking the slightly better .com stock - stamps.com over pets.com still doesn't make it a good investment, just a slightly less horrible one.
Due diligence and long term won't change a bad investment to good if the fundamentals are still wrong. And, to me, the fundamentals say this is a *horrible* time to be in RE.
"The larger point is, as you alluded to, that RE cannot be viewed as a pure asset, precisely because it plays a central role in your lifestyle. That's another reason a lot of these theories and ratios paraded about on here leave a little something to be desired. They can't measure some of the "intangibles.""
Absolutely agreed with you here. There are intangible benefits. Same as owning a nice car.
But when folks start using "investment" in relation to these things, the problem begins. If you are willing to pay the price for the intangibles, fine. But if you are using them as the "cover" to make a bad investment, that just isn't right.
lol- which broker sent you this? Since prices declined from the last quarter no reason to look at yoy now. Guess this broker does her job well. Go drink the Kool Aid
Tell us the name of the broker, so we are sure to not work with this person in the future.
Horrible Marketing ploy. Missuse of statistics even if they have the slightest bit of veracity.
Actually sounds like it was written for The Onion
I agree with Shamrock...the only people headed for the exits are the speculators (thank goodness!)
Once Manhattan rids itself of these horrible profit only-minded scoundrels, we'll get our wonderful, cultural, dynamic, electrifying, intellectually stimulating city back, then you'll really start to see prices soar! Funny how that is!
"none of us has a crystal ball"
and then
"you will not find a better deal in a new building in your lifetime"
There are soooo many choice phrases but that has to take the cake!
mrs blogs - are you joking? Have prices not soared for the past 8 years? How much more soaring can you imaging happening? You must be a broker
This letter is the nightmare of every doom and gloomer on streeteasy. LMAO
Wow! Thanks for the entertainment!
oh you always gotta love the broker babble. beautiful read.
This is my favorite part:
"If you consider selling we recommend you schedule the sale after the third or fourth quarter of 2009 to maximize your return. We will be more than happy to help you with that when you are ready."
so even they admit that now is not a good time to be a seller...
> out of approximately 9,300 apartments on offer in Manhattan today, the price of around 1,300 were reduced in recent months. 8,000 were not.
That's funny- use the search tool on this site and it shows 2554 price changes of any kind, of which 197 were increases (often I am sure a quick drop then a revision back to the old price). So 2357 drops, and the timeframe is 60 days.
> According to Manhattan's largest appraisal firm, Miller Samuel, the average price of condominiums in the third quarter of 2008 was 10.4% higher than that of the same period in 2007.
I guess he missed the part of that report showing a 9% drop since Q2.
> Still, interest rates are historically low,
Fed Funds maybe but not mortgage rates:
NEW YORK, Oct 16, 2008 /PRNewswire-FirstCall via COMTEX/ -- Mortgage rates soared this week, with the average 30-year fixed mortgage rate jumping more than one-half percentage point to 6.74 percent. According to Bankrate.com's weekly national survey, the average 30-year fixed mortgage has an average of 0.42 discount and origination points.
I have to agree with cccharley - my reaction reading the piece was "this must be a joke".
This broker is a complete joke. I do think spring/summer time of next year could be an excellent time to buy. As Buffett said in that NYT article. Be fearful when others are greedy and be greedy when others are fearful.
Does this broker realize that the financial sector will not be the only sector that will see unemployment rise? Think about retail, online companies for starters Yahoo is planning on huge layoffs a huge base of their employees are in Sunnyvale but they have a large force in NYC. Ad agencies will have no choice as companies being to pull ad campaigns. This crisis will have a trickle down effect many small businesses will go under. I hate to be such a pessimistic but thats the reality. The US is in a recession and it could have been worse its better than being in the Great Depression 2. I dont want to think what would have happened if Congress did not pass the 700 Billion dollar rescue plan. For now the days of all buyers paying $1000-$1400/sqft in NYC will take awhile as the US rebuilds from this crisis caused by greedy and complete irresponsibility by our government (republicans and democratic), by the financial institutions and by us the american buyer taking on more debt then we can actually afford!
"The demand for real estate is increasing. As people lose money and faith in the stock market and banks, they are choosing to invest in tangible assets."
It was written by steveF. In fact, just scanning it (it's too long to read) it is taken nearly verbatim from steveF's postings. To wit:
The demand for real estate is increasing. As people lose money and faith in the stock market and banks, they are choosing to invest in tangible assets. Real estate is a way to build real and solid profits in the medium term, rather than a "quick way to get rich."
