9 ms·

They Could Buy, but Why? Meet the High-Renters

50 points by spking 9y ago

jseliger 9y ago
>Buying an apartment in New York City is a marker of success for some residents It's also a sign of folly for some. Many people hate-read the Sunday Real Estate section. There are often one-bedrooms listed for $700k – $1 million, with $1K+ per month maintenance fees. Add on to that $200 – 1K per month in taxes, and suddenly you will have to wait a VERY long time to make anything like the return you'd get from investing in a Vanguard Total Market Fund and renting for $3K per month. Everyone in the real estate industry loves purchases because of the fees associated with purchase. But buying is often not a good idea (though it depends on when). If we get another real estate crash and prices drop by 10 – 20%, buying may start to make sense again. In 2011 buying was a great idea. This same basic dynamic plays out in many cities. The NYT has a decent rent-vs-buy calculator: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal... that can help answer some questions. Notice the investment return expected, which is a vital part of these calculations.
- toomuchtodo 9y ago
  Buying is almost always a good idea except in the hottest of real estate markets. If done properly (buy, then rent out when you move, managed by prop management company), you'll come out far ahead versus just renting. You should of corse still be investing in equities for diversification.
  - Domenic_S 9y ago
    It's an even better idea in hot markets. That is, unless you get in at the end of a cycle and need liquidity now.
  - user5994461 9y ago
    Depends if it is going to be your primary home. You need a roof on your head. You might as well pay the rent 10-30 years and own the place, rather than have nothing.
  - arielweisberg 9y ago
    Is renting out really that low risk even with a property management company? You are also now exposed to the vagaries of rental pricing and demand.
    - jshen 9y ago
      I think people misunderstand low risk. On average it easily nets out positively depending on location. The problem is the "on average" part. If due to bad luck you aren't the average, is it catastrophic for your finances, or is it just painful. I wouldn't take the risk if I were in the first category.
      - klipt 9y ago
        Real estate has a long negative tail if e.g. the renters stop paying and trash your place when evicted.
        toomuchtodo 9y ago
        That's what reserves, insurance, and a real estate attorney are for.
      - lotyrin 9y ago
        When my wife did the math before purchasing in our market, you'd have to have frequent or catastrophic repairs, have crazy vacancy (>50%), or be taking in well below market rate for comparable units (or some combination there-of). It seems the kind of property management it takes to sink the rent-vs-buy gap is beyond abysmal and made us really confident that we could afford to purchase despite not being sure if we're staying in the place long-term.
    - sidlls 9y ago
      It depends on the market segment. It's not that difficult to pick markets where the 1% rule (rent should be ~1% of the value of the home) applies and maintenance and vacancy are minimized. That's going to be primarily middle class and upper-middle-class markets in areas that don't have absurd "values" for homes.
  - Spooky23 9y ago
    It's like anything else. Buy low, sell high. Capital is cheaper than ever and prices are insane right now. If your goal is to make money, this is pretty clearly not a time to buy in many markets. Renting always has very significant downsides. You have no control, sacrifice flexibility, and are always exposed to any market price changes in the market at lease renewal. The rent vs buy calculators focus too much on asset value vs. cash flow.
- jshen 9y ago
  "and renting for $3K per month" I think you make a lot of assumptions, like the one above, which don't fit my admittedly anecdotal experience. I live in one of the hot markets, I bot a place at the peak of the market before the last crash, and found myself nearly $200k in the hole on paper. That was roughly 10 years ago, and here's what happened. I lived in it for 10 years, and I just sold it for more than I paid for it. Obviously this in isolation wasn't a good investment, but I did nearly the worst thing, bought at a peak before a crash, and still came out net positive 10 years later. Second, you said "and renting for $3K per month" which is a mistake because it's assuming rent will not go up in any significant way. Where I live, rent goes up a lot. That place I bought 10 years ago, a couple years back we thought about selling and renting (to get into a different school district) and we realized that our mortgage was lower than what we would have to pay in rent to get a similar place in the same area. Again, these are just anecdotes, but my experience doesn't fit with the assumptions you are making above.
  - Retric 9y ago
