Co-op of the Day: 175 Eastern Parkway

sounds reasonable to me.

Posted by: guest at April 24, 2008 12:49 PM

The would rent for about $2800 a month? What would the right price be, then?

Posted by: guest at April 24, 2008 1:09 PM

It has a maintenance of $750 a month.

Even assuming that this place would rent for $3000 a month, that means that your other carrying costs shouldn't be more than $2250 a month.

That works out to INTEREST ALONE on a mortgage of $380,000.

This place is should not be more than $400,000 -- and really should be less!

Posted by: guest at April 24, 2008 1:16 PM

I remember when I could have gotten a 2 bedroom facing the museum for 40k in this building back in 1996.....

Posted by: guest at April 24, 2008 1:18 PM

All signs point to 50% price drops in nearly all NYC real estate in the coming years.

Posted by: guest at April 24, 2008 1:25 PM

Oops, hit post before finishing my point. What 1:16 says is not untrue either, but renting vs. buying has been completely out of whack for a few years now... the only new thing is with the tightening credit market people seem to be suddenly aware of it.

Posted by: guest at April 24, 2008 1:43 PM

1:18

What is the point?

I remember when Bernstein's on Essex was open and served great Kosher Chinese.

I also can go to the way back clock and discuss looking at a house on Wyckoff St. in Boerum Hill that was for sale for $200K, but that doesnt' change anything.

Posted by: guest at April 24, 2008 1:56 PM

yeah, 1:18, if you can figure out a way to turn the clock back, be my guest.

Posted by: guest at April 24, 2008 2:04 PM

"All signs point to 50% price drops in nearly all NYC real estate in the coming years."

I agree. Although difficult to imagine at the slow rate prices are apparently falling. But who knew prices would triple from 1995? We were suprised on the way up, we'll probably be suprised on the way down.

Posted by: guest at April 24, 2008 2:04 PM

I don't think it will go down that much in nice neighborhoods in NYC. I sold 1200 sq. ft. P.S. coop a year ago, and as I see prices/sales in P.S. now, I'd put it on the market for 270-300K more if I were selling today, and likely get close to that.

Posted by: guest at April 24, 2008 2:18 PM

If it hasn't started going down with the meltdown over the past year, but is still going up, that means there is still demand, and some areas are clearly somewhat insulated. Doesn't mean it won't fall a bit though when reality hits. It just won't be all that dramatic.

Posted by: guest at April 24, 2008 2:35 PM

Nice apartment, nice layout, but rooms don't look huge. FSBO's would do better to include a floor plan, even if hand drawn, or at the very least give a few room dimensions.

I've always liked this building too - across from my favorite fountain. Though I'd like the view from the curved front, which this doesn't appear to be. Though this may be on a more quiet side of the building.

Polemicist is right - but doesn't go far enough. You also have to look at how many apartments (if any) the sponsor still owns, who controls the board, whether there's a flip tax, how much the building has in reserve, and any needed building maintenance before you can evaluate the price.

Posted by: guest at April 24, 2008 2:37 PM

2:18 - how much did you sell your 1200 coop for? We just sold ours (about same size, also in PS) and I must say that we had brokers price it almost exactly one year ago from today and came up with price that were only slightly less than what we just sold for. In fact, one broker strongly advised us to price our apt *less* this spring than she had valued it last summer, since these days, the strategy seems to be (for some brokers) to price a bit low, stir interest, and hopefully get a bidding war. But to say you would add 250-300K sounds like you must be adding at least 25% from last year (I mean, how much could you have charged on a $psf basis?) and that just seems crazy to me. If anything, brokers I've talked to have expressed nervousness about the market, esp for apartments (for which there is plenty of inventory).

Posted by: guest at April 24, 2008 2:53 PM

Why would I pay 595k plus any maintainance charge for something that looks like it came out of a tenament building. Maybe even one just a few blocks up on Eastern Pkwy.This looks like it should be a rental. It is so plain and boxy ,with no charm,if you did not see the outside you would think it was a Fedders crapbox.Wake up people! 595k may not be a million ,but it's no bargain for this either.Get a better pad some place else and bike to the park if you need to be so close to it.

Posted by: guest at April 24, 2008 3:07 PM

This place is for someone who loves it so much that they won't be upset when prices drop 1/3- 1/2 to bring sales values in line with rental values.

Or who wants to renovate it so badly that they are willing to pay a 50% premium to own instead of rent.