Layoffs in the financial sector will not affect prices or inventory significantly. Contrary to popular belief, the reality of this market is that people who get laid off hold on to their apartment for as long as they can, with every cent they have."
Manhattan continues to see robust appreciation. According to Manhattan's largest appraisal firm, Miller Samuel, the average price of condominiums in the third quarter of 2008 was 10.4% higher than that of the same period in 2007. There is typically a difference between asking and selling prices. The 10.4% increase is based on actual sales price, after negotiations.
There are very few price reductions in Manhattan. While the press jumps on price reductions, here are the real numbers: out of approximately 9,300 apartments on offer in Manhattan today, the price of around 1,300 were reduced in recent months. 8,000 were not.
LMAO.
>As Buffett said in that NYT article. Be fearful when others are greedy and be greedy when others are fearful.<
Marco, one little caveat to Buffet's statement. He was referring to the US stock market which has declined 40% so there are excellent bargains out there. Perhaps if Manhattan were to plummet by a similar amount, Buffet might be a little more enthusiastic about the valuations of this market. I seriously doubt he's a buyer for some time to come.
This broker clearly did not experience the NYC RE market of the early 90s & obviously has no clue how bad market conditions can get. Besides the obvious financial bust, NY state fiscal deficit is projected at $8-10 billion in 2009 and that has yet to be adsorbed as the cuts further depress the economy & levels of services.
stevejhx...i didn't write it but i wish i did......
steveF, then you should sue them for plagiarism.
Serge07, I understand what Buffett was referring too what I am trying to say is much like what has happened in the US stock market as the price of RE goes down in NYC, it creates more sellers who panic and once they panic, us the buyers should find the deals that are best for us. There are many investors who were priced out of NYC RE from 2004-2007, next year might be the opportunity for those buyers. I know if I find the right deal some where around 350K-500K I am buying everything will depend on sqft, neighborhood, condo/coop, new/old and what price did the unit sell for before I put in a bid.
Again, just ask any broker...
"When was it ever NOT a good time to buy real estate?"
"Economy is great, there is no wall street crisis... so BUY"
"OK, there is a wall street crisis, so this is the opportunity of the century... so BUY"
Lying fing brokers can't get their story straight...
"Serge07, I understand what Buffett was referring too what I am trying to say is much like what has happened in the US stock market as the price of RE goes down in NYC, it creates more sellers who panic and once they panic, us the buyers should find the deals that are best for us. There are many investors who were priced out of NYC RE from 2004-2007, next year might be the opportunity for those buyers"
Difference is Buffett wouldn't call buying an apartment an investment.
Buffett is specifically talking about the stock market. If it was a RE investment, he'd probably be talking REITS. He is not talking about a co-op on 3rd avenue.
The long-term historical return on RE in real terms is near 0 (Shiller). That prices might be lower than they've been in a while in one year doesn't make them a good "investment". You buy an apartment to live in. You don't buy it as a replacement for a smart diversified portfolio.
Waiting for prices to come low enough that you'll be able to "make" money afterward still completely misses the point. Folks should never have been looking at their apartments as investments. That will become clearer in the next few years...
I liked:
"Most of New York's banks are still open for business!"
That's a ringing endorsement....it was like the broker wanted to put a smiley-face on the end of that statement, but stopped themselves. Their BS limit must have been reached.
You caught me on a rare day, I actually feel sorry for these guys in a way. As long as no deals get done, they make no income. I know they had some phenomenal years recently but who wants to make no money at any point (regardless of what you made before.) Hopefully they're getting to the stage where they can beat sellers down just to get some deals done instead of harassing buyers and piling on the BS.
Don't get me wrong - I'm sick of hearing how they layoffs won't happen or that all the people in coops have enough income to sustain them into perpetuity or that we should make any offer (on properties we're not even that excited about) just to see what happens. Also, the "loyalty begets loyalty" thing (don't work with anyone but me!) really gets me. How about esclusivity on their end - stop showing every apartment until I am positive I don't want it.
There is no doubt that brokers are contradicting themselves with every other breath but what else can they do? Most finally do admit that there will be more deals in 2009 but they're still looking for that next buck.
All that being said - I bitch about brokers on a VERY regular basis and have stopped dealing with all but a couple at this stage. And my favourite part of the email above is justifying the $1,600/ft price tag. This guy will do great 6 months from now! I would also love to hear more details about his political views! NY real estate is not at the forefront of either candidate's mind.
nyc10022. What you don't understand is that Buffett has a long term view as do I. I don't plan on buying next year only to have to sell in another 2 years. I plan on owning for awhile so I am willing to take the pain much like when the stock of a good company. If you buy a piece of property in a good neighborhood over time it will get its value (again over time that could be 3 years, 5 years or 7 years. If you bought in NYC after 9/11 2001 and sold in 9/11 2005 in NYC you would see profits up to 100/200 percent.
