The disconnect between the cost of renting and owning has existed for many years. Many folks here pointed this out during the bubble years (myself included) only to be called "bitter renters". Even today, the amount that I pay in rent would be at best the same as my mortgage payment on a similar place and on top of that I would have to lock up $60K or so in a downpayment, pay taxes (and be subject to the whims of the JC government), pay for maintenance, etc. You do get a tax break on interest but just the opportunity cost loss on $60K would overwhelm that. Basically the problem is that too few people looked at real estate investments the way that professionals do and insisted on cash flow positive deals (even if you have no intention to rent the place, it makes sense to look at what would happen if you did).

The reason that so many people took, and championed, such a bad deal was the belief that double digit price appreciation would continue despite real estate historically appreciating at about the rate of inflation (canards like "they're not making any more land" spring to mind). Now that real estate is reverting to the mean prices are declining, which makes a bad deal a horrible one. Still, people are irrational and hope springs eternal. Most likely the spread on the place that you are looking at is due to this.

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Yes, but only as the simplest rule of thumb because many costs are ignored. Obviously there's a huge difference if the landlord pays $2,000 in taxes or $20,000, or if the landlord is or is not responsible for heat and hot water.
But often touted here is that 10 times the annual rental is a good buy for a rental property. Whether one agrees with that 10x or not, 31 times is far afield. If you use it solely to compare real estate opportunities, it's a useful first approximation tool.

It becomes more obvious when viewed as BUYING the place as an investment. Investing $1.5 million to make a HUGE negative cash flow is poor business and this guy is facing something like a cost of capital of $5,000 a month(at 4%) PLUS at least $1000 taxes, and then there's insurance, water, sewerage, upkeep, and maybe even heat.

So the 31X annual rent is a P/E of sorts; obviously that's high given S&P 500 P/E is more like high teens nowadays.

What is a more reasonable annual rent multiple for sales price: ie one that would allow a landlord to breakeven on his monthly nut versus rental income?

On that specific propery, the cost is 31 times the annual rent. In rough terms that is usually considered insane pricing. It is a case of a buyer refusing to believe that his Valhallah is worth less than he once thought. It sometimes take YEARS for owners to accept price decreases and admit the place is only worth what a buyer will pay.

What he is hoping that if he hangs on he will get something approaching his dream price and is willing to continue losing money by renting at $4000 and paying his mortgage, taxes, and upkeep.

Even if he has owned for a zillion years and inherited the joint from Aunt Hattie, he is STILL making a poor choice because every day that passes he is not getting the $1 mi or $800,000 he could be pocketing by reasonable pricing.

Yep, the market stinks (for owners) but ignoring it won't make it go away.

I know rent v buy has been talked about, but the point I was trying to get at is just how huge the spread is on this specific property (albeit about as nice as they come near VVP).

I mean it's one thing if a market is off by a bit but in this case the monthly nut to buy is effectively double what the owner's seem to think they'll get from renting out the two duplexes. In an efficient market the spread would be nowhere near this wide. Guess that's what I was trying to point out/get opinions on....

The buy vs. rent argument has been played out ad-nausea on this site.

Here is the bottom line for this "non bitter renter":

1. Tying up $150k+ in a most likely continuing to deteriorate "asset"-no thanks.
2. Taxes- $10k-$15k/year in property tax is highway robbery, especially in JC where you can't even claim that it?s going to a good school district.
3. Maintenance fees- $700/month-are you f%$king kidding me?!
4. I pay $2k/month for a waterfront rental in Paulus Hook. I have the best views of Manhattan and activity on the river. My complex has an outdoor pool and a gym. To own a comparable property would cost me closer to $4k/month plus the down payment mentioned above.

If you bought 10 years ago, kudos to you.

For now, I will sit this one out and rent all day long!

As someone who has rented, owned and is now renting again I say rent, especially in this market. I must admit I got lucky and sold my condo days before the bubble burst. Of course both have their pros and cons but nowadays I suggest renting. If my landlord threw me out tomorrow, which they won't, I would easily land on my feet.

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This is not entirely true. Like in my case. For me, it's more financially efficient to own my condo than to continue to be a renter. Among other reasons, my maintenance is far from ridiculous. Won't get into taxes here because there's no point.

There are also about a four gazillion other posts on this subject. Search "bitter renter."

With the taxes in JC - it makes MUCH MORE sense to rent. However, I'm sure those who are renting out their homes are losing a significant amount of money unless they bought decades ago....the taxes are crazy and on most of the condos - the maintenance is ridiculous as well.

In this market it is better to rent than buy in most States, not just Jersey.

It didn't take an advanced degree in math for me to figure out that renting in JC is significantly more cost effective than buying.

I noticed that a very nice 2 family brownstone on Barrow between Montgomery and York was taken off the market and is now up for rent. It was listed for the bulk of the spring at $1.495mm. Now they are trying to rent the 2 units for a combined $4,000 per month. Links to rental ads are at the bottom of this posting...

Simple math says that with 20% down your 1.2mm mortgage payment to own the place would be about $7650 per month assuming 6.6% 30 yr jumbo fixed. Granted this doesn't include taxes, mort int deduction or mansion tax.

I don't think those things would change the conclusion much which is that at 1.5mm they'd have to get twice the rent they're asking currently to break even.

I'm sure there are many with slightly more advanced RE calculators at their disposal, but am I missing something or is this simply a case of a huge mismatch in terms of what people are trying to sell places for versus what the rental market is willing to pay???

http://www.armagnoagency.com/ArmagnoA ... asp?varRentalListingID=91
http://www.armagnoagency.com/ArmagnoA ... asp?varRentalListingID=90