Posted by: guest at April 24, 2008 3:27 PM

All buyers in brownstone brooklyn are willing to pay that premium to buy these days.

Posted by: guest at April 24, 2008 3:40 PM

Some people are bigger risk-takers than others.

Posted by: guest at April 24, 2008 4:17 PM

Is IS a realistic method if you want to be conservative with your money. (Most of us know people who have been laid off unexpectedly, whose businesses have failed, and who had a serious illness without adequate (or any) disability insurance, or who work in businesses where they know they will be gone relatively soon due to age discimrination or the glass ceiling.) It takes a leap of faith to be able to believe that you will never have these or other financial probelms, and will always be able to pay your mortgage. If you are independently wealthy, no problem. If your savings are small and/or you are a first-time buyer, it is relevant to consider.

Renting has its issues, but it has certain financial benefits. To take your points:

1. I think it is dumb to get an interest-only mortgage. Given the usual rise in home values in most markets, it would be your paying down the principal some by paying P&I that would allow you to accumluate enough equity to pay your closing costs on the sale without having to write a check from your savings, especially if your down-payment was low.

2. Your rent increases in the next 30 years (or say 7-10, as that is the time period people hold homes for, on average) would likely be more than offset by the repairs you had to do (or renovations you wanted to do) on your home while you owned it. Everything else costs you more, too - your homeowners insurance v. renters, your utilities often, your property taxes definitely.

3. While it is true that interest payments decrease, your costs to maintain the home increase. If rent increases are nominal, this is likely more than offset.

4. A renter is in a position, if rent increases are steeper than the renter wants to pay, to move with relatively little cost (relative to selling), granted as long as the renter is not experiencing any of the above potential financial problems and thus can easily rent a nice apartment.

A seller has a much more difficult time selling if the market is not a sellers' market, and it costs the seller a lot, which may (or may not) be covered by the increase in equity. And we've all known people who wrote hefty checks to sell coops in the Slope from 1990-1996 for substantially less than they paid for them. (If they didn't have the money saved, they couldn't sell. And they couldn't move if their coops wouldn't let them rent the place out.)

Posted by: guest at April 24, 2008 6:17 PM

gotta agree - just an ugly people warehouse. (Not as ugly as some, but no particular redeeming features).

Posted by: guest at April 25, 2008 9:35 AM

Renting is the only realistic way to move right now, unless you want to lose 20-40% of your money, and pray for a bailout --which wont happen (see angryrenter.com)

Posted by: guest at April 25, 2008 9:46 AM

Funny use of democratic and Wasp, Sam. Coops are gated communities, effective at what they are designed to do. It's a free market, some people value exclusionary power over property rights. Difference between these and the ones down south is that they wrote their biases into their deeds for the world to see, up north we're too sophisticated to do so.

Posted by: guest at April 25, 2008 10:39 AM

Sam 9:36

You are VERY wrong on all accounts and it is obvious that you didn't run any numbers.

I teach this stuff and newsouthsloper is absolutely correct.

This is what you should do:

1) Create a Speadsheet
2) Create 2 Charts
3) Chart 1 is Your Rental Chart starting Year 1 at $2,000 per month
4) Accumulate the Rents for 30 years
5) Chart 2 is a little more complicated. Assume a Purchase Price of $500,000... add the Closing Costs of about $16k, a Mortgage of $516k, Fixed Rate at 6%, for 360 months.
6) Amortize the Mortgage for each month
7) Create an Expense area for the Property. I assumed Taxes, Insurance, Heating, Maintanance, W/S = $5,800 per year or $483 per month.
8) In the Amortized Chart, create a column for the monthly Expenses and increase it every year by an assumed rate. I used 10%
9) Add the Interest Portion of the Amortized Schedule to the Increased Monthly Expense

If you do this, you will find that around Year 12, the Month Rental will be about $3,079.

The 12th year accumulated Interest + the increased 12th year increased Expense will equal $3,060.

That is approximately your break even year with those assumptions. After that year, you lose as a renter.

While this may seem complicated, it is the only way to really understand the rent versus own scenarios.

Posted by: guest at April 25, 2008 11:18 AM

newsouthsloper: Actually, rental equivalent is one of the three legally required methods used by every real estate appraiser in the world. (Look at the Bond & Third article a couple of weeks ago for an example).

In a free market, prices will always tend to return to (1) cost of production, and (2) values in alternate use. If prices are higher than those (as this one obviously is), (1) developers will find ways to create more housing, and (2) developers will convert rentals to owner occupancy, until the prices equalize.

