Here we go again. Buy this apartment for between $1,799,000 and $1,895,000 or rent it for $6,500 a month (not the same apartment but the same size and layout). Buy it at the top price it will cost you: Total Monthly Payment: $12,313 http://www.streeteasy.com/nyc/sale/363264-condo-99-jane-st-west-village-new-york Buy it at the slightly lower price and it will cost you: Total Monthly Payment:... [more]
Here we go again. Buy this apartment for between $1,799,000 and $1,895,000 or rent it for $6,500 a month (not the same apartment but the same size and layout).
Buy it at the top price it will cost you:
Total Monthly Payment: $12,313
http://www.streeteasy.com/nyc/sale/363264-condo-99-jane-st-west-village-new-york
Buy it at the slightly lower price and it will cost you:
Total Monthly Payment: $11,776
http://www.streeteasy.com/nyc/sale/320289-condo-99-jane-st-west-village-new-york
Of course these amounts will go up as the tax abatement abates. And why there's a $100,000 difference from the 4th to the 6th floors is also beyond me.
Nonetheless:
Rent it for $6,500
http://www.streeteasy.com/nyc/rental/425351-condo-99-jane-street-west-village-new-york
So, tech_guy and others, can you PLEASE tell me why you would rent this apartment to a third party for $6,500 a month, but if you buy it it will cost you twice that much essentially to rent it to yourself.
As ofttimes discussed, since buying an apartment is the equivalent of capitalizing your rent and amortizing it over time, even with all of the tax benefits included you're paying twice the price to own as to rent, yet enjoying the same benefit: a place to live.
Makes no sense.
Sorry guys, the examples in Manhattan abound: it is STILL twice as expensive to buy as to rent (and rents are falling quickly, as can be seen in this example) when, historically, the carrying costs are the same (else you couldn't buy an apartment and rent it out to a third party without losing your shirt).
Proof: let's take the cheap one with a 30-year 80/20 mortgage at 7.5%:
Down Payment: $359,800
Mortgage Amount: $1,439,200
Mortgage Payment: $10,063
Total Monthly Payment: $11,776
Fully deductible interest payments of about $8,900 per month in the first year. Common charges and taxes of $844 and $869 per month in the first year. Total first year tax deductions of about $10,613.
OH NO! You're only earning $6,500 (if you're lucky - they've lowered the asking rent) per month in the first year. So you're losing $4,113 a month, even including the tax benefit, because you can't deduct more from your taxes than you make in income. And count it the way a bank would - 11 months rental income - your monthly loss would be $4,500 a month. Add the tax abatement back in as it expires, and you're talking about a loss of $5,000 a month MINIMUM that you can never recover on your taxes.
Somebody quick do me the math. Prove that I'm wrong. (But I'm telling you now, I'll add back in the opportunity cost on the leveraged down payment if you forget it!)
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Response by JuiceMan
about 17 years ago
Posts: 3578
Member since: Aug 2007
"Apparently, that "benefit" isn't worth very much."
It is an interesting way to look at it steve, but if you look at the chart that bjw posted, it would say that there is a material difference among homeownership rates between the lower middle class and the upper middle class.
I would also say that this benefit difference is important to understand as your income rises. To your point, I don't think you should pay more for an apartment becuase of it, but it sure changes the way you look at equilibrium.
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Response by tech_guy
about 17 years ago
Posts: 967
Member since: Aug 2008
steve: very simply, your paper is wrong. If you bothered to read it, you'd know that attributing it to the Fed is also wrong. The very first page says that the opinions brought forth are not necessarily those of the Fed.
Congratulations. You found a paper describing an incorrect way to do buy vs. rent math. Want a cookie?
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Response by stevejhx
about 17 years ago
Posts: 12656
Member since: Feb 2008
Let's take the initial post: $1,799,000 to buy versus $6,500 to rent.
With 0% annual home appreciation, your rent could increase 16% per year and it would NEVER be better to buy.
Most people own homes for just 7 years. If there is 0% annual home appreciation, the rent could go up 30% per year AND STILL it would take 18 years to make it better to buy than to sell.
To get it to 7 years annual home price appreciation would have to be 8% and annual rent increase would have to be 30%.
You plan to...
buy a home costing: $1,799,000
come up with: $420,313 to buy the place.
and take out a mortgage for $1,439,200
You assume that...
your home will appreciate at 4.5% a year
and you will sell it in 10.0 years
You will start paying $12,563 monthly...
