Thinking of investing in a New York City Condo?
Once you have figured out how much to invest, you then need to find a property that meets your investment goals. Analyze carefully because real estate is an illiquid investment. It takes a long time to purchase and to sell.
So to help you along, here are eight things you need to know before you buy.
1.Know the Local Rental Markets – NYC is a large city and you must understand the rental market in the neighborhood where you are looking to buy as there are micro trends. As an investor the numbers will dictate your decision and not your personal preferences, unless of course you plan on living in the residence.
If this is strictly an investment, partner with a local real estate executive who can understand the rental market and advise you on past trends which may impact future rental prices.
For example, if you are looking at Upper West Side condos for sale or Morningside Heights condos near many of the higher education institutions, you know that a new crop of renters is likely to come to market every summer to find a place before the Fall semester begins. Knowing this you will make sure your leases begin and end in either June or July.
2.Be Aware of Your Monthly Costs – Apart from any debt servicing you may have, there are also common charges and real estate taxes. This information is typically clearly listed online but what isn’t included is how much the building charges landlords for renting out their place. There is no set policy so find out what each building charges once you are interested in a place. The listing broker is likely to know but if not, they can ask the managing agent.
Also inquire about the fees the building charges to process a rental application. These fees are passed on to the renter but if they are very high it could limit your place’s desirability. Figure out if paying these fees makes sense to you in order to keep your place competitive.
One way to keep your monthly costs down is to look for buildings which have a tax abatement or are in a neighborhood with comparably lower tax rates. Many condos for sale in Harlem have abatements which still have 10 or more years on them, giving you substantial savings.
3.Factor in Closing Costs – If you are financing, condominiums will let you put down as little as 10%. You will need your cash for other costs such as the mansion tax (1% of properties sold for over $1 million), transfer taxes if you are purchasing in a new development and the mortgage recording tax if you are financing. The building will also have fees associated with the application you will be required to complete as the purchaser. This is not a complete list of fees you will encounter at the closing table, so have cash on hand. Apart from closing costs, you also need cash on hand for future vacancies. Even the best properties may experience a month or two without a tenant.
4.Understand What is Important to Tenants – While the basics of the apartment being in good condition and not looking directly into a brick wall or a dark air shaft is common sense, a few deal breakers on a tenant checklist may surprise you.
The first is pets. If you are purchasing in a pet friendly condo, be open to accepting pets. Approximately 50% of renters own pets. To that end you might decide to only look in pet friendly buildings. Not everyone has a soft spot for our furry friends. There is one very large complex near Central Park close to many dog runs, yet this Upper West Side condo does not allow pets.
The second must have for many renters is an in-unit washer/dryer. It may come as a surprise that even some of the newer Harlem condos which have low monthly costs, do not allow a washer/dryer in the apartment. The buildings simply were not built to handle the additionally plumbing capacity.
The third is the ability to receive packages when the tenant is not at home. Options can range from a full-time doorman to a live in superintendent or even a virtual doorman but make sure packages can be received.
5.The Features You Don’t Need – There are costs associated with a great view and spectacular light and a renter may not pony up for the premium you think it will yield. In most condominiums the higher up you go the more the apartment is worth. The premium per floor can range anywhere from $10,000 to well beyond $100,000 depending on the view breaks and the size of the apartment.
Additionally, your monthly common charges will also be higher as the percentage of the common areas your apartment owns will be more on a higher floor compared to the exact same floor plan a few floors below. Your place with great views might rent faster and for slightly more but perhaps not as much as you imagine. This is a great question for your NYC real estate professional as they will be able to dig into the rental history of the building.
6.An Unexpected Bonus – You may be concerned about who will take care of repairs. If you live out of town and in a different time zone you will not want calls from your tenant at inconvenient hours. Purchase in a building with a managing agent and a dedicated superintendent. The managing agent and the Board of Directors oversee the running of the building while the superintendent will handle the emergencies.
Typically, the building staff can also be relied upon to provide recommendations for vendors from painters to electricians to someone to repair appliances. In most cases you will not need to hire an outside managing agent, just remember to give a holiday tip each year to the building staff.
7.CAP Rates – Comparing properties to make an informed decision is critical to your long-term success. Once you have incorporated the information above into your calculations you need a system for comparing properties.
Subjective qualities are not a great measure, which is why the best way to compare the yield on a property is by using a Capitalization Rate (CAP rate) formula. The formula for a CAP rate is simply the net operating income divided by the purchase price.
When calculating your net operating income, you want to take a look at how much rental income you will receive in a year and subtract your expenses.
These expenses include:
- Annual common charges
- Real estate tax
- Your mortgage payments
- Professional fees and any other fees associated with maintaining the property.
Once you have formulated your CAP rate you need to understand what a good CAP rate is for the market. In Manhattan a CAP rate between 2-3% is common and a 4+% CAP rate is considered great.
If you hear of markets where the CAP rate is significantly higher, bear in mind there could also be significant risk in that market. Real estate is hyper local and New York City has a long history of attracting investors who appreciate the low risk.
8.Your Future Capital Appreciation – Yes New York City is a city on the move, always attracting people of all ages, backgrounds and stages of life, making it one of the most dynamic cities in the world.
It is also expensive and property prices do not hit the dramatic price appreciation other places in the country have seen since 2020. The upside is they also don’t experience dramatic lows. Be certain to structure your purchase so that you will not be under pressure to sell. In the long-term, prices always increase no matter if you decide to buy a Murray Hill condos, an Upper West Side condo or a Harlem condo for sale.
If you are interested in learning about the ten-year history of prices, ask any Boland Team member — among the top NYC real estate agent you’ll find — and we will be happy to share the most recent Corcoran report with you.