Your House May Not Be Such a Great Bet After All

Why do you publish this kind of articles over and over, you are contributing to make the market worst by doing that,every day price cut price cut, please stop it! and just talk about beautiful houses and other interesting things about them

Posted by: Anonymous at October 26, 2006 9:44 AM

I thought great article. But lower insurance and property taxes because value of home maybe lower? No way. Never gonna happen. If appraised values go down tax rate goes up. Appraised value goes up - tax rate can stay same. Either way taxes still go up. City still needs to raise revenue.

Posted by: Anonymous at October 26, 2006 9:45 AM

Yeah. What these ridiculous articles never factor into their investment calculations is that the house is actually a product you use. That's the most important value of the 'investment'. You can't live inside a stock certificate. It's like talking about owning a car as an investment. If you bought the car for $10,000 and sold it for $5,000 a few years later, this guy would say it was a horrible investment. But, hey, you got to drive the car for all those years. A house is, after all, a consumable product...

Posted by: Anonymous at October 26, 2006 10:15 AM

The other thing that this article fails to mention is that the loan incentives (low interest rates to borrow a very large amount of money, huge tax incentives) make home ownership much more attractive than other investments. For instance if you want to get an 8% return on your investment than you would expect it to double in 8 years. But what have you invested? Only 20% down max on your purchase probably unless you are trust fund kid or rolling profits from another sale. So you are getting a huge gain because you are getting your gain primarily on borrowed money. Not many investment advisors out there suggesting that people should go out and borrow on margin from some investment house to get in to say, the futures market on wheat are there? That's because housing is a much more stabile market and as the poster above said you actually get to live there. And that also should be measured against rent increases during the same defined period to really weigh that issue properly and I guess the author forgot to do that.

Posted by: Anonymous at October 26, 2006 10:28 AM

10:28, sounds like your taking on a highly leveraged bet that RE prices never go down. Leverage is great when it works in your favor ie appreciating assets. But there is nothing worse that holding on to a highly leveraged depreciation asset.

Overnight margin requirements are 50% and day trading margin requirements are 25%. At 20% down, your are more leveraged than daytraders.

Posted by: Anonymous at October 26, 2006 10:50 AM

You are more leveraged than daytraders, but the volatility of housing is _much_ lower -- your house doesn't have 2% daily vol.

Posted by: Anonymous at October 26, 2006 10:57 AM

This article is right on point for the Brownstone buyer or owner. Brownstones are generally multifamily structures where the purchaser lives in a portion and holds the remainder as investment property.

The fiction of perpetually rising real property values makes Brownstone ownership appealing, but also leads to poorly diversified portfolios. My mother's Park Slope brownstone, bought in 1974, is easily 2/3 of her current net worth. As a retiree, that's and awful big bet on the real estate market. Sure, she rents to herself and has roof over her head, but her future standard of living relies on stable property values.

Baby boom buyers will offer their homes for sale in the coming years to fund their retirement. Many of these folks are relying on high prices for a secure retirement. You can't live in a 50-50 equity-debt portfolio, but you can't eat a Brownstone.

Posted by: Anonymous at October 26, 2006 11:03 AM

This is yet more blather from another source that no one should trust. (Trust your own instincts, everyone.)

On the other side of the coin we have CNN now proclaiming on their site that NYC is one of 5 "bubble-proof" markets. I wouldn't trust them either.

I like owning, and am glad I purchased in Brooklyn. If the market crashes, I'll still live, and won't regret purchasing. I don't want to live under the control of a landlord, and I like the "forced" savings I contribute each month to my mortgage payment. There is a risk in life to everything. The nail-biting about all of this stuff is a real waste of time, for me anyway. It doesn't really facilitate buyers or sellers.

Posted by: Anonymous at October 26, 2006 11:17 AM

>You can't live in a 50-50 equity-debt portfolio, but
>you can't eat a Brownstone.

Well, you sort of can. I can run the numbers - selling my house, paying the taxes on it, investing what's left and buying a modest place in some retirement nirvana and living on interest / pension vs. buying a modest place in some retirement nirvana with whatever I can scrape together and renting out all 4 floors of the brownstone, and I still come out ahead keeping the house. So far, the rents - especially if I am not occupying an apartment - constitute a pretty decent year's salary. No other thing I can put my money into provides that. And I can't live in a bank account.