...but, YOUR HOME WILL BE APPRECIATING, you will be getting INCOME TAX DEDUCTIONS, though you will also owe capital gains taxes on any appreciation and have to pay the closing costs when the home finally sells.
Assuming rent increases with inflation at 4.0%, you could pay an equivalent rent of $7,431.07 a month starting today, live there, and be in exactly the same financial situation when you sell.
True Monthly Cost:$8,881.01
Oh, good! Look at how convenient housemath.us gives us an answer compared to the New York Times!
So you have mortgage and tax payments of $12,563 a month, but it REALLY only costs you $8,881.01.
Sure it does.
And you'd be willing to rent an equivalent place for $7,431.07.
Right - which is why they lowered the asking rent from $7,000 to $6,500.
What a piece of cr*p, one-sided model this is.
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Response by stevejhx
about 17 years ago
Posts: 12656
Member since: Feb 2008
Change the assumptions:
You plan to...
buy a home costing: $1,799,000
come up with: $420,313 to buy the place.
and take out a mortgage for $1,439,200
You assume that...
your home will appreciate at 0.0% a year
and you will sell it in 7.0 years
You will start paying $12,563 monthly...
...but, YOUR HOME WILL BE APPRECIATING...
No. I said 0% appreciation.
...you will be getting income tax deductions, though you will also owe capital gains taxes on any appreciation...
No. I said 0% appreciation.
...and have to pay the closing costs when the home finally sells.
Assuming rent increases with inflation at 4.0%, you could pay an equivalent rent of $11,696.74 a month starting today, live there, and be in exactly the same financial situation when you sell.
True Monthly Cost:$13,299.15
LMAO.
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Response by West81st
about 17 years ago
Posts: 5564
Member since: Jan 2008
And it happened that both of them came to a place where they bumped.
There they stood. Foot to foot. Face to face.
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Response by stevejhx
about 17 years ago
Posts: 12656
Member since: Feb 2008
I give, W81st. Just not into crap.
But all are in luck: I have ignored LICC = tech_guy. I've been through all his arguments before, unsubstantiated by anything but his imagination. Which is why he lives in LICC: can't afford Manhattan.
"To your point, I don't think you should pay more for an apartment becuase of it, but it sure changes the way you look at equilibrium."
How?
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Response by tech_guy
about 17 years ago
Posts: 967
Member since: Aug 2008
"...but, YOUR HOME WILL BE APPRECIATING...
No. I said 0% appreciation."
And it told you the amount of the appreciation was $0. Learn to read.
Speaking of learning to read, reread my very first post in this thread, when I said this property was overvalued and not worth it on a rent vs. buy analysis. If the best argument you have against me is "make believe he likes this thing he already said he doesn't", it means I've won pretty big.
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Response by stevejhx
about 17 years ago
Posts: 12656
Member since: Feb 2008
"Ignoring comment by tech_guy."
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Response by LICComment
about 17 years ago
Posts: 3610
Member since: Dec 2007
steve, your analysis is minor league and mistake-ridden. Your marginal/effective tax rate argument is foolish.
You stated once before how much money you make. I can afford whatever you can afford. LIC is a great area and a great investment. I don't have the insecurity hang-ups that you do, and unlike you, I fit into an area with a young professional residential base.
I haven't looked at these apartments you are comparing, but if your history is any guide, you probably cherry-picked apartments to make your argument look better and the apartments are not really comparable. You have done that plenty in the past.
A $6500 rental would be a fair purchase in the $1.4-$1.5 million range, depending on all the circumstances.
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Response by stevejhx
about 17 years ago
Posts: 12656
Member since: Feb 2008
"Ignoring comment by LICComment"
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Response by tech_guy
about 17 years ago
Posts: 967
Member since: Aug 2008
The best part is, he responds to so many of my comments, that I know he reads each and every one of them. When he has no answer, he pretends he didn't.
I wouldn't worry about comparing actual wealth. Judging by just his stated stock positions, his picks have done terribly. Its quite humorous actually - even a horrible picker should get lucky sometimes, but steve seems to be wrong 100% of the time. And with such a basic misunderstanding of basic economic principles, and flagrant lies, I doubt all the information he gives about his own net worth and salary. I doubt he's even capable of calculating it accurately.