    That's with a small correction followed by a new bubble. Property values have dropped over 50% in various corrections around the world EX: Shanghai @ 64%. The US is easily that inflated relative to historic norms, so what we think of as a huge correction could basally be a minor blip vs what's next. Or even just a 20+ year stagnation in housing prices. Worse real estate transaction fees are are massive. PS: Same as it ever was. http://www.businessinsider.com/the-economic-crash-repeated-every-generation-1800-2012-1 http://www.businessinsider.com/the-economic-crash-repeated-e...
  - larrik 9y ago
    I bought a condo at the peak of the market before the crash, 11 years ago. So far, it's only gone down in value, regardless of what the rest of the market does. Even after refinancing it years ago into a 15 year mortgage, it's STILL worth less than I owe on it. Hurts
  - mgce 9y ago
    I didn't see where the parent assumed the $3k per month would stay static. Also recall that selling a place for more than you paid for it doesn't mean you've made money. As I'm sure you know, owning property also involves substantial ongoing costs (beyond the purchase price) that never get recouped: maintenance, property fees, incidental construction / renovation, insurance, mortgage taxes, real estate fees, and so on. Never mind the lost investment potential from the down payment, which is now a sunk cost vs. something that could have earned interest in the markets. I'm not trying to challenge your anecdote; just to recognize that even with stories like yours the truth is complicated and hard to assess. For my part, my experience has taught me to be especially wary of "hot markets" - the hype that comes with them IMO artificially inflates real estate prices to a point where the underlying value can easily get lost. I happen to be very lucky in having a rent situation that easily beats purchasing, even over multiple years. But I acknowledge rental arrangements can also get hyped, so a bad rental situation can also cost you.
- wyldfire 9y ago
  > with $1K+ per month maintenance fees. wow! How are these itemized? Or is it just referred to as a single line-item "$1,000.00 Maintenance fee" ?
  - nealrs 9y ago
    In NYC, most property ownership is through coops or condos. and in both, you'll pay a monthly maintenance fee - which includes things like common charges, landscaping for the complex/building, building mortgage, coop mgmt, real estate taxes, etc. I pay ~$900/month in fees for my 1 bedroom (charged based on the 113 shares i own) - and then I pay another 20-30 for electricity, which is billed on the same ticket. Then, come tax time, I get to deduct around ~35% of those maintenance fees as real estate tax. it varies from building to building and borough to borough.
    - mgce 9y ago
      Brownstone neighborhoods stress these numbers even further (e.g. much of "hot" Brooklyn). These consist largely of 19th century buildings. And even the "modern" apartment buildings are 1920s, 1930s, etc. These are also precisely the neighborhoods that zone-limit modern construction to avoid compromising their character. So you have a bunch of old buildings that need serious maintenance, sometimes by firms with specialized and otherwise outdated skill sets (e.g. stoop rebuilding and iron fence work). Many of these neighborhoods are also in historic districts, meaning they're landmark-protected to preserve traditional architectural character. Brooklyn Heights is a prime example. Essentially the whole neighborhood is one big historic district. The housing stock is ancient. And it's a highly desirable neighborhood. Maintenance fees can easily waver between $1,000 and $2,000. There are very few modern condos (which basically avoid these problems). So their very scarcity inflates their purchase prices. All in all you get a very difficult place to live in and own property.
  - itchyouch 9y ago
    Buildings will have an association fee, similar to an HOA. I've never looked into NY condos, but I've seen buildings in Northern NJ with fees at 500/mo. I would guess there is literally a $1k association fee to pay.
- lr4444lr 9y ago
  NYC was minimally affected by the real estate crash because of the ubiquity of co-ops, whose boards were not going to approve an onslaught of people with wealth that was only on paper or that were speculating on them as investments rather than using the dwellings as their primary residences. Prices dropped some, a little more so in the outer boroughs, but where did you see "10 - 20%"? The real problem with buying an apartment (as I see it) is that you don't really have most of the benefits of "ownership" aside from cost and location stability, and even that is somewhat in flux due to association/management fees, and if you have a co-op., mortgage rates. But, it's worthwhile for some, and IIRC, the return was better than the S&P 500 from 2000 through about 2013.
  - mgce 9y ago
