Who the f*ck is paying $8000+ rent in New York

The other poster gave a pretty good answer. In addition to what they said:

1) cost to purchase: in addition to the down payment, you have closing costs, including mortgage recording tax and mansion tax in nyc. When we closed on our apt, closing costs were ~$100k

2) selling costs: when/if you sell you then have to potentially pay some flip taxes and you have 6% broker fees.

3) carry costs: this was already mentioned, but taxes and HOA can add up. An an example, I live in a nice condo, the taxes alone are over $4k/month and HOA another $2k so my carry costs without a mortgage are $6k/month

4) optionality: many people don’t live forever in nyc and if you have to get up and move you have a pretty illiquid asset. At the higher prices homes can sit on the market for 6-12+ months, that can be a real pain if you need to carry 2 homes 

5) it’s not always what it seems: you may see some reasonably priced apts in certain areas, but real estate in Manhattan is weird and requires some research. Many of these will be co-ops that require 80-100% cash (so can’t take advantage of low rates). With co-ops you also run the risk of land lease buildings (those that don’t own the actual land the building is on) that may be up for renewal (huge monthly maintenance increases) or some that need significant work and are about to charge massive assessments to the owners. Remember, at a co-op you own a share of the building and some of these are pretty old, so you are running some real risks (I’ve seen apts listed for $500k because they had upped the monthly maintenance to $18k/month due to the land lease issue)

I ultimately chose to buy, but as the other person said, if you pick an apt and look at the rental vs purchase costs, in NYC it almost always makes sense to rent it, take the difference in costs and invest that (including down payment, etc). An issue becomes if your max budget to buy is $10k a month and you end up renting for $10k, rather than seeing what $10k buys you and realizing you can rent that for $7k and then invest the $3k. It isn’t as clear cut as you think it is, I would research some of it first. 

The logic of buying over renting is not always true. It completely depends on your scenario. My brother is in the market for a house and is in a MCOL to HCOL market. Houses are about $1.4M for about 3k SQFT. Not terrible, but not unreasonable for newer construction. Anyways the property tax alone is about $30K. HOA is about $2K. Insurance maybe about $1500. Repairs may be a bit less, but lets assume you sink in $2500 a year depending on the age of the home. So he would be spending $36k (3K per month) just in fixed costs. This does not include his interest just the cost of simply owning it.

His apartment is 3BD apartment is running him about $2300 a month. So just on fixed costs he is saving $700 per month without even factoring his interest payments. Yes I am aware there is a size difference in SQFT, but nonetheless, his apartment is very large.

One other major point people completely forget is closing costs. Depending on where you buy you have to pay transfer taxes and various local fees. For something of the house he is looking at, he might sink about $30K just for closing, some places are more or less. So technically his cost of being in that house is no longer $1.4M, but $1.43M. Now based on a broker commission of 3% plus $20k in closing costs at sale, his house would need to appreciate to $1.5M just to breakeven on closing costs.

So as a buyer you need to see price appreciation just to offset the cost of buying and selling the home, plus your losing money on the fixed costs. If you are someone that plans to move every 5-7 years, home ownership is not worth it (unless you bought in at a low basis). People often get giddy and excited when their home value goes up 10%, but they don't understand the closing costs sunk into the property plus the ones they incur at the sale. In addition they forget to factor the fixed costs.

In short, that area of NYC may have fixed costs greater than $8k per month. I don't know much about NYC property taxes/insurance/HOA, but imagine they're quite heavy.

Comments above are great so I will just chip in as well:

On paying high rent:

- If you look at some celebrities, or home sales that make the news, it is difficult to sell higher priced homes, mainly because the market of buyers is small as well. My brother's in-laws had an apartment in Manahattan they owned, took them years to sell after being on the market, just as an example. 

On people making a lot of money but not saving any:

- some people are natural savers, others are natural spenders. If some people make $50k a year they will spend $55K, same if they make $50M, they will spend $55M. Meaning, say you make $100K, and spend $25K on housing (25%), thats the same thing as someone who makes $2.4M spending $600k on housing. You'd probably think they could find something cheaper/buy something, but thats how some people work (actually how a lot of people work). 

I'll address the 8k to 10k market.  That is the upper end of what a 2-income family that each make 250k-500k(each) can afford.  The average price for a NYC 1-bed is like $3k, so having two people who each pay 3k for a 2-3 bedroom makes sense.  It is expensive, but if you have kids and send them to private school that is easily 30-70k extra a year per kid.  So the savings of living in a neighborhood with better schools and slightly higher rental prices can make sense.

I really have nothing more to add analytically - the commenters above have done a great job (SB all).  

What I can add is personal anecdote, in a couple of ways.  I decided to buy two years ago after spending a tremendous amount of time weighing the factors outlined in the comments above - the best I could get to was a coin flip (i.e. renting would be better 50% of the time), and that was with a model that was not that robust to changes in some key factors (e.g. if the market turned down and price appreciation moved from ~2% a year to ~0% renting was always better).  I bought because I got something unique (that you can't find on the rental market) and because I view my apartment as a place to live, not a primary mode of savings or investment.  