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Response by stevejhx
about 17 years ago
Posts: 12656
Member since: Feb 2008
Buy or Rent? Learn the Rule of 15
Posted By:Carmen Wong Ulrich
Topics:Personal Finance | Credit | Credit Cards | Mortgages
Ever hear of the real estate Rule of 15? I mentioned it yesterday on a segment with Al Roker on the TODAY Show as we discussed a question tossing and turning through many American heads these days: “Should I buy or rent?”
Here’s how the rule goes: Let’s say you’re looking at a 2-bedroom house or apartment:
1) Find the going rent in the neighborhood or location you’re interested in—which you can track down through sites like Zillow.com and Trulia.com—and calculate how much you’d spend in rent a year. Say, $2,000 a month would mean an annual rent of $24,000.
2) Multiply that number—your annual rent—by 15. (in this case: $360,000)
3) Now look up and compare the going price of a comparable space in the same area, to buy.
4) If that number is much greater than your annual-rent-times-15, the location probably still has a way to go down in home value. The bubble here ain’t done burstin’ and you should rent for a while. The last thing you want to be is upside-down on a mortgage—owing more than your new home is worth.
Keep in mind that some bubbles burst more quickly than others. So if you’re going to stay put for 10 to 30 years and you need to buy now, then buy. Just be very well informed about where you’re buying, what property values are and, should you dip into the cheaper well of foreclosures, do your research. You want a ‘merit’ badge in your local market before you buy these days.
But of course since they can't get the that they originally asked - let alone the $7,431.07 for it that the very biased housemath.us says they should get - and it's now listed at $6,500 and they're likely to get no more than $6,000 (if they're lucky), let's redo the math:
'/%3e%3c/g%3e%3c/svg%3e)
"Apparently, that "benefit" isn't worth very much."
It is an interesting way to look at it steve, but if you look at the chart that bjw posted, it would say that there is a material difference among homeownership rates between the lower middle class and the upper middle class.
http://pewsocialtrends.org/pubs/?chartid=517
I would also say that this benefit difference is important to understand as your income rises. To your point, I don't think you should pay more for an apartment becuase of it, but it sure changes the way you look at equilibrium.
steve: very simply, your paper is wrong. If you bothered to read it, you'd know that attributing it to the Fed is also wrong. The very first page says that the opinions brought forth are not necessarily those of the Fed.
Congratulations. You found a paper describing an incorrect way to do buy vs. rent math. Want a cookie?
Let's take the initial post: $1,799,000 to buy versus $6,500 to rent.
With 0% annual home appreciation, your rent could increase 16% per year and it would NEVER be better to buy.
Most people own homes for just 7 years. If there is 0% annual home appreciation, the rent could go up 30% per year AND STILL it would take 18 years to make it better to buy than to sell.
To get it to 7 years annual home price appreciation would have to be 8% and annual rent increase would have to be 30%.
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html
Housemath.us says:
Here's the deal:
You plan to...
buy a home costing: $1,799,000
come up with: $420,313 to buy the place.
and take out a mortgage for $1,439,200
You assume that...
your home will appreciate at 4.5% a year
and you will sell it in 10.0 years
You will start paying $12,563 monthly...
...but, YOUR HOME WILL BE APPRECIATING, you will be getting INCOME TAX DEDUCTIONS, though you will also owe capital gains taxes on any appreciation and have to pay the closing costs when the home finally sells.
Assuming rent increases with inflation at 4.0%, you could pay an equivalent rent of $7,431.07 a month starting today, live there, and be in exactly the same financial situation when you sell.
True Monthly Cost:$8,881.01
Oh, good! Look at how convenient housemath.us gives us an answer compared to the New York Times!
So you have mortgage and tax payments of $12,563 a month, but it REALLY only costs you $8,881.01.
Sure it does.
And you'd be willing to rent an equivalent place for $7,431.07.
Right - which is why they lowered the asking rent from $7,000 to $6,500.
What a piece of cr*p, one-sided model this is.
Change the assumptions:
You plan to...
buy a home costing: $1,799,000
come up with: $420,313 to buy the place.
and take out a mortgage for $1,439,200
You assume that...
your home will appreciate at 0.0% a year
and you will sell it in 7.0 years
You will start paying $12,563 monthly...
...but, YOUR HOME WILL BE APPRECIATING...
No. I said 0% appreciation.