    And if that's not a wild enough ride, try land leases. I can't for the life of me figure out any way to be truly comfortable with a land lease. NYC real estate is a really weird world.
verelo 9y ago
So this is a fun topic. I own 3 places, two apartments and one house. One of the apartments I lived in [and co-own with my partner] before we moved to the house, the other apartment I purchased because I was able to make the month to month math work [read: cash flow break even] and it gave me the 60(personal property)/20(market funds)/20(investment real estate) net worth split i wanted. The only reason real estate can work for me is because I'm able to put down 30% of the purchase price in cash for the apartments and borrow the rest at crazy low rates [2.99% & 2.59% for the more recently purchased unit]. If we assume a reasonable return on the apartment (4% annually) and a healthy yearly stock market return (8%), if you consider the fact that I couldn't borrow money to play with stock, the 'bonus' I get on appreciating portion of the property that is actually borrowed money makes them experience very similar performance when modelled[1] over a 10 year period. At the end of the day, as with all financial advice, what you should do dramatically depends on your current personal situation, goals and age. [1] https://docs.google.com/spreadsheets/d/1esgwYfYhDo0JaFP0qGhr3ybD4vaw_2I89n6zB5fAa9Y/edit?usp=sharing https://docs.google.com/spreadsheets/d/1esgwYfYhDo0JaFP0qGhr...
- davio 9y ago
  Can you talk more about the crazy low rates? What terms are you getting?
  - verelo 9y ago
    The first place i got 2.99% in 2014 on a 5 year fix [at the time 20% down], second was the house at 2.49% in 2016 on a 5 year fix [50% down], the 3rd an final was 20% down for 2.59% in 2017 [30% down].
    - verelo 9y ago
      uh it seems i brain farted, final place was 30% down...im not sure how i managed to type something conflicting twice in there.
- mstade 9y ago
  See, you've obviously put significant thought into this, even to the point of building a model. Most people I know, they buy a place because they need a place to live. They also tell themselves that buying a place is a great way to grow your capital. They may be right, but when asked "where are you going to live, once you've sold?" most people I know have terrible answers. Most people I know answer "I'll just buy a new place." The reality is that most people I know would rather rent – it's easier and in many cases even cheaper here. But the problem is that here is Stockholm, and Stockholm has a highly dysfunctional rental market where it's practically impossible for anyone to just come on to the market and find a place to rent within a week or two. You're more or less forced into buying a place if you're going to stick around. People that stick around for a couple of weeks, maybe a month, are going to be fine – plenty of hotels and such make it easy to stay. But if you're staying for more than a month, but probably less than say three years – you're more or less SOL. There's a sort of secondary (and even tertiary, believe it or not) rental market, but you'll probably be moving around every few months whether you like it or not. I can't help but think the chips are stacked against those who just need a place to live for a while, here in Stockholm at least.
jhulla 9y ago
Interesting. One important benefit of buying: the $500K capital gains tax exemption for married couples on sales of their primary home after living for two+ years. http://www.nolo.com/legal-encyclopedia/the-250000500000-home-sale-tax-exclusion.html http://www.nolo.com/legal-encyclopedia/the-250000500000-home...
- ThrustVectoring 9y ago
  Also the mortgage interest deduction. It essentially means that you pay interest on the mortgage with pre-tax dollars, not post-tax.
  - gnopgnip 9y ago
    Most people overestimate the value of this deduction. If you are married filing jointly you would get a $12600 without itemizing. So you are only saving any money if your mortgage interest and property taxes are more than $12600 a year, or if you have other deductions.
dionidium 9y ago
I lived most of my life in the Midwest and this was true for me there, too. I moved apartments a lot, because I enjoyed spending time in different neighborhoods. Plus, whenever I changed jobs, I moved to be closer to the office. Earlier this year I moved to New York. I couldn't have done any of that so easily if I'd bought a house when all my peers did.
- angmarsbane 9y ago
  I think you bring up a big point that hasn't been discussed yet. If you own property and lose your job or get a job opportunity on the other side of a city with a lot of traffic or another part of the country it is a lot more difficult to shed an owned property than it is a rental.
  - dionidium 9y ago
    Yes, exactly. Owning a home made a lot more sense when employment was for life and young adults had kids. But I don't have children and who knows where my next job will be? I'd take a good offer almost anywhere. Owning complicates that.
philip1209 9y ago
