Manhattan Real Estate still Remains Strong

VVerain: about 5 months ago

80sMan
1 day ago
ignore this person
report abuse VVerain says: "You bought your place for $500K, putting $100K down, and then sold it for $550K"

In this example the buyer loses money:

Buy: Closing Costs = $500,000 * .05 = $25,000
Sell: Broker Fee = $550,000 * .06 = $30,000
Gross Profit $50,000
Total expenses $55,000
Net Profit/Loss -$5,000

A loss of 5% on initial capital. That's on a straight flip. It gets worse if the buyer holds the units for any period time because of interest cost and common charges.

80s man ... yes, with those transaction costs built in, that person will lose money. And, the new buyer will be paying more for the place than the first buyer.

VVerain: about 5 months ago

I'm sorry MMAfia, what is the point Steve is trying to make?
VVerain
about 3 hours ago
ignore this person
report abuse MMAfia: VVerain, stevejhx is making a very valid point that here

What is the point he is trying to make and/or you think he is trying to make?

MMAfia
about 2 hours ago
ignore this person
report abuse The "math" that you yourself posted:

"You bought your place for $500K, putting $100K down, and then sold it for $550K ... your real estate appreciated by 10%, but your equity increased by 50%?"

MMAfia: about 5 months ago

"He does appear to be very similar in his views as Jim Rogers but he's got Rogers beat on the entertainment value."

Couldn't have said it better myself!

spunky: about 5 months ago

He is very articulate and I love his analogies. I also did notice that he gets many interviews as well. Although he comes across very rough on the US government he does bring up some very valid points. He does appear to be very similar in his views as Jim Rogers but he's got Rogers beat on the entertainment value.

MMAfia: about 5 months ago

Yes, I love his accent and the tone of voice he has... he really dislikes Bernanke and Greenspan and their inflationary Fed policies. "funny money".

Interesting that while many dismiss his "gloom doom and boom" perspective, he still gets primetime video exposure online, at both CNBC and Bloomberg home pages. I know that many Fund Managers subscribe to his newsletter. They may poke fun at him, but in the end, they always respect him.

spunky: about 5 months ago

MMAfia this Marc Faber is a very very entertaining man to listen too.

spunky: about 5 months ago

Thanks

spunky: about 5 months ago

Thanks

MMAfia: about 5 months ago

spunky, you are correct- there is increasing equity with each monthly payment, albeit incremental and not as much in the beginning as compared to the end of the payment schedule.

This is a similar analysis to what LICComment posted in another thread:

"European economic decline leads the ECB to lower rates, which strengthens the dollar, which lowers oil and commodities prices, which takes pressure off the U.S. economy and shortens our recovery period."

which is a very legitimate analysis, albeit one that I disagree with, and here's why:

"The part that I don't agree with is: "leads the ECB to lower rates, which strengthens the dollar".

That is assuming that the US economy doesn't sink any further, because if it does, the Fed will have to lower rates in tandem which means that the ECB lowering rates does not necessarily translate into a strengthening dollar.

Moreover, since Tricky Trichet just raised rates, switching bias to a dovish stance is probably not going to happen soon."

We just hit the *start* of an official bear market as far as the equities markets go. There is a lot more downside coming our way, and the probability that the US remains even keel while Europe goes down is low in my opinion.

Additionally, other commodities that DO have industrial uses such as copper, etc could depreciate along with slowing global demand. This could *potentially* include oil, although that is another debate altogether. Gold on the other hand, doesn't have much demand from economic activity as we know and has not appreciated as much as other commodities to date.

Here, watch Mark Faber's interview from today:

http://video.google.com/videoplay?docid=5059137429165602472&q=marc+faber&ei=IGhuSKHHCJ2mrAKuzc2pDw&hl=en

If you can, watch Marc Faber's

spunky: about 5 months ago

Aren't you building up additional equity as you pay each monthly payment?

