Priceless

When my wife and I bought our apartment in 1977 we did not consider the apartment an investment. Investments earned compound interest in the bank; real estate was something you either bought or rented, depending on which was cheaper and which offered more options of places to live. For us, moving back to Manhattan from Brooklyn Heights and thinking ahead to having a family, there were better big places to buy than to rent, especially on Central Park West.

Only a few years earlier the city had nearly descended into bankruptcy, so no-one thought of buying apartments as a particularly smart thing to do with our money. At U.S. Trust, where my family had banked for generations, they told my mother with a sniff that they were not even able to offer evaluations for apartments on the West Side! Luckily, in the face of family disapproval, we persevered. 37 years later we are still in the same place. The same cannot be said, however, for the value, which is, based on recent sales of identical apartments, a whole lot more.

During the 1980s, when our buyers in Manhattan were all in finance, the idea of bringing an investment perspective to purchasing a home began to grow in popularity. It was during the 80s that I first heard of price-per-square-foot, although it would be a few more years before the concept embedded itself deeply into consumer (and agent) consciousness. But we in the business became aware that the purchasing process had morphed into something different: the new apartment was not only a home but also an investment, which would be held up to the same evaluation criteria as other investments.

This way of contemplating the sale or purchase of a home has its drawbacks. For one thing, if you are buying and selling in the same market, only the relative values are important, not the absolute values. For example, if you buy a bigger place while the market is down, you may sell your place for $1,000,000 but buy your new place for $1,500,000; in other words you are paying 50% (or $500,000)more for the new place than you got for the old one. If you were to make the same trade in a better market, you might sell your old place for $1,200,000, but to buy the place for 50% more you would be spending $1,800,000, or $600,000. So as a buyer, it’s clearly better for you to buy a larger place in a down market: it saves you $100,000. That said, time and again I have argued with sellers who were upset that in a better market someone had sold an apartment like theirs for $1,200,000 rather than $1,000,000 – even though that down market was actually SAVING them money on the overall trade.

And finally, buying a home is all about how you feel when you walk through the door. Sure, it doesn’t hurt that over the last 40 years, the money we invested in our apartment is now worth 60 times what we paid for it, while at a compounded rate of 10% per year the same money invested in the S&P 500 would have yielded me about 45 times my investment (using formulae from the Furman Center for Real Estate.)  New York real estate has been a great investment, and probably will continue to be so.  But in the end that’s not the reason to buy it. Dorothy Parker said, “London is satisfied, Paris is resigned, but New York is always hopeful.”  To walk into your own home, here in this wonderful, hopeful town, and feel safe and surrounded by your own four walls – that is, as the MasterCard ad says, priceless.