My girlfriend and I were looking at real estate in SF. It was unreasonably expensive for places that we did not love. We have since decided to sell all of our things and live full-time in AirBNBs around the world. I now only have a carry-on suitcase and backpack, and getting rid of all of my crap was such an empowering feeling. For less than rent in SF, we are currently in a beautiful apartment in Mexico City that is decorated, has all services provided (including internet), and has weekly maid cleanings. I don't know how long we will continue this lifestyle, but AirBNB makes it easy. For multi-month rentals, payments go through monthly. After dealing with so many headaches in personal and commercial rentals in SF, I'm welcoming this lifestyle. I'm tired of setting up internet, enrolling in utility payments, disputing issues with landlords, and moving crap between apartments. The last year has been a nightmare for this stuff, and having to deal with long leases has been a root problem preventing me from walking out of bad personal and business rentals. (Fun fact - even canceling a month-to-month Comcast business internet account requires 2 months notice.)
- artursapek 9y ago
  If I didn't have a kid, I would try to live this way as well. Sounds really nice.
  - jdavis703 9y ago
    You can still live minimally with a kid (obviously with school and such travel is harder, but homeschool/unschool is always an option). There are many tiny home documentaries out there with people who have kids. Because I don't have Netflix convenient, here's something I think might be relevant: http://www.theminimalists.com/familylinks/ http://www.theminimalists.com/familylinks/
    - thesmallestcat 9y ago
      Might want to consider the kid's wants and needs too.
- tryitnow 9y ago
  How long have you lived this lifestyle?
jimlawruk 9y ago
Buyers in a high priced area are taking on way more risk then people realize. If you have $200K and buy a $1M dollar apartment, you just put 500% of your net worth into one asset. If prices fall by 20%, you just lost all of your money. Hot markets like NYC and SF have inflated prices propped up by high incomes, restrictive building practices, low interest rates, and high desirability. You can't assume all of these factors will remain forever.
- jdavis703 9y ago
  No, you put 100% of your net worth into that condo. Assuming that a market crash doesn't affect your ability to pay your mortgage you're still seeing a positive ROI in regards to imputed rents.
  - IanCal 9y ago
    You have $1M in real estate and an $800k debt. Your net worth is still $200k, however.
    - alpha_squared 9y ago
      Why wouldn't the net worth be -$600k? Debt is usually accounted for in net worth.
      - sndp 9y ago
        You'd account for the debt, as well as the value of the property. Liabilites: $800k loan Assets: $1M property $0 cash Net worth: $200k
      - IanCal 9y ago
        $1M assets - $800k debt = $200k net worth Assuming everything keeps its value equal and buying and selling have no cost (which at these scales and required accuracy is probably reasonable for the comment), any amount of buying and selling and borrowing should keep your net worth identical.
Overtonwindow 9y ago
I lived in apartments since I was 18, up and down the east coast. After ten years renting and paying through the nose in DC I went to Atlanta and bought a house at 34. Sadly no jobs in my industry so I've moved back to the DC area and I'm renting out my house. The lesson for me was that I should have bought sooner. This house is a nice foundation for myself and it's actually freed my worry to be a little bold, and go where I need to go. I always have that house to go back to if all else fails, so to speak.
southphillyman 9y ago
All of my NYC friends move to different apartments every year or two as well. For a completely different reason though, they can not afford the yearly increases. One friend had a place near Barclays for $2800 and it went up to $3500 in a single years increase.
- kaosjester 9y ago
  I'm moving out of a house right now in the midwest that bumped my rent by $100/mo each year, but they listed it back at my original rate this year. For some reason, being a multi-year tenant cost me an extra ~$3000.
muninn_ 9y ago
> Ms. Braddock said: “Here, there’s no stigma attached to renting, which is not true elsewhere in the country.” Interesting comment. Never in my life or travels have I met anoybody who attached stigma to renting a place.
- JSDave 9y ago
  I think it's more common among the very wealthy. When part of the appeal is flaunting your wealth, renting is probably not the way to go. I think a 1000k 1 bed condo is comparable to a 200k car in that it isn't just a place to stay or a way to get from A to B.
- ghostly_s 9y ago
  In the small city where I grew up there is definitely a stigma attached to renting. The pool of rental housing is very small and poor quality/low-rent, so renting implies not having "made it".

