Prior to 2023 there was a loud chorus of online cheerleaders telling anyone who would listen that buying real estate is an effortless way to make money. While that was true when interest rates were low, many of those noisy proponents are suddenly quiet now that the rates shot up.
Even real estate guru Grant Cardone has cooled on real estate. “The slump is just getting started,” he said recently.
He’s talking about commercial and multi family real estate, and with the latter I disagree.
New York City is always an outlier and there is tremendous opportunity for the small real estate investor in multifamily units because the prices have already come down.
So don’t be dissuaded. If you have patience and a realistic long-term plan and understand why investing in real estate is an important part of your diversified portfolio, your investing goals can be achieved.
When it comes to investing in real estate it is all about location, location, location. What better location than one of the best cities for investors in the world — New York City.
There are many advantages to owning real estate. Primarily, it is a classic hedge against inflation. Many investors like knowing a portion of their wealth is preserved by the stability of New York City and the consistent steady growth of prices the city has experienced over the past 30 years.
A diverse and ever changing economy is one of the hallmarks of this global hub. Finance, the arts, technology and higher education are always evolving and growing. And while the work from anywhere trend has certainly changed where many people live, make no mistake that New York City and its stakeholders intend to stay on the forefront of economic developments keeping our home city vibrant and appealing to businesses, transplants and tourists alike. For all these reasons, demand for rental housing is consistent.
If you are considering investing in NYC Real Estate here are the three real estate goals you should have.
Cash Flow is King
Your rental income depends on the demand. Most landlords are optimistic about 2024. Downtown properties are particularly in high demand. Those asked to come back to work this year and those simply wishing to be back in the city are keeping demand high and opting to live near where they work.
According to Gary Malin, Chief Operating Officer at The Corcoran Group, “The median rent rose 5% year-over-year in Manhattan and is now 53% higher than it was in December 2020, when pricing was at its pandemic-related low. December rents climbed 6% in Brooklyn, marking the 27th consecutive month of annual median rent growth. Increasingly, those who find themselves priced out of the most in-demand areas are exploring new neighborhoods in the outer boroughs — especially those near subway lines — in order to bring the cost of a new rental apartment within reach.”
Be aware that your income as a landlord arrives after you pay closing and carrying costs. Before you collect your first rent check there will be monthly costs associated with owning, from debt service to real estate taxes and monthly common charges. Finding a building which is run efficiently is the key to a good investment. Dig into that monthly number a bit because If a building shows comparatively low monthly costs it could be because they are not building up their reserves. This means you could be hit with a large assessment when it is time for capital improvements such as replacing a roof or boiler. If you don’t have money set aside it will be a huge problem for your cash flow.
Taxes are another outlay but not a cost you have control over. While not negotiable they are certainly lower in Northern Manhattan than other parts of the city. In an effort to mind your cash flow you might decide to choose a building with a tax abatement. Depending on how long is left on the abatement, it can save you thousands of dollars over time.
Condos for sale in Harlem still offer abatements with many of them not expiring until 2036. The other cost is insurance. Anyone coming from a state where they must pay huge premiums for hurricane or flood insurance will be relieved to see that homeowner’s insurance in NYC is lower. Understanding your cash flow numbers and how they will impact your cash flow before you purchase is paramount.
Like many investors, if you evaluate a potential opportunity according to the Return on Investment (ROI), Manhattan may seem like a laggard compared to the rest of the country. According to Forbes, the national average is 10.6% for residential properties and Manhattan condominiums typically yield closer to 3%. NYC is a slow moving, dependable market, making it attractive to global investors. All this to say your investment is not likely to throw off huge amounts of income but it will preserve your wealth in the long run.
To understand how your investment may perform over time it is helpful to look at historical trends. Of course, the past can only inform and not predict the future but the best real estate agents in NYC will not only be able to give you historical research but also provide context for the market today sharing the granular trends only a local expert has.
For example, the Corcoran Group has a thirty-year study from 1993-2023 which tracks the price per square foot and average sale price of all Manhattan apartments and adjusts them for inflation. This is an excellent report for gaging your investment opportunity as it relates to time. It reveals an annual growth rate of 3.8% for all apartments market wide in Manhattan. There are great disparities between neighborhoods and that is largely due to new developments impacting the overall pricing in the area or the increased popularity of a neighborhood.
If you are buying into a neighborhood poised for further development, you may be rewarded with greater appreciation. However, there is always risk associated with purchasing outside of the core. Right now is a great time to consider Murray hill condos for sale as a very large developer is finally getting ready to build on a huge parcel of land near the East River and the United Nations.
If you are considering purchasing a NYC condo in 2024, get an early start. The pipeline of new condominium offerings will be down in the future impacting overall inventory levels. NYC developers have pulled back because of the increased costs of building and the expiration of the 421a tax abatement. The math no longer works for many of them. Even stalwart NYC developers have been forced to look for opportunities outside the city. There are still plenty of upper west side apartments for sale in new developments.
If you want to maximize your chances of building equity, you want to buy at the lowest price possible. The best way to build equity is to buy wisely. You make money when you buy, and you collect it when you sell.
As financial markets witness more dramatic highs and lows it can be comforting to many investors to know a percentage of their portfolio will stay strong and steady over time. The trick is to never be in a hurry to sell your property. Of course, the real estate business isn’t for everyone but if you are thinking of purchasing an investment property in New York City, understand that the real value is capital appreciation with very low risk — CAP rates are likely to pale in comparison to other high-risk markets across the United States.
Have questions? Reach out anytime.