I am thinking long term just like Buffett with stocks.
Don't even try to compare your thoughts on why anyone should buy Manhattan real estate now to Buffett's thoughts on buying stocks now - he's talking about buying stocks after a 40%+ decline - Manhattan real estate is just starting a decline that will likely last 3-5 years. You didn't see Buffett publicly promoting buying stocks two years ago, did you? This is probably the worst time to buy Manhattan real estate in the last 20 years.
I love the broker's email.
I mean, really - if only people would stop listening to the mainstream media and relied solely on brokers for real estate advice like they were supposed to, things would be just fine.
My two favorite sentences:
"The demand for real estate is increasing. " - REALLY? then why the inventory build-up?
"Layoffs in the financial sector will not affect prices or inventory significantly." - DUH?
ha ha ha .. any broker wants to defend this article?
I agree with OP, to a point. I think things will decline slightly (5-10%), then stay flat for a couple of years.
Things change fast these days and they are getting faster. Just look at gas prices. The US economy will be in recovery mode by mid-2009.
Bremlig, Thats your opinion, when prices are going down and people are panicking thats when you are in a good position to buy. Now you may think its going to decline for another 3-5 years but you dont know that for sure. Nobody knows. I am looking to buy if I can find something within my price range that I can afford. I then plan to hold onto to it for quite sometime.
I will only buy if a seller is willing to accept my bids, what will I bid 20% off asking on anything. Thats my strategy, will it work it may not but I am going to try. I bet you are the same type of guy how pulled out all his money two weeks ago of discretionary funds, IRA and 401k investments. When Jim Cramer made that claim it was for investors who need the money within 5 years but if you have a long term view the stock market and the RE market will rebound so there is no need to sell unless you need the money today. My father has been through 4 US recessions and in each of them we have rebounded. Each one had its own bubble burst effect. If you stick on the sidelines and just propagate doom and gloom you much like all the others will make no money.
So if you feel its sooo bad and RE cant work for you stick on the sidelines as other investors jump in and leap frog you in making money. I will repeat I like Buffett in stocks have a long term view of RE. I also own stocks and will continue to buy them as others sell.
Bremlig look at a graph of RE would you agree over the long term money is made?
20% off ask doesn't mean anything about the value of an apartment.
Nope, I pulled most of my money out of stocks 2 years ago. Just luck but I felt like stocks were overheated. I put 50% of my 401k back into stocks over the last three weeks and will probably dribble the remaining 50% in over the next year or so. I have enough cash to buy pretty much any apartment I want within reason with 100% cash - but I'm renting and will continue to do so for at least the next year. Taking the long-term view is a sucker's cop-out. I look at it this way - buying Manhattan RE right now (unless you're stealing it from someone) would be like buying stocks 18 months ago - sure, you might make money over the "long-term" but it'll probably take 5-10 years for the stocks to get back to where they were 18 months ago - so the returns SUCK. Everyone is definitely entitled to their view of where Manhattan RE is going over the next 3-5 years - mine is we just finished the largest RE price boom in history and we're heading into one of the worst recessions in history, so why the hell would I buy Manhattan real estate when the party is just getting started. There isn't blood on the streets - this is barely a pin-prick thus far.
Like I said thats your opinion. Before I even make a bid I also attend on finding out what the apartment last sold for. I plan on doing homework before I buy in this terrible recession. If I find the right deal I am in for the long haul.
Oh wow, that is a very interesting catch, stevejhx! If he did not write it, it's definitely plagiarism. He did not even re-phrase, he basically copied and pasted. LOL!
> nyc10022. What you don't understand is that Buffett has a long term view as do I.
And the long term return on stocks is 8% or so, on RE its near 0 in real dollars...
"Long term" doesn't turn a poor investment into a good one.
> I plan on owning for awhile so I am willing to take the pain much like
> when the stock of a good company.
A bargain about to be a bigger bargain is no bargain at all. Just because its a "good company" or a "good apartment" does NOT make it a good investment. That is rookie mistake #1.
> If you buy a piece of property in a good neighborhood over time it will get its value
Again, the long term return on RE is 0. So I'm not sure where you are getting this info.
> (again over
> time that could be 3 years, 5 years or 7 years. If you bought in NYC after 9/11 2001 and sold in
> 9/11 2005 in NYC you would see profits up to 100/200 percent.