50 points by spking 9y ago

>Buying an apartment in New York City is a marker of success for some residents It's also a sign of folly for some. Many people hate-read the Sunday Real Estate section. There are often one-bedrooms listed for $700k – $1 million, with $1K+ per month maintenance fees. Add on to that $200 – 1K per month in taxes, and suddenly you will have to wait a VERY long time to make anything like the return you'd get from investing in a Vanguard Total Market Fund and renting for $3K per month. Everyone in the real estate industry loves purchases because of the fees associated with purchase. But buying is often not a good idea (though it depends on when). If we get another real estate crash and prices drop by 10 – 20%, buying may start to make sense again. In 2011 buying was a great idea. This same basic dynamic plays out in many cities. The NYT has a decent rent-vs-buy calculator: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal... that can help answer some questions. Notice the investment return expected, which is a vital part of these calculations.

toomuchtodo 9y ago
Buying is almost always a good idea except in the hottest of real estate markets. If done properly (buy, then rent out when you move, managed by prop management company), you'll come out far ahead versus just renting. You should of corse still be investing in equities for diversification.
- Domenic_S 9y ago
  It's an even better idea in hot markets. That is, unless you get in at the end of a cycle and need liquidity now.
- user5994461 9y ago
  Depends if it is going to be your primary home. You need a roof on your head. You might as well pay the rent 10-30 years and own the place, rather than have nothing.
- arielweisberg 9y ago
  Is renting out really that low risk even with a property management company? You are also now exposed to the vagaries of rental pricing and demand.
  - jshen 9y ago
    I think people misunderstand low risk. On average it easily nets out positively depending on location. The problem is the "on average" part. If due to bad luck you aren't the average, is it catastrophic for your finances, or is it just painful. I wouldn't take the risk if I were in the first category.
    - klipt 9y ago
      Real estate has a long negative tail if e.g. the renters stop paying and trash your place when evicted.
      - toomuchtodo 9y ago
        That's what reserves, insurance, and a real estate attorney are for.
    - lotyrin 9y ago
      When my wife did the math before purchasing in our market, you'd have to have frequent or catastrophic repairs, have crazy vacancy (>50%), or be taking in well below market rate for comparable units (or some combination there-of). It seems the kind of property management it takes to sink the rent-vs-buy gap is beyond abysmal and made us really confident that we could afford to purchase despite not being sure if we're staying in the place long-term.
  - sidlls 9y ago
    It depends on the market segment. It's not that difficult to pick markets where the 1% rule (rent should be ~1% of the value of the home) applies and maintenance and vacancy are minimized. That's going to be primarily middle class and upper-middle-class markets in areas that don't have absurd "values" for homes.
- Spooky23 9y ago
  It's like anything else. Buy low, sell high. Capital is cheaper than ever and prices are insane right now. If your goal is to make money, this is pretty clearly not a time to buy in many markets. Renting always has very significant downsides. You have no control, sacrifice flexibility, and are always exposed to any market price changes in the market at lease renewal. The rent vs buy calculators focus too much on asset value vs. cash flow.
jshen 9y ago
"and renting for $3K per month" I think you make a lot of assumptions, like the one above, which don't fit my admittedly anecdotal experience. I live in one of the hot markets, I bot a place at the peak of the market before the last crash, and found myself nearly $200k in the hole on paper. That was roughly 10 years ago, and here's what happened. I lived in it for 10 years, and I just sold it for more than I paid for it. Obviously this in isolation wasn't a good investment, but I did nearly the worst thing, bought at a peak before a crash, and still came out net positive 10 years later. Second, you said "and renting for $3K per month" which is a mistake because it's assuming rent will not go up in any significant way. Where I live, rent goes up a lot. That place I bought 10 years ago, a couple years back we thought about selling and renting (to get into a different school district) and we realized that our mortgage was lower than what we would have to pay in rent to get a similar place in the same area. Again, these are just anecdotes, but my experience doesn't fit with the assumptions you are making above.
- Retric 9y ago