MMAfia do still feel gold is going to appreciate. Looks like inflation and the stagflation is starting to affect Europe. Won't that make the dollar stronger and depreciate the shiny yellow metal?

MMAfia: about 5 months ago

The "math" that you yourself posted:

"You bought your place for $500K, putting $100K down, and then sold it for $550K ... your real estate appreciated by 10%, but your equity increased by 50%?"

VVerain: about 5 months ago

MMAfia: VVerain, stevejhx is making a very valid point that here

What is the point he is trying to make and/or you think he is trying to make?

EddieWilson: about 5 months ago

If you put down $100k on a $500k apartment and the apartment goes down 20%, you lost 100% of your equity.

Leverage cuts both ways...

MMAfia: about 5 months ago

"the ny independent budget office is budgeting for a loss of about 33K financial sector jobs"

mschlee, that is in my opinion, a highly conservative figure, and as dco mentioned, entangled in politics to some degree. there is a very high probability that 33K will be exceeded given the layoff plan announcements that occurred *after* that estimate was generated.

"bought your place for $500K, putting $100K down, and then sold it for $550K ... your real estate appreciated by 10%, but your equity increased by 50%?"

VVerain, stevejhx is making a very valid point that here- it is also a very well understood and documented point in the world of finance. If you understand the difference between Notional/Nominal values as well as their implications with leverage, performance and risk, then this should not be hard to accept.

In fact, rules and regulations have been passed regarding this in particular. For example, the CFTC passed regulations that allows all CTAs to provide full disclose to their clients on how partial funding affects rates of return both negatively and positively so that clients can better assess risk exposure. Clearly, this is a result of the NFA requiring performance to be calculated using nominal values as the denominator as part of rule 2-34 which became problematic when dealing with certain types of Investments such as partially funded Funds.

Here's an example matrix that the CTAs provide to their clients:

Actual Rate Rates of Return Based on
Various Funding Levels

30% 30% 60% 75% 100%
20% 20% 40% 50% 67%
10% 10% 20% 25% 33%
0% 0% 0% 0% 0%
-10% -10% -20% -25% 33%
-15% -15% 30% 37.5% 50%

Level of funding 100% 50% 40% 30%

While I am not an accountant, I work with many of them, particularly in the world of Fund Accounting and Performance Reporting. As such, I'm trying to share my knowledge in order to clear up some confusion on this board.

80sMan: about 5 months ago

mschlee, I'm saying that your equity increases but it's an unrealized gain. It's a mirage. Common sense accounting is that if you have sunk costs (closing fees) and future unavoidable costs (brokerage fees and taxes) you have to subtract them from your expected profit. Otherwise you are in for a nasty surprise when you go to realize your gains.

mschlee: about 5 months ago

i think vvarian was using net numbers to make a point

80sMan: about 5 months ago

VVerain says: "You bought your place for $500K, putting $100K down, and then sold it for $550K"

In this example the buyer loses money:

Buy: Closing Costs = $500,000 * .05 = $25,000
Sell: Broker Fee = $550,000 * .06 = $30,000
Gross Profit $50,000
Total expenses $55,000
Net Profit/Loss -$5,000

A loss of 5% on initial capital. That's on a straight flip. It gets worse if the buyer holds the units for any period time because of interest cost and common charges.

EddieWilson: about 5 months ago

BTW, the new streeteasy state of market is out...

Closings down 44% YOY
Average price down 10% compared to last quarter
Average price down 11% YOY
Median price down 10% compared to last quarter...

mschlee: about 5 months ago

dco - i figured the data was skewed, was just trying to put perspective on the magnitude. but thanks for pointing it out.

EddieWilson: about 5 months ago

> EddieWilson can you please let us know where you derived yur ther facts from as well. . A link or an
> article would be a good starting point.

"Lets see... the biggest driver of apartment money (33% of 2007 NYC income) is laying off almost 100,000 people (and reports of up to another 75k to come)... "
Tons of sources, but just check out the bloomberg article quoted yesterday. This is fairly out there stuff.

