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Buzzes for Sun Mar 14, 2010

2010-03-14 17:02 - Buzz

Spent another tiring day looking at open houses. Mostly depressing results ... except one awesome place, which I'm very seriously considering.

05:02 pm

Homes: Rent vs. Own: The Sequel

2010-03-08 19:01 - Opinion

First off, plenty of people pointed out to me that I neglected to consider the value of the owned home, post mortgage completion. So I'll repeat the table, with an extra line for that. The resale price is based off of Manhattan Market Report 1996-2005 (find the link in that page). But of course, today we should all know that trusting the value of a home to appreciate (or even not depreciate!) can be very risky, so I included a zero-appreciation figure too.

	Renting	Owning
Gross Income	$900,000	$900,000
Direct costs	$186,571	$227,544
Deductible costs	$0	$101,214
Tax Costs	$300,000	$266,262
Net Income	$413,429	$304,980
Resale income	$0	$179,000 to $677,432
Net Income, after resale	$413,429	$483,980 to $982,412

Yes, everyone, that makes the picture much rosier for ownership. But that's out on the far edges of Brooklyn. What are the figures deep in the heart of the city? Well, I'll have to guess. I did my best selecting 15 representative sales and rentals of approximately the same type, size, quality, etc. But even my best here is rough, information is limited. That gives a median sale and monthly cost of $399,000 and $784 for owning, and a median monthly cost of $2473 for renting. Using the same numbers from my last post for interest and so on, that gives:

	Renting	Owning
Gross Income	$900,000	$900,000
Direct costs	$542,812	$533,845
Deductible costs	$0	$226,823
Tax Costs	$300,000	$224,392
Net Income	$57,188	$-85,060
Resale income	$0	$399,000 to $1,510,029
Net Income, after resale	$57,188	$313,940 to $1,452,219

Sheesh. Nearly break even, even if you throw away the house when you're done with it. And way better if you sell it, instead. And I know this income amount probably doesn't make as much sense with a two to three times higher home cost, but the specific number doesn't matter too much, what matters is how it goes up and down after considering the costs.

I'm not sure if renting is comparably worse in Manhattan, or if I didn't pick perfectly representative rentals vs. sales. Either way, factoring in the resale price, even if rent cost only half as much, owning might still come out on top.

I guess it's time for me to eat crow.

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Buzzes for Mon Mar 8, 2010

2010-03-08 15:35 - Buzz

I think I knew about all of these -- except the first, the lector. What an interesting, but quaint, profession.

[+1264] The Jobs Of Yesteryear: Obsolete Occupations (W/ Pics) - Digg.com - Unofficial Direct Feed

03:35 pm

Buzzes for Sun Mar 7, 2010

2010-03-07 16:33 - Buzz

	Exhausted! Spent just over five hours looking, and saw thirteen different places. Some clearly no good, two or three however were very interesting.	04:33 pm
	New book today, "Transition" by Vonda McIntyre.	09:31 am

Homes: Rent vs. Own

2010-03-07 08:20 - Opinion

I like, whenever possible, to reveal both good analysis and real data, where it is often otherwise lacking. Sadly, social pressure is strong enough that I'm not going to share with you (the few of you that actually read my little blog) the actual numbers of my annual income. So I'll make up an income of $60,000 and equally easy-to-calculate overall tax rate of exactly one third.

Now to why! I've done some calculations on rent vs. own before. But I've recently gotten a bit more serious on the owning idea. Because I think I finally know enough to have it make sense. I really pay $850 per month for rent right now. One of the really nice things about renting is that it's really that simple. I pay a fixed amount every month, for the duration of the lease, and that's it. But the amount goes up with each lease. Taking rent stabilized apartments as an example, rent going up by 6% every two years is a baseline.

Owning, assuming an underlying mortgage, is more complicated. First there's the mortgage payments, part of which is interest, and then there's property taxes. The amount of mortgage payment that is interest changes, as the principal is paid off there is less to charge interest on but the payment remains constant. So to figure the effect of the interest we have to consider the whole life of the loan. Property tax also changes over time. I found a document called The Property Tax in New York State (PDF) which seems to say (see Appendix A) that property tax went up by 62% over the course of 12 years. That's just about 4.1% compounded annually for 12 years. I'll assume a mortgage for 80% of the value (a common maximum in New York). But how much does the place cost?

I searched online to find ten apartments for sale that seem similar to the one I'm renting now. I ended up with a median price of $179,000 and monthly maintenance of $385; about half of the maintenance is (deductible) property tax. Finally, mortgage rates of 4.4% are available now.

So there's the numbers I'm working with! Now for the analysis.

Renting costs $850/mo, increasing by 6% every two years. Over the course of fifteen years, that's a total of $186,571 (for two years each, per month: $850, $901, $955, $1,012, $1,073, $1,137, $1,206, and for the last year: $1,278). None of this is deductible.

Owning means a down payment of $35,800 (plus various closing costs, ignored for convenience). The mortgage calculator at bankrate.com tells me that, with $143,200 left of the purchase price to borrow, there will be $52,669 extra paid in interest over a 15 year loan (deductible). There would be $97,090 in maintenance over 15 years (monthly each year: $385, $408, $433, $459, $486, $515, $546, $579, $614, $650, $689, $731, $775, $821), half of which ($48,544) would be deductible.

So the totals involved, over 15 years:

	Renting	Owning
Gross Income	$900,000	$900,000
Direct costs	$186,571	$227,544
Deductible costs	$0	$101,214
Tax Costs	$300,000	$266,262
Net Income	$413,429	$304,980

So, there's one more analysis clearly in favor of renting. It costs over $100k more to own. At least in this neighborhood. And I've ignored a set of costs involved in buying (closing, lawyers, etc.). I'll have to repeat this for the costs in Manhattan.

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Buzzes for Fri Mar 5, 2010

2010-03-05 00:27 - Buzz

An amorphous and mysterious urge has driven me recently to shop for a new wristwatch. But nothing more specific than that, and given the selection available, it's very hard to make ask kind of choice.	06:59 pm
New book today: "Outland" by Alan Dean Foster. No picture for now.	08:00 am