Real Estate: A Product We Would Consider

In paying for one's personal residence the choice has been between renting or buying. Now we can add a third option: renting and buying.

In new condo developments [bold added]

entire floors are devoted to amenities—including guest suites—that are designed to accommodate owners when they host gatherings and entertain. The suites give the buyers the ability to buy an apartment with fewer bedrooms, knowing that they can reserve a suite when company comes. More important, developers say, is that separate guest suites let homeowners enjoy their private space while eliminating the headaches of cooking, cleaning and laundry that come with hosting.

In one Manhattan tower, not having to buy an extra bedroom knocks "$1 million to $1.4 million" off the purchase price. At $300 per night for a guest suite at the tower, the owner would need to host visitors for half a year before his outlay equalled the annual 4% mortgage payment on an incremental $1 million for a bedroom.

(Image from blog.trello.com)

This is not a new idea--one could not always house out-of-towners in one's home, so renting a hotel room was a solution. The innovation is that guests are staying right next door, and the daily rent is a bargain compared to a hotel with similar amenities.

And we shouldn't ignore the effect of the 2017 Tax Cuts and Job Act, which removed the Federal tax deduction for most of the interest and property taxes on high-end properties. Buyers are incentivized to buy less housing and to rent the additional capacity when needed.

If we were retirees who wanted to live in the City, we would seriously consider this product.