American Madness

Intelligent Criticism in the Service of a Better Nation




Can moving to a more expensive apartment
be rationalized as an investment?

Posted by Josh Friedlander | 7 Comments

I had a bit of fun with the Disposable Income Calculator this morning. I was plugging in new numbers to think about how much rent I’d really be willing to pay in order to move somewhere else.

I like my apartment in Long Island City very much, but can’t deny that the neighborhood massively limits my social opportunities. There’s not so much as a cafe within half a mile of my house. I’m basically in an industrial wasteland, but I love the crusty old buildings.

dutch kills as pictured in the new york times

My ‘hood reminds me of old pictures of SoHo in the 1970s when the neighborhood was known for artist lofts and not banker lofts. Except there are no lofts here in Dutch Kills (which is the real name for where I live).

My rent has gone up 12.5% in four years, which isn’t bad compared to some stories I’ve heard. My landlord hasn’t offered any paint or upgrades in that period, but basic maintenance is done quickly when necessary. Still, I’m plagued by dreams of Kohler fixtures and a bathroom sink high enough for me to actually wash my face at without causing a slipped disc.

I just can’t see spending more, though. It will make me feel worse about eating out and since it’s rent it’s going down the tubes anyway. But my rent is so cheap that I’m doing better than if I were to buy an apartment, even with the mortgage interest deduction taken into account. Check out the NYTimes calculator: is it better to buy or rent? Assuming property apprecition of 3% (roughly equal to my rental appreciation), it only makes sense for me to buy if I can find an apartment for $285,000 or less. That pretty much leaves out anywhere I’d want to live given current price levels ($450,000 for a decent studio).

At present, I spend 24.4% of my net income on rent. I would have to spend about 60% of net income to live in a nice Brooklyn loft, but could probably get a deal for 40%-50%.

It’s a challenging problem. People think I’m nuts because I don’t spend money on anything. But, other than food (mostly unavoidable), I like to invest rather than fritter cash away. So, the challenge would be to convince myself that a new apartment in a better neighborhood is somehow an investment.

What do you think? Are the social benefits worth it? Has anyone noticed a return on investment from making a similar move?

Posted on February 15, 2008 in American Madness

Comments

7 Responses to “Can moving to a more expensive apartment
be rationalized as an investment?”

  1. Josh Friedlander
    February 15th, 2008 @

    I should note that I obviously do not think a nicer apartment is a good idea financially. It’s an emotional decision. I think it’s hilarious that people spend 50% of their GROSS income (I know a few people like that) to live someplace swanky and then have to eat noodles at home!

  2. Matt Cipriano
    February 15th, 2008 @

    Where would you place the argument that buying an apartment, though you might be putting more money towards it, in terms of a mortgage, is an investment in your future, as opposed to your rent which is an investment in your landlords future…

  3. Matt F
    February 15th, 2008 @

    No cafe within half a mile, are you kidding? Who needs one? You can make your own; just go outside to the street corner and hang out with those nice dirty looking Greeks, who run that nice slave market in there apt. =P

    (no offense to those Greeks, if they are indeed Greeks, they look more Spanish if anything)

  4. Josh Friedlander
    February 15th, 2008 @

    Matt C: that’s why I include the NYTimes calculator. It isn’t necessarily an investment in your future in all circumstances. If your rent is much much lower than the cost of the mortgage, even factoring in the deduction, it can make more sense to rent and not buy.

    In your case that’s certainly true even if you pump in inflated assumptions about the appreciation value of Manhattan real estate.

    Because you and I pay so little in rent, we get to keep the difference between the rent and the mortgage payment, which can be invested. At the end of thirty years, it’s possible (actually probable) to have more money in pocket than you would if you were to monetize the house/apt you’ve bought. Like I said, in no instance should I buy at my current rent for financial reasons unless I can find a place for less than $285,000. The chief reason for me to buy a home more expensive than that would be personal reasons: desire to own a home and be able to outfit it the way I like.

  5. Eric Hazard
    February 15th, 2008 @

    If your neighborhood is fundamentally safe, you have reasonable access to mass transit and your rent is that cheap, I see no greater return on investment in moving to a more expensive place. Let’s say for the sake of argument you moved to the UES, in an area with lower rents (say between York and East End). On paper, you’ve moved up, you are probably paying more in rent, there are probably more services around you. But what have you gained? You will no doubt be further from mass transit, you still won’t have people over because you realize your apartment is a mess no matter how much you spend in rent and you are not strategically located. I say, stay where you are at.

    And since I apparently have nothing better to do today, I put in the numbers we had for rent and the numbers we had for our purchase and came up with the conclusion that buying was a good idea. “Buying is better than renting after 2 years.”

    Buying for us was seen as a) good investment (property next door to our put condos for sell at $2000/sq foot in November) and b) an important psychological point in our lives. No longer were we “throwing our money away” to a landlord, we were now building equity in a place we also enjoy living in. Even though the first year was not easy, we still believe committing to purchase was a good decision.

    There is one other factor to consider, though probably not as big a consideration in your neighborhood: apartment to condo conversions. Our last place kicked us out because it was moving from for rent to for purchase. We no longer have that worry.

  6. Josh Friedlander
    March 3rd, 2008 @

    Thought I’d add a really good article with some of the same reasoning used by the NYTimes calculator, but done in longhand:
    http://www.viewfromsiliconvalley.com/id316.html“>
    http://www.viewfromsiliconvalley.com/id316.html

    As the article notes, “A buyer’s true “cost” is their total outlay minus the tax deductions, minus the principle payments and plus the lost interest. “

  7. Andrew C
    April 12th, 2010 @

    no cafe for half a mile? I live in long island city the place is jammed packed with cafes

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