  That's with a small correction followed by a new bubble. Property values have dropped over 50% in various corrections around the world EX: Shanghai @ 64%. The US is easily that inflated relative to historic norms, so what we think of as a huge correction could basally be a minor blip vs what's next. Or even just a 20+ year stagnation in housing prices. Worse real estate transaction fees are are massive. PS: Same as it ever was. http://www.businessinsider.com/the-economic-crash-repeated-every-generation-1800-2012-1 http://www.businessinsider.com/the-economic-crash-repeated-e...
- larrik 9y ago
  I bought a condo at the peak of the market before the crash, 11 years ago. So far, it's only gone down in value, regardless of what the rest of the market does. Even after refinancing it years ago into a 15 year mortgage, it's STILL worth less than I owe on it. Hurts
- mgce 9y ago
  I didn't see where the parent assumed the $3k per month would stay static. Also recall that selling a place for more than you paid for it doesn't mean you've made money. As I'm sure you know, owning property also involves substantial ongoing costs (beyond the purchase price) that never get recouped: maintenance, property fees, incidental construction / renovation, insurance, mortgage taxes, real estate fees, and so on. Never mind the lost investment potential from the down payment, which is now a sunk cost vs. something that could have earned interest in the markets. I'm not trying to challenge your anecdote; just to recognize that even with stories like yours the truth is complicated and hard to assess. For my part, my experience has taught me to be especially wary of "hot markets" - the hype that comes with them IMO artificially inflates real estate prices to a point where the underlying value can easily get lost. I happen to be very lucky in having a rent situation that easily beats purchasing, even over multiple years. But I acknowledge rental arrangements can also get hyped, so a bad rental situation can also cost you.
wyldfire 9y ago
> with $1K+ per month maintenance fees. wow! How are these itemized? Or is it just referred to as a single line-item "$1,000.00 Maintenance fee" ?
- nealrs 9y ago
  In NYC, most property ownership is through coops or condos. and in both, you'll pay a monthly maintenance fee - which includes things like common charges, landscaping for the complex/building, building mortgage, coop mgmt, real estate taxes, etc. I pay ~$900/month in fees for my 1 bedroom (charged based on the 113 shares i own) - and then I pay another 20-30 for electricity, which is billed on the same ticket. Then, come tax time, I get to deduct around ~35% of those maintenance fees as real estate tax. it varies from building to building and borough to borough.
  - mgce 9y ago
    Brownstone neighborhoods stress these numbers even further (e.g. much of "hot" Brooklyn). These consist largely of 19th century buildings. And even the "modern" apartment buildings are 1920s, 1930s, etc. These are also precisely the neighborhoods that zone-limit modern construction to avoid compromising their character. So you have a bunch of old buildings that need serious maintenance, sometimes by firms with specialized and otherwise outdated skill sets (e.g. stoop rebuilding and iron fence work). Many of these neighborhoods are also in historic districts, meaning they're landmark-protected to preserve traditional architectural character. Brooklyn Heights is a prime example. Essentially the whole neighborhood is one big historic district. The housing stock is ancient. And it's a highly desirable neighborhood. Maintenance fees can easily waver between $1,000 and $2,000. There are very few modern condos (which basically avoid these problems). So their very scarcity inflates their purchase prices. All in all you get a very difficult place to live in and own property.
- itchyouch 9y ago
  Buildings will have an association fee, similar to an HOA. I've never looked into NY condos, but I've seen buildings in Northern NJ with fees at 500/mo. I would guess there is literally a $1k association fee to pay.
lr4444lr 9y ago
NYC was minimally affected by the real estate crash because of the ubiquity of co-ops, whose boards were not going to approve an onslaught of people with wealth that was only on paper or that were speculating on them as investments rather than using the dwellings as their primary residences. Prices dropped some, a little more so in the outer boroughs, but where did you see "10 - 20%"? The real problem with buying an apartment (as I see it) is that you don't really have most of the benefits of "ownership" aside from cost and location stability, and even that is somewhat in flux due to association/management fees, and if you have a co-op., mortgage rates. But, it's worthwhile for some, and IIRC, the return was better than the S&P 500 from 2000 through about 2013.
- mgce 9y ago
  And if that's not a wild enough ride, try land leases. I can't for the life of me figure out any way to be truly comfortable with a land lease. NYC real estate is a really weird world.