> bonuses will be halved or quartered for the remaining folks...
Check earnings reports from Goldman, Morgan, Lehman, UBS, etc.... they work off a pretty clear formula

> commercial real estate vacancies jumped 35% in a year...
Crains front page, current issue

> commercial bankruptcies in the city *tripled* ...

Crain's front page, issue from 2 weeks ago

> manhattan co-op sales nearly HALVED (46% decline)...
REBNY report - as noted by the broker running urbandigs.com. The updated state of the market report has 38% overall, meaning co-ops dropped even further.

> Manhattan inventory at an 8 year peak... Time on market up 15%....
I literally pulled that off the article posted earlier

> 50% of new condos in Brooklyn built since 2005 are unsold...
Downtown Brooklyn partnership... as reported in Crain's about 6 months ago. Its posted on curbed for those who want to dig.

> rental buildings in Manhattan are offering TWO free months PLUS broker fees PLUS no security
> deposit...
New York Times RE section cover story, last Saturday

> and oh yeah, and we're in the worst economic crisis in decades.
Any national newspaper, magazine, or news program

dco: about 5 months ago

mschlee- "dco, i understand your point about wall street jobs connected to the broader economy, but i dont think the picture is as bleak as you paint it. as of now, the NY independent budget office is budgeting for a loss of about 33K financial sector jobs. that is less than the 40K seen in the years following the dot com bust. not sure that qualifies as the largest financial crisis in the history of finance"

I had disputed those numbers in the past. In a nut shell it's all politics. There are several reasons to keep those numbers low. I wouldn't go over all of them so I'll give you the main reason. Its all about budgets. If you come to the conclusion that you may have less job which result in less taxes you have to adjust the budget accordingly. Which means you have to cut spending. But if you project a lower lose then you get to spend more money and just go further into debt. It's all a game. Now I know the title of the report is "independent budget office" I would certainly question their affiliations with the city. Also how can some reports be some different ranging from 175,000 to 35,000 jobs lost. We lost almost 10,000 alone at Bear. So I'm very skeptical and believe that the side effect spilling over to other sectors will actually result in more jobs lose then in financials.

VVerain: about 5 months ago

stevejhx
about 4 hours ago
ignore this person
report abuse vverain, real estate is not leveraged, right?

Hey, how many of you guys bought a house or apartment and it came already with a mortgage? You didn't have to go to the bank to get one, it was just there.

How many of you have figured out this math too:
You bought your place for $500K, putting $100K down, and then sold it for $550K ... your real estate appreciated by 10%, but your equity increased by 50%? Any of you figured that out? I know one person who hasn't and uses the wrong one as a basis of comparison to "prove" his point. I'll give you a hint who that person is ... he's scared of heights, is likely drunk right now, has man breasts, bald, angry, thinks Wikipedia is the bible, educational highlight is a graduate certificate in creative writing although he'll tell you about that PhD program he didn't even go to, work highlight is that he charges by the minute, has serious mental breakdowns, and uses a lot of teenage abbreviations, boyfriends haven't returned his calls since the 1980s.

mschlee: about 5 months ago

Thanks VVerian, point taken.

careful on reviewing the crime stats - it's difficult to draw any conclusion at least from the data provided. to say crime is up is true, but is it part of a trend or just normal variation e.g., violent crime was down about 4% in 2007 compared to 2006 for all of NY county so if crime jumps 4% this year it puts us back up to 2006 levels, does that really worry anyone? but again, hard to say without further info.

dco, i understand your point about wall street jobs connected to the broader economy, but i dont think the picture is as bleak as you paint it. as of now, the ny independent budget office is budgeting for a loss of about 33K financial sector jobs. that is less than the 40K seen in the years following the dot com bust. not sure that qualifies as the largest financial crisis in the history of finance.