So, since buyers MUST consider equity, they should assume that the price of this coop will drop over time until it is equal to its value as a rental apartment. (Alternatively, rents might increase until they equal purchase prices, but since rents can't go up faster than incomes for long, that seems unlikely).

The estimates people are making about how much more it costs to rent than buy are too high. In fact, except for the last 5 years, NYC prices almost always reflect the value of the property to a landlord who is going to rent it out (and therefore loses the value of the owner-occupant tax subsidy).

As for your theory that interest goes down but rents go up, you are doing your math wrong. If the value of the building stays the same, as you pay down the mortgage you pay less interest, but you have more equity that isn't earning interest. The renter who started out paying 1/2 as much invests the downpayment she didn't make and adds to it the mortgage interest she isn't paying, and will end up way ahead.

The only way for owners to end up ahead is if, (1) they start out paying roughly the same in carrying costs (interest, taxes, maintenance and repairs, but not principal), and (2) the building appreciates enough to make their downpayment and accumulated equity increase as fast as the renter's alternative investment.

In normal markets, building value increases roughly with inflation, and a highly leveraged buyer will make some money. But today, the buyer is paying twice value. There are going to be price decreases, not increases.

Buying here for financial reasons is a loser's game. The only reason to buy this apt (or much of anything else in Brownstone Brooklyn) is as pure consumption: you don't care whether it is a good investment any more than you would in buying a car. It's a depreciating asset.

Posted by: guest at April 25, 2008 11:18 AM

Discrimination is just as illegal when done by a coop board as it would be written into the deeds.

Posted by: guest at April 25, 2008 11:22 AM

11:18 - You are wrong.

If you look at my posting above with the 2 chart spreadsheet, I calculated the break even of owner versus renter.

The Owner Chart will assume a loss of the same Interest Rate for the down payment. That's why I used an Amortized Fixed Rate Loan of $516k which amortized both the Loan and the downpayment and the closing costs.

It still breaks out even at year 12 and this assumes a 10% Expense increase per year.

Posted by: guest at April 25, 2008 11:26 AM

thanks for selecting our apartment. i'm a regular reader of the blog so it's fun to see our property here.

we've uploaded a few more pictures and a floorplan here: http://picasaweb.google.com/175easternpkwy/Apt

our first open house is sunday, 1-4.

Posted by: guest at April 25, 2008 11:28 AM

11:18 has the spread sheet more or less right for the purchase, but is wrong on the rent side.

The renter has $500,000 that she didn't use as a down payment accumulating in the stock market or somewhere else. To that she can should add (or subtract) each month the different between rent and (interest + ownership costs).

With that addition, the renter clearly does better under any plausible set of assumptions.

Posted by: guest at April 25, 2008 11:30 AM

11:26 -- I feel sorry for your students. Ignoring opportunity cost is a serious error.

The way you are running your spread sheets, if a buyer paid $5 million cash for this apartment, he would be better off than a renter from year one. If you believe that, I have a really nice bridge to sell you.

Posted by: guest at April 25, 2008 11:35 AM

11:30 - This is the GUY who did the chart in my posting at 11:18

The Owner (or purchaser) didn't put down $500k. In my assumption, he puts down 20% or $100k, has $16k of closing costs.

I then used the $116k and added it to the Mortgage of $400k for a total of $516k Amortized at 6% to include a disadvantage of not using the downpayment and closing costs for other investments which can return an average of 6%.

The Renter doesn't get the $500k. That's not assumed. The renter can get credit for $116k only if I didn't include it into the Amortization of the Owner.

Does this make sense to you?

Posted by: guest at April 25, 2008 11:41 AM

11:18 is assuming zero down at a 6% interest rate, that the renter makes nothing on his savings, that the market does not correct, and that the buyer has no sales costs. On those assumptions, it takes 12 years to "break even".

Try putting in a realistic downpayment, letting the renter earn more than 6% on the saved down payment and the monthly savings, include the likelihood of a price correction, and the possibility of having to move before 12 years (which is way longer than average homeownership), and the spread sheets will come remarkably close to the rule of thumb: if you want to break even, you shouldn't pay more to own than to rent, assuming a normal downpayment.

Posted by: guest at April 25, 2008 11:42 AM

11:26 - Why are you assuming 100% down payment? Did you miss:

5) Chart 2 is a little more complicated. Assume a Purchase Price of $500,000... add the Closing Costs of about $16k, a Mortgage of $516k, Fixed Rate at 6%, for 360 months.