Past returns are no indicator of future returns. This would be you making rookie mistake #2. You are pointing out a BUBBLE and then using it as evidence of a good investment.
This is about as backward as it gets.
> I am thinking long term just like Buffett with stocks.
Again, a bad investment long term is still a bad investment. "Riding it out" or "I can take the pain" doesn't make a loss anything other than a loss.
> Bremlig, Thats your opinion, when prices are going down and people are panicking thats when you are
> in a good position to buy.
And folks are NOT panicing yet. Lots of rationalization. Hell, YOU are looking to buy. Clearly the capitulation is nowhere near.
> So if you feel its sooo bad and RE cant work for you stick on the sidelines as other investors jump
> in and leap frog you in making money.
Go ahead, leap frog to bankruptcy.
Now you're talking brokerspeak.
> I will repeat I like Buffett in stocks have a long term view of RE.
Which, again, is completely illogical.
Buffett has a long term view of stocks, therefore I'm going to invest in an '82 Camry! Buffett says long term, so buy tulips long term! Indonesian bonds long term!
I'm sorry, but that is just an awful mistake to make. Apples and oranges.
Bad investments long term are still just bad investments.
Sorry, I gave nominal stock return. I believe it would be near 0 real return on RE, and 6% real return on stocks. I haven't seen the numbers lately...
I have a question. I am thinking about buying a 2 BR, 2 BTH for 995,000. If I rent the same apt. the next 3 years it will cost me $180,000 (5000 per month is what something comparable will go for now).
Now let's say I buy, then after 3 years sell for $995,000. Haven't I lived rent free and gotten a good tax deduction to boot? Interest paid that did not yield a tax benefit plus closing/transaction costs would be far less than $180,000.
Scoop but when it is worth 700,000 you will have lost 300,000 dollars plus all of the expenses of moving. I'm sure you may argue that you still did not spend 180,000 on rent. Wrong, because you will be paying interest on your loan which will be 180,000 at 6% over three years. So, only buy now over renting if you are betting the market will go up. Which would clearly be a bad bet. When that same apartment is 700,000 or LESS than you can bet the market will go up and not look so silly.
Scoop_Jackson: Go to http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html and plug in the numbers. With 10% down, 6.1% mortgage, 1.35% property taxes, and 0% appreciation you will break even at 21 years. Actually, that's without common charges. You can just subtract that from the monthly rent price. Say you're it's $1000. Now it's never better for you to buy.
There have been a lot of threads in the past here about rent v. buy, but when you're talking about a specific place, this form is pretty straight forward. They also have a link discussing their methodology.
BTW, when I first joined Street Easy, I thought the same thing as you.
Or better yet, even if you:
had 0 maintenence
put down 20%
had a 5.5% mortgage
0 property taxes
0% appreciation
and rent increased 10% per year
You would still only break even after 5 years.
Now I think you were joking.
Got this snippet from an email spam from a broker at elliman this morning:
"Recognizing that the Q3 Market Overview figures do not reflect the impact from the recent financial crisis, we can expect to see a continued softening in prices at least for the next two quarters; however, in no way, will it be significant, as we've seen throughout the rest of the country."
Such a crock of shit. These brokers will never learn - they'd be much better off driving market prices down quickly to a level where buyers will flood the market and turnover will get back to normal so they can clip their 6% fees.
"And the long term return on stocks is 8% or so, on RE its near 0 in real dollars...
"Long term" doesn't turn a poor investment into a good one."
It's a good thing most of us don't buy the entire RE market then. I don't think it's particularly relevant to a buyer looking to purchase a single property. You're right about the "bad investment is a bad investment" trope, but there's no doubt that if you hang on to an asset long-term, you increase your chances of potentially seeing a return. To say otherwise would imply that you can accurately predict the market, even years out.
> there's no doubt that if you hang on to an asset long-term, you increase your
> chances of potentially seeing a return.
Only if its an asset that traditionally beats inflation.
Holding euro long term actually makes it *less* likely to show a return.
"Only if its an asset that traditionally beats inflation.
Holding euro long term actually makes it *less* likely to show a return."
Completely depends on how long we're talking about. Nobody knows for sure. Furthermore, doesn't really matter what it does traditionally, no? This is exactly what you said above:
"Past returns are no indicator of future returns. This would be you making rookie mistake #2."
buster2056 - I guess "significant" is a very relative term!
> Completely depends on how long we're talking about. Nobody knows for sure.
Yes, but it just gets worse the longer you hold it.