verelo 9y ago

So this is a fun topic. I own 3 places, two apartments and one house. One of the apartments I lived in [and co-own with my partner] before we moved to the house, the other apartment I purchased because I was able to make the month to month math work [read: cash flow break even] and it gave me the 60(personal property)/20(market funds)/20(investment real estate) net worth split i wanted. The only reason real estate can work for me is because I'm able to put down 30% of the purchase price in cash for the apartments and borrow the rest at crazy low rates [2.99% & 2.59% for the more recently purchased unit]. If we assume a reasonable return on the apartment (4% annually) and a healthy yearly stock market return (8%), if you consider the fact that I couldn't borrow money to play with stock, the 'bonus' I get on appreciating portion of the property that is actually borrowed money makes them experience very similar performance when modelled[1] over a 10 year period. At the end of the day, as with all financial advice, what you should do dramatically depends on your current personal situation, goals and age. [1] https://docs.google.com/spreadsheets/d/1esgwYfYhDo0JaFP0qGhr3ybD4vaw_2I89n6zB5fAa9Y/edit?usp=sharing https://docs.google.com/spreadsheets/d/1esgwYfYhDo0JaFP0qGhr...

davio 9y ago
Can you talk more about the crazy low rates? What terms are you getting?
- verelo 9y ago
  The first place i got 2.99% in 2014 on a 5 year fix [at the time 20% down], second was the house at 2.49% in 2016 on a 5 year fix [50% down], the 3rd an final was 20% down for 2.59% in 2017 [30% down].
  - verelo 9y ago
    uh it seems i brain farted, final place was 30% down...im not sure how i managed to type something conflicting twice in there.
mstade 9y ago
See, you've obviously put significant thought into this, even to the point of building a model. Most people I know, they buy a place because they need a place to live. They also tell themselves that buying a place is a great way to grow your capital. They may be right, but when asked "where are you going to live, once you've sold?" most people I know have terrible answers. Most people I know answer "I'll just buy a new place." The reality is that most people I know would rather rent – it's easier and in many cases even cheaper here. But the problem is that here is Stockholm, and Stockholm has a highly dysfunctional rental market where it's practically impossible for anyone to just come on to the market and find a place to rent within a week or two. You're more or less forced into buying a place if you're going to stick around. People that stick around for a couple of weeks, maybe a month, are going to be fine – plenty of hotels and such make it easy to stay. But if you're staying for more than a month, but probably less than say three years – you're more or less SOL. There's a sort of secondary (and even tertiary, believe it or not) rental market, but you'll probably be moving around every few months whether you like it or not. I can't help but think the chips are stacked against those who just need a place to live for a while, here in Stockholm at least.

jhulla 9y ago

Interesting. One important benefit of buying: the $500K capital gains tax exemption for married couples on sales of their primary home after living for two+ years. http://www.nolo.com/legal-encyclopedia/the-250000500000-home-sale-tax-exclusion.html http://www.nolo.com/legal-encyclopedia/the-250000500000-home...

ThrustVectoring 9y ago
Also the mortgage interest deduction. It essentially means that you pay interest on the mortgage with pre-tax dollars, not post-tax.
- gnopgnip 9y ago
  Most people overestimate the value of this deduction. If you are married filing jointly you would get a $12600 without itemizing. So you are only saving any money if your mortgage interest and property taxes are more than $12600 a year, or if you have other deductions.

dionidium 9y ago

I lived most of my life in the Midwest and this was true for me there, too. I moved apartments a lot, because I enjoyed spending time in different neighborhoods. Plus, whenever I changed jobs, I moved to be closer to the office. Earlier this year I moved to New York. I couldn't have done any of that so easily if I'd bought a house when all my peers did.

angmarsbane 9y ago
I think you bring up a big point that hasn't been discussed yet. If you own property and lose your job or get a job opportunity on the other side of a city with a lot of traffic or another part of the country it is a lot more difficult to shed an owned property than it is a rental.
- dionidium 9y ago
  Yes, exactly. Owning a home made a lot more sense when employment was for life and young adults had kids. But I don't have children and who knows where my next job will be? I'd take a good offer almost anywhere. Owning complicates that.