Here... let me write it again:

MORGAGE of $516k. As a student, you would have failed my 1st exam of reading correctly.

Posted by: guest at April 25, 2008 11:43 AM

What seems to be wrong here?

11:42 -

5) Chart 2 is a little more complicated. Assume a Purchase Price of $500,000... add the Closing Costs of about $16k, a Mortgage of $516k, Fixed Rate at 6%, for 360 months.

Let me break it down like this:

a) Purchase price of $500k
b) Down payment of $100k (20% down)
c) Mortgage of 6% for $400k
d) Take the $100k and amortize that at 6% as well to account for the usage of it
e) Take $16k of Closing Costs and do the same
f) That adds up to $516k Amortized at 6%

Did I clear that up?

Posted by: guest at April 25, 2008 11:47 AM

11:30 here. I did indeed misread the chart; putting the opportunity costs on the buyer's side instead of the renter's confused me.

Doing it your way makes it hard to see the assumptions, which seem to be that the renter can make only 6% on his saved down payment and nothing on his saved monthly payments while the buyer has no increase/decrease in the price of the apartment. None seem realistic to me.

Put the opportunity costs where they belong, and you can see that with realistic assumptions, the renter starts out way ahead and the buyer only catches up if (1) you assume unrealistic appreciation for the apartment, (2) the renter spends her savings instead of investing them, or (3) the stock market crashes worse than the real estate market.

My way, you can see the real financial decision here. If you are confident that the NYC real estate market is immune from normal supply/demand and bubble rules (so the apt will go up), and you are incapable of saving/investing outside of your home (so renter's savings earn little or zero), and you know that you won't have to sell for at least 12 years (so it is ok to omit selling costs) -- then it might make financial sense to buy this apartment.

Otherwise, it's consumption, not investment.

Posted by: guest at April 25, 2008 11:55 AM

Do 11:47 and 11:42 disagree on anything?

Posted by: guest at April 25, 2008 12:01 PM

As usual, the rent vs own debate rages on amidst typical ignorance... on the renters' side, of course.

First off, renters always seem to ignore the fact that owning a house/apartment allows you to customize it to your liking [to use some rather vulgar examples, how many Wolff ranges or Toto toilets are in the typical low-end Brooklyn rental unit?] & to enjoy features that are typically not available to low-end renters [working fireplace, in-unit w/d's, private roof access - to name a few I have in the apt I own].
There's also the issue of investing in furniture, artwork & electronics that are specific to your home's unique layout. And last, but not least, in a well-established co-op you get to chose your neighbors - no small matter!

Secondly, the above anti-ownership posts are all predicated on a decline in real estate prices - even over a 30 year horizon! Yes, there are costs to ownership - carrying costs, transfer taxes, improvements, repairs & assessments - but there is also the opportunity for real appreciation in a home's value.

Indeed, the single most ridiculous statement I've yet to read on 'Brownstoner' was posted by 11:18: that an apartment/house is a "depreciating asset" - like a car! Even if a building is so poorly maintained that it collapses to the ground, the land itself holds much of the value - especially in New York City.

I'm sorry, but Duh! And while we're at it, please explain why 100 year-old brownstones in PS seem to be holding their value over brand-spanking-new tract houses in Anaheim... could people actually place a positive value on a home's age? And location?

Finally, if all the renters on this site actually did invest the money they didn't 'waste' on the costs of home-ownership, they certainly wouldn't be wasting their time posting comments. Yes, I'm sure there's at least one pajama-clad daytrader out there, but the rest of you are probably doing what I'm doing: typing away while at your 9-5 wage-slave job!

Besides that, did I hear someone say "Bear-Stearns?" I'm sorry, I guess they said "Enron!"

But even if a renter's stock market gamble does pay off, please factor-in the very high % you'll pay in capital gains taxes - whereas you wouldn't pay a penny on the first $250K of home sale profits.

And finally, let's have one last dose of reality: if the NYC real estate market takes a permanent nose-dive, you can rest assured that the stock market will be in equally bad shape. They both are cyclical, and just as it would be foolish to think bubbles don't burst, it's equally moronic to assume that recessions never end.

And when that happens, those who bought places they actually wanted to live in [as opposed to speculators] & places they could reasonably afford [as opposed to 0% down], well, WE will be sitting pretty - thank you very much!

Posted by: guest at April 25, 2008 1:32 PM