{{ So far, she is the only building resident to go from renting to owning, said Katie Sachsenmaier, the senior sales director at Brooklyn Tower, which is currently about 70 percent occupied.
She traded a $5,510/month rent for a $1.46 MM purchase price with a $2,000/month condo fee (Assuming she put 20% down, the monthly payment on a $1.2 MM mortgage at 7% is $8,000/month.}
Obviously, NY management consultants have a different understanding of arithmetic.
intercst
It looks like she weighted her options and purchased a place that she liked. She didn’t like the place she was renting for $5,510/month. For some people it’s worth spending $ to make yourself happier. For others a bigger bank account makes them happier.
My impression was she bought the place she was renting. The apartments were changing to Condos and she determined that she like where she was. Perhaps I’m mis-understanding.
JimA
She bought a different condo in the same building. She didn’t like the one she was renting.
She moved up a couple of dozen floors and got what she wanted.
Okay - didn’t read the actual article - this part from the lead was misleading “she is the only building resident to go from renting to owning”. But perhaps it is just me; as I also went from renting to owning my condo.
JimA
Are you a real estate agent ???
I bet there are condo owners on the higher floor who would be willing to rent to her. But I agree with you – a lot of people don’t use arithmetic to inform their housing decisions.
intercst
This is a mixed use highrise that includes both rental units and condos for purchase. The condos are on the higher floors of the 94-story building and have higher ceilings. I’m guessing she moved from around the 50th floor to the 75th floor.
{{ As the borough’s only supertall condominium, Brooklyn Tower offers 143 for sale residences, ranging from studio to four-bedroom layouts, alongside 278 luxury rental residences, spanning studio to three-bedroom layouts. Experience unparalleled luxury and a full-service lifestyle. }}
intercst
Not a real estate agent, I’m a lowly old roofer. So if she makes $900k every year it’s less than two years of income. She may have a net worth close to what you have. A lot of unknowns in the article.
No reason to think she’s one of them.
Quick jaunt over to Zillow shows only one condo for rent on a higher floor at $6,600 per month in that building.
Meanwhile, she’s going to have a $10K payment for her $1.5M unit. Of that payment, only about $9.5K is going to be interest, maintenance, and taxes. However, that $7.5K of interest and taxes is deductible. If she can afford this unit, figure she’s got a marginal tax rate north of 30%, probably 32%. So her net for “burned money” is going to be about $7,100. Which is pretty close to the rental price for an upper floor unit.
So ballpark, net of taxes, she’s pretty even here - within about 7-9%. Lots of unknowns, like the gym. The gym membership is apparently included with condo ownership but probably wouldn’t yet be reflected in the rental costs since it’s not open, and that’s $300-400 per month for that specific amenity. But probably very close.
Which, of course, is about what you would expect the market to end up with. No disparaging remarks about math skills required…
You left out the $300,000 down payment that’s now tied up in an asset with a likely 30-year investment return far short of the S&P500.
intercst
We’ve talked about this in other threads. The return on that will probably be pretty close as well. Even though residential real estate appreciates at a far lower rate than stocks do (historically), the tax advantages and the leverage you get from a mortgage when owning your own home bring the net rate of return way up.
Episode 3012 of the classic rent vs. buy discussion.
Absolutely! {{ LOL }}
30 year return on NYC condos (4.4 X)
30 year return on S&P 500 (16.6 X)
And the odds of that $2,000/month condo fee not spiraling out of control as the building ages? Close to zero.
intercst
Yes, absolutely. As I wrote a long while ago:
NYC condos have appreciated by more than 4.3% - closer to 5% by your link. So it will be even better.
How can it be better if the nominal rate of growth is so much lower? The reason is leverage. When you buy a home with a mortgage, you’re getting massive amounts of leverage on that investment - at a favorable, tax-advantaged interest rate. So our young lady will invest $300K in her down payment, and in 30 years have a condo worth (we assume) 4.4X the purchase price. But not 4.4X times the $300K - 4.4X times the full purchase price of $1.5M. She’ll now own a $6.6M condo. Meanwhile, in the stock market, the $300K has grown 16.6X - to $5.8M. Less than the value of the condo. Because the growth on the stock portfolio is only compounded against the down payment, but the growth on the apartment value is compounded against the entire purchase value.