philip1209 9y ago

My girlfriend and I were looking at real estate in SF. It was unreasonably expensive for places that we did not love. We have since decided to sell all of our things and live full-time in AirBNBs around the world. I now only have a carry-on suitcase and backpack, and getting rid of all of my crap was such an empowering feeling. For less than rent in SF, we are currently in a beautiful apartment in Mexico City that is decorated, has all services provided (including internet), and has weekly maid cleanings. I don't know how long we will continue this lifestyle, but AirBNB makes it easy. For multi-month rentals, payments go through monthly. After dealing with so many headaches in personal and commercial rentals in SF, I'm welcoming this lifestyle. I'm tired of setting up internet, enrolling in utility payments, disputing issues with landlords, and moving crap between apartments. The last year has been a nightmare for this stuff, and having to deal with long leases has been a root problem preventing me from walking out of bad personal and business rentals. (Fun fact - even canceling a month-to-month Comcast business internet account requires 2 months notice.)

artursapek 9y ago
If I didn't have a kid, I would try to live this way as well. Sounds really nice.
- jdavis703 9y ago
  You can still live minimally with a kid (obviously with school and such travel is harder, but homeschool/unschool is always an option). There are many tiny home documentaries out there with people who have kids. Because I don't have Netflix convenient, here's something I think might be relevant: http://www.theminimalists.com/familylinks/ http://www.theminimalists.com/familylinks/
  - thesmallestcat 9y ago
    Might want to consider the kid's wants and needs too.
tryitnow 9y ago
How long have you lived this lifestyle?

jimlawruk 9y ago

Buyers in a high priced area are taking on way more risk then people realize. If you have $200K and buy a $1M dollar apartment, you just put 500% of your net worth into one asset. If prices fall by 20%, you just lost all of your money. Hot markets like NYC and SF have inflated prices propped up by high incomes, restrictive building practices, low interest rates, and high desirability. You can't assume all of these factors will remain forever.

jdavis703 9y ago
No, you put 100% of your net worth into that condo. Assuming that a market crash doesn't affect your ability to pay your mortgage you're still seeing a positive ROI in regards to imputed rents.
- IanCal 9y ago
  You have $1M in real estate and an $800k debt. Your net worth is still $200k, however.
  - alpha_squared 9y ago
    Why wouldn't the net worth be -$600k? Debt is usually accounted for in net worth.
    - sndp 9y ago
      You'd account for the debt, as well as the value of the property. Liabilites: $800k loan Assets: $1M property $0 cash Net worth: $200k
    - IanCal 9y ago
      $1M assets - $800k debt = $200k net worth Assuming everything keeps its value equal and buying and selling have no cost (which at these scales and required accuracy is probably reasonable for the comment), any amount of buying and selling and borrowing should keep your net worth identical.

Overtonwindow 9y ago

I lived in apartments since I was 18, up and down the east coast. After ten years renting and paying through the nose in DC I went to Atlanta and bought a house at 34. Sadly no jobs in my industry so I've moved back to the DC area and I'm renting out my house. The lesson for me was that I should have bought sooner. This house is a nice foundation for myself and it's actually freed my worry to be a little bold, and go where I need to go. I always have that house to go back to if all else fails, so to speak.

southphillyman 9y ago

All of my NYC friends move to different apartments every year or two as well. For a completely different reason though, they can not afford the yearly increases. One friend had a place near Barclays for $2800 and it went up to $3500 in a single years increase.

kaosjester 9y ago
I'm moving out of a house right now in the midwest that bumped my rent by $100/mo each year, but they listed it back at my original rate this year. For some reason, being a multi-year tenant cost me an extra ~$3000.

muninn_ 9y ago

> Ms. Braddock said: “Here, there’s no stigma attached to renting, which is not true elsewhere in the country.” Interesting comment. Never in my life or travels have I met anoybody who attached stigma to renting a place.

JSDave 9y ago
I think it's more common among the very wealthy. When part of the appeal is flaunting your wealth, renting is probably not the way to go. I think a 1000k 1 bed condo is comparable to a 200k car in that it isn't just a place to stay or a way to get from A to B.
ghostly_s 9y ago
In the small city where I grew up there is definitely a stigma attached to renting. The pool of rental housing is very small and poor quality/low-rent, so renting implies not having "made it".