Posted by: Anonymous at October 26, 2006 11:20 AM

11:03, if your mom sold the brownstone and invested the money in stocks, how can you know she wouldn't lose some or all of the principal in a market crash? I suppose she could buy low-interest bearing 30 year notes.

Maybe she could condo that brownstone, retain her apartment and sit back with some cash. If it's paid for, there is also the reverse mortgage option that you might look into.

Your concerns are valid, but there are options...

Posted by: Anonymous at October 26, 2006 11:23 AM

Another thing these real estate as "investment" articles miss is this: You HAVE TO invest your money in a place to live. Whether you buy or rent, you need a roof over your head. No matter what decision you make, it certainly has financial repercussions; so, I guess you can look at it in investment terms. But doesn't it seem a little silly to only talk about this as a dollar investment when everyone is forced into the market simply because they're alive?

Posted by: Anonymous at October 26, 2006 11:37 AM

So if your mother's brownstone were worth 1/2 of a 1/3 of what you think it is today- which maybe more in line of her expectiations when she bought - her % net worth in RE would be much less. But her income (rental) and life(style) is still the same no matter what 'worth'.
I think it is you worrying/dreaming more about some inheritance $$$ -
that you'd consider selling an option.

Posted by: Anonymous at October 26, 2006 11:39 AM

JoshK, Isn't rent vs. buy kinda where the market's at right now? One could argue that this IS precisely the point of the article above. (Although the Montgomery Place buyer sure as hell just boosted buyer's confidence, eh?)

Posted by: Anonymous at October 26, 2006 12:00 PM

I wouldn't be surprised if real estate price in NYC dropped 25% in the next couple years in NYC.

Hell, they've gone up twice that in the same period of time and rents haven't moved much. During the dotcom bubble rents were at the same level they are now.

I rather "earn" 200-300k by waiting a year or two to buy a brownstone in Brooklyn instead of overpaying to buy one now.

If you factor in taxes, we're taking about a 500k difference to purchase a 2 million dollar home.

I live in a nice, bright Soho 2 bedroom now, so I don't mind waiting. I own the building, so only lose out on the rent I'd otherwise be making.

It's smarter to be the tortois than the hare.

Posted by: Anonymous at October 26, 2006 12:19 PM

I just can't see how the current $2800 a year property tax on our Brooklyn house could go any lower. How could NYC do that? They can't. Again, I think this is yet another article that is actually about the suburbs. Which has some validity to our market too of course, but not entirely. And so again, it's just another article posted on brownstoner to mislead everyone. Thanks for that! Really helpful (not). The most helpful and applicable discussions on this site would be looking at what IS selling (listing more properties than simply what the NY Post chooses to single out) and everyone discussing why it sold. Because then it helps sellers see what they need to do, how they need to price their properties, and it informs the buyers what they can reasonably expect to spend right now. Because frankly BOTH sides, not just the sellers, are pretty deluded. The sellers thinking prices shouldn't drop at all from last year's highs, and buyers thinking "market is soft" means they can pick up a 50% discount. Or that they can get a big discount AND a fully renovated kitchen and bathroom. Which is not going to happen.

Posted by: Anonymous at October 26, 2006 2:02 PM

These questions cause nervousness because most brownstoners and aspirants are contemplating sizable investments in rental property (that upper duplex). The dream is that the rent will rise so quickly that eventually it will pay for the mortgage, maintenance and taxes. Cool, free rent for the brownstoner heehee. If you're really lucky the rent will actually generate net income and you can retire on the rental stream. While there are plenty of triumphant stories like this, this is a historically unlikely scenario and a very risky bet.

Owning a residence alone should not be particularly speculative. You buy as much space as you feel you can afford to live in. If property values beat inflation over the next 30 years you have a a nice bonus for your kids when you die. You are not a real estate investor.

When you get into brownstone land you are making a large leveraged investment in real estate. In doing so you are eschewing lots of other possible investments that have historically outperformed real estate over the long term. Jonathan Clements of the Wall Street journal concludes that real estate investments in residential property approximately halve your investment return historically.

Posted by: Anonymous at October 26, 2006 2:55 PM

But again, what's the choice? We have to live somewhere. I'm just not going to buy stocks instead of a home to live in, sorry. Debate it all you want, but 'nuff said, for me and my family.

Posted by: Anonymous at October 26, 2006 3:24 PM

This Surowiecki's advice only applies to people with a lot of liquid cash socked away, that assures them they will always have a rented roof over their head whether they lose a job or have a catastrophic illness, etc. Which applies to what, 1% of the population? Let's see only articles and opinions that actually apply to the people who visit this site, please.