...you will be getting income tax deductions, though you will also owe capital gains taxes on any appreciation...
No. I said 0% appreciation.
...and have to pay the closing costs when the home finally sells.
Assuming rent increases with inflation at 4.0%, you could pay an equivalent rent of $11,696.74 a month starting today, live there, and be in exactly the same financial situation when you sell.
True Monthly Cost:$13,299.15
LMAO.
And it happened that both of them came to a place where they bumped.
There they stood. Foot to foot. Face to face.
I give, W81st. Just not into crap.
But all are in luck: I have ignored LICC = tech_guy. I've been through all his arguments before, unsubstantiated by anything but his imagination. Which is why he lives in LICC: can't afford Manhattan.
"To your point, I don't think you should pay more for an apartment becuase of it, but it sure changes the way you look at equilibrium."
How?
"...but, YOUR HOME WILL BE APPRECIATING...
No. I said 0% appreciation."
And it told you the amount of the appreciation was $0. Learn to read.
Speaking of learning to read, reread my very first post in this thread, when I said this property was overvalued and not worth it on a rent vs. buy analysis. If the best argument you have against me is "make believe he likes this thing he already said he doesn't", it means I've won pretty big.
"Ignoring comment by tech_guy."
steve, your analysis is minor league and mistake-ridden. Your marginal/effective tax rate argument is foolish.
You stated once before how much money you make. I can afford whatever you can afford. LIC is a great area and a great investment. I don't have the insecurity hang-ups that you do, and unlike you, I fit into an area with a young professional residential base.
I haven't looked at these apartments you are comparing, but if your history is any guide, you probably cherry-picked apartments to make your argument look better and the apartments are not really comparable. You have done that plenty in the past.
A $6500 rental would be a fair purchase in the $1.4-$1.5 million range, depending on all the circumstances.
"Ignoring comment by LICComment"
The best part is, he responds to so many of my comments, that I know he reads each and every one of them. When he has no answer, he pretends he didn't.
I wouldn't worry about comparing actual wealth. Judging by just his stated stock positions, his picks have done terribly. Its quite humorous actually - even a horrible picker should get lucky sometimes, but steve seems to be wrong 100% of the time. And with such a basic misunderstanding of basic economic principles, and flagrant lies, I doubt all the information he gives about his own net worth and salary. I doubt he's even capable of calculating it accurately.
Buy or Rent? Learn the Rule of 15
Posted By:Carmen Wong Ulrich
Topics:Personal Finance | Credit | Credit Cards | Mortgages
Ever hear of the real estate Rule of 15? I mentioned it yesterday on a segment with Al Roker on the TODAY Show as we discussed a question tossing and turning through many American heads these days: “Should I buy or rent?”
Here’s how the rule goes: Let’s say you’re looking at a 2-bedroom house or apartment:
1) Find the going rent in the neighborhood or location you’re interested in—which you can track down through sites like Zillow.com and Trulia.com—and calculate how much you’d spend in rent a year. Say, $2,000 a month would mean an annual rent of $24,000.
2) Multiply that number—your annual rent—by 15. (in this case: $360,000)
3) Now look up and compare the going price of a comparable space in the same area, to buy.
4) If that number is much greater than your annual-rent-times-15, the location probably still has a way to go down in home value. The bubble here ain’t done burstin’ and you should rent for a while. The last thing you want to be is upside-down on a mortgage—owing more than your new home is worth.
Keep in mind that some bubbles burst more quickly than others. So if you’re going to stay put for 10 to 30 years and you need to buy now, then buy. Just be very well informed about where you’re buying, what property values are and, should you dip into the cheaper well of foreclosures, do your research. You want a ‘merit’ badge in your local market before you buy these days.
http://www.cnbc.com/id/25625777/
$6,500 * 15 * 12 = $1.17 million = overpriced
New York historical average = 11.7
$6,500 * 11.7 * 12 = $912,600 = average historical price
But of course since they can't get the that they originally asked - let alone the $7,431.07 for it that the very biased housemath.us says they should get - and it's now listed at $6,500 and they're likely to get no more than $6,000 (if they're lucky), let's redo the math:
$6,000 * 15 * 12 = $1.08 million = overpriced
$6,000 * 11.7 * 12 = $842,400 = average historical price.
Ergo, more than 100% overpriced.
Ignoring comment by tech_guy.