> Completely depends on how long we're talking about. Nobody knows for sure. Furthermore, doesn't
> really matter what it does traditionally, no? This is exactly what you said above:
> "Past returns are no indicator of future returns. This would be you making rookie mistake #2."
No, you are confusing what happens within a market with an overall market movement. Malkiel wrote the line talking about stock picking, or sector picking. But, stock prices follow earnings growth in the long term, meaning the market as a whole will follow that.
Stock growth will match earnings in the long term.
RE will match income growth in the long term.
The individual movements of pieces are just anomalies... and markets then revert to the mean.
Meaning long term investments in apartments... not such a good investment, real return of 0.
Long term investments in stock... much better.
Currency, long term return is 0.
For certain asset classes, long term returns are almost guaranteed to be zero. Holding those longer won't improve your returns, just guarantee a bad investment.
So, back to the original point.... holding a bad investment longer doesn't make it a good investment. Being able to "ride out" your losses doesn't make them anything other than losses.
Breaking even nominally after 15 years is a horrible "investment" strategy. It is a guaranteed loss.
"Meaning long term investments in apartments... not such a good investment, real return of 0."
Correct me if I'm wrong, but real return on RE (which is 0.7, I think, not 0, but no biggie) is for the entire market, and therefore not really applicable to a sole buyer looking to purchase a property. If that's not true, are you therefore advocating that buying a home is a horrible investment?
> Correct me if I'm wrong, but real return on RE (which is 0.7, I think, not 0, but no biggie) is for
> the entire market, and therefore not really applicable to a sole buyer looking to purchase a
> property.
Backward... I don't see how the entire market would *not* be applicable to a single buyer, given that it represents the median likelihood. If anything, a single purchase is worse as an investment, because there is no diversification (like buying one single stock). But, if you do buy one single stock or one single apartment, on average you are going to do as well as the market. Because the market is the sum of all the individual choices.
So, what this means in reality is that one individual apartment purchase as an investment has all the risk of the overall market plus more... the risk that your specific apartment gets a tower built right out its window blocking all views (same as one stock having its CEO die). This is partially the risk of no diversification.
> If that's not true, are you therefore advocating that buying a home is a horrible investment?
I'm not sure what the bigger point is here, but if you're aiming to say "this is about one person's choice to live somewhere and they might love the apartment" and all that, then, I agree, that could be a good reason to buy something.
But that doesn't make it an investment, it makes it a lifestyle decision. That apartment will cost money over the long term. "Assets" that cost you money to maintain - houses, cars, etc. - aren't generally good "investments".
nyc10022, I actually agree with what you're saying here. The difference is, for a single buyer looking at a single purchase, the whole point is to do your homework on the property, the neighborhood, etc. If you do it well and get a price that is reasonable, you greatly increase your chances of doing quite well with it. Now unless cash is no object to you, you will quite likely not find the "perfect" apartment, but as we all know, a lot of real estate was purchased without the proper due diligence (hell, there's at least one I know of in my building - I still don't understand what their thought process must have been), so there are a lot of bad decisions being made out there. Those who choose well will see a return. It's happened before, and will continue to do so. From that perspective, the 0.7% return means next to nothing to me. We should poll the noted investors on this board (malraux, eah, for example) - I'd be surprised if they thought differently. The larger point is, as you alluded to, that RE cannot be viewed as a pure asset, precisely because it plays a central role in your lifestyle. That's another reason a lot of these theories and ratios paraded about on here leave a little something to be desired. They can't measure some of the "intangibles."
> Those who choose well will see a return.
I still don't agree.
I agree that you can do a little better than the market picking something with a little more care. But say that gives you a 5% better deal.... that won't turn a 0% real return over 20 years into a 7% return... more like 0 to .3%
To me thats going from bad investment to slightly less bad investment.
It certainly won't turn a bad investment into a good one.
Picking the slightly better .com stock - stamps.com over pets.com still doesn't make it a good investment, just a slightly less horrible one.
Due diligence and long term won't change a bad investment to good if the fundamentals are still wrong. And, to me, the fundamentals say this is a *horrible* time to be in RE.
"The larger point is, as you alluded to, that RE cannot be viewed as a pure asset, precisely because it plays a central role in your lifestyle. That's another reason a lot of these theories and ratios paraded about on here leave a little something to be desired. They can't measure some of the "intangibles.""
Absolutely agreed with you here. There are intangible benefits. Same as owning a nice car.
But when folks start using "investment" in relation to these things, the problem begins. If you are willing to pay the price for the intangibles, fine. But if you are using them as the "cover" to make a bad investment, that just isn't right.