RClavi: about 5 months ago

VVerain, well said. Too bad that magical post was taken down. I didn't even have the chance to reply, sigh. Sometimes it's just fun to poke the pig.

lowery: about 5 months ago

I mean CPW -- where's Starbuck's when you need 'em?

lowery: about 5 months ago

evillager -- not me; I wanna condo in 15CSW!

this'll be great -- Manhattan real estate for everyone's budget!

better wake up and drink more coffee now..............

evillager: about 5 months ago

I actually hope the 75-80% prediction is correct...I'll be buying a brownstone next year!

JuiceMan: about 5 months ago

lowery, the only thing that is decreasing by 75% is anon3's stock portfolio.

LICComment: about 5 months ago

steve - supply has no effect on price, right?

stevejhx: about 5 months ago

vverain, real estate is not leveraged, right?

lowery: about 5 months ago

The 75% prediction by someone today was a joke, right?

jsmith9005: about 5 months ago

EddieWilson you may have a point. I should have focused on the "hard crime" numbers, and ignore the total crime rate YTD, 2 yr, 7yr, and 15yr percentages.

I was saving up money for a down payment for the Manhattan 50% fire sale that is imminent, but instead I think I will spend it on bulletproof vests for my yuppie family, and stock up on canned food and bottled water for my bunker.

VVerain: about 5 months ago

mschlee just give up. It is hard to argue with a guy who is never wrong, except when someone else makes him wrong. It is hard to argue with someone who is absolutely right about 100% of the details, except if some of the important details are incorrect then those details are just irrelevant nuances.

More significantly, Mark Twain said that you should never pick a fight with people who buy ink by the barrel. While every one of us has access to this board and can post at will, none of us, with the exception of one, have the time and inclination to spend nearly every waking moment posting here for attention.

The only thing I've seen stop that one person, temporarily, was an extreme mental breakdown which many of us enjoyed a couple weeks ago until that person had Streeteasy remove it from the record.

But just for fun, remember this:
http://www.streeteasy.com/nyc/talk/discussion/3410-real-estate-is-a-bad-investment?page=1

spunky: about 5 months ago

EddieWilson can you please let us know where you derived yur ther facts from as well. . A link or an article would be a good starting point.

EddieWilson: about 5 months ago

yes, petty crime went down a bit, and the crime that sends yuppies screaming from "pre-gentrified" neighborhoods had cranked up pretty dramatically....

The best part is, you missed the point of post... you ignore all the parts that blew away your claims.

Here it is again:

"Lets see... the biggest driver of apartment money (33% of 2007 NYC income) is laying off almost 100,000 people (and reports of up to another 75k to come)... bonuses will be halved or quartered for the remaining folks... commercial real estate vacancies jumped 35% in a year... commercial bankruptcies in the city *tripled* ... crime is up, particular in the "hot" gentrification areas... manhattan co-op sales nearly HALVED (46% decline)... Manhattan inventory at an 8 year peak... Time on market up 15%.... 50% of new condos in Brooklyn built since 2005 are unsold... rental buildings in Manhattan are offering TWO free months PLUS broker fees PLUS no security deposit... and oh yeah, and we're in the worst economic crisis in decades.

Only a moron or a broker could call that a strong market."

Still want to call this one a "strong" market?

spunky: about 5 months ago

just for further clarification. Today a stock called EMC was up today, howver the overall market was down.

spunky: about 5 months ago

EddieWilson I think point he was making was that overall crime was down year to date at 3%. In other words overall crime has declined in 2008 compared to 2007. Take a look at the bottom line it's called total. Total is usually reflective of well total.Just a minor detail.

stevejhx: about 5 months ago

God, I want to be raped.

LMAO.

EddieWilson: about 5 months ago

Murders up 8.2% YOY.
Rapes up 9.3%
Robbery up 4.4%.

What's your point again?

stevejhx: about 5 months ago

Pez, possible. But the figures still don't auger well, do they?