Author Topic: Manhattan: Rent or Buy?  (Read 3024 times)

thechoipolloi

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Manhattan: Rent or Buy?
« on: March 11, 2014, 09:10:25 PM »
Based on my recent research, the price-to-rent ratio for two Manhattan apartments of equivalent quality is roughly 30. This seems very high compared to the national average; it gets worse when you realize that maintenance fees, taxes, etc. usually amount to 30-40% of the rental price. So the price-to-profit ratio is something like 50, implying an abysmal return on investment for a non-resident owner.

Am I missing something here? Why does anybody ever hold rental property in Manhattan? Is there just a general assumption that prices will rise enough to justify a 2% return?

dragoncar

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Re: Manhattan: Rent or Buy?
« Reply #1 on: March 11, 2014, 09:17:01 PM »
Based on my recent research, the price-to-rent ratio for two Manhattan apartments of equivalent quality is roughly 30. This seems very high compared to the national average; it gets worse when you realize that maintenance fees, taxes, etc. usually amount to 30-40% of the rental price. So the price-to-profit ratio is something like 50, implying an abysmal return on investment for a non-resident owner.

Am I missing something here? Why does anybody ever hold rental property in Manhattan? Is there just a general assumption that prices will rise enough to justify a 2% return?

Appreciation?  Are you factoring tax deductions, which tend to be significant at manhattan salaries?

KingCoin

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Re: Manhattan: Rent or Buy?
« Reply #2 on: March 12, 2014, 11:10:00 AM »
There's no reason to buy other than the psychological appeal of owning.

Furthermore, the prevalence of co-op's make owning (especially rentals) even less enticing. This was a recent disaster to that effect from the forum:
http://www.mrmoneymustache.com/forum/real-estate-and-landlording/investment-property-sell-at-a-loss-wwyd/

Condos trade at a fairly absurd premium to already high prices because of the bid from deep pocketed foreigners who don't pass muster with co-op boards.

KingCoin

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Re: Manhattan: Rent or Buy?
« Reply #3 on: March 12, 2014, 11:33:16 AM »
There's no reason to buy other than the psychological appeal of owning.

Furthermore, the prevalence of co-op's make owning (especially rentals) even less enticing. This was a recent disaster to that effect from the forum:
http://www.mrmoneymustache.com/forum/real-estate-and-landlording/investment-property-sell-at-a-loss-wwyd/

Condos trade at a fairly absurd premium to already high prices because of the bid from deep pocketed foreigners who don't pass muster with co-op boards.

My husband and I were looking to buy a coop in Jackson Heights. We make double the income required for the purchase price and had a down payment, and were told flat out to not even both applying. We'd be rejected out of hand because we've worked at our jobs less than a year. We were told that would happen even if we bought in cash and only had to cover the $6000/yr in common charges. My broker says she's had millionaire real estate investors who wanted to buy an apartment in cash in the complex for an elderly parent get rejected because they had too much money in outstanding mortgages. We still think the coop is worth it and will probably buy next year, but be VERY careful.

Yeah, the situation is a little less grim in the outer burrows (though certain neighborhoods in Brooklyn are rapidly approaching Manhattan prices). However, given the hoops you have to jump through to buy, sell, or rent out co-ops, you have to be pretty sure you want to live there for the next 10-20 years. Buying "starter" properties like a studio or small 1-bed is probably the least compelling of all.

OzzieandHarriet

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Re: Manhattan: Rent or Buy?
« Reply #4 on: March 15, 2014, 08:17:29 AM »
I knew someone on an online forum some years back who had a two-bedroom co-op in Jackson Heights and could not sell it when they wanted to move to a bigger apartment. They had two children, a boy and a girl, who were approaching adolescence and still sharing a room. They actually found a willing buyer at one point, but the board rejected her because her dog was too big.

These people had paid the place off so had no mortgage, but that didn't really help because of course they couldn't rent it out.

I don't know what eventually happened, but a cautionary tale, for sure.

(I'm the poster with the RE "disaster" KingCoin referred to, btw -- I just posted an update.)