Live Chat Should Resume Next Week

Posted by urbandigs

Thu Sep 28th, 2006 07:34 PM

Just need to commute back and forth to NYC for business and to find a new rental. I should be back to normal LIVE CHAT schedule sometime next week. Sorry for any inconvienence.


How I Think About Rent vs Buy

Posted by urbandigs

Thu Sep 28th, 2006 07:47 AM

A: Wow what a difference 4 years makes! When I first bought my condo I knew I was taking a big risk by buying more house than my income could afford. I had the down payment money saved up from my previous career as an equities trader, and just fell in love with a JR4 + terrace on East 93rd street. I always considered renting it out a viable option should the monthly payments got too pricey. Today, rental prices are at 6 year highs or so and finding a good apartment (i.e. renovated with doorman in desireable location) is incrediby expensive. Lets do some analyzing to see how the #'s play out and why I think renting is a good option for my specific situation.

rent-vs-buy-new-york.jpg

When I first rented out my condo I got $350 less than the total expenses I needed to break even. Not bad I thought, but it got worse. As real estate values soared property taxes were raised as the city began cashing in on the changing market trend. As a result my living costs began to rise and all of a sudden my monthly loss rose to $700 a month. Fun stuff this real estate thing; only I wish I thought of this contingency before I bought!

Anyway, as I spent yesterday browsing 1BR rentals in the UES to move into I saw with my own eyes what the headlines and I have been reporting for the past 6-12 months or so. Good rentals are asking sky high prices!

Is it worth it. Here is how I would anaylze it:

RENTAL OPTIONS


1 BR at Park 96 - $2750/Month (nice size at 750 sft and location but apt in poor condition as the building begins to age a bit at 12)

1BR at The Monterey - $3200/Month (small at 650-700 sft but renovated)

1BR at Carnegie Park - $3095/Month (650 sft is small but building has most amenities)

BUYING OPTIONS (Lets assume 20% down, 5% Below Ask Purchase Price & Interest Rate of 6.5%)

130 E 94: Apt 6D
Asking: $499,000
Size: 725 sft
Maint: $1,144
Estimated Monthly Payment (Before Tax Benefits): $3,616 w/ $94,810 down payment
Total Transaction Fees: Aprox $50,000 ($7,000 on buy side and aprox 8% of purchase price, lets say $525,000, on sell side)
Total Monies Needed To Buy & Lost Interest Expense (5% Money Market) - $102,000 & $425/Month Interest Lost

40 E 94: Apt
Asking: $679,000
Size: 783 sft
Maint: $1,019
Estimated Monthly Payment (Before Tax Benefits): $4,356 w/ $129,010 down payment
Total Transaction Fees: Aprox $80,000 ($25,000 on buy side and aprox 8% of purchase price, lets say $699,000, on sell side)
Total Monies Needed To Buy & Lost Interest Expense (5% Money Market) - $155,000 & $646/Month Interest Lost

150 E 93: Apt 7F
Asking: $499,000
Size: 750 sft
Maint: $996
Estimated Monthly Payment (Before Tax Benefits): $3,468 w/ $94,810 down payment
Total Transaction Fees: Aprox $50,000 ($7,000 on buy side and aprox 8% of purchase price, lets say $525,000, on sell side)
Total Monies Needed To Buy & Lost Interest Expense (5% Money Market) - $102,000 & $425/Month Interest Lost

To get these numbers I will use the first example of 130 E 94th apartment:

Asking Price = $499,000
Purchase Price = $474,050 (5% Below Ask)
Down Payment = $94,810 (20% of $474,050 Price)
Loan Amount = $379,240 ($474,050 - $94,810)
Loan Payment = $2,397.05 (6.5% over 30 years)
Other Payments = $1,144 (maintenance + RE Taxes)
Other Payments = $75/Month Homeowners Insurance
TOTAL PAYMENT = $3,616 Per Month Before Tax Benefits

NOT DONE YET! One of the least acknowledged aspects of buying a new home is the transaction fees with buying & selling (not just buying because the deal isn't done until you sell and to sell you must pay transaction fees as well!). Co-op transaction fees are lower than that of condos because you are NOT buying real property. So, I added these aproximate and generalized costs (assuming 6% brokers commission on sell side too) just to give a conservative estimate for sake of crunching the numbers. You MUST take these costs into account when deciding whether or not to buy or rent as well!

I also added in the TOTAL monies needed from the buyer to do the deal and the monthly interest income that this money would have generated if it was sitting in a 5% money market account (again, very conservative as 5.5% is more likely). It's always good to know what your money could be making if it was safely sitting in a high yielding CD or money market account during these number crunching sessions.

Conclusions: For someone like me who is planning on buying again in NYC but doesn't know how long I will keep this new property, it doesn't pay off to rush back in! Transaction costs alone make buying and selling over the next 2 years a poor option when comparing it to renting, even with much higher rental prices and no tax benefits! Remember, with the money I save on down payment and closing costs added to the rest of my portfolio, I can get interest income that equals almost 50% of my rental costs; offsetting the loss of building equity a bit and uncle sams tax benefits of home ownership!

For me, in my opinion, given market conditions and fundamentals, RENTING makes the most sense short term with the intention of buying down the road for the longer term so that the transaction fees of buying and selling are cancelled out by a more positive environment of home price appreciation that I think is upcoming in the years to come.

I apologize if this post got lengthy and a bit confusing with all the #'s, but this is how I analyze the situation before making a decision. Please reread the post if it was confusing at first focusing on the numbers section. If you believe I missed something or could enhance my thinking, please speak up on comments section!

Good Luck!


Good To Be Back

Posted by urbandigs

Wed Sep 27th, 2006 09:30 PM

A: Just got back from 26 days in Prague & Italy and I got to admit its taking me a bit to get back into work mode. For now, just wanted to pass on some pics that I thought you might enjoy before I get back into real estate mode. Now that I am no longer a homeowner (sold my condo July 6th) and a homeless NYC real estate agent & blogger, I need to find a new rental as my plan is to stick to safe investments with the money I got from the sale and wait on the sidelines for 1-2 years, or an opportunity arrives at the right time that can't be ignored. More on that in upcoming posts..


The town of Cesky Krumlov and its main castle about 2 hours outside of Prague:

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Hluboka castle near Cesky Krumlov:

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Vineyards in Tuscanny:

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The Colliseum in Rome:

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The Cliffs leading to The Amalfi Coast:

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From the amazing island of Capri:

capri.JPG