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Will You Make Money in Real Estate if You Buy Now?


5 factors to consider

This is the one question lingering in every buyer’s mind: will I make money in real estate if I buy now? 

 If you’re reading the abundance of articles nowadays making the case against owning your own home, extolling the advantages and flexibility of renting and emboldening first time homebuyers to postpone their purchases, you’d think there’s no way you can make money in real estate if you buy now. 

But I think there is still a case to be made for making money when you buy now.

Here are the top five factors to consider.

 

Do not put yourself in a position where you may be forced to sell quickly

 

This point cannot be stressed enough. If you must sell at a time when the market is lower than the price at which you purchased, you will not make money. There are some barriers to entry in the market which are designed to put you on solid footing as a homeowner. The majority of the housing stock in New York City is still composed of co-ops. And while they can get a bad rap for their lack of flexibility regarding rental policies and usage rules, they are bastions of stability because of the purchase requirements. 

The vast majority of co-ops require buyers to put down a minimum of 20% in cash when purchasing and many require more. Then there are the post-liquidity requirements which are typically 12-24 months of your housing costs (your mortgage payment and monthly maintenance charge) in your bank account after you have paid all your closing costs. This cautious approach to accepting co-investors into a co-op will keep you in good standing until it is time to sell.

The entry threshold for a condo is much simpler — 10% down and no post liquidity requirements. To protect yourself, find out if the condo is warrantable or non-warrantable.

 

Your annual rate of return cannot be equated to the gains in your stock market portfolio

I have had countless conversations with dedicated investors who can recall in great detail the returns of their financial portfolio. To them it is an exciting sport. Annual real estate returns are comparatively lackluster making homeownership seem like a bad idea if you like action. 

When you look at the annual growth rate market wide in Manhattan from 2013-2022 it was 3.4% according to The Corcoran Group. When looking at the stock market it was closer to 10%. Will you make money if you buy NYC real estate today? The answer is yes but not by flipping in and out of properties the way a day trader might move through the stock market. 

The strategy to follow for your best success is to buy and hold. This is not a particularly exciting or active approach but it has proven to be fruitful. All the action is up front when you buy wisely and at the end when you sell and collect your money. In between those two times go back to your investment accounts to satisfy your craving for financial action.

 

Real estate is an illiquid investment and you cannot time the market

It takes time and money to purchase a NYC condo and it takes time to sell and collect your money. Today the mortgage rates are dampening enthusiasm for many buyers in the market because they are so much higher than they were a few years ago. Yet the most recent Manhattan quarterly report revealed that prices have come down as a result of higher mortgage rates, mitigating the rate spike to a certain degree. Let’s review the typical timeline of a purchase to put timing into perspective.

If you are just beginning your search now it may take you another three months to find a property you wish to purchase. Once you have identified the property it can easily take another three months to get to the closing table. 

Those next three months will be dedicated to time for due diligence, preparing a purchase application, waiting for the bank to issue the commitment letter, waiting for the board to review your information and then scheduling the closing. The entire process can take up to half a year. During that six-month time, mortgage rates and prices will fluctuate but not wildly. 

New York City tends to be a very stable real estate market. In part this is due to the diversity of housing on offer which include condos, coops and townhouses along with the wide range of prices which can be anywhere from $400,000 to $200,000,000. In other words, unlike other parts of the country, we do not have a pool of buyers chasing the same limited supply. 

The New York City real estate market covers many socioeconomic groups and international buyers. It is one of the most diverse and stable real estate markets in the world. The Corcoran Group did a study on the average price per square foot from 2008 to 2024 and regardless of the graph (condo or coop) the overall trend slowly arcs upward. 

You can make money if you buy now as long as you are not in a hurry to sell. Time will slowly add to the value of your investment so do not try to time the market, simply stay in the game for the long term.

 

Location, location, location

If you are concerned about potentially selling in a few years’ time instead of holding a property for ten years, you may want to stick to the core neighborhoods such as the Upper West Side or Upper East Side which always hold their value because of a steady stream of demand. 

The same can be said of areas close to the higher educational institutions in New York City such as NYU or Columbia University because of the steady turnover that can be counted on over time. Most recently two new condo buildings in Morningside Heights have added to the housing inventory in that neighborhood. One of the new developments is the Robert A. M. Stern designed Claremont Hall. These NYC condos are being snapped up as students receive their acceptance letters.

If you can stay in the market as an owner for a longer period of time without selling then it might be in your best interest to try an up-and-coming neighborhood. For example, a Harlem condo will offer better pricing yet the neighborhood is not nearly as established as its neighbors to the South in terms of the supply of luxury housing and retail. Yet lower taxes and common charges have made these buildings very appealing to many buyers. 

Buyers with vision are buying in one of the luxury buildings on the Northern side of Central Park such as 111 Central Park North, 145 Central Park North or Circa at 110th Street. These buyers know that once the large renovation on the Northern end of Central Park is complete, this area will become more desirable. 

In Manhattan, Central Park views are priced at a premium. These buyers are willing to commit time to their purchases for greater gains down the road allowing for their risk to pay off. Meanwhile it is hardly a sacrifice to have direct views of the park and access to all the restaurants on Frederick Douglass Boulevard. One resident at Circa told me they love being at the crossroads of three different neighborhoods – Harlem, Morningside Heights and the Upper West Side.

Maintaining your property is a means of preserving your investment

While it may seem obvious, maintaining your property preserves your investment. I am not a big fan of over improvements unless you are doing it for your own enjoyment. Too much customization narrows the potential pool of buyers when it is time to sell.

Apart from a tasteful kitchen or bath renovation along with good closet organization, major improvements rarely deliver commensurate returns. Yet when it is time to come to market, if those key rooms are worn and outdated you will get less for your home than you otherwise would have. 

I recently met with an investor who owned a classic pre-war two-bedroom condo next door to a one-bedroom condo. Having maintained both properties beautifully over the years, the owner thought combining the two to create a larger apartment would yield a significantly higher sale price.

When we analyzed the numbers, it was clear that the time and money spent would not produce a profit because the buyer trends had changed in that neighborhood. Larger apartments were once favored on that strip of Park Avenue but now buyers sought smaller apartments they could keep as a pied a terre. 

 

Understanding the micro trends and the associated numbers with the help of a local real estate professional is critical when making renovation decisions.

 

Will you make money if you buy right now? The answer is yes — if you buy wisely, but you must be in it to win it. 

 

Get in the game for the long haul because while a 3.4% return is paltry compared to 10% it is far better than the 0% return your rental will give you.