So the condo is worth more than the portfolio at the end of thirty years, even though the rate of growth was much lower. It also has better tax treatment - about $1.75 million of that $6.6M isn’t taxable (the original purchase price plus the $250K exclusion from cap gains for primary residence), while all but $300K of the portfolio is taxable.
Again, it all comes down to the specifics of the situation. But given the value of leverage and the tax benefits both from the mortgage interest deduction and the capital gains exemption, owning can frequently be a much better investment than renting.
You know - if you actually do the arithmetic. 
The reality is that the arithmetic is somewhat complex and very difficult to do properly. That’s for many reasons, not least of which is that it is difficult to predict the future accurately.
Here are are some examples:
When looking at “tax advantages”, the first thing to realize is that tax law changes periodically, certainly a few times over the period of a typical 30-year mortgage (for example SALT deductions have changed a number of times, and the capital gains tax exemption has changed at least once, over the last 30 years). Second, what looks like a “tax deduction” often effectively isn’t real. For example, in many years of that 30 year period, the couple might pay $20,000 in mortgage interest and $11,000 in property/sales taxes (and have $5,000 of charitable contributions) will be able to file a schedule A and deduct $36,000 from their income before calculating tax due. You (and you real estate agent, and your mortgage broker, and your brother-in-law, etc) may say “well, they are in the 24% tax bracket, so this saves them about $8,640 (24% of the $36,000)”. But it isn’t so simple, and that arithmetic is indeed wrong. That’s because there’s a thing called the “standard deduction”. Had this couple not had the big mortgage (or all of those things in the $36,000 above), they STILL could deduct $31,500 (and in 2026, $2000 out of their $5000 charitable contributions). So the net benefit deduction-wise of that big mortgage is $36,000 - $31,500, or $4,500. That results in an actual cash savings of $1,080, that is much less than what appeared to be $8,640 using the “simple arithmetic” that the real estate agents and mortgage brokers and brothers in law would typically use.
This is also faulty arithmetic. Because if you look at the CAGR of the apartment, you also have to include the monthly contributions to “equity” over the 30 years. In early years, low amounts, and in later years higher amounts (“amortization”). If you want to do the calculation more correctly (still not really correct due to many factors), you would start the stock portfolio at $300k, and then add $250 a month in year 1, and add $350 a month in year 2, and add $500 a month in year 3, …, and add $950 a month in year 10, …, and add $7500 a month in year 29, etc. And even if you account for all that, the arithmetic is still not completely correct (for all sorts of reasons).
It’s not that simple. Maybe she is using different numbers than you are using. For example, maybe she is looking over 10 years or over 30 years for her rent vs buy calculations instead of over a year or two. Let’s say that she is intimately familiar with the neighborhood and the building (maybe she is indeed well-informed when it comes to that part) and she knows that rents are going up there and will continue to go up for a while. So maybe her “spreadsheet” shows $5510/mo rent in 2026, but $6300/mo rent in 2028, and $7000/mo rent in 2030, and maybe even $10,000/mo rent in 2035+. And she ran the numbers in her spreadsheet and it shows that buying has a 75% chance of beating renting over the long-term and she usually takes 75% win probability choices. And maybe part of her calculation is that an extra $1000 or so a month for the higher floor is worth it to her? The rent versus buy calculation mostly depends on what numbers you use to input and what assumptions you use, part of that calculation is personal. Which is why there aren’t a surfeit of rent versus buy calculators across the expanse of the Internet (like there are mortgage calculators everywhere).
In short, the arithmetic is not that simple … in either direction, buy or rent.
The biggest mistake homeowners make is underestimating maintenance costs over 30 years – especially condo owners.
New York has a much stricter regulatory environment, so the building inspector will demand that the costs be recognized much sooner, but they are still underestimated.
intercst
Of course. It wasn’t intended to be completely correct, but just to illustrate how “doing the arithmetic” might lead you to a different result than just looking at the rate of growth of both assets. You’re right that the paydown of equity into the account does reduce the IRR, but not by too much - maybe a point or so. Still very close to the rate of return in the stock market generally. Similarly, there might be some amount of standard deduction laid on the table - but I didn’t mention it, because someone in New York state earning enough to afford nearly $7K in rent is probably paying enough in state income tax with enough other deductions to already be itemizing.
Absolutely these things can change over time as well. Tax treatment of both primary residences and capital gains in investment accounts can shift with the political winds.
It’s just not at all the “renting is the smart choice for anyone who bothers to do the math” situation that is sometimes intimated.