Second, my 3 most financially successful friends (all Partners/PMs at multi-billion funds pulling in well over $1MM+ per year) all rent at $10k+ per month for some of the reasons outlined above.  They can all afford large down payments and mortgages but have chosen not to.  One of them even bought a second home in the Hudson Valley because buying vs. renting is a calculation that should be made on a market by market basis.  

Someone gave me shit on this on the other thread and I couldn't believe it 

https://www.wallstreetoasis.com/forums/nyc-rent-check#comment-2652378

Honestly, people should be renting for no more than $4k a month, regardless of income. I mean $4k can get you a really nice apartment

The other comments have done a great job here, but an $8k 2 bedroom is in a nice area and a decently nice unit. That will run you north of $2 million, and co-op/condo fees are in the thousands per month (probably $3-4k on average) on top of the mortgage.

A $4k unit in NYC is a subpar one bedroom, potentially a studio, no W/D, not really comparable to a nicer 2bdr. The people saying you can rent for no more than that have clearly never been on StreetEasy.

The more you make, the better housing you can afford / want to pay for. As long as you are looking at "equivalent" rentals and places to buy, a place is just more money. Common misconception. Making up numbers, but it isn't like renting a place for $4k rather than buying a place for $1.5m makes more sense whereas buying a place for $3m rather than $8k makes more sense. It all scales up. When people bring up your argument, they are thinking well instead of renting for $8k you would buy for $1.5m, but that's not true - you're looking at scaling up to a similarly nice place. 

"Renting is throwing your money away" is also a misconception. In many ways renting is the superior long term financial decision (yes, even those renting for $25k a month, because again, their other option is buying a $6m apartment). As others have said, there are carry costs, opportunity costs of not investing, concentration risk, illiquidity risk, one-time maintenance, etc. The decision to own (going through it now) is emotional - having a place to call your own, being able to remodel how you like it, having an emotional center for a family.

I'm happy to answer any questions, but with that background, especially around the fact that both a rental and purchase would scale up together, would you still believe that renting is bad?

As others have said, it actually doesn't make sense to purchase in NYC (especially the 1mm+ condos) unless you plan on living or holding the property for 10+ years. The HOA fees + taxes in NYC are very high, for a lot of places it ends up being the equivalent of the mortgage itself. Just by using that (not including any of the other factors others have mentioned), the break even point from your savings from renting vs. buying ends up being something like 10-20 years. 

I met a guy in NYC who owned a wine bar and we were talking about rent prices and he said the wine bar basically pays for his rent - I asked how much and he said $9,500/mo. Seemed like a lot at the time, but he had his wine bar running smooth with some good managers so he didn’t have to be there all the time. He was a senior level IB person so he also basically took all his IB income to the bank. Pretty good scenario for this guy, but he said it took a few years to make a profit on the wine bar / restaurant.

I asked this same question but in SF before. Old MD of mine paid ~15k / month for a high rise. His reasoning was he was barely ever there, if he was he wanted some place nice and furthermore he liked to move around pretty frequently from apartment to apartment. 

I am sorry, bud, you just don't know how people live. I know of an corporate banking head of coverage for a major foreign bank who rented out a 2,000+ sqft 2BR in the village for 10k+/mo. Didn't marry, no kids, happy as a clam. Could never be me, but some people are built different (in a bad way).

This has been a really helpful thread for someone in their late 20s who's facing the same buy vs. rent dilemma and is also getting concerned about rising rent. I'll selfishly ask a question: my girlfriend and I live in a one bed and have been thinking about upgrading to a two bed. We both work a lot from home, and make $1M combined (bulk of that is me, she works in advertising) with no student loans for either of us. Let's ignore carry for now which has been coming in and is hopefully projected to grow meaningfully. What should we expect to or be justified in spending for a nice two bed? I feel like i remember in my analyst days a two bed being 6 or 7k, and anything above that people would balk at and would say 'well you should just buy', which is probably what prompted this thread in the first place. But it sounds like that's just not the case and may never be the case in manhattan anymore? For context, we've been in the same one bedroom for the last four years at a reasonable rate so i haven't really taken the time to explore the market much. 

At 25K+ a month it isn't uncommon for it to be a business expense, so that is why many prefer to rent over buy.

people who ask "how much to tip the landlord"

If you didn’t see yourself in nyc once your career was done. If you wanted to climb the corporate ladder and maybe considered positions out of state to further your career, you’d rent that high to be in luxury until you move on. Just a thought though.

Hi I know this is unrelated but can someone help me work for the JP and Morgan Chase Co I want to be investment banker on wall street one day I am from small town and I want to be in Wall Street JP And the Morgan Chase how do I become banker so I can close big deals and make money moves not just talk about them

if you are paying with someone else's money it doesn't matter nearly as much.  I was in NYC for an extended time and my firm leased me a place that was $$$

I'd also say people who have their rent covered by their company. A relative's company sent them to NY as an expat and promised to pay rent up to $8K per month. They would not give them that as extra cash though. 

I had a colleague spending $8k+ month for a family apartment in manhattan, had a couple more kids so he moved to a fancy NY suburb to get more space plus top notch public schools, and now spends like $40k/year in property tax on top of whatever his mortgage is...