Posted by: Anonymous at October 26, 2006 3:38 PM

wrong 4:13. I bought multi-family precisely because of shelter. Not for an 'investment' - never in million years expected it to be worth what it is today - and you know what -doesn't matter because I still need that shelter.
I bought multi-fam so would have rents (and major tax benefits from rental) to pay mortgage and give me security.
When the mortgage was paid off - I went from using 1 floor to 2. And still have 2 rentals - that provide decent income even if became unemployed or had job that payed less.
I bought for shelter where I have control - I make most of the rules (yes city does make some). I choose who lives above me. And if don't like them after lease is up goodbye.
I decide when upgrades are down - and exactly to my taste and budget.
Coop/condo would not have much freedom.

Posted by: Anonymous at October 26, 2006 4:36 PM

Disagree with 4:36 about "Coop/condo would not have much freedom."

Yes, I own a condo and not a brownstone.

The fact that your mortgage is paid changes everything. (And congratulations by the way, With rentals and no note, you, my friend, are sittin' mighty pretty!)

But for the rest of us new to the buying scene within the last few years, taking out a huge mortgage on a multi-family brownstone is quite a big risk, and very stressful. We could have done it, we had a huge down and reserves, we have the income, and in '04 we checked out Harlem, Clinton Hill, Ft. Greene and South Slope and ultimately realized we were going to completely be at the mercy of our tenants to help us pay the mortgage every single month. The payment on even a basic 3-fam brownstone was going to be $7000 minimum! That's a hell of a lot of money to be responsible for every month! and If even one tenant flaked, or worse, refused to move out after flaking for maybe as little as 3 or 4 months, we would have been in trouble. And it can be incredibly difficult to evict tenants, even when landlords have plenty of money and good lawyers.

People should realize that owning a multi-fam brownstone can be a huge liability if the tenants behave badly and/or stop paying rent. It's happened many times before, especially when times get tough...

So I say go for that multi-fam brownstone if you want it, but be prepared to have major cash reserves to cover everyone's rents. The bank won't care where the problem is coming from - they are going to want your payment if you want to keep the house.

Posted by: Anonymous at October 26, 2006 6:33 PM

You can rent out your unit in our co-op building. What's nice about the smaller Brooklyn brownstone co-ops is their boards are not difficult with tons of rules like the bigger buildings around Prospect Park or in Manhattan. Don't assume certain rules exist because it's a co-op; just go ahead and ask.

Posted by: Anonymous at October 26, 2006 9:39 PM

Hello, that's exactly what I had posted on other threads, that I fully anticipated would happen before sellers would agree to drop the prices on their properties that much. And all sorts of wannabe buyers here, who want to believe they can buy a property next year for "half price" as a few deluded ones said, jumped all over me saying no, no that won't happen, sellers won't choose to rent.

Think again. We ourselves are definitely putting our property on the rental market in early 2007 if it doesn't sell now. We can afford to wait as long as it takes for the market to come back. But we're sure as heck not dumping it for nothing in a fire-sale, in the hottest neighborhood in one of the hottest real estate markets in the world.

Posted by: Anonymous at October 27, 2006 2:35 PM

Renting out a dusty listing is only the beginning of a downturn in the classic real estate cycle. Auctions are also familiar indicators.

Housing is/was the economy's largest sector. Now it's dragging us down. Job losses are around the corner. No one would have believed that home values would triple since the mid 90's. Now, no one believes they will split in half into the 10's. Don't forget to factor in inflation as it will catch up to home appreciation (a.k.a. depreciation) and surpasses it.

Historically, the period for residential real estate cycles is about 20 years. That's an awful long time to wait for a market peak to return, IF you can. Most won't.

Prices got away from buyers. Now they're getting away from sellers. The next boom will be greentech IPO's. A lot of liquidated housing cash will go there.

Posted by: Anonymous at October 27, 2006 8:14 PM

20 years? Please. What textbook did you get that from? Doesn't anybody remember the last time this happened? The market started to dip in the late 80's and the rebound started in 1992. And when it rebounded, it happened fast. I remember, I was there. It took only 5 years for the RE market to rebound that time. The only people I know who did badly at that time were flippers, and they were idiots anyway.

Posted by: Anonymous at October 30, 2006 6:24 PM